The two partners will build a new factory in the north of the country.
Renault has confirmed that it will form a joint-venture with the Algerian government in order to kick-start the local automotive industry. The French automaker will own a 49 percent stake in the new company.
The yet-unnamed joint-venture is planning on investing €1.2 billion (over $1.5 billion) to build a factory in Oued Tlelat, a small city in the north of the country. During its first year of operation, the plant will be able to churn out 25,000 cars and vans a year but the number will gradually reach 75,000 annual units before the end of the decade.
A vast majority of the vehicles built in Oued Tlelat will stay within the Algerian borders to help meet the needs of the ever-growing local market. Once supply catches up with demand, the plant might build cars for other countries in Africa.
The agreement with the Algerian state makes Renault the first automaker to set up a factory in the Maghrebian nation, but it also gives the company a three-year monopoly on the local market.
"The contract has a clause that says no other publicly-owned company will be able to ink a similar deal with an another automaker for the next three years," explained Chérif Rahmani, a minister in the Algerian government.
Renault hopes that the controversial clause will give it a head start over rival Volkswagen, who considered creating a joint-venture with the Algerian government several months ago.