Algeria’s future challenge

Reinventing itself under a new governance

The key challenge of Algeria’s between 2016 and 2030, and taking consideration of the recent world mutations, would be to put in place a diversified economy, that is less dependent on hydrocarbons.  This is largely conditioned by a renewed governance model, literally reinventing itself under a new governance.  Before the important geo-strategic global changes, Algeria’s future challenge would be of only two types of scenarios, which are whether to continue along the current path and go right back to the IMF between 2018 and 2019, or proceed with the long awaited structural reforms.  These latter would assume for a start, another governance style, which not being utopian, should gradually, bring in a minimum of social cohesion, indispensable for Algeria with its not unsignificant potential, to seriously aspire to the status of emerging country.

1 – Efficient Government and governance

It is unanimously accepted by all serious analysts, who, favouring only the higher interests of Algeria and not the rentier distribution oil exports gains, seriously believe that an eventual change of Government members would not bring anything new if the course of the current governance stayed on without providing coherence nor visibility to its current socio-economic policies.  As stated in many of my contributions (see http://www.algerie1.com), since 2008 the Government referring to the economic crisis, sadly advocates economic patriotism.

But isn’t there any confusion, because of the old bureaucratic culture between an all-State and a more increased involvement of the strategic State-regulator role in a market economy.  Quite a difference for any reliable economic policy that takes into account this harsh reality, despite the crisis, of a world economy increasingly globalized.  When looking back at that sanitation of all public enterprises in Algeria that has claimed of the Treasury more than $60 billion between 1971 and 2015, without much result, the result is not at all surprising.   70% of public enterprises were drawn back, being returned to the starting square whereas the same amounts could have been better used if devoted to the creation of new dynamic enterprises so as to create a new productive fabric and millions of jobs with added value.

A number of international institutions coming up with poor rankings between 2006 and 2015 commented that these do not reflect the enormous potential of the country.   National experts have all stressed the weight of bureaucracy, legal instability and the lack of clarity in the new provisions of the Algerian Government.

It is in this spirit and without impact studies that were taken those risky decisions of the passage without transition from the Remdoc to the Credoc (documentary credits).  These despite the Government slightly relaxing them, had no impact on traceability (already existing at the Remdoc level) or on the decline in the value of imports whilst penalising the majority of SMB’s that constituted 90% of the productive fabric.

As the ownership rule of 49 / 51% in any investment project came to be generalized to all sectors whereas a positive hard currencies balance, together with technological and managerial expertise input within a win/win partnership not at all being favourably appreciated, has resulted in a drop of non-hydrocarbon FDI’s and numerous disputes in international tribunals; a piece of Law being from the point of view of international law never retroactive unless it improves the previous one.

This situation of perpetual change of legal frameworks discouraging both executives in the public as well as in the national and international private enterprises, show clearly the dominance of an administrative vision and a non-economic related to lack of visibility and coherence in the approach of a comprehensive reform, referring to a systemic blocking that is closely linked to certain aspects of governance (rule of law in particular) that cannot isolate the governance of the company of that of global governance.

Algeria being still in its interminable transition since 1986 towards a market economy that should be based on competitiveness in all areas, administered management that is still dominant co-exists with embryos of liberalization.  Also the risk of passage from a public monopoly to a private speculative one is overwhelming because of the non-implementation of coherent regulatory new market mechanisms with a strategic role of the State regulator.

As evidenced by the weight of the informal sphere controlling more than 50% of the economy with as many jobs, and merchants domination that together with services account for more than 83% of the economic fabric, ended up in a decline of the productive fabric (less than 5% of GDP in the industrial sector).  With the weight of bureaucracy, rampant corruption, the lethargy of the financial system, the thorny problem of land and finally the inadequacy of the educational system, there is no doubt of talking of the re-foundation of the State.  The dominance of rentier jobs / wages (devaluation of knowledge) shows the absence of a wage policy founded on job specification proper despite all speeches that are contradicted always by the resulting social practices.

2 – Impact of the new international governance (1)

Within the present global geostrategic changes in the political, economic (to include energy transition), and even military domains, Algeria needs a strategic adaptation plan.  The advent of the Internet which models the opinion trends and the input of the various civil societies, not only any chauvinistic speech no longer bears weight but  anticipate a reconfiguration of the new international relations taking into account the requirements of dignity and freedom at the level of populations.

Taking refuge behind a status quo, hampering progress towards democracy with an unequal distribution of wealth and corruption of a certain caste, could only foster terrorism and radicalisms.  The massive brain drain from the MENA countries is often desired by certain leaders, despite speeches for domestic and / or the diaspora use whilst not attempting to retain those remaining, subsequently emptying the substance of their countries.

It is that the elite cannot indefinitely be assimilated to a digestive tract but instead it aspires to conquer spaces of freedoms through its participation in the management of the city.  Where the only reliable solution, would be to focus on good governance with the upgrading for instance of knowledge, which all means profound political changes leading to a democratic transition that is condition of government effectiveness; some managers leading the way by example going at it first.

We do have however, two options :  either reform by a profound change with pragmatism and realism, or satisfactorily continue the feeding of the client factions’ appetites through a passive redistribution of the rentier  wealth through the creation of many political micro-parties and with 30 or 40 ministerial departments with no effectiveness, which collide with populations unable to mobilize and educate, leaving rioting citizens against the security services; situation that can only lead to a social explosion in the long run.

I advocate in addition to a real decentralization by large regional economic groups within eco-centres, grouping of several departments with technical secretariats of State along with a large Ministry of the National Economy and National Education.  The urgent need to deepen the comprehensive reform failing (as a result of reports of contradictory forces that neutralize each other, referring to the rentier semi-annuity sharing) must be based on work and intelligence in order to give a glimmer of hope, to those disillusioned young people by reconciling economic efficiency with more than budgetary rigour and social justice.

Success is before anything, not that of a single man or woman, but that of a competent close-knit team (real managers knowing both to manage and listen to people) that is animated by deep morality with a precise assignment specification to run on time and to the prevailing international costs for all implemented projects.

3 – Improving economic and social conditions

In the current situation, a very strong demobilization popular is quite visible, and it is due to mainly all those external signs of wealth often not justified, deterioration of the level and kind of life of the majority of the population despite of the foreign reserves that are anyway declining due to exogenous factors, thanks in large part to the volatility exports oil revenues that may melt by 2018.

Not talking about the Regulatory Fund that with budget deficits could be leaning towards zero, by early 2017, barring a miracle of the price of oil at more than $80 to $90, Algeria operating as per the IMF in a $110 a barrel in 2015 and $90 in 2016.  And as evidenced by less than 5% of non-hydrocarbon exports ;   a relatively low growth rate drawn primarily by public spending in recession (average 3% between 2000/2016 whereas there from exceed 10%, non-proportional to the monetary expenses, 80% of the segments off in GDP being themselves from public spending).

As a logical extension of a non-controlled management, social tensions that are tempered through a redistribution in a disorderly fashion of the rentier wealth with the risk of pushing hyperinflation in the long run ;  inflation which in case of monetary emission, without counterparts so as to try and compress artificially by generalised subsidies, could only be source of injustice and waste.  The official unemployment rate does not reflect the reality, by the simple fact that of the prevailing jobs are rentier related for the purpose of a fictional social peace.  The condition of social improvement is only through a return to growth in non-hydrocarbon that remains and is dependent on a set of five number conditions:

• Socio-economic policy reorientation :  the current one being ruinous for the country with the dominance of the public expenditure in infrastructure (70%) that often do badly whereas it is only a means for development. Reorientation is to ensure a minimum of both social and spatial cohesion between socio-professional categories, and to adapt to the challenges of globalization ;  Euro-Mediterranean and African space being our front and back yards space, especially since the current global crisis prefigures a geo-strategic, political, economic change.
• Rehabilitation of Enterprise,

The lifting of investment constraints through the urgent overhaul of the financial system together with that of tax, customs, common lands transactions and a greater determination by a more coherent vision in the implementation of the programme of reforms.

• In determining socio-political terms,

A state where rule of law and democracy taking into account our specific cultural anthropology, due respect for human rights, promotion of women rights, involving a real decentralization, the production of a participatory political culture, an efficient corporate communication and the development system of a new social and political consensus, not a decadent unanimism, so as to allow a significant majority in the social body around a real social project.

• Avoid past schematics of believing in that a new code of investment after so many others, would improve the business climate.  Non-hydrocarbon development cannot be the result of new laws but of a real political willingness toward controlled liberalisation accompanied by a new strategic role for the State as the regulatory power, reconciling economic efficiency and social justice, whilst avoiding any devastating ideological and stifling bureaucracy.  A new code of investment without a strategic vision would in no way make sense.
• Only the best interests of Algeria’s above all else are to be privileged.  The country is in great need of a strong growth rate.   For this, the Government had to pay attention to the various proposals of the economic and social partners by a constructive dialogue, which must regroup all concerned in reliable entities for credibility sake so as to be heard, for it is from the government at the end of the day alone to optimise the social welfare of the entire Algerian population.

In summary, both national and international neutral observers tend towards this observation: the Algerian system needs a renewal and on behalf of policymakers, lots of imagination and intelligence.  Because wanting to perpetuate past behaviours, can only lead towards an expired vision with the risk of collective restlessness and a social instability.

Dr. Abderrahmane Mebtoul, University Professor, Expert International, ademmebtoul@gmail.com on June 16th 2016.

(1) – Professor A. Mebtoul is a member of several international organizations.

The new reconfiguration of international relations is analysed by Professor A. Mebtoul in a contribution (70 pages) published in October 2011 at the Institut des Relations Internationales (IFRI Paris France) French themed ‘Facing the geostrategic issues, what cooperation between Europe and the Maghreb’.

See also two books to which participated 36 experts European-Algerian-Moroccan-Tunisian-Mauritanians and Libyan – under the direction of Pr A. Mebtoul and Dr. Camille Sari – “Maghreb the geostrategic challenges” the first dealing with the political, institutional and cultural aspects (486 pages 2014) – the second of the economic component in all its aspects (516 pages-2015) Edition L’Harmattan Paris France

– See also interview of Professor A. Mebtoul on the new investment code and relaxation of rule 49 / 51% in Government Arabic daily Newspaper Al Chaab, the daily Newspaper South Ahrar, the Algerian Chaine 3 Radio on June 15^th, 2016 (12 h 50) and analysis on the international MENA-Forum.com on June 14^th titled «A new Investment Code in Algeria – Will it be effective. , without any good governance? »