By the Blouin News Business staff

Algeria and Italy: “allies and brothers”

by in Europe, Middle East.

Algerian Prime Minister Abdelmalek Sellal sits next to his Italian counterpart Matteo Renzi (L) during a welcome ceremony in Algiers, on December 2, 2014. FAROUK BATICHE/AFP/Getty Images

Italian P.M. Matteo Renzi (L) and Algerian P.M. Abdelmalek Sellal (R) in Algiers, 12/2/14. FAROUK BATICHE/AFP/Getty Images

On Wednesday, Algeria and Italy took their geopolitical partnership further with the signing of five “Memorandums of Understanding” creating joint industrial companies. This was done at a forum in Milan, the main event of a three-day trip to Italy this week by Algeria’s Minister of Industry and Mining Abdesselam Bouchouareb and his delegation of businessmen and government officials. Their aim was to boost the economic partnership between Algeria and the E.U., with an emphasis on Italy. So far at least, they are succeeding.

Algeria’s economy is still vastly dependent on hydrocarbons, which accounted for 95.5% of its exports in 2014, so it is eager to pursue industrial diversification through joint partnerships like these. All the more so now that oil prices have shrunk by nearly half in the last six months, slashing the government’s revenue and its trade surplus. The new joint companies will manufacture ceramics, trucks and trailers, hydraulic lifts, parts for cement and concrete factories, and electrical transformers, respectively. The details, such as where manufacturing would be sourced, have yet to be released. If the factories are located in Algeria, they would help boost Algeria’s non-hydrocarbon exports, which had increased by 39.5% in 2014 to $2.8 billion but still amounted to just a tiny 4.5% of total exports. There is a lot of room for expansion.

Algeria’s relationship with Italy is an important one for both sides. Following Spain, Italy was the second-largest importer of Algerian goods in 2014 (totaling $8.37 billion), and was the third-largest exporter of goods to Algeria (totaling $4.98 billion) following China and France. Algeria is Africa’s biggest arms importer, budgeting $13.1 billion for the defense sector in 2015, in addition to $6.95 billion for “homeland security.” Italy is one of the top three weapons suppliers to Algeria, along with China and Russia.

Algeria’s iron-fisted rule under President Abdelaziz Bouteflika has drawn human-rights criticism but has provided the political stability necessary for business. Having served 15 years, the 77-year old strongman was “re-elected” in April 2014 for the fourth consecutive time. Opposition members and dissidents are routinely jailed and suppressed. Algeria was spared the upheaval of the Arab Spring because it already went through a grinding civil war against Islamists in the 1990’s in which roughly 200,000 people were killed. Leading the military-run government, Bouteflika guided the country out of the conflict but the Islamist terrorist threat was never eradicated. In January 2013, al-Qaeda terrorists attacked Algeria’s In Amenas gas facility and killed 39 foreign workers before being destroyed by the Algerian military.

Accordingly, Algeria and Italy are also collaborating closely on counter-terrorism. Following a high-level group meeting on March 22, officials from both countries announced a strengthening of counter-terrorism efforts, including the need “to quickly stabilize Libya,” and face the threat of the Islamic State. The Italian Vice Minister of Foreign Affairs said that the two countries are “allies and brothers.”

The result of Algeria’s vigilance combined with its outreach to foreign partners? The World Bank predicts that Algeria’s economy will grow by 3.3% this year and 3.5% in 2016, more than double the rates expected for the euro zone. And Italian firms are not the only ones looking with renewed interest to Algeria. French retailer Carrefour, the world’s second largest, announced earlier in March that it will return after a six-year absence and open a hypermarket in Algiers by the end of June.