The Report: Algeria 2011

The Report: Algeria 2011 (excerpt only)

By Oxford Business Group

A new direction

Making it easier for farmers to obtain credit and allowing for foreign participation are on the agenda

Dependence on food imports has been described as a critical problem, with President Abdelaziz Bouteflilka saying the global economic crisis had served as a wake-up call for the sector. Major capital expenditure, new laws and plentiful rain cannot alone guarantee its future, however, and much will depend on effective organisation and control. Equitable and transparent application of legislation is also vital if it is to realise its potential. A leap of faith will also be necessary if foreign capital and know-how are to play a role in this development.

After a good 2009/10 harvest and new measures to control imports, there has already been a striking reduction in food dependency. Food imports in the first half of 2010 were 11% down over the same period in 2009. Exports of food products continued to increase but are still minimal.

If exports of agricultural products are to make a real contribution to reducing the food trade deficit, Algeria will need to increase quality and standards control to meet the demands of a highly competitive international market. Out of agricultural exports worth €37.3m in 2009, sales to the EU totalled €32.6m, with dates being the major single item.

PROPOSED CHANGES: Making credit easier to obtain for many farmers and possibly opening up agriculture to foreign investment are two of the latest moves designed to develop the sector. In addition, draft legislation proposes a new national agricultural land agency, which has never actually come into being despite being set up nearly 20 years ago.

The first initiatlve has been long awaited. Much of the country's agricultural land is owned by the state but leased to farmers, who in some cases have been working on it for decades. Without official titles to their land, these farmers are unable to provide guarantees to obtain bank financing for their operations. A draft law presented to parliament in mid-2010 now encourages loans backed by legally recognised 40-year leases which can be used as guarantees.

Many points related to this legislation remain unclear, however, including whether both public and private banks will supply the financing. Clarification has also been called for in reference to claims that these 40-year leases are in direct contradiction with existing legislation that already grants 99-year concessions for this type of real estate.

BRINGING IN FOREIGN INVESTMENT: The second move, the possible introduction of foreign investment and know-how, will likely prove to be much more controversial. Algeria was under colonial rule for many years and regaining full control of its own agricultural land after independence was considered a major victory. Any idea of relinquishing this control would be a non-starter and while new laws could open up the sector to certain forms of foreign direct investment, foreign ownership of agricultural land would still be prohibited.

One suggestion is that joint ventures with minority foreign partners could operate on the basis of long-term leases, similar to structures already in effect in neighbouring cou ntrles. Nevertheless, conditions like these have proved to be a real barrier if prospective foreign investors find it easierto obtain land title and majority control elsewhere.

PROJECTS IN THE PIPELINE: Domestic investment in the Algerian agricultural sector also remains slow to take off. During the first quarter of 2010, a total of 3688 new projects valued at €1.4bn were declared at the National Investment Development Agency. Of these, 13 were in the agricultural sector and, with planned investment totalling less than €717,300, accounted for only 0.5% of the total.

Still, for Omar Zaghouane, the director-general of the Field Crops Technical lnstitute, the government's panoply of existing and proposed measures provide vltal support and encouragement to local farmers. "Adequate ralnfall and development programmes go hand in hand and are giving good results," he said, “and there is renewed confidence in the system"
Original source: Oxford Business Group

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