Algeria Petrochemicals Report Q1 2010 (Business Monitor International)

BMI’s latest Algeria Petrochemicals Report expects a massive step-up in petrochemicals production in the country once the Arzew petrochemicals complex is completed in 2014, albeit two years behind schedule due to the global economic downturn and financial crisis. The complex will include a 1.1mn tonnes per annum (tpa) ethane cracker and units with capacities of 410,000 tpa of MEG, 350,000tpa of HDPE and 450,000tpa of LLDPE. This will be overseen by a 51:49 joint venture (JV) between Total and Sonatrach.

Algeria’s ethylene and PE capacities are forecast to remain static until 2014, after which they will increase with the addition of new capacity. By 2014, ethylene capacity should be 1.23mn tpa and PE capacity should reach 878,000tpa, with new capacity in the production of other derivatives. Meanwhile, methanol production capacity will increase by 1mn tpa to 1.12mn tpa with the expected completion of a plant by Sonatrach and new fertiliser plants should lead to ammonia and urea capacities of 5.59mn tpa and 3.59mn tpa respectively.

However, the poor business environment in Algeria could present problems for the development of the petrochemical industry. The recent withdrawal of a major foreign investment deal by a Dubai-based property developer has dealt a blow to Algeria's efforts to diversify its economy, and also an illustration of its poor business environment. Algeria's inhospitable business environment is likely to have played some role, with comments from the company suggesting that its plans were frustrated by bureaucracy and a lack of government cooperation. With investment even in the dominant oil sector proving harder to come by than in previous years, we expect FDI levels to remain low over the medium term.

A lack of investment in the oil sector is likely to impact the prospects for FDI in other sectors, including petrochemicals. Firstly, because of the poor impression given by news that other foreign companies are pulling out of their investments in Algeria, which is still a relative unknown quantity for most would-be investors, particularly in comparison to its more investment-friendly neighbours, Morocco and Tunisia (which have themselves seen some investments postponed or cancelled due to tighter financing conditions). Secondly, with hydrocarbons driving the economy as a whole – it accounts for around 97% of export revenues – any weakness in the sector is going to have an effect on demand for related goods and services, such as commercial property, transport and trade facilities.

In the Middle East and Africa Petrochemicals Business Environment Rankings matrix, Algeria is in 10th place with an overall score of 38.2 points, up 3.0 points since the previous quarter due to the forthcoming Arzew petrochemical plant. On nearly every indicator, Algeria comes last by a long margin – apart from Nigeria – and is likely to remain that way until the complex comes onstream.