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Jane's Industry Quarterly
IHS Jane's Navigating the Emerging Markets
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Military inventories (IHS)
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Military inventories (IHS)
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Algeria is Africa's largest defence market, with military investment having overtaken that of South
Africa. The North African country's top-line defence investment increased 22% between 2008 and 2012.
Relative stability following the end of civil conflict in 2002 and strong global energy demand during the 2000s has put oil and gas-rich Algeria in a stronger position to meet defence spending objectives.
Algiers commenced a rearmament programme in 2006 to recapitalise inventories of largely Cold War-era materiel. Multibillion-dollar acquisitions of naval, land and air systems followed.
Page 2 of 23 Jane’s Recapitalisation efforts were largely complete (or approaching completion) as of early 2014, although large-scale opportunities may remain in areas ranging from unmanned aerial systems to naval auxiliary vessels.
Russia - Algeria's historic military trade partner - was the principal beneficiary of Algiers' military investment drive. Fully two thirds of equipment ordered (by value) between 2000 and 2011 was of Russian origin.
Moscow appeared to have cemented its position to the detriment of competitors through the broad USD7.5 billion equipment package of 2006, which ranged from fighter jets to missile defence systems. However, Algeria subsequently broadened relations and entered into procurement accords with Chinese, European, African and North American suppliers in the years that followed.
Market challenges Corruption and transparency: Corruption has long been a challenge within Algeria, although it is arguably limited transparency and bureaucracy that present the greatest obstacles to those entering the defence market. Large-scale procurement activities are generally conducted through restricted tenders, with openly advertised opportunities typically limited to smaller or less sensitive requirements.
Less dramatic spending growth: Defence investment is likely to remain positive until at least 2018, with double-digit percentage growth of top line spending anticipated (2014 to 2018: 13%). However, softer oil prices and continuing economic challenges are likely to dampen Algeria's capacity for spending growth. The diversion of state funds to quell social discontent is also plausible.
Stability: Algeria has enjoyed a period of relative stability following the end of its civil conflict in
2002. The country also avoided the more extreme aspects of the 2011 Arab Spring. However, social discontent has been apparent as living costs rise and perceptions of elite corruption remain. The influence of the military over Algerian civil society also remains a cause for concern. While the defence and intelligence forces have seen their role wane in recent years, their capacity to destabilise arguably remains intact. A further issue of note is that long-serving President Abdelaziz Bouteflika (in power since 1999) initially ruled out standing for election again in 2014 (the election was scheduled for the second quarter of 2014); a decision that had apparently been reversed by February 2014. His health remains open to question, however. In addition to social and political turbulence, Algeria faces the continuing threat of militant activity; a challenge highlighted by the occupation of the In Amenas gas plant in January 2013.
Industrial participation demands: Algeria's industrial participation requirements are typically demanding, with a commitment to local production and joint venture activity frequently a prerequisite of market success. The limited capabilities and inefficiencies of the Ministry of National Defence (MND)-controlled industrial base make meeting such obligations challenging.
Market potential index:
Note: 1 = high risk/low appeal. 5 = very low risk/very high appeal Major procurement programmes Land and armour Self-propelled howitzers Value: N/A In service: N/A Status: Unconfirmed Summary: IHS Jane's reported in January 2014 that Algeria was updating its artillery inventory with Chinese self-propelled howitzers; believed to be 155 mm NORINCO PLZ45 units. The report was based on photographs published in the forcesdz.blog on 14 January 2014. Algeria acquired 18 NORINCO 155 mm WA 021 howitzers (towed version of PLZ45) in 2010.
6x6 wheeled armoured vehicles Value: Up to USD1.85 billion In service: By 2021 Status: Committed (unconfirmed) Summary: Algeria's requirement for more than 500 6x6 wheeled armoured vehicles to replace older BTR platforms emerged in the late 2000s. Suppliers from China, Germany, Russia, South Africa and South Korea were initially linked to the procurement. German national press reports in 2011 and 2012 suggested that the Rheinmetall Fuchs 2 platform had been selected. The procurement remains formally unconfirmed at the time of writing. However, Rheinmetall appears to have established a joint venture in Algeria with local companies related to the production of special vehicles.
Light protected patrol vehicles Value: Up to USD140 million In service: By 2015 Status: Committed (confirmed) Summary: IHS Jane's was informed in early 2011 that Algeria had agreed to procure 100 Marauder
Main battle tanks Value: N/A In service: 2014 Status: Committed (confirmed) Summary: Algeria committed to the purchase of 185 T-90 main battle tanks (MBTs) from Russia in 2006; an order completed by 2009. A subsequent agreement relating to the supply of a further 120 T-90 units was signed, with delivery expected to have taken place by 2014.
Overview Algerian defence spending is the highest in Africa, having overtaken South Africa in 2009.
Growth has been significant in recent years with a rise of 22% between 2008 and 2012, taking topline investment to USD9.6 billion. Funding increased again in 2013 and 2014, with estimated allocations of.USD10.7 billion and USD11.9 billion respectively.
Funding growth has been facilitated by increased world energy prices over the past decade, as Algeria looks to oil and gas for 70%3 of its national budget.
Algeria currently allocates around 5% of GDP to defence; a figure that is high by international standards but only marginally ahead of regional rivals such as Morocco.
Spending growth in recent years has been partly driven by attempts to ensure the loyalty of the armed forces, notably in the wake of the Arab Spring of 2011. The military have been the traditional powerbrokers in Algeria, with significant political and economic influence.
Risks to military investment include the drain on the national budget of a huge USD286 billion economic development plan (2010 to 2014), the possibility of falling energy prices, and the potential for social unrest to further destabilise the economy.
Trends and observations
Defence spending has been maintained at a high level for three principal reasons:
Employment. Algeria's heavily manned armed forces are used to mop up surplus labour.
Unemployment in the country is high, more than 20% among the young.6 Military procurement is also being used to kick-start national engineering industries.
Military loyalty. Algeria's turbulent history and regional challenges point to the importance of maintaining the loyalty of the armed forces with appropriate funding. While the influence of the military has waned in recent years, it has not entirely diminished.
Strategic threats. Algeria faces the challenge of tense relations with neighbouring Morocco;
instability in neighbouring countries (such as Libya and Mali); and the threat of Islamic insurgents, although procurement has not apparently reflected the issue of insurgency (see Procurement analysis section).
Improved pay and benefits for the armed forces has increased defence spending, as will the decision in 2013 to place the Communal Guard (Garde Communale) directly under the aegis of the MND. The Garde Communale was previously the responsibility of the Interior Ministry.
Spending by category
Chart D (IHS) Personnel IHS Jane's expects personnel costs to rise both in real terms and as a percentage of overall funding over the coming five years. This is based on absorbing the costs of the Garde Communale and efforts to quell unrest among members of the armed forces. Personnel costs were estimated at USD6 billion in 2013, or around 56% of the total budget.
Algeria is around seven years into a broad modernisation programme that included the purchase of T-90 MBTs, Su-30 fighter aircraft, Yak-130 training aircraft, and S-300 air defence systems from Russia; two frigates from Germany; three corvettes from China; Super Lynx helicopters from AngloItalian AgustaWestland; 6×6 armoured vehicles from Germany; and 4x4 patrol vehicles from South Africa. The build up began in 2006 and will continue for much of this decade.
While there is a strong non-cash element to the Russian deals in particular, the impact on procurement funding is likely to have been considerable. The on-going drain on resources means that IHS Jane's forecasts that procurement funding will remain at a relatively high USD2 billion per
External funding Algeria receives very small amounts of US military aid through the International Military Education and Training (IMET) programme, typically less than USD1 million per annum. Allocations of a few hundred thousand dollars per year also come through the Regional Defense Combating Terrorism Fellowship Program, which provides education and training to international security personnel as part of the US global effort to combat terrorism. Such aid is used to train a very small number of Algerians.
Russia has provided materiel on advantageous terms relating to energy access, thus allowing Algeria to reduce core procurement spending.
The Algerian MND has control over the bulk of the national defence industrial base. While it would be theoretically possibly for the MND to derive income from such interests, the industrial base is not understood to generate earnings.
Risks to funding Aside from the weaknesses associated with the economy (see Economic and Political Overview section), there is the possibility that Algeria may be obliged to direct greater sums towards social and economic programmes to curtail popular unrest.
Algeria escaped the worst of the unrest that led to regime change elsewhere in the region but issues ranging from wealth disparity to youth unemployment remain significant challenges. A long-term social and economic development programme valued at USD286 billion commenced in 2010. In summary, it is possible that government funding may be directed away from military financing.
Transparency and assumptions
Transparency associated with the Algerian defence budget is extremely limited. It comprises just a single line in the published national budget. Therefore, IHS Jane's figures of spending by category and service are based on assessments of personnel levels and associated costs, plus forecast and known procurement programmes.
Economic and political overview
Economic and political overview (IHS) Overview The Algerian economy has been on a strong upward trajectory over the past decade given relative stability following the cessation of civil conflict and strong global energy demand.
The country remains heavily reliant on oil and gas exports, which continue to account for around 70% of the national budget, 98% of foreign exchange and 40% of GDP.
Such reliance has proved to be a double-edged sword. Buoyant energy prices over the past decade put Algeria in a strong position to drive military investment. However, the failure to satisfactorily diversify the economy has resulted in persistently high unemployment during a time of regional social unrest. Algeria also faces more subdued economic growth as a result of the weaker world oil price outlook.
The government retains heavy control over tracts of the Algerian economy and the defence industry
- almost entirely state-owned under the aegis of the MND - is no exception.
Algeria has been led by President Bouteflika since 1999. With Bouteflika in ill health (although apparently poised to re-run in th 2014 election, Algeria faced a degree of political (and therefore economic) uncertainty.
Economic issues Offset policy overview
Summary Algeria has not historically operated an official offset programme, although in practice there is a policy of seeking returns against military procurement programmes. This has typically been through the establishment of in-country joint venture programmes with supplying organisations.
IHS Jane's understood that Algeria was exploring the possibility of a formal offset programme during 2013, and reportedly was in consultation with allies in the GCC region regarding best practice and approaches to policy formulation.
Indeed, offset activity between Algeria and the United Arab Emirates (UAE) has been particularly notable, not least because it has taken a structured form on the basis of a bilateral agreement. This approach may yet form the nucleus of a broad, codified programme.
Algeria has also looked to energy-for-materiel arrangements, notably in the case of procurement accords with Russia.
In the absence of a published, codified offset policy, assessments of requirements within this section are IHS Jane's own derived from empirical evidence.
Authority Military co-operation is the preserve of the MND's External Relations and Co-operation Directorate (Direction des Relations Exterieures et de la Coopération - DREC).