Volkswagen and Sovac have announced a joint venture in Algeria.
In a much-needed boost to the Algerian economy,a joint venture was announcedlate last year betweenSPA Sovac Algerieand the Volkswagen Group to produce VW vehicles in Algeria. The JV, to be known as SPA Sovac Production, will initially be owned 95% by Groupe Sovac and 5% by Volkswagen AG. As part of the deal a new EUR250 million assembly plant is due to be constructed on a 150-hectare site in the region of Relizane, 220 kilometres west of Algiers, and which will eventually employ around 1,800 people. Once complete, the new facility will reportedly produce 12,000 new vehicles by 2018, before reaching a capacity of 100,000 vehicles per annum by 2023, including a range of selected models such as the VW Golf, Seat Ibiza, Skoda Octavia and the VW Caddy.
The announcement comes five years after the Algerian government started making efforts to reform the country’s economy and increase foreign investment outside the oil and gas industry. In 2014 a specific law was introduced to boost investment in the automotive sector in an attempt to reduce the cost of new cars in Algeria, thereby decreasing the reliance on imports of cars and spare parts. The law incentivises automakers to assemble vehicles in Algeria, in exchange for market access. Now, after the successful introduction of Renault into the assembly market in 2014, and Hyundai in 2015, it is the turn of two other major manufacturers, Volkswagen and Peugeot, to enter the Algerian market.
SPA Sovac Production is Volkswagen’s first major direct investment in the MENA region. Although VW’s investment is minimal at this stage, they are permitted as a foreign company to own up to 49% in the joint venture, and it is envisaged that their stake will grow over time. Volkswagen’s stated aim is to take advantage of the scale of Algeria’s economy, together with its strategic geographical positioning, to build Sovac Production into the premier distributor of VW vehicles in the Middle East and Africa.
Although Peugeot PSA Group initiated similar negotiations with the Algerian government before the VW Group, it has yet to be licenced and approved.
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