A new milestone in the development of cooperation between Russia and Algeria: expansion of investments and localization of production on the African continent

The expert opinion was prepared based on the results of the SPIEF-2023 session “Russia - Algeria”.

The history of Russia’s cooperation with the states of the African continent, in particular with Algeria, covers a significant period of time, but the policies pursued and the development of economic relations have not yet reached a mature level. It should be especially mentioned that Russia and Algeria celebrated the 60th anniversary of the establishment of diplomatic relations. Taking into account the complex and contradictory nature of transformation processes in the global economy and geopolitics, the leadership of the two countries declared a mutual desire to develop an effective strategic partnership, ensuring mutually beneficial cooperation in such important sectors as energy, pharmaceuticals, agriculture, high technology, and others. Historically, relations between the two countries are built on the principles of friendship and trust. Algeria, by defining vectors of long-term development in partnership with Russia, is building its image as a reliable partner with a wide range of new promising projects for the development of mutually beneficial cooperation between the two countries. “Algeria is experiencing an unprecedented economic recovery,” — Mr. Tebboune said at a meeting with Russian businessmen.

A discussion with the participation of representatives of ministries and business took place at the SPIEF-2023 site the day after the significant meeting of the presidents of the two countries — Vladimir Putin and Abdelmadjid Tebboune — in the Kremlin as part of the official visit of the Algerian delegation to Moscow. The result of the visit was the signing by the heads of the two states of the Declaration on Deep Strategic Partnership, which established a wider range of areas of cooperation compared to the 2001 document, including deepening military cooperation, supporting the use of national currencies in trade, as well as coordination of actions in international energy organizations (OPEC+, Forum of gas exporting countries and others).

The current historical moment for Russia is characterized by an expansion of dialogue with countries in both the North African region and the Middle East. The emergence of a new development pole around the economic ambitions of the Arab world, in particular the UAE, Saudi Arabia, Qatar and others, creates uncertainty for Algeria, which will have to make additional efforts to maintain its investment attractiveness. Algeria continues to play a significant role in the Mediterranean, African and Arab space, despite the fact that this role cannot be fully realized due to regional instability and against the backdrop of deteriorating relations with neighboring states, such as Morocco. For Algeria, the campaign to join the BRICS forum (Brazil, Russia, India, China and South Africa) takes on special meaning at the current historical moment. Given the growing interest from developing countries in BRICS, Algeria submitted a formal application to join the organization along with Iran and Argentina at the end of 2022. Türkiye, Egypt and Saudi Arabia have also expressed interest in joining BRICS. Russia supports Algeria’s candidacy, which was officially announced at the SPIEF. The motivation for membership in BRICS was the desire to avoid participation in “bipolar conflicts.” We should not forget that Algeria remains a major exporter of oil and gas, with the EU countries and China remaining the main buyers of energy resources. It can be assumed that the country will strive to obtain certain preferences in the export of oil and gas in the space of countries — BRICS members. This motivation is largely related to long-term development plans and the need to attract significant investments in the oil and gas sector to develop new fields and increase hydrocarbon processing capacity. To a certain extent, Algeria's entry into BRICS in parallel with Saudi Arabia could exacerbate competition between major energy suppliers, unless they build relations on the principles of mutual trust and mutually beneficial conditions.

Over the past years, the Russian side has consistently supported Algeria’s desire to become a leading regional industrial and energy center in North Africa in the medium term. The work of the Joint Intergovernmental Commission on Trade, Economic, Scientific and Technical Cooperation resulted in cooperation programs (road maps) in the field of industry, transport, construction, geology, agriculture, healthcare, science, space and computer technology and in other sectors, which determined the vector of mutual interests.

It is important to emphasize the similarity of the positions of Russia and Algeria on a number of issues on the international agenda: both countries advocate further strengthening the role of the UN and the Security Council in maintaining peace and security in a multipolar world. The stable development of Algeria and the achievement of socio-economic development goals will largely depend on reducing tensions in the region and resolving conflicts in Syria, Libya, Yemen and Mali. It should be added that, despite the extremely difficult historical legacy associated with Algeria’s war of liberation, France continues to influence regional dynamics and strives to maintain its role in setting the regional agenda. Realizing that France alone would not be able to maintain the initiative, diplomats proposed a new political structure “3+3”, implying a dialogue between North and South: between France, Spain and Italy on the one hand and Algeria, Morocco and Tunisia — with another. However, experts note the utopian nature of this position due to numerous conflicts and divergent interests of the countries in question, each of which relies on the development of bilateral relations.

Thus, the task of developing and bringing Russian-Algerian relations to a qualitatively new level will be solved in difficult geopolitical conditions, characterized by growing regional tensions.

Today, an intensive dialogue is being conducted at the level of heads of ministries and departments of Russia and Algeria, who are interested in expanding the partnership and emphasize their high readiness to implement joint infrastructure projects. Russia’s position and the choice of priority areas for the development of bilateral business relations indicate the strategic importance of developing joint projects in the field of both the raw materials and non-resource sectors. During the session, a wide range of areas for cooperation was outlined; we will consider in more detail using the example of the pharmaceutical and energy industries.

Algeria is one of Russia’s leading trading partners in Africa, with trade volume in 2022 amounting to $3 billion. Algeria ranks third in terms of trade turnover with Russia among African countries, while the potential for trade and economic interaction has not been exhausted. According to the Algeria Economic Monitoring Report published by the World Bank, Algeria's economy is expected to grow by 2.3% in 2023, but the macroeconomic outlook will be pressured by global hydrocarbon prices. This can explain the desire of the Algerian side to more actively develop the private sector in the medium and long term, to initiate projects not related to hydrocarbons, considering them as an engine of economic growth and economic diversification. Continued implementation of national structural reform programs, increased openness to the private sector, increased competitiveness of the economy and increased investment in human capital also remain important factors for ensuring the viability and sustainability of the Algerian economy, as well as the basis for the development of Russian-Algerian relations.

Positive dynamics have emerged in a number of areas of cooperation, and thanks to the high motivation and involvement of the leadership of the two countries, administrative barriers have been removed and special preferences have been identified for the implementation of a number of large investment projects.

The pharmaceutical industry in Russia represents one of the key segments in the development of non-commodity exports. Despite the fact that the importance of cooperation in the field of both healthcare and the export of Russian medicines was regularly emphasized at the government level, according to REC data, in 2018, pharmaceutical products worth $43 thousand were exported to Algeria. According to experts, such a small figure is due to ignorance of the specifics of one of the largest African markets. The situation began to change thanks to the proactive position of the Algerian side, which offered Russian companies a number of preferences for exports and localization of production in the country. In particular, when organizing a full production cycle on Algerian territory, you can count on a restriction or complete ban on the import of similar products. When conducting tender purchases of medicines, products produced at enterprises localized in Algeria receive 25% price preferences. However, despite such measures, foreign manufacturers (Pfizer, GlaxoSmithKline, Sanofi, El Kendi and Hikma, Novo Nordisk and others) controlled about 38% of the Algerian market in 2018. The accelerated development of joint cooperation between the pharmaceutical industries of Russia and Algeria testifies to mutual trust, which made it possible to implement an anchor project with the participation of the Russian company Geropharm within a limited time frame. on technology transfer and ensure the production of insulin analogues at the plant of the Algerian state pharmaceutical company Saidal Industrial Group. The Russian side announces plans to launch new production facilities in Algeria in 2024, which confirms mutual interest and reflects the readiness of the Russian pharmaceutical industry to expand the supply of domestic insulin drugs through technology transfer and localization of production in Algeria.

In the medium term, the implementation of similar projects outside Russia will help meet the growing demand for domestic drugs from countries in Africa, the Middle East, Asia and Latin America. To further expand the export of medicines and localized production, it is important to build up competencies in the specifics of the functioning of local markets, as well as in the field of product certification, procedures for checking production sites for compliance with the GMP standard, quality control of pharmaceutical products, including the results of clinical trials, as well as pricing. Thus, the progress achieved in the implementation of joint projects in the field of pharmaceuticals confirms the readiness of both parties to create mutually beneficial conditions, to use tax, customs and other mechanisms for the implementation of large investment projects.

Energy and mining are also priority sectors. The implementation of successful projects in North African countries is of strategic interest for Russian business and opens access to the Mediterranean market, which is important for Russia. Taking into account the fact that Algeria remains one of the key suppliers of energy resources, relations and joint projects between Algeria and Russia in the energy sector are, of course, in competition with European interests. The conflict of interests intensified after the start of the SVO and the extension of sanctions to the Russian oil and gas sector, which significantly limited the supply of energy resources to EU countries. The Algerian side reacted negatively to the decision of the European Commission to set a price ceiling for natural gas, believing that such actions are unilateral and aimed at destabilizing world markets. In a context of rising international tensions, on the contrary, the presence of open, transparent and unrestricted energy markets is a determining condition for the sustainable development of many countries, while a ceiling on natural gas prices can threaten the security and stability of energy markets.

Represented by the state oil and gas company Sonatrach, the Algerian side supports the idea of developing relations in the energy sector on the basis of long-term contracts. “We continue to believe that only insight into market behavior and future natural gas demand can support investment policy in capital-intensive gas projects,” — said Hakkar. Sonatrach plans to supply more than 110 billion m3/year of natural gas to the market until 2027 to meet both domestic demand and export obligations. Today Algeria provides about 11% of gas imports to Europe and could increase supplies in the long term, despite the fact that the possibilities for increasing energy exports are currently limited.

Algeria has historical ties with Italy thanks to the gas transportation system. Trying to increase gas imports from Africa, Italy is striving to become an “energy hub.” “Faced with the big energy crisis that Europe is experiencing, Algeria could become a leader in production, of course in Africa, but perhaps throughout the world. Italy is inevitably the gateway to this energy and to the supply of Europe,” — Ms. Meloni outlined her position during her official visit to Algeria in January 2023. It is important to add that during the visit, agreements were signed with Eni, providing for the expansion of Algeria’s export capacity to Europe, including the development of the gas transportation system. Algeria's energy sector remains attractive to foreign investors. As part of Sinopec's agreements with Eni, as well as the Occidental/Eni/TotalEnergies consortium, it is planned to attract investments of up to $6 billion to develop new fields, improve the recovery of crude oil, condensate, LPG and natural gas, as well as to extend the life of existing ones. deposits. It should be noted that Italy became, after the severance of relations with Morocco in December 2021, the only passage for Algerian gas to the Old Continent.

It should be noted that Algeria, when determining priority areas of cooperation with European energy companies, is relying on the development of high-tech industries. Algeria has adopted a national roadmap for the development of green hydrogen production with the aim of launching pilot projects in the medium term, including the use of international pipeline networks between Algeria and Europe to transport hydrogen, harnessing the potential of solar energy for production. For this purpose, a memorandum was signed with two German companies (H&R Group, VNG AG) on cooperation in the field of production of environmentally friendly hydrogen and oil refining. At this stage, the parties are exploring opportunities for cooperation to implement projects in the field of production of hydrogen and environmentally friendly ammonia with a view to exporting them to Germany. However, the Algerian side takes a reserved position regarding this project, emphasizing that the gas transmission system will be used at an initial stage to export additional volumes of Algerian gas to EU countries until a real and competitive market for green hydrogen and green ammonia emerges.

Thus, joint hydrocarbon production projects have significant potential for the further development of the fuel and energy complex of both countries. In the context of the adoption by some participants of the global energy market of policies aimed at abandoning the use of hydrocarbons, the launch of a mechanism for joint gas purchases that limit competition, as well as other financial and regulatory measures that hinder the development of traditional energy, Russia and Algeria have the necessary political and expert resources to carry out joint discussions to determine the export policies of countries and develop joint mechanisms to protect the interests of energy suppliers. The international climate agenda creates new requirements for energy market participants. In addition, in the near future, against the background of strengthening interaction between countries in the energy sector, it is advisable to pay attention to the development of the institution of intellectual property, as one of the tools for protecting the interests of copyright holders in the development and implementation of innovative products.

The Sonatrach Group plays an extremely important role in the Algerian economy. Its subsidiary Asmidal, providing the production of fertilizers and phytosanitary products, makes a significant contribution to the development of agriculture. This area is also of obvious interest for the Russia dialogue — Algeria. Starting in 2020, Algeria, in an effort to diversify its sources of grain supplies, reduced wheat imports from France by 50% and refocused on Russian and Ukrainian suppliers. In the current conditions, fearing the risk of supply disruptions, Algeria has stepped up efforts aimed at expanding the production of agro-industrial goods on its territory. Algerian companies Sim and Amor Benamor were tasked with optimizing production and inventory of vital products. Experts note that the government has accelerated structural reforms, providing support for agriculture and the agro-industrial sector. Political support for Russian imports fully meets the goals of ensuring food security.

Thus, Russia and Algeria have undeniable potential for the development of joint trade and production. A barrier to achieving the deadlines for the implementation of large investment projects may be a lack of qualified personnel and a limited labor market. To ensure stable and mutually beneficial cooperation in various sectors of the economy, it is important to ensure timely training of qualified personnel, recognizing that the implementation of educational and research projects, as a rule, requires significant material costs. Given the countries' long-standing strategic partnership, we can expect an intensification of scientific and practical research in the fields of energy, pharmaceuticals, agriculture and others, including through the creation of joint platforms bringing together representatives of regulatory authorities, manufacturing companies and scientists. A special role in this dialogue should be given to young scientists, forming targeted programs to support science and education.