Algeria’s diversification process is moving far too slowly to create a buffer against the challenges that stagnant oil prices and declining Algerian oil production present. This means that MNCs’ growth strategies in the market may become increasingly complex as Algeria faces a downward trajectory in the next couple of years. Despite the adverse outlook, a refined strategy and closer attention to the market can help MNCs capture growth from Algeria’s 40-million-large consumer market and developing local industries.

Algeria, the second-largest oil producer in Africa, relies on energy for 95% of its exports and 60% of government revenues. Despite the crash in oil prices in 2014, the country continued to post steady growth, with heavy support from foreign reserves and the Fonds de Regulation des Recettes (Algeria’s sovereign wealth fund). However, it was not until 2016 that the challenge of low global oil prices became more apparent.

Now in 2017, and beyond in 2018, the prolonged period of low oil prices will begin to show an even more marked effect, and will continue to increase pressure on Algeria’s economy. Though foreign reserves are dwindling quickly, US$ 109 billion will help prevent the economy from facing a sharp and painful drop. Like other MENA markets, Algeria intends to implement reforms to diversify itself away from oil; however, these reforms are moving at a very leisurely pace. The government released a ‘new growth model’, but there is still a lack of targeted actions and reforms.

As the period of reliance on external growth to meet targets comes to its end, MNCs must develop more targeted tactics and monitoring to excel in the market.

To refine their Algeria strategy, executives should consider these three key questions:  

1. Do my local partners have the capabilities to respond to the challenges in the market?

Algeria’s trade balance is deteriorating because of lower energy exports. With the government aiming to rationalize spending by cutting down its import bill and prioritizing the development of local industry, MNCs are likely to face even greater localization pressures. The introduction of import quotas, bans, and licenses is likely to intensify this year as the government tries to preserve its supply of foreign exchange. These measures represent significant obstacles to importing MNCs’ products and can result in delays or extra costs.

With import regulations frequently changing, executives must ensure their local partners are equipped to monitor and react to these changes appropriately. Increasing information sharing, improving inventory planning, and building close ties with relevant officials are methods through which executives can improve their local partners’ performance in this challenging environment.

2. Is the opportunity for my product shifting?

As economic pressures in the market increase, MNCs are likely to find that consumer behavior and preferences are beginning to change. Recent tax and price hikes, such as a 2% increase in the VAT and an increase in fuel prices, combined with declining consumer confidence, are putting pressure on consumer budgets. Accordingly, Algerians are likely to trade down for cheaper products, purchase products in smaller quantities, or shift toward greater in-home consumption.

While it may be difficult to increase prices in this environment, there are other tactics MNCs can use to adapt to economic pressure and shifting consumer behavior. Adjust the product portfolio, product size/package/features, or payment scheme can help attract customers who have become increasingly hesitant in their spending. Marketing strategies that target a specific customer segment or that differentiate MNCs’ products from alternatives can also help MNCs maintain or grow their revenues.

3. Am I aligned with my team on tactics to sell to a price-sensitive government? 

With severe pressure on government revenues as oil prices remain stagnant, the government is rationalizing spending until 2019. Total spending was cut 9% YOY in 2016 and 14% in 2017; the biggest cut is to investment expenditures, which were slashed by 28% YOY. Operating expenditures were cut across most ministries, though the Ministry of Health received a slight increase in its allocation. As tightening fiscal policy is expected to continue over the coming years, MNCs must increasingly develop tactics for selling to a highly price-sensitive public sector.

MNCs should conduct more training for their local team and partners to ensure effective communication of the quality differentials of their products against cheaper competitors. Additionally, MNCs should explore avenues to align their strategy with plans for the government’s priority sectors, like healthcare, agriculture, and industry.

Photo credit

FrontierView has all the information you need about your market, industry, and company in real-time to power your business decisions. We offer a solution that puts the right information at the right time, at your fingertips. If you would like more insights into your specific markets, click the “Start Free Trial” button on your screen to speak with a dedicated Client Services Manager and receive complimentary access to our offering.