Lower oil revenues weigh on Algerian transportation ambitions

The original business plan for the North African country has been amended as Algeria suffers from a decrease in oil revenues.

Algeria’s ambitious transportation plans have been curtailed as low oil prices weigh on the country’s budget.

The country’s latest five-year investment plan in its transportation sector will involve the allocation of €7.7 billion (Dh32.34bn), a decline of nearly 80 per cent from €35.7bn from 2010 to 2014, according to Oxford Business Group.

One of its major projects include expanding its railway network to 12,500 kilometres from its current 3,000km.

Alstom said on Monday that its joint venture with Enterprise Metro d’Alger, Ferrovial and Société Nationale des Transports Ferroviaires signed an agreement to add an assembly and maintenance plant for regional and intercity trains. However, the original business plan for the North African country has been changed as Algeria suffers from a decrease in oil revenues.

“We have this little crisis due to oil prices, so some of the projects that are in our business plan are frozen,” said Henri Bussery, general manager for Alstom Algeria. He said that the firm had delivered more than 40 trams with another 100 planned for delivery. Yet this is only about 65 per cent of the original target of 213 trams.

Alstom said that the assembly and maintenance site in Annaba would nearly quadruple in size to include an engineering department, new production lines and a maintenance depot. This production plant would be able to produce one train per month while creating about 270 jobs.

Historically Alstom has been active in Algeria in the infrastructure and tramway business. The joint venture, Cital, is currently manufacturing Citadis tramways, Alstom’s custom range of trams. “With this agreement the goal is to broaden the spectrum and move also in the [regional] train business,” Mr Bussery said.

Like many hydrocarbon-dependent economies, Algeria began feeling the burden of low oil prices, which began to slide nearly two years ago from highs of over US$110 per barrel to around $40 today. The US energy information administration said that hydrocarbon export revenues amounted to $35.7bn last year, down 41 per cent from $60.3bn in 2014.

The IMF said that revenues generated from Algeria’s oil and gas sector account for about 25 per cent of its GDP, more than 95 per cent of export earnings and 60 per cent of budget revenues.

Algeria has long relied on hydrocarbon revenues to fund projects. The country does not have a foreign investment-friendly reputation, say analysts.

The Spanish bank Santander said this year that some government policies, corruption, heavy bureaucracy, a weak financial sector and legal insecurity in terms of intellectual property rights were obstacles to investment.

“Algeria is not business-friendly, and we’re facing the same difficulties as any private company in the country which is the bureaucracy,” said Mr Bussery.

The Alstom executive believes that Algeria is looking to ease its investment constraints and that it is moving in the right direction. And despite the decrease in available funds for investment, Mr Bussery said that he is confident that Algeria will maintain a “certain level of investment”.

Robert Tashima, managing editor of Oxford Business Group, added that while spending targets for Algeria’s current five-year plan have been revised, the government is still prioritising capital projects in the transport sector.

“The total amount being diverted is lower than the previous plan, but several new multibillion-dollar projects are due to break ground – in addition to the railway expansion, there is a new deep water port also in the plans, as well as ongoing improvements to the road network,” he said.

“The reason for the government’s emphasis on transport spending is in large part a result of the increased urgency for diversification.”

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