Algeria, an Immense Bazaar: The Politics and Economic Consequences of Infitah

In the last few months, Algeria has witnessed a frenetic activity of economic and trade delegations visiting the country. In November 2012 alone, Algiers received tens of high profile delegations succeeding each other from European countries such as Spain, Italy, France, the UK, Romania, Finland, and Turkey to Arab countries, including Egypt, Qatar, and Saudi Arabia. With its substantial foreign reserves amounting to more than two hundred billion dollars, it seems that Algeria has become a hot destination for foreign investment at a time when Europe is undergoing a deep economic crisis. Even for the highly-mediatized visit of French President Hollande (that some preferred to interpret through the distorting prism of the traumatizing history of colonialism), economic interests were at the top of the agenda.

Fifty years after its independence, is Algeria in a position to impose itself economically? Is there really a genuine will for the development of a true and balanced economic cooperation, advantageous for both Algeria and Europe? Is Algeria in the path of a full-blown economic development that will benefit the Algerian people, or is it merely an Eldorado for the crisis-ridden foreign economies? To answer these questions, a historical detour is necessary to give us more insights and to help us understand where Algeria stands in the global economic order.

In the first two decades following its independence in 1962, Algeria launched an ambitious development project. The aim was to disconnect itself from an unjust political and economic global order that kept it within the dominated periphery and relegated the country to a status of a proletariat nation; on the one hand as a market for the dominant Western economies, and on the other, as a reservoir of cheap labor and natural resources.

Aspiring for a strong modern economy, Algeria engaged in an inspiring industrialization project and initiated an agrarian revolution to break away from the chains of economic dependency and to achieve food sovereignty. The country was active inside the Non-Aligned Movement (NAM) and the United Nations Commission on Trade and Development. Moreover, the Algiers’ charter of the 77 in 1967 was a significant step in shifting the fight against colonialism and neo-colonialism from the political sphere to the economic sphere. It was an enterprise initiated with the recovery of lands and different nationalizations that culminated with recovering the hydrocarbon sector in 1971.

Dictatorial and military, the regime of Colonel Houari Boumediene did not represent a right-wing military dictatorship (like that of Augusto Pinochet’s in Chile) that served the interest of an oligarchy linked to imperialism. Boumediene’s economic policies were accompanied by progressive social achievements such as democratization of education, the access of huge segments of the popular masses to health services, guarantees for employment and social upward mobility. In the 60s and 70s, Algeria alongside Egypt, occupied a prominent and leading position during the first wave of the "awakening of the South" in the era of Bandung and the Non-Aligned Movement. By 1980, they were the most industrialized states in Africa, aside from South Africa, with a solid experience in industrial management and technological expertise. This autonomous project served a majority of the population and thus achieved a form of social consensus; indeed, denying its significant accomplishments will be nihilistic. However, this attempt of delinking from the imperialist and capitalist global order had its own limitations and internal contradictions--these included the continuing food dependence, reliance on oil revenues, and more importantly, the dictatorial character of the regime, which concentrated powers in the hand of one person, Houari Boumediene.

The political rule of Boumediene suppressed the democratic practice, depoliticized the masses, and reduced them to passive spectators instead of encouraging them to actively participate in public life. Moreover, this project was piloted by a national bourgeoisie in the Fanonian sense of the word, which led to popular discontent in the form of open criticisms during the debates around the National Charter of 1976 and through strikes in the public sector in 1976 and 1977, contesting the development of inequalities, repression, and lack of freedoms. The crux of the matter was how to remedy these serious shortcomings, and how to overcome the contradictions in order to take the nascent project to the second phase of consolidation, and achieve genuine economic independence. After the death of Boumediene in 1978, these considerations were unfortunately not on the agenda of the ruling elite of Algeria’s 80s and 90s.  

With the global neoliberal wave gaining momentum in the 80s, sweeping away the Soviet Union and the Eastern European bloc, eventually spreading to the whole world from Argentina to Poland and not sparing China in the way, and with the plummeting of oil revenues, the Algerian national development project was abandoned by the Chadli clique. It was dismantled as a process of deindustrialization and carried out to give way to neoliberal policies and the submission to the dictates of the International Monetary Fund (IMF) and its structural adjustment programs (1992-1993, 1994-1999). This had heavy consequences on the population: job losses (more than 500,000 in a few years), decrease of purchasing power, cuts to public spending, increasing precariousness of salaried workers, opening up of foreign trade, and the privatization of public companies. Algeria paid around ninety billion dollars in debt service between 1990 and 2004, and paid its debt several times. . . in fact, seven times. This does not constitute a necessary imperative, but a choice of a regime that abdicated to Western hegemony. Instead of reindustrializing the country and investing in Algerian youths who risk their lives to reach the northern shores of the Mediterranean in order to escape the despair of being marginalized and relegated to being Hittistes,[1] the Algerian authorities offered financial support tothe IMF, a neo-colonial tool of plunder that crippled the economy.

The dignitaries of the new neoliberal religion declared that everything was for sale and opened the way for privatizations. This allowed an explosion of import activity, which pronounced a death sentence on the productive economy. Rachid Tlemçani notes that by 1997, 7100 companies (5500 private) controlled the non-hydrocarbon foreign trade, the majority of which were specialized in import activities resulting in the transformation of the Algerian market into an immense bazaar for foreign goods with its reservoir of corruption.

Under President Bouteflika, from 1999, this neoliberal logic of undermining national production while promoting an import-import economy (imports increased from 9.3 billion dollars in 2000 to 27.6 billion in 2007, and 47.25 billion by 2011) was pushed even further, aiming for a complete integration into the global economy. This is evidenced by the dismantling of all custom barriers, the adherence to the World Trade Organization (WTO) and the Greater Arab Free Trade Area (GAFTA), and the signature of an association agreement with the European Union.

It is in the name of the sacrosanct principles of the neoliberal dogma that industrial investment halted for thirty years. It is because of their profiteering disciples that industrial figures mutated into traders-importers. It is also in their name that the share of industry in GDP went down from twenty-six percent in 1985 to about five percent in 2009. The successive governments made all the necessary arrangements for the foreign investors to rush into Algeria.

This policy of attracting foreign direct investment (FDI) failed miserably, as Algeria ranked last in terms of FDI per head among the southern Mediterranean countries according to the 2010 report from Anima network. The majority of FDI in the non-hydrocarbon sector was concentrated in the telecommunication sector between 2001 and 2008. Clearly, foreign companies prefer trade rather than direct investment in the country’s development and technology transfer. Moreover, this strategy makes sense given that Algeria is a guaranteed market for their products. As for local investors, the majority prefer easy gains, and therefore engages actively in the informal market.

It is indeed an understatement to say that the FDIs are not flooding the Algerian market. According to international statistics in 2006, two thirds of FDI occur between developed countries, fifty percent of the third remaining go to emergent economies like Brazil, India, and China, while the African continent gets only a share of three percent. It seems that the difficulty in attracting FDI is a global structural issue and not specific to Algeria only. Nevertheless, successive Algerian governments, especially since 1999, have not renounced their mission of offering the lion’s share of the revenues to multinational companies. As a matter of fact, they have hastened to rescue the crisis-ridden European car industry by importing 200,000 cars a year, perpetuating the logic of an economy based on import, trade, sheer consumption, and shunning local production and industry.

The culmination of such anti-national politics of selling off the economy was reached on 25 March 2005 with the adoption of the Khelil law on hydrocarbons, which called into question the system of production sharing between the national public company Sonatrach and the foreign oil companies. Under the old system, fifty one percent of any field discovered was attributed to the Algerian state while the forty nine percent remaining was negotiated, with a right of twenty five percent to Sonatrach. The foreign companies thus had the right to twenty four percent, on which they had to pay taxes. The Khelil ruling took this system back to pre-hydrocarbon nationalization in 1971, stipulating that any field discovered by a foreign company could own one hundred percent of it. This law was frozen and amended in 2006 to allow the foreign groups to have a guaranteed share of forty-nine percent instead.

This process of liberalization and transition to the market economy was accompanied by the destruction of the theoretical and practical know-how, resulting from the liquidation of institutes specialized in strategic sectors such as energy, steel, and textile industries. This was followed by an offensive on technical secondary education by reducing the options of the technical baccalaureate from fourteen to four specializations, which led to the extinction of technical industrial branches that contributed, for decades, to the formation of engineers and superior technicians. This approach only strengthens the belief that it was a conscious, well-thought, and planned eradication project of the Algerian industrial capabilities to transform the country to a simple exporter of oil, gas, cheap qualified and non-qualified labor, and capital in the form of repaying the debt seven times and through the unbridled opening of the economy (infitah).

The 2009 and 2010 complementary finance laws (CFL), which were protectionist in nature and seemingly patriotic, came after the regime frustratingly realized that its politics of seeking FDI had desperately failed. This was especially clear given that foreign companies were getting richer, while Algeria was on the verge of a deficit in the trade balance sheet in 2008 because of excessive levels of imports. This turn of “economic patriotism” is too timid and contradictory to constitute a rupture with the neoliberal policies that tipped the country towards a catastrophe. In no way does it challenge the domination of neo-imperialism that has the upper hand over technology, exclusive access to the natural resources of the planet, control of the global monetary and financial system, control of the means of communication and information, and control over weapons of mass destruction. There is no genuine politics to re-launch the industrialization project and there is no will to break away from the domination of international capital, a sine qua non condition of any strategy of development. Moreover, the 2009 and 2010 CFLs proved to be unsuccessful in curbing the levels of imports that went from 39.1 billion dollars in 2009 to 47.25 billion in 2011. Even worse was the sheer inability of the government to divorce the status of a bazaar economy, only suitable to consume what is produced outside as the country imported more than 300,000 cars in 2011.

This infitah corresponds to a renouncement of the Algerian bourgeoisie's pursuit of an autonomous national development that involved a certain degree of economic and political confrontation with imperialism. As argued by Hocine Bellaloufi in his book Democracy in Algeria: Reform or Revolution, the infitah constitutes a general counter-revolution, which affected the economic, social, political, and ideological spheres. It ended up assigning the country to a status of a dependent on imperialism and an exporter of energy within the neo-colonial framework of the international division of labour. It was far from the objectives of the development dynamic of the 60s and 70s.

In the last thirty years, after Algeria embraced free markets, the picture became bleak. Algerian economist, Abdelatif Rebah, describes the situation very clearly: The public sector that employed 1.4 million in 1990, saw that number plummet to 450,000. The unemployment rate went up from seventeen percent in 1985 to twenty-eight percent in 1995, and from forty-six percent to fifty-eight percent between 1988 and 1995 for the fifteen to twenty-four year olds. Poverty, which was affecting nearly twenty-four percent of the population in 1988, jumped to about forty-two percent in 1994/1995. Between 1992 and 2008, the percentage of those permanent salaried fell from fifty-seven percent to thirty-five percent, while the percentage of the non-permanent salaried workers increased from twelve to thirty-one percent.

It is within this context of ultra-liberalization and Algeria’s considerable reserves--around two hundred billion dollars placed in foreign banks--that we need to understand the surge in foreign economic and trade delegations. These parties are seeking a slice of the cake and urgently need to pull their own economies out of the depression. Jean-Pierre Raffarin from the French government, nicknamed Mr. Algeria, visited the country several times in the last few months to prepare for the visit of French president Hollande in December 2012. His visits also sealed lucrative new deals involving multinationals like Renault, Lafarge, Sanofi, and Total. The recent visits of Algerian Foreign Minister Mourad Medelci to the UK and Lord Risby, David Cameron’s trade envoy, to Algeria inscribe themselves in this state of “profitable” affairs. The question is: profitable for whom?

In its desperate attempts to attract foreign investments, Algeria finally signed a contract with Renault after years of negotiations. Some observers qualified it as a big fiasco that is dangerous to the economic interests of the nation. Initially, Renault will only create three hundred fifty jobs and manufacture 25,000 cars per year, which is less than five percent of the current market. Moreover, the initial production will consist of assembling kits imported from Romania and Turkey, and engines from France. This is in contrast to the authentic factory in Morocco that is producing 400,000 cars per year and created six thousand jobs with a similar amount of investment. Not content with this dismal picture, the Algerian authorities even dared to offer the French car manufacturer three-year exclusivity. To borrow the eloquent words of the Latin American writer Eduardo Galeano, it seems that the ruling elite has no interest whatsoever in determining whether patriotism might not prove more profitable than treason, and whether begging is really the only formula for international politics. Sovereignty is being mortgaged by the Algerian regime, which has abdicated to its foreign masters.

The other controversial subject of the French president’s recent visit is the accord given to France to explore shale gas, a project with deleterious high environmental impact, rejected by developed societies, including France. Not only is the Algerian regime showing its contempt for the environment and the Algerian people, it is also perpetuating Algeria’s everlasting dependence on hydrocarbons and condemning the economy to the cyclical rise and fall of oil and gas prices.

Where is Algeria heading if it continues on such a path? Definitely more social explosions and discontent as such policies, wed to endemic corruption and nepotism, cannot achieve social consensus in Algeria and will only lead to more pauperization, unemployment, and inequality. Contrary to the dogmatic affirmations of its advocates, neoliberalism is antinomic with democracy. Instead, it is more compatible with authoritarianism because it mainly serves the interest of a tiny minority at the expense of the majority. It subjects the popular sovereignty to the dictates of the markets--something recently seen in Greece, Italy, Portugal, and Spain in the context of the European economic crisis. If maintained, the neoliberal policies will block the democratization process in Algeria and will end up reinforcing an authoritarian regime with a democratic façade.

Democracy means the sovereignty of the people and cannot be reduced to mere electoralism. It can only be achieved through a vision that has a social and national framework. Genuine democracy can only be constructed opposed to imperialism and its local lackeys in the comprador bourgeoisie, who are subordinated to the international system of exploitation and are not concerned about the population and the future of the country. Suffice it to say that the support and backing offered by the big powers (USA, Europe, Japan, Russia, and China) to the Arab dictatorships and despotic Gulf monarchies is an indication that we cannot separate the democratic, social, and anti-imperialist struggles that will achieve genuine national independence, social justice, and true democracy.