ALGIERS: Shutters with shutters, bosses locked up, laid-off workers. Algeria’s once-ambitious plans to create a flagship auto industry have turned into a fiasco.
In the final years of the country’s political turmoil, the foreign joint venture factories were also closed and the pals of his ousted President Abdelaziz Bouteflika ended up behind bars.
Algeria’s dream of creating thousands of jobs has collapsed and the country is in dire need of new vehicles.
The government makes a brave face.
Industry Minister Ferhat-Ait Ali promised last month “to prepare the revitalization of this industry on solid foundations that break with past practices”.
The Algerian auto industry was born in 2012 when the French manufacturer Renault, in collaboration with the government in Algiers, built the first plant two years later near Oran, the country’s second largest city.
Other companies followed suit.
The South Korean Hyundai opened its assembly plant in Tiaret in 2016 and the German Volkswagen started operations in Relizane next year.
The sector became a priority as the North African country sought to cut imports, compete in the sector with regional rival Morocco, and diversify its economy in the face of declining oil revenues, which were the source of over 90 percent of its export earnings.
Morocco’s own bet on the automotive industry has paid off.
It is now the main export sector in the country after Renault-Nissan group opened two factories in the kingdom in 2012 and 2019, followed by rival PSA, which opened one in 2019, attracted by tax and customs incentives.
However, the Algerian industry became controversial from early 2017 when authorities began denouncing the practice of foreign automakers introducing “semi knock-down” units (SKD) as “camouflaged imports”.
SKD units are partially dismantled at the origin and reassembled on arrival, which requires minimal labor.
The government investigated Hyundai after images posted on social media showed imported models almost fully built that required little more work than putting on the wheels.
In July 2017, former Industry Minister Mahdjoub Bedda, currently in jail on transplant charges related to the scandal, exhibited all new car assembly projects.
After Bouteflika was ousted by the army under pressure from mass demonstrations in April 2019, several assembly plant bosses were convicted of corruption.
His successor, President Abdelmadjid Tebboune, promised to review the entire automotive sector as soon as he came to power in December this year.
“Some projects cannot be called industry because they are just disguised imports,” he said the day after his election.
Algeria then banned the import of spare parts for assembly plants, triggering the death knell for the young industry, which was already struggling after its key executives were arrested.
Volkswagen ceased production for an indefinite period in December 2019 and employed 700 people with technical unemployment.
In May 2020, Kia’s Algerian subsidiary in South Korea closed its assembly line, throwing 1,200 employees unemployed.
The automobile scandal was at the center of the first major corruption trials of the post-Bouteflika era.
They revealed that companies owned by tycoons associated with Bouteflika’s inner circle were given preferential treatment and benefited from inappropriate privileges such as government incentives and tax exemptions.
The scandal led to the imprisonment of former Prime Ministers Ahmed Ouyahia and Abdelmalek Sellal and two ministers of industry.
The ex-prime ministers were convicted of “misappropriating public funds, abuse of power and granting unreasonable privileges” as well as illegally funding Bouteflika’s ailing re-election offer for 2019.
Company heavyweights such as Mahieddine Tahkout, owner of the Hyundai plant, and VW factory owner Mourad Oulmi were also sentenced to heavy prison terms in separate cases.
To prevent the debacle from recurring, the government passed new rules last August, specifically stipulating that vehicles sold in Algeria contain 30 percent locally produced parts.
However, industry experts have warned that such rules are unrealistic.
“It is an illusion to claim to build an automotive industry without (local) know-how,” said journalist Mourad Saadi, who has been reporting on the automotive industry since 1999.
Saadi said the automotive assembly sector failed mainly because there are no suppliers in Algeria who can make locally made parts.
Industry Minister Ali, who was already under fire for delays in drafting the new rules, recently spoke of talks “with German and other global operators to establish a real industry for tourist and commercial vehicles”.
Currently, however, no manufacturers have dared to jump back to Algeria.
Mohamed Yadadden, a former executive who became a consultant, said it takes an average of five to ten years to set up a real manufacturing facility to respond to industrial challenges.
He also said at least 150,000 units would need to be built a year to ensure profitability – not an easy task in Algeria, a country of 43 million people where total demand is estimated at 450,000 units per year.