Global Trade Full n Final 97-03 (1)

7/29/2019 Global Trade Full n Final 97-03 (1)

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BUSINESS OPPERTUNITIES IN ALGERIA


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American International University Bangladesh (AIUB)

A report submitted to the Faculty of Business Administration, as a part fulfillment of the

Course-Global Trade, Summer 2009-10.

Submitted to:

Chowdhury, Ahmed Reyad

Faculty,

School of Business.

Submitted by:

Ghost Riders

Dastagir A.S.M. Jonayed 08-10510-1

Rabbee MD. Rafiul Ghani 08-10575-1

Hossain Kazi Ra-few 07-07654-1

Islam, MD. Tariqul 07-09661-3


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Letter of Transmittal

1st August 2010

Chowdhury, Ahmed Reyad,

Course Instructor: Global Trade

Course Code: BBA 4120

Section: G

American International University-Bangladesh (AIUB)

Subject: Submission of the report on Business Opportunities of Algeria.

Sir,

We are pleased to submit to you the report on Business Opportunities of Algeria that you have

assigned us to prepare on the course Global Trade.

It was a worthwhile experience for us to prepare this report. At the time of preparation of report

we have got an opportunity to know the different industries of Algeria & the main imports &

exports goods of Algeria. Also, we have learned about how to enter into a foreign country and do

business in that country.

We are thanking you for assigning us such an interesting work and for your all through co-

operation. We will be available for any clarification regarding the contents of the report.

Sincerely yours,

Dastagir A.S.M. Jonayed 08-10510-1

Hossain Kazi Ra-few 07-07654-1

Rabbee Md. Rafiul Ghani 08-10575-1Islam, MD. Tariul 07-09661-3


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Acknowledgement

We would like to express our gratitude to all those who gave us the possibility to complete this

report. First of all we want to thank the great Almighty whose blessings were always with us. We

also wants to give thanks to people who have helped us in preparing this report by giving

different necessary information.

We are deeply indebted to our faculty Chowdhury, Ahmed Reyad - whose help, stimulating

suggestions, and encouragement helped us in all the time of research and writing of this report.


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Table of Contents

Table of Contents ....................................................................................................... 5

1.1 Country Profile ...................................................................................................... 6

1.1.1 Economy ........................................................................................................ 7

1.2 Selected Industries ............................................................................................... 7

2.1 Industry Analysis .................................................................................................. 8

2.2 Competition Analysis .......................................................................................... 11

2.3 Modes of Entry .................................................................................................... 12

2.4 Govt. Rules & Regulations .................................................................................. 13

2.5 Impediments of Doing Business ......................................................................... 14

2.5.1 Internal Obstacles (Micro Environment) ....................................................... 15

2.5.2 External Obstacles (Macro Environment) ..................................................... 15

2.6 Distribution Analysis ........................................................................................... 16

2.6.1 Pipelines ....................................................................................................... 18

2.6.1.1 Domestic System ................................................................................... 18

2.6.1.2 Export Pipelines ...................................................................................... 18

2.7 Selective Strategy .............................................................................................. 19

3.0

References

.16


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1.1 Country Profile

Type:Republic.

Independence: July 5, 1962 (from France).

Population:34,178,188 (July 2009 )

Constitution: September 8, 1963; revised November 19, 1976, November 3, 1988, February 23,

1989, November 28, 1996, April 10, 2002, and November 12, 2008.

Legal system: Based on French and Islamic law; judicial review of legislative acts in ad hoc

Constitutional Council composed of various public officials, including several Supreme Court

justices; Algeria has not accepted compulsory International Court of Justice (ICJ) jurisdiction.

Administrative divisions: 48 provinces (wilayat; singular, wilaya).

Location: Northern Africa, bordering the Mediterranean Sea, between Morocco and Tunisia.

Area: Total--2,381,740 sq. km. Land--2,381,740 sq. km.; water--0 sq. km. More than three times

the size of Texas.

Cities:Capital--Algiers;Oran, Constantine, Annaba.

Terrain: Mostly high plateau and desert; some mountains; narrow, discontinuous coastal plain.

Mountainous areas subject to severe earthquakes, mud slides.

Climate: Arid to semiarid; mild, wet winters with hot, dry summers along coast; drier with cold

winters and hot summers on high plateau; a hot, dust/sand-laden wind called sirocco is especially

common in summer.

Land use: Arable land--3%; permanent crops--0%, permanent pastures--13%; forests and

woodland--2%.


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1.1.1 Economy

GDP: $159.7 billion.

GDPgrowthrate:3.5%.

PercapitaGDP:$6,900.

Agriculture:Products--wheat, barley, oats, grapes, olives, citrus, fruits; sheep, cattle.

Industry:Types--petroleum, natural gas, light industries, mining, electrical, petrochemical, food

processing, pharmaceuticals, cement, seawater desalination. Sector information as % GDP (2008

est.): Agriculture 8.1%, services 29.4%, industry 62.5%.

Monetaryunit:Algeriandinar.

Inflation (2008 est.): 4.4%.

Trade:Exports(2008)--$78.23 billion: petroleum, natural gas, and petroleum products 97.58%.

Partners (2008 est.)--U.S. 23.9%, Italy 15.5%, Spain 11.4%, France 8%, Netherlands 7.8%,

Canada 6.8%. Imports (2008)--$39.16 billion: capital goods, food and beverages, consumer

goods. Partners (2008)--France 16.5%, Italy 11%, China 10.3%, Spain 7.4%, Germany 6.1%,

U.S. 5.5%.

1.2 Selected Industries

For analyzing the investments opportunities in Algeria, we have selected Energy (oil, natural gas

and liquefied natural gas) and Tourism industries. In Algeria, tourism industry does not develop

so much. But there are different tourist spots. Recently, Algerian govt. wants to improve

different infrastructure for tourism industry. Algerian govt. also emphasizes on foreign

investment for energy industry. There are lots of foreign companies operating in Algerian energy

industry.


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2.1 Industry Analysis

Algeria's hydrocarbons sector accounted for 60 percent of its budget revenues, nearly 30 percent

of its GDP, and over 97 percent of its export earnings in 2008, according to the U.S. State

Department. In 2009, Algeria produced a total of 2.13 million barrels per day (bbl/d) of oil

liquids, of which 1.33 million bbl/d was crude oil. Algeria was the fourth largest crude oil

producer in Africa after Nigeria, Angola, and Libya and the largest total oil liquids producer on

the continent. As a member of OPEC, Algeria's crude oil production can be constrained by the

groups crude production quotas, but Algeria also produced 456,600 bbl/d of condensate and

344,000 bbl/d of natural gas liquids, all of which are exempt from OPEC quotas. Domestic oilconsumption reached about 15 percent of total production, or 325,000 bbl/d, in 2009. Algeria

was the sixth largest natural gas producer in the world in 2008 after Russia, the United States,

Canada, Iran, and Norway. Algeria produced 3.05 trillion cubic feet (tcf) of natural gas in 2008,

of which 69 percent was exported and 31 percent was consumed domestically. Analysts consider

Algeria underexplored, even though the country has produced oil since 1956, and Algeria's

National Council of Energy believes that the country still contains vast hydrocarbon potential.

Over the last few years, there have been significant new oil and gas discoveries, largely by

foreign companies: Algeria's oil sector, unlike that of most OPEC producers, has been open to

foreign investors for more than a decade. Algeria hopes to increase its crude oil production

capacity significantly over the next few years by attracting more foreign investment. Energy

Minister Chekib Khelil has stated that his goal is to double the number of companies operating in

Algeria, restructure the domestic oil industry, and establish new regulatory bodies independent of

the Energy and Mining Ministry.

Sonatrach, owned by the Algerian government, dominates Algeria's oil sector. Through its

subsidiaries, the company has a domestic monopoly on oil production, refining, and

transportation. However, Algeria has aggressively sought foreign investment in its oil sector, and

the share of Algeria's oil production controlled by foreign companies has increased steadily over

the past several years; in the third quarter of 2004, foreign companies controlled some 44% of

Algeria's crude oil production. Algeria's oil sector, though, is not completely open to foreign


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companies. All foreign operators must work in partnership with Sonatrach, with Sonatrach

usually holding majority ownership in these production-sharing agreements.

Last few years, different foreign companies have been invested on Algerian oil industry. Some

major foreign companies in the energy industry are given below:

Total- France

Compaa Espaola de Petrleos,S.A.-Spain

Anadarko Petroleum Corporation.

Rosneft-Stroytransgaz Ltd.

First Calgary Petroleums, Canada.

GDF Suez, France.

These are the some companies which are mainly dominating in the Algerias energy industry.

Total production and consumption of oil and gas in Algeria are shown here:

Figure 1: Algeria's oil production and consumption, 1989-2009.


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Figure 2:Algeria's natural gas production and consumption,

With the start-up of the Arzew GL4Z plant in 1964, Algeriabecame the world's first producer of

liquefied natural gas (LNG). Algeria is the third largest exporter of LNG (behind Indonesia and

Malaysia), with around 14 percent of the world's total. Most of Algeria's LNG exports go to

Western Europe, especiallyFranceand Spain. Sonatrach has LNG export contracts with Gaz de

France, Belgium's Distrigaz, Spain's Enagas, Turkey'sBotas, Italy's Snam, and Greece's DEPA.

During the first ten months of 2005, Algeria exported 1.5 million tons of LNG to the United

States, some 15 percent of total U.S. LNG imports during that period. Algeria's largest LNG

export terminal is the Arzew facility, whose three facilities produce a combined 17.25 million

tons per year (Mty) of LNG (2.47 Bcf/d of re-gasified LNG). Other important terminals include

Skikda and Algiers.

On the other hand, Tourism in Algeria contributes only about 1 percent of Algeria's GDP.

Algeria's tourist industry lags behind that of its neighbors. The government has adopted a plan

known as "Horizon 2025", which is designed to address the lack of infrastructure. As Algeria is

in Africa region and most of the part of the country is desert so there is a little opportunity in

tourism sector. In that case, the investor has to invest a large amount of money and the ROI

(Return on Investment) is low and also time consuming. So, it is highly suggested to invest in

energy sector instead of tourism.
http://www.eoearth.org/article/Algeriahttp://www.eoearth.org/article/Algeriahttp://www.eoearth.org/article/Energy_profile_of_Indonesiahttp://www.eoearth.org/article/Energy_profile_of_Malaysiahttp://www.eoearth.org/article/Energy_profile_of_Francehttp://www.eoearth.org/article/Energy_profile_of_Francehttp://www.eoearth.org/article/Energy_profile_of_Francehttp://www.eoearth.org/article/Energy_profile_of_Turkeyhttp://www.eoearth.org/article/Energy_profile_of_Turkeyhttp://www.eoearth.org/article/Energy_profile_of_Italyhttp://www.eoearth.org/article/Energy_profile_of_Greecehttp://www.eoearth.org/article/Algeriahttp://www.eoearth.org/article/Energy_profile_of_Indonesiahttp://www.eoearth.org/article/Energy_profile_of_Malaysiahttp://www.eoearth.org/article/Energy_profile_of_Francehttp://www.eoearth.org/article/Energy_profile_of_Turkeyhttp://www.eoearth.org/article/Energy_profile_of_Italyhttp://www.eoearth.org/article/Energy_profile_of_Greece


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2.2 Competition Analysis

Competition is must for every business firm. No business firm can do business without

competition. For a new business firm competition is more. If the firm wants to survive in themarket, it has to implement different strategies from its competitors. And at the same time it

should try to develop its core competencies. There are many foreign companies operating in the

Algerian energy market. But these companies have to face a huge competition with the local

company, Sonatrach. Sonatrach; is the largest Algerian company and the 11th largest oil

consortium in the world. Sonatrach; established in 1963; is into research, exploration,

production, transport, processing, marketing and distribution of oil products and derivatives of

liquid and natural gas hydrocarbons. It controls 43% of the national mining industry and 75% of

extracted oil and gas. In addition, it benefits from contracts of association with foreign partners.

It has a total production capacity of 16.6 million tons of refined petroleum products per year and

230 million tons of oil per year. It is ranked 11th among world oil companies, 2nd largest

exporter of LNG and LPG and 3rd largest exporter of natural gas. Some other multinational

companies in the energy industry are:

o Repsol YPF is an integrated international oil and gas company into exploration and

production, oil refining, petrochemical manufacturing, and distribution of petroleum

products. The major project that the company is carrying out in Algeria is the Gassi Touil

project.

o Anadarko Petroleum Corporation is one of the largest independent oil and gas

exploration and production companies in the world. In Algeria, Anadarko began drilling

in 1991 and has discovered 12 fields with some 2.8 billion barrels of oil in the Sahara

Desert. Production started in 1998 and quickly reached 135,000 barrels a day.

o Total is an international oil company into exploration and production of oil and gas

including Liquefied Natural Gas (LNG); refining, marketing, trading and shipping of

crude oil and petroleum products; production of base chemicals including petrochemicals

and fertilizers.


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o Eni: Oil and natural gas exploration, drilling, production, transporting and marketing; oil

products refining; engineering and oilfield services; petrochemicals manufacturing and

electricity generation.

2.3 Modes of Entry

Entry in a foreign country is difficult. In case of business, it will be more difficult if the local

govt. does not allow the foreign investor to invest money in that country. There are different

modes for entering into a foreign country like:

Exporting

Joint Ventures

Wholly owned Subsidiaries

Franchising

Licensing

The above are the common entry modes for entering into a country. But these ways are not

possible for entering into Algeria. If any new company or investors want to invest in Algeria,

they can enter into that country by following ways:

Joint Stock Company

Limited Liability Company

Individual Limited Company

Joint Venture

Sleeping Partnership

Holding Company


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Partnership Limited by Shares

Among the entry modes mentioned on the previous page, we have selected joint ventures. We

will do a joint venture withSonatrach & the ratio will be 55%-45%. Because Sonatrach is the

oldest company in the Algerian energy industry. They have the largest logistics systems both

internally & externally. Sonatrach also have different subsidiaries. These subsidiaries help

Sonatrach to run the business more efficiently. If we make joint ventures with Sonatrach these

subsidiaries also can help us to run the business in Algeria & also help us to export these goods

to other countries.

2.4 Govt. Rules & Regulations

The opening up of the Algerian economy has made rapid progress over the past few years thus

enabling its entry into the market economy. The legislation and regulations provide measures to

encourage and facilitate the efforts of all investors, without distinction between domestic or

foreign capital. In this context, Algeria has provided itself with an investment code modified by

the ruling No. 01-03 of 20th August 2001 concerning the development of investments. The law

also grants guarantees essential to investors. The investment guarantee which concerns non-

discrimination and the identical treatment of all non-resident physical and legal entities (national

or foreign) and between those and the Algerian physical and legal entities. Also guaranteed is the

transfer of capital invested and the associated income (if the latter has been made thanks to

foreign currency equity), the inviolability of the law, the settlement of disputes between the State

and the investor as well as the guarantee allowing recourse to international arbitration.

Any investor, whether a physical person or a legal entity, national or foreign, interested in the

Algerian market, has several possibilities for becoming involved on Algerian territory: he can set

up under his own name, by creating a legal entity under common Algerian law (Algerian

commercial law) 100% constituted of non-resident capital, he can associate himself with one or

several residents (physical persons or legal entities) to create a Mixed Enterprise (S.E.M.), take

one or several stakes in the capital of an already existing company, underwrite a management

contract. This ruling offers a series of advantages to investors and has introduced the instruments


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necessary for a policy of investment promotion such as the National Investment Council chaired

by the Head of the Government, the National Investment Development Agency (ANDI), with its

central structures and its one-stop units which bring together all the administrative sectors

concerned by investment action. The Agency also manages the Investment Support Fund.

As for facilities, they include a fiscal and a parafiscal part granting large reductions even

exonerations, depending on the regime chosen, of certain company charges (application of the

reduced rate of customs duty for equipment imported in the framework of the investment

to be made, pardon of tax on annual profits, tax on overall income, and VAT on goods and

services). Algerian legislation provides for different levels of preferential treatment. The

general regime grants standardized advantages that are essentially linked to the setting up of the

project, and special regimes intend to favor certain investments depending on their nature,interest or location. The different facilities may be spread over three years in the context of the

general regime and over a maximum of ten years for special regimes. Except the above rules, the

local govt. also introduces a protection program has been put in place offering the possibility to

be protected through a 48% tax fee. This tax fee will be dismantled by 12% per year, which

insures protection for a number of years. In the coming years, Algeria must modernize to become

more competitive with regards to foreign competition. Nevertheless, for a country that was

governed by an autarkic regime, which privileged inward policy, reflexes of free competition are

slow to be implemented.

2.5 Impediments of Doing Business

While any person or any legal entity doing business, they must face different obstacles from

different parties. Success of the business depends largely on how the organization overcomes

these obstacles. We can divide these obstacles into two parts. They are:

Internal obstacles (Micro Environment) &

External obstacles (Macro Environment)


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2.5.1 Internal Obstacles (Micro Environment)

Internal obstacles are those that can be controlled by the manager of the firm. These include:

Employees motivation.

Inter department co-operation.

Communication between employee & management.

Selecting expert people.

Cost structure.

Competitors programs.

Technological improvement within the organization. Etc.

These are the some of the internal factors that can be controlled by the manager. The manager

can increase employees motivation by giving different benefits, can increase the inter

department co-operation etc.

2.5.2 External Obstacles (Macro Environment)

External factors are those that cant be controlled by the firm. It includes:

Political factors

Legal factors

Technological factors

Economical factors.

Societal factors.

Environmental factors.


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These factors are not controllable by the manager. Sometimes, the local govt. may restrict the

foreign investment, or may not allow the firm to do business in that country. The govt. may

increase the tax etc.

2.6 Distribution Analysis

Distribution of the products creates a link between the firm & the customers. It helps the

customers to get their necessary products easily. Different company uses different distribution

channel. Some company uses fragmented distribution channel, some company uses less

fragmented distribution system. As we are doing a joint venture with the Sonatrach, we will use

the distribution channel they are using. Also, we will use the traditional distribution system that

exists in Algeria for distributing crude oil, natural gas & liquefied natural gas. We will use

different pipelines for distributing these goods. One will distribute goods domestically and other

will be used for exporting. Major domestic crude oil pipelines are shown below:

Major Domestic Crude Oil Pipelines

Origin DestinationLength

(miles)

Capacity

(bbl/d)

HassiMessaoud

Arzew 500 470,000

HassiMessaoud

Bejaia 410 370,000

HassiMessaoud

Skikda 400 520,000

In AmenasHassi

Messaoud390 390,000

HassiBerkine

HassiMessaoud

180 110,000

El Borma Mesdar 170 55,000

B. Mansour Algiers 80 77,000

MesdarHassi

Messaoud 70 26,000


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Table 1:Pipelines

Algeria uses seven coastal terminals for the export crude oil, refined products, liquefied

petroleum gas (LPG) and natural gas liquids (NGL). There are facilities located at Arzew

(Algeria's largest crude oil export port), Skikda (Algeria's second largest crude oil export port),

Algiers, Annaba, Oran, Bejaia, and La Skhirra in Tunisia. Arzew handles about 40% of Algeria's

total hydrocarbon exports, including all of its NGL, LPG, and oil condensate exports. Algeria has

ambitious plans for the expansion of the Arzew port area, including the construction of a

petrochemicals complex, a condensate refinery, and a desalination plant.Algeria's oil pipeline

network facilitates the transfer of oil from interior production fields to these export terminals.

Sonatrach operates over 2,400 miles of crude oil pipelines in the country. The most important

pipelines carry crude oil from the Hassi Messaoud field to export terminals (see chart). Sonatrach

also operates oil condensate and LPG pipeline networks that link Hassi R'mel and other fields to

Arzew. Currently, Sonatrach is expanding the Hassi Messaoud-Azrew pipeline, the longest in the

country. The project will build a second, parallel line that will more than double the capacity of

the existing line.Algeria operates one crude oil pipeline connection to a foreign country. The

160-mile, 304,000-bbl/d OT1 pipeline connects the In Amenas oil field in the southeastern part

of the country to the export terminal in La Skhira, Tunisia.

Distribution system for crude oil is discussed above. Now, distribution system for natural gas-


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construction on the project to July 2005. The $1.3 billion Medgaz, which should be completed by

2008, will have an initial capacity of 390 Mmcf/d, increasing to a maximum of 1.55 Bcf/d. There

are also plans to run a parallel power cable. In November 2002, Cepsa said that it had signed a

letter of intent to purchase 35 Bcf/y of natural gas via Medgaz, and in 2004, Iberdrola also

agreed to purchase 35 Bcf/y from the line.

In 2002, Sonatrach signed a deal with Italy's Enel and Germany's Wintershall to form Galsi, a

consortium to build another natural gas pipeline from Algeria to Italy. Current plans call for an

onshore pipeline from Gassi R'Mel to El Kal, Algeria, then an underwater section to Cagliari,

Sardinia. This is to be followed by an onshore section to Olbia, Sardinia, then a final, offshore

pipeline to C.D. Pescaia, Italy. Galsi estimates initial capacity on the 910-mile line will be 770-

990 Mmcf/d, and, as with Medgaz, there are plans for a parallel power cable. The $2 billion

project could come on-stream by 2008.

Sonatrach and NNPC, the Nigerian state oil company, formed the Trans-Saharan Natural Gas

Consortium (NIGEL) in 2002. The NIGEL consortium aims to construct a 4,550-mile natural gas

pipeline from Warri, Nigeria to Hassi R'Mel, via Niger. There are also plans to construct a road

and fibre optic cable parallel to the pipeline. The NIGEL pipeline would utilize the proposed

Medgaz and existing Transmed pipeline to carry Nigerian gas to European markets. The

Nigerian and Algerian governments have sought financial assistance for the $7 billion project

from the World Bank and the New Project for Africa's Development (NEPAD). In 2004, both

governments expressed their continued commitment to the project, promising concrete action in

2005.

2.7 Selective Strategy

We will use Global Standardization Strategy for our business. We will try to give the products

to our local customers at a reasonable price. Every organizations main aim is to earn profit. If

we charge more, the customers may not accept our products and they may buy this from another

company. If we fail to sell our products, we may not able to earn profit and we may have to

return to our home country with bag & baggage.


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References

Retrieved from http://www.winne.com/algeria2/english/cr10.html

Retrieved from http://www.animaweb.org/en/pays_algerie_pourquoiinvestir_en.php

Retrieved from http://www.animaweb.org/en/opportunities.php?type=projet (4tourism)
http://www.winne.com/algeria2/english/cr10.htmlhttp://www.animaweb.org/en/pays_algerie_pourquoiinvestir_en.phphttp://www.animaweb.org/en/opportunities.php?type=projet%20(4http://www.winne.com/algeria2/english/cr10.htmlhttp://www.animaweb.org/en/pays_algerie_pourquoiinvestir_en.phphttp://www.animaweb.org/en/opportunities.php?type=projet%20(4


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Retrieved from http://www.animaweb.org/en/opportunities.php? pg=2&pays= 14&

serchsecteurs =182&motcle=&date1=&date2=&type=projet&payspr

Retrieved from http:/ /www.animaweb.org /en/opportunites _opportunites_ tourisme_en.php

Retrieved from http://www.economywatch.com/world_economy/algeria/export-

import.html

Retrieved from http://www.state.gov/r/pa/ei/bgn/8005.htm
http://www.animaweb.org/en/opportunities.php?%20pg=2&pays=%2014&%20serchsecteurs%20=182&motcle=&date1=&date2=&type=projet&paysprhttp://www.animaweb.org/en/opportunities.php?%20pg=2&pays=%2014&%20serchsecteurs%20=182&motcle=&date1=&date2=&type=projet&paysprhttp://www.animaweb.org/en/opportunites_opportunites_tourisme_en.phphttp://www.animaweb.org/en/opportunites_opportunites_tourisme_en.phphttp://www.economywatch.com/world_economy/algeria/export-import.htmlhttp://www.economywatch.com/world_economy/algeria/export-import.htmlhttp://www.state.gov/r/pa/ei/bgn/8005.htmhttp://www.animaweb.org/en/opportunities.php?%20pg=2&pays=%2014&%20serchsecteurs%20=182&motcle=&date1=&date2=&type=projet&paysprhttp://www.animaweb.org/en/opportunities.php?%20pg=2&pays=%2014&%20serchsecteurs%20=182&motcle=&date1=&date2=&type=projet&paysprhttp://www.animaweb.org/en/opportunites_opportunites_tourisme_en.phphttp://www.animaweb.org/en/opportunites_opportunites_tourisme_en.phphttp://www.economywatch.com/world_economy/algeria/export-import.htmlhttp://www.economywatch.com/world_economy/algeria/export-import.htmlhttp://www.state.gov/r/pa/ei/bgn/8005.htm

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Global Trade Full n Final 97-03 (1)