22/07/2013

Rolling either way? Algerian entrepreneurs as both agents of change and means of preservation of the system. Part II

By Amel Boubekeur, researcher at Centre Jacques Berque, Rabat, Maroc. 

Published in The Journal of North African Studies the 6th of July 2013

Part II

1980 –1994:  Chadli’s reshaping of the rent and the relaunch of the private sector

President Chadli Bendjedid’s ascension to power coincided with a significant rise in oil prices between 1979 and 1981. A policy of restructuring public companies was undertaken. Breaking socialist enterprises into smaller units restructured the leadership of these public companies and above all created numerous positions of responsibility that were predominantly assigned to Chadli’s allies and his family (Grim 2004). To the president, this presented an opportunity to marginalise the old guard in the FLN as well as their national managers. One of the most high-profile actions was the establishment of a Court of Auditors in 1980 which convicted Abde-laziz Bouteflika, then foreign minister and close collaborator of Boumediene, for embezzlement.

By contrast, Bendjedid’s second term starting in 1984 was marked by a decline in oil revenues and increased external debt. The costs of the stagnant public enterprises, soaring corruption and Algerians’ disillusionment with the egalitarian promise of a socialist economy which had instead enriched a nepotistic elite, led to the major crisis of the 1988 riots. Faced with these problems, the government opted for creating a more official private sector. In 1989, Chadli designated a new prime minister, Mouloud Hamrouche, who embarked upon a programme of economic lib-eralisation and the transition to a market economy. This new government of ‘reformers’ clearly announced its intention to fight corruption and hidden sources of wealth. Through a new consti-tution, they established the freedom of association and private ownership, enabling many employers’ organisations, such as the Confe´de´ration Ge´ne´rale des Ope´rateurs Economiques, to resurface, reduced state control over the economy and granted national companies private status under the law. Foreign companies were encouraged to invest through new credit facilities. In order to stem clientelist enrichment, domestic companies’ monopoly on foreign trade was abolished and all companies under private law were allowed to import.

Rent-seeking and reform obstruction must always be justified within a certain ideological fra-mework (socialism, planned economies etc.). The political situation in the early 1990s and the rise of the Islamist party Front Islamique du Salut (FIS) played this role and gave new life to the clientelist networks threatened by the private-sector reforms. Multiparty elections were announced but were then cancelled after the FIS achieved strong results in the 1991 parliamen-tary elections. Hamrouche’s government as well as that of President Chadli were dismissed in 1991 and were thus unable to continue their reforms. A state of emergency was declared in 1992 and a new president, Mohamed Boudiaf, was assassinated after warning that he wanted to get rid of the ‘politico-financial mafia’ that was a parasite on the economic development of the country. Two subsequent governments between 1992 and 1994 attempted to return to a planned economy, but the excessive debt burden forced Algeria to opt for an adjustment pro-gramme under the tutelage of the IMF.7 Debt rescheduling sanctioned by the Fund helped pol-itical elites survive while oil rents were decreasing. It derailed the liberalisation efforts of the 1980s. Rent-seeking tendencies within political and economic elites grew stronger. The new business associations that emerged, such as the Confe´de´ration Alge´rienne du Patronat (CAP), were obliged to maintain close allegiances with the authorities and the Confe´de´ration Ge´ne´rale des Ope´rateurs Economiques was even led by members of the economic class that had already been incorporated into state-centred networks in the 1980s. Often these included former direc-tors of public companies. The competition between business organisations over privileged access to the state, in addition to their low organisational capacity, further frustrated the emer-gence of a real economic force to lobby for the effective implementation of governance reforms. Despite the new freedom to do business outside the state’s perimeter, the poor quality or sheer absence of rule of law – a result of the civil war and the austerity imposed by the debt resche-duling programme – provided strong incentives for businessmen to resort to clientelist strategies in dealing with the bureaucracy (e.g. in obtaining land, bank credit, import licenses, resolving tax issues etc.).

1994 –1999: The bazaar economy’s entrepreneurs

The country’s descent into violence, with clashes between Islamists and the security forces, pre-cluded the possibility of a real and democratic debate on economic governance. While the mili-tary was taken up with saving the country from the Islamist threat, the opposition parties would not discuss the army’s monopoly of the economy. With the privatisation of public companies, the traditional economic role of officers who usually ended their careers at the head of state enterprises in the 1970s and the 1980s came to be replaced by a new lobby of importers often made up of retreated generals and their children. These companies often gain exclusive licenses to operate activities of imports, transportation and safe investments to exclusive markets of that nature, favouring the enrichment of new entrepreneurs in a bazaar economy who acted as inter-mediaries for militaries involved in importation activities. At the same time, racketeering and the risk of assassination resulted in an exodus of private-sector entrepreneurs who tried to maintain independence from the patronage of army members.

In this security-dominated environment, the IMF’s tutelage of the Algerian economy – which was not accompanied by demands to open up the political arena or to make the privatisation of public enterprises more transparent – implied support by the international community, and especially Europe, for the army’s continued hold over the economy. It was motivated by (1) the fear of a growing Islamist danger in Europe, (2) the security of gas and oil supplies from Algeria and (3) direct gains by European firms catering to the import-hungry local market. Without strengthening democratic institutions, the adjustment programme was used to ‘settle the finan-cial problems of the state without settling those of the country’ (Addi, Le Quotidien d’Oran, June 24, 26, 27, 2004). A first wave of public enterprises was privatised, with the security situation limiting the transparency of the process. ‘To the previous “capture” by withholding (on the entre-preneurs’s activities), the system added or substituted enrichment by speculating on exchange, pricing and credit by controlling the mechanisms put in place by the adjustment for its own ends’ (Bendarra 2002).

Privatisations carried out in the early 1990s by the Hamrouche government were transformed into an informal ‘bazaar economy’ during the civil war; this involved a preference for trade lib-eralisation over growth and ensured the transfer of public monopolies into the hands of large groups of private businessmen who represented the political interests of various clans in power. Numerous public managers also used their former connections with the administration to launch their own businesses and benefit from public contracts (Madoui 2008). With no pol-itical consensus amongst the different decision-making circles on how to manage the process, notably the proceeds from the sales,8 this privatisation did not introduce true competition into the market. Indeed attempts at regulation (such as the anti-corruption campaign of prime min-ister Ahmed Ouyahia in 1996) were primarily used to fragment the clientelist networks of rival political clans in order to tackle them one by one (Byrd 2003). With each change of gov-ernment, new laws were introduced to serve the interests of the current ruling clan. This constant change of conditions for obtaining approvals and credit or for paying taxes effectively ruined the idea of a real private sector which, as it was not protected politically,9 could not resist.

This botched privatisation through clientelist liquidation of public enterprises cost the state more than $20bn between 1990 and 2003 (Bendarra 2002). The rescheduling of debt, mean-while, involved $21bn worth of resources being directly or indirectly transferred to the auth-orities. Privatisation thus benefited a limited group of ‘patrons and clients’. With no strategy for reinvesting proceeds into the productive sector, this left civil society no choice but to partici-pate in the informal economy, known as trabendo (contraband). While grey-sector profits were beyond the state’s reach they depended on the latter’s informal power. The authorities’ laissez-faire attitude was also intended to buy a relative social peace10 and allowed unstructured redis-tribution within civil society, in the absence of an institutionalised link between the state and its citizens (elections will no longer be really free) and productive economic policies capable of creating jobs (Boubekeur 2008).

In this respect, former Islamists from the FIS and Islamic Armed Groups (GIA) have been allowed to reintegrate rent channels and negotiate with the army by creating their own businesses. Former FIS-elected representatives and leaders have been associated with flourish-ing private companies (sometimes in direct partnership with generals). One example is Bena-zouz Zebda, the former leader of the FIS newspaper El Mounquid who has set up an important import –export company in partnership with the son of Abassi Madani, the former leader of the FIS. Madani Mezrag, the former leader of the GIA, has created his own water company named Texanna, after the name of the bush where he was established (Boltanski, Le Monde, September 28, 2005). Money collected for years from the racket GIA were conducting (which they call ghaneema, i.e. war’s treasure) has never been redistributed or restituted by the state to victims. Instead, boutiques that imprisoned militants owned have been restituted and repentants terrorists have benefited commercial lands and loans in order to build new factories.

As mentioned above, the bazaar economy also permitted the enrichment of a new class of private entrepreneurs who assumed the role of intermediaries, as the increased economic mon-opolies led to the withdrawal of the state (Werenfels 2002, 13). This new group does not come from the planned economy or from the rents generated by reform. Its resources were accumu-lated in the informal economy, especially that connected to the important lobby, which is not controlled institutionally. It is this generation that has come to play an important role in current politics.

 

Notes

7. Three ‘standby’ agreements covering the period 1989–95 were signed by the government and the IMF. These were negotiated without public debate, arousing the discontent of the opposition. They targeted the gradual payment of debt and consisted primarily of trade liberalisation, the depreciation of the dinar and the reform of customs and taxation.

8. Even in a clientelist framework, the ruling elites have to maintain a minimum consensus between them on the political orientations of the rent in order to achieve the successful implementation of selected reforms (see Grindle and Thomas 1991).

9. For example, this type of protection is illustrated by the fact that many loss-making public banks were obliged to lend to private companies with no real guaranties.

10. Armed Islamist groups as well as former members of the FIS and the Islamic Army of Salvation found in the trade of contraband a privileged position for rehabilitation and negotiation with the army over the distribution of the rent (see Boubekeur 2008).