French auto manufacturer Renault is set to sign a deal with the Algerian government to form a joint venture (JV) in the country. Under the agreement, the government would own 51% of the project, and Renault would own the rest. BMI believes that the investment is commensurate with Renault ' s strategy to shift its strategic focus away from Western Europe. Further, we believe that Renault is well placed to develop production in the country - as a first-mover and market leader in sales volumes - but believe that the government may struggle to attract further investment.
BMI believes that vehicle production in Algeria is set to be trans formed by the establishment of this new Renault car plant. Initial reports suggest that the plant will have an annual output of 25,000 units from 2014, with plans to expand this to 75,000 units annually at a later date. A proportion of domestic production will then be exported.
We believe that the start of production in the country will be transformative for the Algerian auto industry, not only in terms of establishing production but also in terms of developing a vibrant parts and components industry. Reports indicate that Renault should be using 20-25% local parts and suppliers in the initial stage of production, rising to a 60% rate of localisation over the long term.
Renault has been able to develop domestic production capability as its sales in the country can easily support it. Indeed, the French auto manufacturer enjoys a market share of around 21%. Other brands selling on the Algerian market may struggle to achieve the necessary economies of scale, which we believe may obstruct the government ' s efforts to attract further investment in the sector.
Renault Turning From Europe
Renault has long maintained that it wishes to expand its presence in emerging markets in an attempt to decrease its reliance on Europe's declining auto industry. Indeed, it plans to sell more than 50% of its vehicles outside of Europe by 2013 ( see our online service, June 28, 'Renault To Decrease European Reliance' ). BMI has long maintained that auto manufacturers will increasingly seek to shift production closer to markets with strong sales growth. Recently, Renault has shifted much of its production away from France and towards higher growth markets; in December, Renault announced that it is planning to increase capacity at its facility in Morocco ( see our online service, December 13, 'Renault Continues To Shift Focus' ).