Introduction to Green Economy and SMEs in Algeria
As one of the measures to escape the country’s oil and gas dependent economy, Algeria is striving to expand its small and mid-sized enterprises (SMEs) while making them eco-friendly and sustainable in the long run. During this attempt to renovate the country’s economic structure, the government expects green SMEs to be a driver for reducing high hydrocarbon energy dependency and to draw a virtuous circle of green job creation and economic growth.
To better understand the current landscape of green SMEs with limited data sources, Chart 1 provides the trends in all Algerian SMEs in the last five years. In recent years, the number of SMEs has considerably increased every year and SME employees now account for about 20 percent of total employment. By sector, the majority of SMEs fall into the category of services industry, with others in the construction, manufacturing, agriculture and energy sectors in descending order (Chart 2). While SMEs are gaining increasing importance in the national economy, it is hard to measure the accurate size of green SMEs and their economic and environmental effects because only a small number of SMEs have been certified or adopted a standardized environmental management system.
Chart 2. Algerian SMEs by sector in 2015 (in percentage)3
Considering the current status of SME development in Algeria, this research paper aims to provide a brief introduction of the Algerian government’s approaches to green SME expansion, investment and financial schemes, and its efforts to seek synergies with private sectors that will be helpful for eco-entrepreneurs.
Top-down Approaches to Promote Green SMEs
To visualize and operationalize green SME expansion goals, the government has documented its national vision and strategies in recent years, from which SMEs can draw implications for future businesses. Back in 2002, the Algerian Ministry of Territorial Planning and Environment published the national action plan for the environment and sustainable development, which provided a legal background for public policies to deal with adverse environmental effects related to economic growth. In the following years, relevant public institutions were established, such as the Research Institute for Sustainable Development (IRDD). Although its institutional reforms and ongoing programs have been considered good practice in the Middle East and North African region, the Algerian government’s approaches were sometimes considered ‘restrictive’ rather than ‘supportive’ of green SMEs due to fragmented tactics and a lack of understanding of the SME business environment.1
To complement such weakness, the government has continued to provide more detailed action plans. For instance, energy, waste, forestry, water, agriculture and tourism are highlighted as main sectors to be emphasized in the green economy. In 2015, during the preparation for COP21, Algeria’s Intended Nationally Determined Contribution (INDC) specified its mitigation strategies in the energy, waste and forestry sectors to be achieved by 2030 (Table 1). In addition, the new five-year growth plan encourages investments in agriculture, water, waste and tourism.2 Especially among these sectors, renewable energy investments will be gradually enhanced; for example, a large number of photovoltaic solar power plants and wind turbines are under construction and fourteen photovoltaic plants started operation in 2015. In these ways, renewable energies are expected to become alternative sources of energy supply for both domestic and foreign use in the long term, thereby stabilizing Algerian energy trade balances.3 In addition to these investments, the government is planning large-scale social and economic infrastructure investments to improve the country’s unfriendly business environment, including green assembly and maintenance plants for intercity trains and their networks.4
Table 1. Main Planned Actions by Sector in Algeria’s INDC 20158
Green Investment and Financial Schemes
The Algerian government is adopting financial tools and instruments such as grants, taxes, loans and guarantees; a feed-in tariff for photovoltaic solar power is a good example. However, green financial policies often fail to provide SME-targeting and sector-specific solutions, causing green SMEs difficulty in accessing available resources. As financing is one of the most critical issues during business creation, the government does its best to provide support with the following public funds that widely apply to all SMEs in Algeria.1
Society of Venture Capital (Les sociétés de capital investissement)
In Algeria, there are six venture capital companies affiliated with public banks: BADR, BNA, BEA, ADB, CPA and BDL. They provide private equity funding for business creation and development. According to Algerian law, they can provide a maximum of 49% of a company’s total capital for a period of five to seven years.
Guarantee Fund of Investment Loans (La caisse de garantie du crédit d’investissement, CGCI)
CGCI is a public institution established to support SME creation and development by facilitating access to credit. It covers credit risks incurred by banks providing loans to SMEs. Credit guarantees are given following the review of projects by the fund and at the time in which a lending bank finally agrees to fund the business. The maximum guarantee amount is 250 million DA (approx. 2.2 million USD).
Guarantee Fund of SME Loans (Le Fonds de garantie des crédits aux PME, FGAR)
FGAR is similar to CGCI in that they both provide credit guarantees to facilitate SMEs’ access to financing by providing needed collaterals or credits in the case of business creation and development. The minimum guarantee amount per project is 5 million DA (approx. 45,000 USD) and the maximum is 50 million DA (approx. 450,000 USD).
Although none of these funds are tailored for green SMEs, they can be widely applied to all SMEs. Additionally, the government is operating a number of environment-related funds to support greening actions in Algeria, such as the Environment and Pollution Control Fund, Energy Management Fund, Renewable Energy Fund, Desertification Control Fund, etc.2
Seeking Synergies with Private Sectors
Since 2013, Algerian ministries and public institutions have partnered with GIZ to promote green SMEs and employment. During this time, SME promotion policies were drafted, four innovation networks were established and green business trainings were made available.3 Commenced in 2015, ‘Jeune Entrepreneur vert’ is another good example of a public-private partnership program that financially supports young green entrepreneurs after reviewing their business plans.4 The Ministry of Industry and Mines also annually awards the national prize for SME innovation, whose first place prize money amounts to 1,000,000 DA (approx. 9,000 USD). Through this prize, the Ministry aims to identify SMEs with innovation and R&D and to encourage SMEs’ active participation in the national economy.5
Green Business Prospects for Eco-Entrepreneurs
Due to the government’s top-down approaches to stimulate green SMEs, Algerian green entrepreneurs may be able to find more business opportunities in energy, water, waste management, forestry, agriculture, tourism and green public procurement. Moreover, they can benefit from promotional policies and abundant labor forces enhanced by green education. In terms of business creation and seed financing, however, green entrepreneurs will still be faced with limited policies, financial schemes and funds accessible to green SMEs.
To further improve business environments, the government is expected to design sector-specific policies including financial incentives and public funds. To provide easier accessibility, the government should clearly and promptly disseminate updated information on environmental compliances and policies. Online tools and on-site trainings can be good options for information provision. It is also important to encourage larger firms to develop and expand partnerships with green SMEs, as they rarely have chances to engage in large-size business cases.
At this early stage of green SME development, SMEs themselves are also recommended to enhance their own capacities, especially in recognition and adoption of environmental compliance and regulations. Collective learning among SMEs, such as best practice sharing and technology transfers, would complement the weakness of government policies.
Asma Benzazoua Bouazza (2015), Small and Medium Enterprises as an Effective Sector for Economic Development and Employment Creation in Algeria, International Journal of Economics, Commerce and Management Vol. III, Issue 2
Direction Generale de la PME (2016), Prix National de l’innovation pour les PME Edition 2016, Ministère de l’Industrie et des Mines. http://www.industrie.gov.dz/?PRIX-NATIONAL-DE-L-INNOVATION-POUR,584
GIZ (2015), The portfolio of GIZ Algeria: Environmental governance and sustainable development, GIZ. https://www.giz.de/en/downloads/giz2015-en-giz-algeria-portfolio.pdf
HuffPost Algérie (2015, 08 June), Les jeunes porteurs de projets algériens appelés à participer au programme de formations “Jeune Entrepreneur Vert,” Al Huffington Post. http://www.huffpostmaghreb.com/2015/08/06/jeune-entrepreneur-vert_n_7949930.html
Korea Development Institute (KDI) (2012), Establishment of Algeria’s National Vision 2030, KDI and Ministry of Strategy and Finance (MOSF), Republic of Korea. http://www.ksp.go.kr/publication/policy.jsp?syear=&snat=Algeria&skey=&stem=&stype=TIT&pg=1&idx=3851
L’aide à l’accès au financement bancaire, Ministère de l’Industrie et des Mines. Retrived from http://www.mdipi.gov.dz/?-L-aide-a-l-acces-au-financement-
LeAnne Graves (2016, 17 March), Algeria has to make its own progress on solar power, The National. http://www.thenational.ae/business/energy/algeria-has-to-make-its-own-progress-on-solar-power
LeAnne Graves (2016, 11 April), Lower oil revenues weigh on Algerian transportation ambitions, The National. http://www.thenational.ae/business/economy/lower-oil-revenues-weigh-on-algerian-transportation-ambitions
Ministère de l’Industrie et des Mines (May 2016), Bulletin d’information Statistique No. 28. http://www.mdipi.gov.dz/IMG/pdf/Bulletin_PME_no28.pdf
OECD/The European Commission/ETF (2014), SME Policy Index: The Mediterranean Middle East and North Africa 2014: Implementation of the Small Business Act for Europe, OECD Publishing. http://dx.doi.org/10.1787/9789264218413-en
The People’s Democratic Republic of Algeria (2015), Intended Nationally Determined Contribution INDC – Algeria, UNFCCC. http://www4.unfccc.int/Submissions/INDC/Published%20Documents/Algeria/1/Algeria%20-%20INDC%20(English%20unofficial%20translation)%20September%2003,2015.pdf
Tom Stevenson (2014, 12 August), Algeria to invest in energy exports, capitalize on EU-Russia rift, This is Africa. http://www.thisisafricaonline.com/News/Algeria-to-invest-in-energy-exports-capitalise-on-EU-Russia-rift?ct=true
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1 Asma Benzazoua Bouazza, Small and Medium Enterprises as an Effective Sector for Economic Development and Employment Creation in Algeria (2015)
2 Bulletin d’information Statistique No. 28, Ministère de l’Industrie et des Mines (May 2016)
3 Bulletin d’information Statistique No. 28, Ministère de l’Industrie et des Mines (May 2016)
4 OECD/The European Commission/ETF, SME Policy Index: The Mediterranean Middle East and North Africa 2014: Implementation of the Small Business Act for Europe (September 2014)
5 United Nations Economic Commission for Africa Office for North Africa, The green economy in Algeria: An Opportunity to Diversify and Stimulate Domestic Production (2013)
6 Tom Stevenson, ‘Algeria to invest in energy exports, capitalize on EU-Russia rift,’ This is Africa. (12 August 2014)
7 LeAnne Graves, ‘Lower oil revenues weigh on Algerian transportation ambitions,’ The National. (11 April 2016)
8 The People’s Democratic Republic of Algeria, Intended Nationally Determined Contribution – Algeria (2015)
9 L’aide à l’accès au financement bancaire, Ministère de l’Industrie et des Mines
10 United Nations Economic Commission for Africa Office for North Africa, The green economy in Algeria: An Opportunity to Diversify and Stimulate Domestic Production (2013)
11 GIZ, The portfolio of GIZ Algeria: Environmental governance and sustainable development (2015)
12 ‘Les jeunes porteurs de projets algériens appelés à participer au programme de formations “Jeune Entrepreneur Vert,”’ Al Huffington Post (8 June 2015)
13 Direction Generale de la PME, Prix National de l’innovation pour les PME Edition 2016 (2016)