Import Substitution in Algeria: Industrial Policy, Investment and Economic Consequences

🇩🇿 Algeria, the second largest country by GDP in North Africa, is strongly dependent on hydrocarbon exports: between 2020 and 2024 hydrocarbons accounted for 13.3% of GDP and 45.8% of budget revenues. In response, Algeria implemented measures aimed at import substitution and domestic production expansion.

Instruments of import substitution

🚫 Firstly, one of the instruments is import restrictions and licensing. Since 2021, Algeria has applied trade-restrictive measures that the European Commission considers equivalent to an import ban; this prompted the EU to open dispute-settlement proceedings in June 2024 and to launch arbitration in July 2025.

💸 Secondly, the investment framework is used to push firms toward local production. AAPI, the Algerian Investment Promotion Agency, presents Law No. 22-18 as a reform intended to diversify the economy away from oil dependence, enhance the economy’s competitiveness, promote investment in priority sectors and valorize local resources. APS reported that AAPI had registered more than 7,600 import-substitution projects expected to generate more than 270,000 direct and indirect jobs.

Main sectors

🚗 Automobiles are the clearest case of import substitution with a European investor. Stellantis states that its Tafraoui plant in Oran involves more than EUR 200 million in investment with targeted annual assembly capacity of 90,000 cars. The Fiat brand plays a major role in Algeria’s automotive production, which might remind you of something familiar.
🟥Steel is one of the stronger examples because it is also competitive in international markets. AQS, Algerian Qatari Steel, exported nearly 700,000 tonnes of steel products in 2024 to 36 countries, generating more than $360 million.
💉Pharmaceuticals are another important sector. Locally manufactured pharmaceutical products covered around 68% of the national market in the first half of 2023. The U.S. International Trade Administration also notes that Algeria bans around 350 pharmaceutical products and certain medical equipment, partly to promote local manufacture.

Economic effects, risks and conclusion

📈 The potential benefits are clear but conditional. Import substitution can reduce dependence on hydrocarbons, foreign-exchange outflows, create jobs and increase domestic production. The most convincing evidence is sector-specific: Stellantis’ investment and localization targets, AQS steel exports and pharmaceutical localization data.

🏭 The risks are equally important. Import controls may raise prices if local production is expensive or insufficient. They may create shortages if restrictions precede actual production capacity. Local factories may continue to depend on imported components, machinery, raw materials and technical expertise, which means import dependence changes form rather than disappears. CKD assembly (Stellantis) can create employment, but it does not by itself prove deep local industrialization. Administrative licensing can also raise costs, while the EU dispute shows that trade restrictions can lead to diplomatic tensions.

🤔 Overall, Algeria is pursuing a selective import-substitution strategy based on import controls, investment promotion and localization requirements. The policy can support diversification if it leads to competitive firms, domestic suppliers and export-capable sectors. It can fail if it becomes permanent protection for high-cost assembly and weak competition. The decisive test is not the reduction of imports alone, but the creation of productive, technologically capable and internationally competitive domestic industry.