Algeria: Will the Failure to Reform Economically further Fuel Islamism?

By Kahina Bouagache - 18 May 2017
Algeria: Will the Failure to Reform Economically further Fuel Islamism?

Kahina Bouagache argues that in the aftermath of the ‘Black Decade’, Algeria has been largely successful in countering the domestic terrorism threat. But its failure to fix the economy stands to fuel still present Islamist militancy, risking a return to de facto civil conflict. This is a chapter from the e-book 'The Future of the Middle East' co-produced by Global Policy and Arab Digest, and edited by Hugh Miles and Alastair Newton. Freely available chapters will be serialised here and collected into a final downloadable publication in the spring.

Bouteflika and the ‘Black Decade’

Abdelaziz Bouteflika, the fifth President of Algeria, assumed office on 27 April 1999. President for over 17 years, he is now serving his fourth – and controversial — mandate. Controversial because of his major health issues in the wake of the stroke he suffered in 2013. Today the 80 year old President doesn’t even appear in a wheelchair in public, nor in public meetings or making speeches at a time when the country needs a major economic shift following the protracted crash in oil and gas prices.

A dynamic diplomat and well-known international figure as the youngest Minister of Foreign Affairs between 1963 and 1979 under the President Boumedien, Bouteflika was designated as the President of the 29th UN General Assembly in 1974.

As president, arguably his greatest achievement was to put an end to the “Black Decade” after his election in 1999. His first step was to push for the adoption of the “Concord/Clemency Law”. This law, inspired by the 1995 document "Sant'Egidio Platform”, which was an attempt by most of the major Algerian opposition Parties to put an end to the internal conflict with the Islamist party that was consuming the country. This initiative was very criticized by the Algerian government calling the main opposition leaders as traitors for sitting and negotiating with the Islamist leaders.

However and in 1996, the President Liamine Zeroul decided to start looking onto the platform as a ground for potential solution for the crisis.  The President Bouteflika’s inspired by his predecessor, President Lamine Zeroual, pushed for the adoption of the Concord/Clemency Law.

Bouteflika's plan aimed to end a painful chapter of Algeria’s history, a terrible civil conflict (war) that cost, by some estimates; over 200,000 dead, over 120,000 ‘disappeared’ and over a million displaced between 1991 and 2002. Its origins lay in the late 1980s and early 1990s which saw the birth of the Armed Islamic Group (GIA), the militarised wing of the Islamic Salvation Front (FIS) which won the first round of the first ever truly free parliamentary election in Algeria on 26 December 1991 with 47%. Feeling threatened by the growing power of the Islamists and keen to uphold the values (including secularism) of the Republic, the military put a stop to the democratic process which would almost certainly have seen the FIS secure a second round victory. As a consequence Algeria was thrown in its worst internal war, pitting the army, the official security agencies and government-backed militia against the Islamist militants.

The Concord/Clemency law aimed to end any resort to the prosecution against former terrorists who surrendered to the authorities before a set deadline and abandoned the conflict. It was inevitably highly controversial, especially with the families of victims of the conflict for whom it was hard to see perpetrators of crimes that took their beloved ones could just get back their freedom, their civic rights. Nevertheless, it was approved on 16 September 1999 by over 98% of voters in a referendum (which, in retrospect, can be seen as an even more remarkable in the light of the recent referendum outcome in not totally dissimilar circumstances in Colombia).

Countering the terrorism threat…

As previously intimated, the clemency law allowed Algeria to close a sad chapter of sorrow and hate. However, it failed to end the violence totally. A splinter group from the GIA, the leading Islamist militant group of the 1990s, the Salafist Group for Preaching and Combat (GSPC) pledged to continue the flight, aligning itself with Al-Qaida in 2006 and changing its name to Al-Qaida in the Islamic Maghreb (AQIM).

It is something of an aside but nevertheless worth recording that during a visit to Damascus by Algeria’s Minister of Maghreb Affairs in 2016, African Union and League of Arab States Abdelkader Messahel, President Bashar al-Assad of Syria compared his country's war against rebels to the conflict which devastated Algeria in the 1990s. Messahel responded by emphasising the “danger of terrorism and the importance of uniting efforts of all countries to fight” terrorism while underlining Algeria’s policy of non-interference in the internal affairs of other states and support for ‘political solutions’.

Arguably, this is broadly consistent with Algeria’s efforts to take a leading role in a range regional and international initiatives undertaken in order to fight terrorism, notably: the Global Counterterrorism Forum (GCTF); and EU-Maghreb counter-terrorism cooperation, part of the EU’s European Neighbourhood Policy (ENP).

Furthermore, it was an Algerian initiative which led to the setting up of the African Centre of the Study and Research on Terrorism (ACSRT), which is based in Algiers and which operates under the banner of the African Union (AU). The ACSRT is overall responsible for assessing the terrorism threat in Africa and promoting AU-wide cooperation including on database building, developing training programs, and conducting field studies in the field and promoting the criminalization of ransom payments to terrorists.

Domestically, Algeria seems to be dealing pretty well with controlling its borders and in applying its policy of non-interference, after the attack on a gas plant in Tiguentourine/In Amenas.

…but at what cost?

Although Algeria is making important efforts to manage its domestic security and minimize cross-border threats, it has been much less successful at building up its economic strength, in particular by diversifying away from a high dependence on hydrocarbons. Prior to the 2015 crash in the price of oil, hydrocarbons accounted for 95 percent of export revenue and 60 percent of the state budget (which fell from US$59bn in 2014 to US$34bn in 2015). Today, with Brent crude still hovering around US$50pb despite recent Opec efforts to push up the price, the Algerian finance ministry is grappling with falling export revenues, a depreciating currency (pushing up the cost of imports) and a fiscal deficit well into double-digit territory (i.e. 16 percent of GDP in 2015).

Bouteflika’s immediate response was to urge his team to find quick solutions to boost the economy by spurring more foreign investment through tax incentives, tourism promotion and boosting agricultural production. But this was insufficient to stave off what many experts consider to be in-any-case overdue austerity measures introduced in December 2015. Most notable is a freeze on public sector recruitment which accounts for 60 percent of employment in the formal sector.  Additionally, the 2016 budget calls for 9 percent cut in expenditure (mostly investment) and a 4 percent increase in tax revenue based on a 36 percent hike in gasoline prices and higher VAT rates on electricity and on car registrations included in 2017 finance Law.

That efforts to drive up inward investment have not yielded great results should come as no surprise when the Ministry of Finance still insists that foreign investment requires a minimum Algerian ownership of 51 percent, consistent with the 2009 Financial Law for foreign investment. Furthermore, the government is instituting even more restrictive licensing for foreign trade and services, which is also a disincentive, not only to foreign but also domestic investors.

However, all of this arguably sidesteps the real issue which is facing Algeria (in common with many other economies), i.e. the urgent need for wide-ranging structural reforms despite the urging of the International Financial Institutions (IFIs) to grasp this nettle if the country is to avoid chaos. The efficacy of the IFIs’ stance is underlined by Algeria’s currently being ranked by the Heritage Foundation at 154th among 178 countries and considered as “mostly unfree” economically. Algeria’s average tariff rate is 12.1 percent, and its trade and investment policies are less open than the global average. Screening of foreign investment has been reduced; but foreign investors are, as previously noted, limited to minority status. Capital markets are underdeveloped — the number of private banks has grown, but the financial sector remains dominated by public banks.

All talk…

There is no shortage of discussion in Algiers as worries mount over the possible — some would say inevitable — consequences of a significant decline in real incomes. However, when Prime Minister Abdelmalek Sellal reaffirmed the commitment in June 2016 to boosting investment it was just the latest in a series of speeches which have not been matched by significant concrete steps. This is compounded by excess bureaucracy weighing on day-to-day business, which is driving some established companies to lay off staff (despite the heavy costs involved) and even to consider closure. It remains to be seen whether the sacking in mid-2016 of ministers responsible for four key sectors — i.e. agriculture, finance, oil and gas, and tourism — will make any significant difference to the reform reality in the short-term, let alone in addressing the medium- to long-term challenges which the economy faces.

In short, Algeria — while enjoying considerable potential in terms of land capacity and demographics in particular —, remains a very tough environment in which to do business with difficult access to credit, a weak banking system, a complex regulatory environment, corruption, consuming bureaucratic procedures and barriers created by powerful vested interests. How significant these are can be highlighted by one simple example, i.e. Algeria’s failure to achieve membership of the World Trade Organization (WTO) despite nearly three decades of (admittedly spasmodic) negotiations.

…and no ‘walk’ 

To blossom beyond building the biggest minaret in the world, Algeria needs to undertake deep economic reforms, in particular to boost its private sector and attract foreign investment. It needs to start considering both private sector and civil society as a partner in development, and allow them to be part of this reform process, opening more research centres and focusing on alternatives to hydrocarbon-based activity, perhaps particularly given its deep roots in the energy sector, solar power. And, perhaps above all, it has to deal with its heavy bureaucracy and poisoning corruption; and to redirect its education sector consistent with the demands of a modern economy if a potential demographic dividend is not to become a demographic disaster.

While the Algerian constitution guarantees freedom of assembly and association, the exercise of those rights is severely controlled and shows an honest mistrust of the role of civil society in Algeria’s development. Associations Law of 1990, was often criticized for its restrictive nature, and  conditions to create NGO’s and have them playing a positive role within the society, where citizens and NGO’s must obtain permits from local authorities to hold any public meetings, but those approvals are very often delayed to impede the events’ publicity. The amendment of the Association Law in 2012, came to confirm the restrictions and shows a complete mistrust on NGO’s role in playing an active role in Algeria’s human development. In fact, the 2012 law Nº12-06 of January 12th, 2012, brought many restrictions in terms of control and foreign funding’s

As part of the reforms, and with regards to the Education, Mrs Nouria Benghabrit-Remaoun was appointed in 2014 to undertake several challenges in order to reform education. Considering that the failure rate is 30% and that 32% of the students leave school before the age of 16 years, she believes that a Reform is mandatory step. In this regards, she appointed a National Commission of 200 Algerian education experts. Her objective is to improve the training of teachers and professors through the use of modern methodological tools. However, her approach may encounter resistance from the conservatives that see her and her program as a threat.

Failure to do all these things (and more) — and now at a ‘run’ rather than a ‘walk’ — will inevitably lead to further weakening of the economy even if oil and gas prices return to levels last seen in 2014. This will lead to more unemployment and increasing openness of disaffected youth in particular to radicalization. And this, in turn, seems only likely to encourage the present generation of powerbrokers around President Bouteflika to resort to more repression, thereby plunging Algeria deeper into a vicious circle which is already increasingly evident and will become more so as memories of the ‘Black Decade’ and its consequences fade.

Which path will Algeria choose?

In 2016, the International Monetary Fund (IMF) has revised upwards its growth forecasts to 3.6% against 3.4% forecast planned last April. More optimistic, the IMF board in its biannual report on global economic prospects released early 2016 in Washington DC, on a country's economic growth of 3.6% in 2016 and 2.9% in 2017.

Also, the Bretton Woods institution has consolidated its estimates for real GDP growth in Algeria in 2015 to 3.9% against 3.7% projected in April. This growth, however, will be accompanied by a slight inflation; in fact the Fund expects inflation to be 5.9% in 2016 against 4.8% in 2015.

At the same time the figures, published by the IMF on the eve of its annual meetings provide, moreover, a significant drop in unemployment in Algeria in 2016, the unemployment rate is expected to fall to 9.9% in 2016 against 11.2% in 2015, before increasing again in 2017 to 10.4%.

It’s clear that Algeria has a lot of potential in terms of youth, education, geopolitical position, show a leading roles by insisting on two main principles of non-interference on domestic issues of its neighboring countries as well as counties right’s to decide on their internal politics.

While Algeria is also taking the lead in rather few important initiatives; a) women empowerment and counterterrorism, by playing a huge role in promoting women at political positions and decision making process, thanks to the amendment of the election law in 2012, women constitute a third of elected members of parliament, which is truly impressive given that the global average is only 20 percent, and b) reinforcing its capacities in facing counter violent extremism, not just by developing new methods but also by believing in the necessity of change, and the promotion of youth and the Algerians’ daily life as a way to protect itself from radicalization.

No matter how this good will can be, only reforms can help the country avoiding a second and a massive social and political crisis or appraisal. While the opinion might focusing its attention on the current president successor, I believe that the main issue doesn’t reside in the succession per say, because Algerian and at the end of the day its main objective is the social and political stability which won’t happen without a clear vision based on developing its potential, its fascinating youth, including but not limiting to tourism, handcraft, hotels, encourage investment, help building strong SMI’s, we will otherwise have to face its terrible  consequences. 






Kahina Bouagache is a corporate lawyer with North Afri-ca/Maghreb expertise. Women’s rights activist and a member of the “Women Legal Group ME”, an international law firm focusing on women’s and children’s rights, which also provides pro-bono support for women’s rights NGOs. As an AMIDEAST contractor programs in Algeria promoting Youth Education. She has held political positions at both national and international levels. She has been in the American Bar Association for five years as a legal advisor and Program Manager alongside the Algerian & Moroccan Judicial Training Centers, emphasizing women’s rights under family law and strengthening the capacity building of Bar Associations and Judges, as well as the Ethical Code for Judges. As a coordinator for Amideast programs in Tunisia and Algeria, she brings together young professionals from MENA with training, grants opportunities, and conferences.

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