Future of the Algerian Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2017

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Product Synopsis
This report is the result of SDI’s extensive market and company research covering the Algerian defense industry, and provides detailed analysis of both historic and forecast defense industry values including key growth stimulators, analysis of the leading companies in the industry, and key news.
Introduction and Landscape
Why was the report written?

The Future of the Algerian Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2017 offers the reader an insight into the market opportunities and entry strategies adopted by foreign original equipment manufacturers (OEMs) to gain a market share in the Algerian defense industry.

What is the current market landscape and what is changing?

Despite its challenges, Algeria remains one of Africa’s most attractive defense markets, with a defense spending capability that is expected to increase in the forecast period primarily owing to increased energy exports and an arms race in the North African region. The country’s defense spending, which increased at a significant CAGR of 21.4% during the review period, is expected to stabilize during the forecast period, growing at a steady CAGR of 6.2% with the main aim of replacing most of its outdated military equipment. Furthermore, the opening up of Algeria’s market to suppliers other than those in Russia is expected to make it an exciting proposition for foreign companies looking to enter the market either through direct government-to-government deals or by establishing joint ventures and partnerships. During the forecast period, the Algerian government is expected to spend the majority of its capital expenditure on modernizing its army, navy and air force.

What are the key drivers behind recent market changes?

Counter-terrorism and counter-insurgency initiatives, and an urgent need to modernize outdated defense equipment are expected to drive Algeria’s defense expenditure. Algeria has witnessed growing instances of terrorism from Al-Qaeda and other Islamic militant organizations in the past. The recent attack on the In Amenas gas facility left 37 foreign workers dead and many more injured. This is seen as an attempt by Al-Qaeda affiliates and other jihadist outfits to render parts of Northern and Western Africa uninhabitable for westerners and create a political and economic impact on the region. Another factor driving Algeria’s defense procurements is the neglect the industry faced for many years. Historically, South Africa was the only major defense spender in the African region but in recent years, Algeria has assumed top position. The government has embarked on an intense modernization drive that is expected to benefit the army, navy, and air force.

What makes this report unique and essential to read?

The Future of the Algerian Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2017 provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, including highlights of key growth stimulators. It also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.

Key Features & Benefits

The report provides detailed analysis of the current industry size and growth expectations from 2013 to 2017, including highlights of key growth stimulators, and also benchmarks the industry against key global markets and provides a detailed understanding of emerging opportunities in specific areas.

The report includes trend analysis of imports and exports, together with their implications and impact on the Algerian defense industry.

The report covers five forces analysis to identify various power centers in the industry and how these are expected to develop in the future.

The report allows readers to identify possible ways to enter the market, together with detailed descriptions of how existing companies have entered the market, including key contracts, alliances, and strategic initiatives.

The report helps the reader to understand the competitive landscape of the defense industry in Algeria. It provides an overview of key defense companies, both domestic and foreign, together with insights such as key alliances, strategic initiatives, and a brief financial analysis.

Key Market Issues

Algeria is prone to high levels of corruption in virtually all sectors of business activity. In December 2012 Sapiem, Europe's biggest oil services group came under investigation for alleged corruption in Algeria and faced massive fines for its dealings in the country. The Algerian defense industry is also marred by a lack of transparency in awarding defense contracts. While procurement is supposedly conducted as open competition, in reality personal relations and the country from which the supplier is from are considered to be influential in decision making. The Algerian government does not publicly announce its future procurement plans. All defense tenders are closed and are sent only to a few specific companies.

Over the last decade, Algeria has become an important country in the global defense market due to many factors one of which is its strategic location as a transit point from North Africa to Europe. Even though European contractors have an advantage in securing contracts due to legacy relationships and shared national requirements, the sheer lack of transparency makes it difficult for any supplier to strategically target the Algerian market. The process of weapons acquisitions poses a challenge to both the political and technical systems in Algeria. Moreover, until now, the government has not defined a formal offset policy which makes it increasingly difficult to develop the country’s indigenous manufacturing capabilities.

Key Highlights

Algeria’s defense industry is currently undergoing a phase of rapid and radical modernization. With over US$200 billion in foreign exchange reserves and burgeoning energy exports, the country is now the 9th largest importer of weapons globally. Its domination of the African defense imports market is highlighted by the fact that during 2006-2010, Algeria accounted for 46% of total weapons

imports into Africa. For 2013, Algeria has budgeted US$10.3 billion for defense spending out of which a significant amount is expected to be spent on procuring new equipment for its army, navy, and air force. Algeria has recently fallen victim to many instances of terrorism. In early 2013, terrorists calling themselves the Signatories in Blood launched an attack on a British Petroleum (BP) plant in the Algerian Sahara, leading to the deaths of over 80 people. This, along with other such incidences, has prompted Algeria to increase the portion of capital expenditure in its defense budget and since its indigenous defense manufacturing is still in a nascent stage, imports from other countries are on the upswing.

Algeria is currently in the process of forming a defense offset policy primarily to increase its indigenous manufacturing prowess. The country is in dialogue with certain countries of the Gulf Co-operation Council (GCC) Directorate, to set up a formal offset program which is expected to be implemented in upcoming defense procurements. Algeria’s sudden rise as a major defense spending nation at a time when the traditional heavy spenders are cutting back on their defense procurements, has given it a significant advantage to form an offset policy heavily favoring its domestic defense industry. Moreover, Algeria is a major country in the international security environment due to its strategic location as a transit point from North Africa to Europe. Therefore, future policies are expected to focus on enhancing strategic sectors and national objectives, instead of just technology transfers.

Over the last two decades an increase in globalization has resulted in robust growth of global business activity including FDI. Algeria, which has received lower levels of FDI so far, is poised for robust growth in the coming years owing to booming hydrocarbon exports and vast foreign exchange reserves. The National Agency for Investment Development (ANDI) is actively promoting Algeria as a favored FDI location for foreign investment, claiming that it has been a major contributor to Algeria’s recent economic growth. During the period 2006-2011, the amount of realized FDI into Algeria exceeded US$25 billion. Even though this amount is not significant when compared to some of the other developing nations such as India and China, the average during this period far exceeds the US$1.8 billion that was invested in the country in 2006. The increase in FDI flows to Algeria have been largely due to the government’s liberalization policies with the privatization of various sectors (mainly mining and energy), reforms, and new measures to attract more FDI inflows with the aim of developing the country.