North Africa, West Asia

Algeria’s transition to uncertainty

Algeria is facing succession scrambles and economic crisis. Why are the country’s leaders handing the country over to the IMF rather than use its political and economic talent? 

Francis Ghilès
1 February 2016

Press Association Images/Sidali Djarboub. All rights reserved.The political turmoil that has engulfed Algeria since the head of the Intelligence and Security Department (DRS), General Mohamed Mediene, was dismissed in September, has no precedent in the recent history of the country. 

The bitter fight and unusually public brawling between powerful clans as the succession to an ever-weaker President Abdelaziz Bouteflika draws closer will probably be the graveyard of many political reputations in Algeria. The fact that it is occurring as the price of oil and gas, Algeria’s exports mainstays, have collapsed, sharpens what is a rather strange affair as the succession could turn a once revolutionary country into one where one family member succeeds another. Not something Houari Boumediene would have condoned, but times change. 

Where economic policy is concerned, Prime Minister Abdellatif Sellal appears to have lost his script. He did not see the fall in prices coming, did not think through the economic and social consequences and seems to be letting his ministers cut budgets right, left and centre with the result that major investment projects are a mess. Confusion is all the greater as projects are being postponed without any publicity, so towns and regions wake up one morning and discover by rumour or stealth that an investment they were counting on has simply vanished. 

Sellal has certainly lost control of the government. His minister of industry openly defies him and recent parliamentary debate on the budget degenerated into fistfights and insults. The secretary-general of the former ruling – but still most important party – the National Liberation Front (FLN) resorted to abusive language towards anybody who dared oppose his views. Meanwhile, senior DRS officers were arrested in a sinister ballet that resembled a battle of shadows. 

“It is a dangerous job being an Algerian,” wrote a young writer a few years ago. It certainly feels that way today. The absence of any forward thinking economic policy is fuelling a crisis of confidence, which is illustrated by the fast decline of the dinar on the black market. 

Algerian leaders boast the country has no foreign debt but only someone who is economically illiterate would dare utter such words.

Unlike Turkey, Brazil, China or India, Algeria has utterly failed over the past 30 years to gain any traction in international affairs. Its diplomats are smart, well-educated and the Foreign Ministry does weigh in on regional affairs, but an ever-more corrupt and rentier economy deprives it of much influence abroad. 

Tens of billions of dollars have been wasted in overpriced, badly built, infrastructure projects. Funds have been embezzled and moved abroad or lavished on state subsidies – estimated at a staggering 29% of gross domestic product (GDP) – for oil, gas and food. Social peace has been bought at a huge cost, not the least of which is the billions of dollars every year from smuggled petrol into neighbouring countries, especially Morocco and Tunisia. 

The average Algerian’s income may have reached $5,000 in 2011 but it is unevenly distributed. Unemployment of young people is much more than the official level of 20% while living standards are impossible to ascertain with any degree of precision in a country where half the non-oil and -gas production is informal. 

Capital flight is rife, with Algerian money contributing to the real estate boom in Alicante, Mallorca, Paris and Geneva. Algerian leaders boast the country has no foreign debt but only someone who is economically illiterate would dare utter such words. Rabah Arezki, who heads the commodity unit at the International Monetary Fund’s (IMF) research department, explained to a meeting of the National Economic and Social Council in Algiers last September that the country’s oil and gas sectors ran the risk of becoming “obsolete assets” because of the rise in the use of renewable energy, the revolution wrought by US shale oil and Iran’s probable return to the market.

This means trouble for an economy that is little diversified and where too many private businesses operate within shadowy mafias and yield increasing political influence. Large amounts of informal, not to say dirty, money are seeping into an ossified political system whose members pay little attention to the needs of genuine entrepreneurs – and there are many in Algeria, who crave clear and transparent rules and a less overbearing bureaucracy.

They would also benefit from a banking system not akin to Jurassic Park and a judicial system worthy of the name. Algeria has, economically speaking, gone back in recent years. This inevitably spells trouble. 

Forty years ago, 30% of GDP was invested in the industrial sector, give or take a few percentage points. That figure has fallen to 10% over the past decade. However misguided some of the industrial projects initiated under Boumediene were, they spoke of a noble ambition. For instance, he invested heavily in education. However, he must be aghast at the utter betrayal of his ambition to make Algeria a modern economy. The Algerian government has given up investing in its youth. That part of society is seeing no help in setting up small companies or making available financial instruments to help it achieve such ends or helping it become computer literate. Human resources just go to waste. 

The Algerian government has given up investing in its youth.

It has chosen to concentrate large foreign investments in certain regions, not least the west, from where many of its leaders hail, and punish the region of Kabylia, due east of Algiers, for having “rebelled” in 2000 and demanded that its Berber identity – and that of millions of Algerians beyond that region – be respected. It even bans private Algerian investors from making large investments there. 

A decade ago, the government sold off most of the country’s commercial fleet to a sulphurous Saudi businessman, Ghaith Pharaon, and it did the same with the steel works at El Hajjar to Indian businessman Lakshmi Mittal, in a deal that were the country run with a modicum of seriousness would have been denounced as a sham. It has outrageously favoured Middle Eastern and Gulf interests that seem to be interested in short-term gains, knowing full well that long-term industrial projects backed by western and Asian companies are far more worthwhile. 

In such a climate, Mediene’s attacks against the head of state have a hollow ring. In the 20 years he ran the DRS, he hollowed out the ranks of its most deserving officers. The same process has been at work in the army officer corps. Too many of those who Mediene has supported have milked the cash cow for their own benefit. 

Attacking the system that he has done so much to consolidate over two decades rings hollow. He could do worse than to explain the whereabouts of the thousands who “disappeared” during the civil war when the security forces were forced into a dirty war to fight Islamic terrorism.

To denounce an alleged miscarriage of justice is fine but why does he stop at a particular case, be it that of a senior officer? Is no other Algerian who has suffered a miscarriage of justice worthy of his knowledge of the inner workings of the system – and help in shedding light? He could choose to enlighten his countrymen and international observers of Algeria on the “private” Gulf and Saudi funds that financed the Islamic Armed Group in the 1990s. These funds originated in countries that had no love for a once revolutionary state which, to its eternal honour, backed the Palestinian Liberation Organisation and the African National Congress in their hour of need.

In the recent past, too many Algerian leaders have chosen to bury their heads in the sand, refuse to see the economic forces at work that are changing the world, buy social peace but deny the next generation of Algerians the tools to earn a decent living and stand on their two feet.

If home-grown reforms are not forthcoming, the IMF will ultimately oblige.

There is plenty of sand in Algeria; it is easy to bury your head in it. However, considering the turbulent nature of the region, the speed at which changes are sweeping away economic certainties, which seemed cast in bronze and the lack of forward thinking, it might be worth paying attention to the only prime minister who, a quarter of a century ago, dared usher in bold economic reforms.

In a hard-hitting speech to an audience of veterans of the war of independence, that prime minister, Mouloud Hamrouche, warned of the dire future the country faced. Lest his detractors forget, he is a military officer who joined the National Liberation Army when he was 16.

There are many other officers who could help put Algeria back on its feet but they are probably too old. Many younger officers in the army and security forces feel deeply ashamed and despondent when they watch the pathetic spectacle that passes for politics in Algeria today, but they lack experience and access to the levers of money and power. They understand that if home-grown reforms are not forthcoming, the IMF will ultimately oblige.

The debate about economic reform is far more open and well informed than it was in the 1980s but the government has chosen to be deaf. What has changed is that there are no teams of good economists capable of writing a blueprint for reform, let alone enacting it.

Plenty of good analyses exist, however, and there is no shortage of talent in Algeria. One is left wondering what is left of Algeria’s famous pride when its leaders seem to be handing the country, in slow motion, over to the IMF rather than use the political and economic talent that exists in the country.

Bouteflika was never the slightest bit interested in economics, unlike his illustrious predecessor, but leaving the country in a state of economic ruin will hardly earn a place in the pantheon of Algerian leaders.

Turning into a bateau ivre is not an option for Africa’s largest country. Neither its neighbours, nor Europe nor the United States, desperate to maintain a modicum of stability on southern Mediterranean shores, can relish the sight of a government losing control of the economic and financial situation.

The IMF will intervene, as it did in 1994. Were that to happen, Algerian leaders will, yet again, have demonstrated their extraordinary talent for discarding – some would say spitting out – their most talented sons and daughters.

This piece was first published on The Arab Weekly.

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