Ben Trevis, Research Analyst
25 May 2021
25 May 2021
Algeria’s spectacular automotive failure
The Algerian government made a bold move in 2015 by banning new vehicle imports completely. The aim was to recoup lost oil-export revenue, while also forcing the hand of foreign OEMs to develop their local manufacturing facilities.
The plan backfired spectacularly. Locally sourced parts were soon scarce as supply could not keep pace with demand from domestic manufacturers, leaving automakers with little choice but to import many vehicle parts at an additional cost – a cost that was, ultimately, borne by the consumer. As a result, Light Vehicle sales fell by 54% year-on-year in 2016.
From then onwards, sales remained lacklustre, at just over 100,000 units/year, until 2020, at which point they crashed even further. At the start of last year, the situation deteriorated dramatically when several leading domestic OEMs were charged with corruption. The ensuing scandal led the newly elected government to prohibit imports of all car parts. This alone damaged the market’s prospects, but further political instability and, of course, the COVID-19 pandemic, contributed to an unprecedented decline in sales activity, with only 21,000 Light Vehicles sold in the year as whole (a mere 433 units were delivered in Q2 2020). When considering the record high of 419,000 units sold in 2012, along with neighbouring Morocco’s success in building an automotive hub in North Africa, the outlook for the Algerian market is extremely bleak.
That said, the potential still exists for an auto sector to take shape in Algeria in the future, but this will hinge upon its competence in overcoming any further short-term crises and ability to diversify from its heavy reliance on oil and gas exports. More importantly, a competitive free market, supported by a fair and proactive government will be crucial in supporting the creation of a local automotive sector and attracting reliable foreign investment.
We forecast a recovery in 2021 from last year’s record low and anticipate gradual double-digit year-on-year growth over the medium term. But without the required structural changes to the Algerian industry, it will be many years before we see sales return to their former highs.