Algeria’s Expansive State

Unlike most hydrocarbon economies, in which a tiny circle or a ruling family is enriched by natural resources while other elites scramble for less, Algeria’s oil wealth is spread to the military, the public-sector bureaucrats, the business class, and top politicians.

The military enjoys significant cash flows, taking in more than 10 percent of the country’s budget on average — triple the direct cost of the notorious Egyptian military that led a more recent coup. The Algerian People’s National Army is the second largest standing army on African soil, and is somewhere in the second percentile worldwide on a number of military measures.

This position is a result of expansive procurements and a major experience in fending off terrorism that grew initially out of the ruling party’s own coup of 1992. A number of regional instabilities, such as the collapse of neighboring Libya, further feed this role. With this international reputation for counterterrorism operations and a steady flow of government funding despite the decline in oil prices, the Algerian generals have recently expanded their already advanced military manufacturing program.

This elevated role of the military has led many analysts of the country to label it a praetorian state. The military is thought of as a band of generals amassing wealth to the detriment of everyone else, especially a business class shackled by corruption that Boutaflika was supposedly dismantling slowly. But conflating a tiny sliver of business interests with the ruling coalition as a whole conceals the real dynamics of politics in Algeria.

The Algerian state is a rare import substitution industrialization (ISI) case that survived that model’s extinction wave in the late twentieth century. Some four hundred public-sector companies make up the ISI sector. But according to recent estimates, only a fifth of these companies are considered viable assets for privatization.

Dismantling the sector has its proponents and beneficiaries, especially given that imports are spiraling because of both an increase in purchasing power and decay in local production. Stagnation in industrial reinvestments helped sustain a relatively large social welfare state in Algeria.

But the public sector as a whole generates a third of the state’s revenues. It could also cater to international investors who are taking up positions for the scramble for Africa. Morocco, for instance, is positioning itself to play an intermediary role between European capital and new markets in the continent. The Gulf monarchies are setting up a number of client states in the Horn of Africa to facilitate their expansion.

Algeria’s public sector gives the country an advantage. The customs barrier, subsidized energy, and cheap bank credit could still whip an alliance behind ISI and the public sector despite the wishes of neoliberal advocates.

In short, Algeria can still snub investments, both foreign and local, that don’t meet its payment and employment minimums. Despite its larger size, it was a limited recipient of investments amid the foreign direct investment (FDI) frenzy of the early 2000s in the region, since it didn’t dismantle all protections and constraints that discourage investments. The state actually froze all privatization plans in 2018 – perhaps in preparation for the now-postponed elections, given how this almost always leads to major layoffs. But it also confirmed its commitment to ISI. The Algerian government actually limited car imports from Germany, right at the time French car companies were about to start local production.

Algeria even goes further in reviving distinct features of twentieth-century capitalism with massive Keynesian demand-side economics. Gigantic public works infrastructure projects in roads, ports, dams, and housing projects keep multitudes of contractors and manufacturers in business. Though foreign business exists, local businesses’ share of the economy is growing.

It is true that Algeria is notorious for one of the lowest and most fleeting FDI levels in Africa. Nevertheless, fixed capital formation increased during the last decade alongside a similar increase in extension of credit to the private sector. Simply put, the private sector is a growing enterprise in Algeria.

Additionally, popular classes in Algeria still enjoy a wider umbrella of protections and safety nets in comparison to many other countries in the region. Social welfare has had two lives in Algeria already: the original developmental boom of the 1970s, and the recent one of the 2000s, which is the pillar of post–civil war reconciliation.

The system is far from perfect, but it is rarely put under neoliberal pressure. On the contrary, it is often supplemented by consumer subsidies that serve political stability. The drop in oil prices since 2014 has led to some spending cuts and indirect taxation. Protests against these shifts have emerged in recent years, but the succession crisis, in which the power clique declared its intent to uphold the status quo, magnified recent retrenchments.

In short, the Algerian state keeps wages low by subsidizing food items, offering cheap credit and monopolies to a broad manufacturing sector, and hands out tenders to emerging contracting and service sectors. What is there for business not to like?

In fact, corruption is through the roof in Algeria. Without democratic governance, public projects create huge rents. As long as it doesn’t erode profits completely, corruption blocks one business only to favor another. None of the shunned businessmen could build an alliance, since all there is to their objection is their own access and share.

Take industrialist Issad Rebrab, CEO of Cevital, Algeria’s largest private company. He reacted to a move to exclude his company from governmental contracts in 2017 by voicing criticism of the regime. He even dared finance civil society organizing. But when a rumor floated that he was supporting a presidential candidate other than Boutaflika, he issued an official denial.

Even others who were pushed out earlier, such as businessman Slim Othmani, who opposed Boutaflika’s fourth term in 2014, kept his objections to social media.

Now that Boutaflika has fallen, his loyalists that pushed out competitors earlier are now being chased down. Ali Haddad, owner of the largest contracting company in the country and head of the main business association, was arrested on his way to Tunisia.

Egyptian Rivalries

To understand the opaque politics and palace intrigue in Algeria, it is helpful to look at Egypt. As pressure mounted on President Hosni Mubarak’s last gust of ISI in the 1990s, a turn to export-led orientation and a liberalized business environment became necessary.

The shift that the Mubarak regime accomplished in its last decade by creating a competitive export sector suggests that dismantling ISI and rolling back protections and credit elevated one business group (primarily Mubarak’s son, Jamal, and close associates) over another (the vast military industrial empire thought to preside over a full third of Egypt’s economy).

Given these adversarial interests, some would argue that the Egyptian military had an interest in pushing Mubarak’s son out. But when the revolution happened, the Mubarak family was shielded by the military during the high peaks of protest in 2011–2013.

Competition in Egypt was highly contained, although two oppositional factions could be identified. No similar pressures exist in Algeria today to take an elite splinter over personal ambitions and shares to the level of competing factions. None of those disgruntled elites in Algeria could come up yet with an agenda to rally anyone against the regime.

Even on the other side of the rift in Algeria, military, intelligence, bureaucracy, and party dissidents have been immediately sidelined. The speaker of the lower house of parliament faced an occupation of his parliament office by hundreds of fellow MPs when he voiced objection to Boutaflika’s fifth presidential term, leading to the speaker’s unconstitutional removal from office. The secretary general of the FLN and reform-minded prime ministers have been removed, as have high-up generals when they don’t fall in line. No one particular group has been sidelined; the ruling coalition encompasses both groups.

There is no clearer example of this unity than the sacking of General Toufic, head of the notorious DRS intelligence department back in 2015. To put his removal in context, Toufic is often referred to as “God of Algeria.” Boutaflika even owes his elevation back in 1999 to him.

All this power meant very little when Toufic’s DRS failed to prevent a terrorist attack against an oil facility in 2013. This was in fact a perfect opportunity to take him out by the oil technocrats. Previously, in his regular power-checking practices, Toufic had launched investigations into corruption cases that were made against them and their foreign partners in Italian courts.

But Toufic reached eventually his limits when he went after the oil mavericks. They are the sector that keeps this expansive state in business.

Oil Keeps It All Together

Importantly, the massive public sector meant that Algeria didn’t amass the reserves other oil producers accumulated, which are now helping them take the industry and their entire wealth to new heights. For instance, the United Arab Emirates announced more than $100 billion in new investments in the sector in 2017 alone. Algeria’s oil sector is outmoded technologically and lacks necessary investments.

The fact that Algeria pumps crude oil for exports and imports most of its consumption of downstream products is a source of embarrassment in the international clubs of oil producers. Take Saudi Arabia’s model for comparison. It has extracted every dollar there is by not only being the world’s leading influencer of crude oil prices, but also building the largest petrochemical installation in the world.

Boutaflika’s appeal in international relations is what made him the viable option for the military junta that preceded him. They struggled in the 1990s to secure the investments they needed, as they were simply seen as too high of a political risk for potential foreign partners.

The Algerian plan aimed at channeling allied investments back into its own sector by leveraging their contacts in international oil markets. What Algeria was offering then, a max privatization share of 30 percent in any oil and gas facility, was just not enough for the kind of resources it wanted to attract, allied or not.

The major reform came in 2005 that instated a 50 percent profit share for foreign investors, a level that is still acceptable in oil markets. But with the oil prices maintaining their historical rise, there was little reason to risk reforms, and the same parliament reinstated the 30 percent share immediately in 2006.

Now that oil prices have plummeted and the country has already burned two-thirds of its international reserves in about five years, market spectators were expecting Algeria in 2018 to revamp its investment code to quickly tackle these shortfalls. But political considerations were more pressing to Algeria’s elites.

They were willing to take on these structural pressures by avoiding a simple fix in the oil sector, and even by running the ill man again. They wanted to keep the Algerian masses in their place and not risk activating them over a presidential succession. The last time they rebelled in the 1980s, things got out of hand.

The FLN Is No More

The eruptions of the Algerian masses that ended Boutaflika’s reign were spontaneous. The FLN was bureaucratized almost immediately after colonial France left in 1962. A coup from within competing factions consolidated its control by 1965 under Houari Boumediene, a freedom fighter and a socialist of the Third World variety. Despite creating a significant public sector with high levels of employment, Algeria became a one-party state that blurred lines between the state bureaucracy, the party, the military, and the public sector, effectively watering down any grassroots power.

At the height of his power, Boumediene died abruptly at forty-six, leaving a power vacuum behind in 1978. Instead of a democratic opening, the intelligence faction made the choice of his successor. Headed by Qasdi Merbah, the predecessor of General Toufic running the Sécurité Militaire at the time, the core of the military had to juggle two competing blocs in the party. Salah Yahiaoui led the communist bloc, and Boutaflika, a dovish exterior affairs minister at the time, headed the reformist bloc.

Merbah seated a third person, Chadli Bendjedid, to disallow rivalries within the ruling bloc, and of course to maintain presidential allegiance to the primacy of the intelligence and military faction. Boutaflika went into self-exile at the time, taking advantage of the good relations he fomented over the years as Algeria’s top diplomat.

The collapse of oil prices in the 1980s unleashed economic liberalization pressures that by October 1988 triggered an uprising. The army responded immediately by shooting dead about five hundred protestors. To maintain order, Bendjedid engineered a concession. He ended the one-party system and announced elections, and detached the public sector as a necessary step towards privatization.

Truly open and competitive elections brought Islamists to parliament in 1991, riding the wave across the region inspired by the Iranian Revolution and the Saudi counter-radicalization campaign since the 1980s. Unwilling to share power, a military junta proceeded to remove Bendjadid, cancel elections, and reconsolidate power, drowning the country in a civil war that claimed about two hundred thousand lives in the 1990s, what Algerians refer to now as the dark decade.

The generals restored order, but that restoration damaged Algerian working-class mobilization and civil society organizing at large. Most noticeable is how distant the Arab Spring was from Algerians after more than a decade since the end of the bloodshed. However, and despite their control, the generals were seen as a high political risk in the 1990s by the foreign investors they sought for their aging oil sector. Liberalized autocracies that were on the rise across the world laid a path for the generals out of their dead end. A perpetual process of mild democratization without abandoning power was enough.

The military regime removed the ban on the FLN and other political parties, but they checked their power with a rival ruling party, RND. They re-instituted elections, but created a bicameral parliament. The upper body is appointed from elected local councils. But those depend on central budgetary allocations that allow bank credits to run public-sector facilities in different regional constituencies that generate revenue for the local councils.

Moreover, none of the more than one hundred thousand governmental militia members were put on trial for the massacres committed during the civil war. Furthermore, the continued presence of the generals in their different posts capped the political opening right from the beginning. The trade unions and the FLN were reduced to bureaucratized structures that provided access to the state. Boutaflika was resurrected from oblivion to sell this mutated form of autocracy abroad as politically stable.

Now that the Algerian masses have gained their streets back, many obstacles lay ahead. This regime is perhaps one of the most entrenched in the region that, with a small fix, could again fill its pockets and co-opt large swaths of the population, oppositional forces, and maintain discipline within its own ranks. If oil prices don’t bounce back soon, Algerian elites could still attract new investments in the oil sector that could fill state coffers with enough cash to reinstate the whole chain again to its pre-2014 levels.

Like most people around them, Algerians have very little organizational power. This has shown people across the region that sudden outbursts could carry a protest this far at best. That Algerians have still poured into the streets in larger numbers every Friday since February 22 is impressive. However, it would be a mistake to expect hundreds of thousands of people to show up to protest indefinitely.

Some popular organization has to emerge now and present a roadmap that the masses could rally around, giving them a chance to catch their breath. The ruling regime is desperate to draw a red line against the protests and is intent on engaging in mass arrests. Fortunately, Algerians have significant industrial leverage to wield against their ruling class. What happens next depends on how this power is channeled to transform Algeria.