In an effort to stem rising prices of cement, the Algerian government has recently implemented important regulatory measures. July 22 marked the introduction of a cap on the price of cement at both the wholesale and retail level.
As a result of consistent shortages in supply, prices of cement had soared to levels as high as AD1500 ($20.90) per quintal in June this year; a trend that was further fuelled by the absence of regulations on speculation of its price. However, the new regulation restricts prices to a maximum of AD80 ($1.11) per quintal on the wholesale level and AD150 ($2.09) in retail outlets.
The growing demand for cement, which is currently projected at 14Mta, is fuelled largely by the country’s rapidly expanding construction sector. With an estimated 11.6Mt of yearly production capacity from the country’s 12 public cement producers and an additional 7Mt from private producers, Algeria should have no issues in covering domestic demand.
In reality, however, the construction sector continues to face a significant deficit in supply, estimated at 3Mt in 2008, forcing the country to resort to imports and trade at international prices, often with extended delivery times.
Although the exact reasons for the mismatch between quantities produced remain subject to much discussion, it is widely believed that adjustments to the regulatory framework would help reduce the gap between demand and supply. The cap on sales price, therefore, certainly is a step in the right direction.
The sales price cap is only the latest in a long list of measures aimed at improving the competitiveness of the cement sector. Previously the country has sought to stem speculation on cement, as well as implement long-term measures to overcome the chronic production deficit. Examples of this are suggestions to import 1Mt of cement as well as last year’s launch of a $780m investment plan, aimed at increasing the capacity of the public cement producers to 17.6Mta by 2012.
Initial results of these measures are optimistic. According to the Société de Gestion des Participations Industries du Ciments, which controls the state-owned cement companies, production had risen with 6% over the first five months of this year compared to the same period the year before.
The improvements are coming at just the right time, as cement orders are set to continue at a rapid pace thanks to the country’s public construction programmes.
The national housing plan is one of the ongoing projects justifying the need for more cement. Since taking office in 1999, President Abdelaziz Bouteflika has made the construction of housing a priority. As a result, a total of AD1.7trn ($23.75bn) has been spent on housing projects over the past decade during which more than 1.5m housing units have been built.
Despite this performance, the demand for housing is far from satisfied and President Bouteflika, who has recently embarked on his third mandate, has committed to building another million housing units by the year 2014.
Besides the construction of new houses, the government also plans to improve the living conditions of various urban areas around the country. It has allocated a total of AD300bn ($4.14bn) between the year 2010 and 2014 to revamp and redesign residential areas.
Another project concerns the modernisation of Hassi Messaoud, a city in the oil-rich Eastern part of the country. Canadian construction group SNC LavalinSNC LavalinLoading... recently won the tender for the project, which is scheduled to take eight years to complete at a cost of AD6bn ($83.6m).
The country is also seeing a high level of activity in the infrastructure sector. The construction of the country’s flagship project, the East-West Highway, is on course and expected to be completed by July next year. The six-lane expressway will cross more than 1200 km from Annaba in the north-east and Tlemcen in the north-west, directly linking Algeria to both Tunisia and Morocco.
With the commitment to large-scale construction projects, the Algerian government is creating important private sector opportunities at a time when many projects abroad have come to a stand-still. By keeping a closer eye on the production and distribution of cement, state officials are encouraging equilibrium between supply and demand. As the regulations are being set out, it will be up to the private sector to follow suit.