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Algeria 20. September 2017
BTI 2006
Ranking 2006
Ländergutachten 2006

Status Index
(Democracy: 4.23/ Market economy: 4.61)
4.42 Management Index 3.63
HDI 0.722 Population 31.9 mn
GDP p. c. ($, PPP) 6,107 Population growth 2.5% 1)
Unemployment rate n/a Women in Parliament 5.3%
UN Education Index 0.71 Poverty 15.1 2)
    Gini-Index 35.3 (1995)
Source: UNDP: Human Development Report 2005. Figures for 2003 - if not indicated otherwise. 1) Annual growth between 1975 and 2003. 2) Population living below $ 2 (1990-2003).


A. Executive summary

The election of President Bouteflika in 1999 – and, largely, his overwhelmingly clear reelection in 2004 – has permanently shaped the political agenda of Algeria. In 1995, Bouteflika’s predecessor in office, Liamine Zeroual, ran a successful campaign based on the goal of finding a way out of the country’s civil war. Zeroual had concentrated his efforts on political-institutional normalization and the fight against Islamic terrorism. President Bouteflika continued the policies of his predecessor, supplementing them, however, with economic measures designed to reconstruct the economy and dismantle any persistent barriers to reform.

Yet, democratization efforts and economic reforms in the direction of a market economy promised by the new government were not as successful as expected by sections of the Algerian population and many in the West. President Bouteflika did enjoy a clear boost to his image because of the withdrawal of military influence from the political sphere in 2004. However, he did not introduce any significant or lasting measures that might improved the freedoms of assembly, association, the press and the protection of human rights. On the contrary, any real democratic transformation was prevented by the president’s obsession with maintaining control and by his persistent use of classical clientelistic methods.

Algeria’s relevant political actors are politically and ideologically split over the necessity for fundamental reforms. The actors also differ with respect to their willingness to insist on the prompt implementation of these reforms. The reform group within the government and among political parties is simply too weak to affect the rate at which reforms are implemented. An acceleration of reforms could take place only if the sole political veto power, in this case President Bouteflika, were to decide to pursue this energetically. This is, however, not the case.

The state of reforms in the economic sector looks more promising. Economic transformation has been supported by two major economic stimulation programs (1999-2004; 2004-2009) and by high oil revenues over the past several years. The rate of implementation of these reforms, however, has not been tailored to match the magnitude of existing reform barriers; rather, it has been kept at a pace that seeks to maintain stability in the face of certain domestic issues and socio-politically motivated resistance, mostly from employee and trade unions. This slow transformation policy also results in economic misallocations, for example, in insufficient dismantling of subsidies.The population continues to cling to the “retirement fund mentality” because of their awareness of the country’s high oil revenues.

The status of Algeria’s overall transformation is ambivalent. Macroeconomic stability is clearly the most meaningful transformation success so far for which domestic actors are responsible. The key democratic and market reforms that must be implemented in the medium-term concern matters of stateness, institutional efficiency, the government system and administration, the fight against poverty, the fight for sustainable development, the effective promotion and use of human resources, the intensification of privatization, the transformation of Algerian companies into competitive players, and the development of the hydrocarbon sector, including job creation.


B. History and characteristics of transformation

So far, the political and economic transformation of Algeria has been uneven in terms of both speed and intensity. The country’s first liberalizing economic measures were undertaken in 1987/88, when the decrease in foreign exchange income from oil exports helped expose the dysfunctional nature of the structurally dependent and socialistically administered economy. This led to the end of the distributive rentier state. Political liberalization took place only in 1989, after the effects of nationwide urban unrest in October 1988 forced the government to liberalize politically and introduce a multiparty system.

 

The loosening of the single-party political system was designed to increase the acceptance of urgent economic reforms. However, on the contrary, it set into motion a set of dynamics in domestic affairs that benefited above all the Islamic opposition in its function as an alternative to the discredited National Liberation Front (FLN) Unity Party. As the only well-structured, nationally represented organization aside from the former Unity Party, the Front Islamique du Salut Party(FIS), which advocates an Islamic state and an Islamic social order, achieved victory in the local elections of 1990 and in the first ballot of the first pluralistic legislative election in December 1991. In January 1992, the intervention of the military – supported by secular personalities, parties and organizations (including the influential Federation of Trade Unions, and the General Union of Algerian Workers or UGTA, among others) – led to the resignation of the president, to the dissolution of the parliament and to an abortive election. After Islamic militants took up their armed struggle in 1992, a state of emergency was imposed that continues to this day. Indeed, up to the election of a new president, Liamine Zeroual, in 1995 and the legislative election in 1997, a kind of "institutional state of emergency" prevailed. Thus, democratic transformation came to a grinding halt. The relevant political actors were nevertheless able to maintain the multiparty system and continue the process of political opening.

 

Political normalization was initiated in 1996 only after a clear containment of the activities of Islamic terror groups. After the legislative elections in 1997, the country once again made use of its constitutional institutions, and cooperative Islamic groups were offered the possibility of integrating into the political system. With the election of President Bouteflika in April 1999, the focus was placed on national reconciliation, international rehabilitation andeconomic reconstruction. (The damages resulting from the Algerian civil war are estimated at $30 billion.) Starting from Bouteflika’s reelection in 2004, focus was also placed on the completion of the reconciliation process and the goal of an economic upswing. The desirefor control on behalf of the president, however, has so far preventedany actual democratic transformation, even though it remained high onhis political agenda and dominated the rhetoric of the day.

 

Any initial impulses toward free market transformation were haltedin 1992 with the installation of Belaid Abdessalam, an anti-reformerfrom the state monopoly period, as prime minister. Only after thedramatic deterioration of the economic situation were reformers able tosucceed again in government. In 1994, this group implemented anIMF-sponsored restructuring program. The stand-by agreement with theIMF facilitated the conversion of debts and required that thegovernment pursue policies of structural adjustment.

 

The subsequent intervention in the state economy resulted inmacroeconomic stabilization but at an incredibly high social cost: from1994-2004 up to 600,000 jobs were lost and a large informal sectordeveloped.

 

At the same time, political opposition from the Federation of TradeUnions UGTA increased. The gradual reform measures introduced sincethen (including liberalization and deregulation measures and theabolishment of several monopolies) have established the fundamentalattributes of the promised social market economy. They have alsosolidified the desire to become affiliated with the World TradeOrganization and the European Union through an Association Agreement.Yet, during the period under review, the activities of the privatesector and the flow of foreign direct investment were consistentlyobstructed by countless administrative barriers, deficient legalregulations and corruption, thus preventing job creation in theproduction sector, among others.

 

C. Assessment

1. Democracy

1.1. Stateness

Problems of stateness do not exist in Algeria despite continuingattacks by Islamist groups and in spite of the still unresolved Kabyliecrisis. The state’s monopoly on the use of force is establishedthroughout the country. It is affected only selectively by someremaining terrorist Islamist groups of around 300-600 people, but theseno longer represent a threat to political stability. Questionsregarding the definition of who qualifies as a citizen (member of thenation-state) are of issue only to a minority of the militantBerberophone population. Overall, the question of stateness is not arelevant political question for Algerians. All citizens possess thesame citizenship and the political process is formally secularized,even if Islam is the state religion. Non-Islamic religious communities(primarily Christian) are able to practice their faith freely. Openpreaching is forbidden, however, and conversion to Christianity ispunishable by law. In practice, the religion (including mosques andImams) is under state control. The instrumentalization of religion forlegitimate purposes is practiced by government as well as by Islamicorganizations and groups. The separation of state and religion is mademore difficult by an influential fundamentalist andreligious-conservative current among the population, as well as byIslamists who reject such a separation.

The presence of the state is felt throughout the country in the formof a fundamental infrastructure. Public security and order arecurrently guaranteed largely by the state, but there still existdistinct areas in which terrorist groups endanger security and order.In the fields of education, health, etc., the administrative system andthe state infrastructure are in place and able to function, but theyare also overly bureaucratized, slow, corrupt and fundamentally in needof reform.


1.2. Political participation

The postcolonial Algerian constitution places a high value on thepolitical participation of the population as a mode of governance. Thisis true even if electoral options up until the political liberalizationintroduced with the constitution in February 1989 were limited. Amultiplicity of parties was represented in the legislative elections of1991, as well as after the civil war in 1997 and 2002. Since thelegislative elections of May 2002, nine parties and independents (30deputies) are represented in the first chamber of the parliament, whichhas 389 seats. The conservative to reform-oriented parties (FLN: 199seats; National Rally for Democracy or RND: 47 seats) dominateparliament with a total of 246 seats, while the Islamist parties(Movement for National Reform, MRN: 43 seats; Movement of Society forPeace, MSP: 38 seats; Nahda Movement, MN: 1 seat) have a total of 82seats. The smaller, often liberal and socialist-oriented parties have31 seats. The make-up of the parliament reflects thepolitical-ideological rifts within society.

The presidential elections of 1995 and 2004 also resulted inpluralistic representation, whereas the election of 1999 was onlyformally pluralistic because most candidates withdrew their candidaturewithin a short period. In the 2004 presidential election, the incumbentBouteflika was up against five competing candidates. Participants inall elections (legislative, presidential and municipal) were granteduniversal, active and passive voting rights. Turnout for the 2002legislative elections and the 2004 presidential elections was high.Election results are tainted by electoral influence and manipulation,although this appears to be decreasing. The 2002 legislative electionsand 2004 presidential elections were considered relatively fair. In the2004 presidential election, the military leadership refrained fromsubmitting a candidate for the first time. Within the constitutionalpresidential system, the elected president has various and extensiveprerogatives.

In spite of its renouncement of direct political influence, and inaccordance with the constitution, the military leadership continues tobe able to exercise veto power (as it has done in the past) when itfears serious consequences for the political orientation of thecountry, for domestic security and for the balance of power as a resultof political decisions.

The elected representatives of the first legislative chamber are,with respect to their power to legislate, not entirely authorized toimplement laws; the second legislative chamber (the senate) performs acorrective function on the president, who exerts great influence on themake-up of the second chamber.

The creation of political and civil society organizations is freelypermitted with only partial restrictions (primarily with respect toIslamist-oriented groups). Associations that define themselvesaccording to ethnic and linguistic or cultural cleavages are permittedto exist and count among the most active associations at the locallevel in Algeria. Trade union activity is also permitted, both withinthe former standard union UGTA as well as in the countless newindependent unions. The right to strike is guaranteed. The rights toassemble and demonstrate are only partially limited.

Freedom of information and opinion is limited, for example, wheresecurity issues are at stake and where criticism of the state exceeds acertain level. In such cases, the usual result is repression: the year2004 was designated by international human rights organizations as a“black” year for trade union rights and freedom of the press inAlgeria.


1.3. Rule of law

Considerable deficits exist in the Algerian presidential system withrespect to independence, definition of competencies, and the system ofchecks and balances between the executive, legislative and judicialbranches. The parliament has no real power of control in this system.The introduction of a second legislative body in 1997 led to theconsolidation of the subordination of parliament in favor of theexecutive. The judicial branch is formally independent andinstitutionally differentiated. However, judicial decisions have beenknown to be affected by politics. Corruption is also a problem in thejudiciary; the law is often implemented selectively and depending onpolitical pressure. The abuse of office is common and represents amuch-discussed topic in public. The fight against the misuse of officeand bureaucratic corruption, as well as the improvement of the legalrights of citizens, is desired by wide segments of the population,including by non-governmental organizations (NGOs). The press oftenreports on corruption cases.

 

Civil rights have been partly suspended ever since the state ofemergency that was declared in 1992. Laws that are in effect arethemselves only selectively enforced by the administration. Civillawsuits are lengthy and complicated by bureaucracy; the lack of legalprotections has lead to a loss of confidence in the justice system.Judicial reform is therefore an important segment of the reform agendathat was announced by the government in 2004. It is interesting to notethat, in this case, the assistance of the European Union was accepted.


1.4. Stability of democratic institutions

Since the “institutional normalization” initiated after the 1996presidential elections and the 1997 legislative elections, thoseexisting institutions whose reform was not penetrated by authoritariansystem have proven themselves stable and competent within the range oftheir responsibilities. Political measures were introduced to supportthe president and his informal decision-making but, however, not tostrengthen the government and the parliament and to create a definitionof competencies. A coherent and goal-oriented political program in thefield of political reform was not achieved during the observationperiod. In some areas, several reforms were introduced at differentrates, which resulted in a stabilization of power. Due to their shortduration, however, the extent of state reforms (such as judicialreform) cannot yet be estimated.

 

The administration was plagued above all by inefficiency, by thelack of availability of sufficient state services, and by a lack ofconnection to the public. Clientelism and regionalism play an importantrole in the distribution of state services and allowances; increasingsocial protests in the past several years have consistently pointed tothis problem.

 

State institutions are not organized in an effective system ofmutual control; the executive branch does not have to answer to thelegislative branch. Transparency in terms of decision-making simplydoes not exist.

 

The interests of the “representatives of the people” in parliamentare closely aligned to those of their “clients”; the behavior of therespective party leadership is adjusted to the desires of the executiveto secure their continued participation in power and in the resourcesof the country. However, none of the major participants questions theexistence of any of the national institutions.

 

A transformation of the foundation of the current political systemduring the second political term of President Bouteflika (2004-2009) isnot to be expected.


1.5. Political and social integration

Since the opening of the political system in 1989, party pluralismhas developed and formally consolidated itself in Algeria. The partylandscape is fragmented. The parties are characterized by a tendency tosplit when it comes to internal differences and rival claims to power.Parties are anchored in the population only on a superficial level.Popularity with the voters is dependent upon material promises (in thepast, this has gone so far as to mean direct allowances just before anelection) and promises that suggest a material improvement in thestandard of living. In the presidential system, this means that thepresident’s party – or any party close to him or regarded favorably byhim – is seen as the party with the best chances to actually fulfillthe promises made. In this manner, the party is guaranteed to besuccessful in gaining voters. Party apathy is dominant in the youngergeneration. In Kabylei, for example, the representative function ofparties has been increasingly rejected since 2001.

 

The parties form two political-ideological blocks: an Islamist and anon-Islamist one. Since the discrediting of the Islamist movement,clientelistic relationships have favored the FLN Unity Party – whichhas renewed its program and personnel – as well as its spin-off party,the RND.

 

There are countless interest groups in Algeria, some of which areaffiliated with a specific political party. These interest groups areusually weak and, because they lack any potential for pressure andmobilization, are relatively cooperative with the government. Theinfluential Trade Union Association UGTA and the autonomous tradeunions represent large groups ready to protest and provoke conflict –particularly because of the degradation of the social situation ofworkers and the permanent threat of losing their job because ofrestructuring and privatization of state companies. Relations betweenthe state and the trade union association UGTA have been cooperativesince 2004, when the UGTA actively supported the  reelection ofPresident Bouteflika

 

Islamist and anti-democratic groups are active in the armedunderground. According to the most recent official data, these groupscurrently number 300-600 people. State efforts to reintegrate theirmembers into society have been only partially successful. Thedifferentiation of civil society organizations is deep-seated. However,only 5,000 of the over 70,000 registered associations are operationallyactive. Their party or political affiliation determines whether theypursue a cooperative or confrontational course. Civil societyorganizations and a large part of the population generally focus ondemands for the implementation of a just state and for the promotion ofeconomic development. (No reliable poll data is available on theagreement among the population regarding democracy as a form ofgovernment.) Electoral participation cannot be used as an indicator asto whether the Algerian population is in agreement with democratic andmarket-economic transformation (2002: 46.17%; 1997: 67.08%). Therelatively low election turnout in 2002 was the result of the protestby a part of the population against the party-political establishmentand the insufficiencies of the system. The activities of the majorityof civil society organizations are subject to financial andstructural-organizational restrictions.

 

The nation has yet to deal with the human rights violationsassociated with the domestic political conflict with militant Islamismthat broke out in 1992. In the context of the discussion regarding ageneral amnesty (since 2004), this question is currently a hot topicand a very controversial subject of discussion.
  
        
2. Market economy

2.1. Level of socioeconomic development

Despite the country’s oil wealth, Algeria achieves only a low levelof development and ranks 108th on the 2002 HDI with a value of 0.704(central zone in the category “Medium human development”). During theperiod of observation, although there was a decrease in terroristactivities and the situation in the Kabylie has calmed, socialexclusion did not improve due to continuing poverty, increasingregional disparities and gender discrimination. On the contrary, therewas actually an increase in social protest in marginalized regions. Inother words, Algeria did not see a reduction in regional developmentinequalities. The number of Algerians living in poverty variesaccording to each official source: The Conseil National Economique etSocial (CNES) counts 15 million Algerians as living in poverty;according to statistics provided by the statistical office, only 15.1%of the population live under the poverty level of $2.00 per day;according to the UN Human Poverty Index, Algeria ranks 43rd with apoverty rate of 21.9%.

 

The loss of jobs and purchasing power because of economicrestructuring measures are the main causes of this poor showing. At thebeginning of 2005, the statistical office announced an unemploymentrate of 17.7% for the year 2004; in March 2004, the ministerresponsible spoke of 23%. The CNES listed a rate of 25.4% in 2004,which is nonetheless a decrease of over 8% from 2000. An impressiveGini coefficient is present.

 

The rate of illiteracy in adults remains quite high at 31%. Between2001 and 2005, expenditures for education were usually less than thatspent on defense. Average expenditures for healthcare amounted to onlyone-third of those funds spent on defense and achieved only arudimentary supply of healthcare. Production of medicine is highlydeficient and leads to an annual rate of imports costing approximately$600 million.


2.2. Organization of the market and competition

The first basis for the transition from a planned to a marketeconomy was introduced with the initiation of restructuring policiesstarting in 1995. Important transformation targets were establishedwith the abolishment of monopolies and privatizations. Thesedevelopments were hindered significantly by the employment protectionpolicies of labor movements and by specific parties such as the Partides Travailleurs (PT) (“Privatization = Selling out our country”). Thereform or liberalization of the hydrocarbon sector, which had beencontrolled by the government since 2001/2002, was established by law atthe beginning of 2005. In contrast, other sectors, such as foreign anddomestic trade, were completely liberalized. In 2004, the import sectorregistered approximately 14,000 private importers. On the other hand,the large informal sector – which employs approximately one millionpeople, 850,000 of which are street vendors – continues to represent aproblem. Yet other liberalization measures were aimed at theagriculture and financial sectors. The EU Association Agreement (signedin 2002, ratified by Algeria at the beginning of 2005, EU ratificationstill pending) and the hoped-for membership in the WTO have encouragedthe willingness for reform and have successively anchored Algeria inthe world market. Possibilities for foreign direct investment haveclearly improved as a result, especially in terms of security andpolitics. However, aside from the hydrocarbon sector, foreigninvestment remains small because of administrative problems andbureaucratic conditions (2004: hydrocarbon sector $4 billion;non-hydrocarbon sector $1.98 billion).

 

In spite of liberalization efforts, the bank sector remainsdominated by the state bank. The private banks Khalifa Bank and BCIAwere plagued by scandals that ultimately led to their liquidation andthe harming of private banks in general. The ministerial order in thesummer of 2004 inspired criticism of the fact that state companies areonly permitted to operate via state banks. Because of the country’sslow privatization, Algeria’s stock exchange has only a small turnover.Algeria’s economic reform polices are taking the country on the rightpath, but yet, according to the IMF, Algeria still does not live up torequirements in terms of the intensity and speed of reforms. Seen on aglobal scale, Algeria continues to have one of the least free economiesin the world (Freetheworld 2002 ranking: index 4.6 = 118th of 123).


2.3. Stability of currency and prices

During the period under review, Algeria’s ongoing inflation andexchange rate policies, which are set according to domestic interests,were successful – based on the standard of the 1990s. The inflationrate was 3.6% in 2004, a slight increase over 2003. This can be tracedback to the negative price reactions in the face of the dollar’sdevaluation against the euro and including the factoring-in of oil andnatural gas exports in US dollars and the largest part of the importsin euro. Algeria is not able to exert any influence on thisdevelopment.

 

The Algerian central bank is not independent. Instead, it is guidedin coordination with the Ministry of Finance (presidential appointmentsrequire cabinet decisions). However, the fiscal and debt policies arelargely in accordance with the IMF (“prudent medium-term fiscalpolicy”). Considering high foreign exchange incomes, they are alsocharacterized by early debt redemption. The reform of all mattersrelating to taxes is still being discussed.


2.4. Private property

The right to private property is defined by law. The acquisition ofprivate property as well as the running of a private company ispossible. However, wide-reaching corruption, inefficiency and theparty-oriented nature of the courts represent a risk to anyone who ownsprivate property, intellectual or copyright property. For example,efforts to combat product piracy are considered insufficient.

 

The process of privatization of state companies is accepted inprinciple, but it is advancing at too slow a pace according to bothAlgerian and foreign business people. Of the total 1,200 companiesdestined for privatization, only 111 were privatized by 2004; thedenationalization took place with 49% private domestic capital, 14% byemployees and 37% by foreign partners. The state organs responsible forprivatization simply do not place sufficient emphasis on the processbecause of the substantial social resistance from the employeesconcerned.


2.5. Welfare regime

The existing welfare system is deficient. The health insurance andpension scheme applies almost exclusively to those employees in theformal sector. The war against poverty is a main field of action of theUGTA Trade Union Association, but the association lost much of itsability to apply political pressure because of its support of PresidentBouteflika in the 2004 presidential elections. The state continues tosubsidize things such as basic food, water, energy; the government isattempting to scale back these subsidies in line with IMF criteria.However, because of the high foreign exchange incomes (in 2004: $31.5billion; in 2000-2004, a total of $124 billion), parliamentariansrefused to implement most or all of suggested subsidy reductions in the2005 budget. The pension and health insurance systems are currentlybeing examined.

 

Equal opportunity does not exist in Algeria, neither in the entry tothe labor market, in education, nor in terms of health care. This isprimarily because deficits in the quantity of opportunities lead todistortions based on criteria such as social origin, language, gender,family influence, etc. The educational system has not offered equalopportunity since the 1980s; the attempt to overcome educationaldeficits by way of private schools requiring tuition is a direct resultof this failure. Social differences become clearly apparent ineducation, for example in foreign study, and in the access to publicoffice. Traditionally, women have even fewer opportunities in allsectors in Islamist conservative Algeria.


2.6. Economic performance

After the catastrophic degradation of Algeria’s macroeconomicsituation at the beginning of the 1990s, the stability-orientedeconomic policies of the government in the past several years continueto exhibit good growth rates in the gross domestic product. Economicdevelopment is not unaffected by global developments, particularly withregard to oil prices, and yet it has progressed more than favorablysince 2000. With a continued positive outlook, an increase in foreignexchange reserves by approximately $40 billion in 2004 to almost $100billion in 2009 could be expected. The implementation of the 2001-2004economic recovery plan (a $7 billion investment) has worked against thenegative trend and the 2004 plan (a support plan for economic growth2005-2009 worth $55 billion) is designed to further this course.According to many critical Algerian economists, however, the focus oninfrastructure projects will not lead to a lasting growth but only to atemporary spurt because too few productive investments will be made,particularly in the private sector.


2.7. Sustainability

Despite the revaluation of environmental protection by the Ministryfor Regional Development and Environment, and in spite of the existenceof the subordinate environmental authority Agence Nationale pour laProtection de l’Environnement (ANPE), the environment does not rankamong the priorities of the government. Nevertheless, the governmentdid set up an environmental fund in December 2001. At the same time,the environmental awareness of the population is only slightlypalpable. The country’s large supply of natural gas has resulted inminimal research being done in the field of renewable energies such assolar and wind power. However, initial steps are being taken to protectbiodiversity and concrete measures have been taken to fight palm treedisease.

 

Algeria’s educational system (primary and secondary schools anduniversities) suffers from a lack of quantitative and qualitativefunds, further complicated by the destruction of infrastructure between1994 and 1999. In 2004, barely 10% of the budget of 1.95 billion dinarswas spent on education, which exhibits significant regional andgender-based disparities. In 2003, only 75% of boys and 70% of girls ofschool-going age were actually registered at school. Because of higherdiscipline and diligence, the percentage of female students at thesecondary level is 56.7% (56% of high school graduates) and 75% ofuniversity students in 2004 were female. This means that women willplay a larger role in future employment, for example, inadministration.

 

Data on state expenditures on research and development are notavailable in an accurate form, but they are actually quiteinsignificant.

 


3. Management

3.1. Level of difficulty

The implementation of necessary reforms suffers from the lack ofbasic essential market structures (for example, because too few peoplehave an understanding of market-oriented behavior), from the dominatingpension-oriented economic structures and modes of behavior, frompersistent conflict-oriented social problem constellations, widespreadpoverty and the general lack of education. Although the scope of armedIslamic terrorists has been significantly reduced due to massivesuppression measures, the soil is still fertile for resistance andmilitant social protest due to widespread conservative andfundamentalist ideas, large zones of poverty and a fundamental lack ofperspective among young adults. In contrast to this state of affairs,the security sector and the oil and gas sector are consideredefficient. The state presence in the entire territory is considered apositive basic condition for the organization of the transformation.The stability of the state and its institutions is ensured byauthoritarian measures, even if the degree of difficulty of thetransformation may be seen as extremely high.

 

Since the 1980s, deficiencies in state action have led to thecreation of a comprehensive network of civil society associations. Inthe context of the civil war of the 1990s, even more associationsemerged, for example, to take care of victims of terror and trauma.NGOs in the fields of education, health, the environment and humanrights are present on a nationwide scale with local representations.NGOs operating solely on a national level are in decline: in 2003, atotal of 70,000 NGOs were counted, only 1,500 of which operated on anational level. Most NGOs operate in the social and health sectors (ca.45%), followed by NGOs in the social and humanitarian fields.

 

Among those NGOs active in the social sector, there are both secularand Islamic-oriented organizations. Strong individualism andparticularism prevent the creation of strong civil societyorganizations. This also leads to the fact that respectiveparticularistic interests are set absolutely, that is,consensus-building is only present to a very small degree. Although notall particularities lead to violent clashes (such as with the Islamistsor in 2001-2004 in Kabylei), Algerian society is still stronglycharacterized by dualisms. For example, dualisms exist betweenArabophones and Berberophones, disciples of Islamic religious-politicalideologies and disciples of secular state and societal concepts, themarginalized and the wealthy; and between proponents of reform anddefenders of the status quo.


3.2. Steering capability

The first term of office of President Abdelaziz Bouteflika(1999-2004) was guided by the goal of achieving internal pacification,which included the establishment of domestic security and the fightagainst terrorism, and social reintegration of members of armedunderground groups. This process of national reconciliation wasdesigned to combine with the passage of an amnesty law, which iscurrently being discussed and which has lead to a distinct polarizationof political participants as well as large numbers of the public. ForBouteflika’s second term in office between 2004- and 2009, officialpresidential announcements have emphasized the modernization of theeconomy and the improvement of the general socioeconomic situation ofthe entire country. The basis of this will be formed by the reformplan, Program of Support for Economic Rehabilitation (the “PSRE II”,known as the Algerian “Marshall Plan”) with a volume of $55 billion.

 

The president has addressed the necessary democratic and marketreforms, but he has failed to implement these reforms with anysignificant purpose. In fact, the scheduled reforms and socialmodernization plans are implemented only to the extent allowed byprotests by labor unions (UGTA or autonomous trade unions), Islamicgroups and parties, women’s organizations, etc. An example of thepostponement of a regulation was the law regarding the hydrocarbonsector, delayed until it was implemented because of the new powerconstellation in 2005. An example of the implementation of awatered-down law is the 1984 reform of the family status with which therights of women were to be strengthened. The law was passed in 2005only after considerable reductions by parliament. The result of such anapproach is an inconsistent reform package progressing at differentspeeds and intensities. Finally, short-term strategies were often usedto prevent social protest.

 

To an extent, the government of President Bouteflika may be said tohave shown flexibility in its political activities. The more long-termstrategy recommended by individual economic-oriented ministers,however, is not present. For example, free trade zones are still notavailable for the settlement of foreign companies. Basic fundamentalexpectations and planning security are simply not available.

 

Uncertainty still reigns because of the gaping difference betweenofficial discourse and real material action. For example, in 2004,President Bouteflika publicly committed himself to democratization andcalled the freedom of the press an indispensable prerequisite for thisprocess. Yet, the press continues to suffer considerably and it ispursued when reports do not please the government.


3.3. Resource efficiency

In its implementation of the transformation, the government underPresident Bouteflika does not make optimal use of the availablefinancial, personnel and organizational resources. Apart from theabsence of a concrete, long-term reform strategy beyond the slogans for“Democracy” and “Market Economy,” the administrative process remainstoo bureaucratic and time-consuming, and the coordination between theadministrative offices is much too sluggish. Public service inmunicipalities and in the central administration is still overstaffed,despite more restrictive political programs. The reform of the localadministrative law (increase in the prerogatives of the Walis) is,however, in the works.

 

Ingrained hierarchical modes of thinking make administrative tasksand decision-making very difficult. The government is not solelyresponsible for this: all political and social participants play a partin sustaining this type of behavior and the thought processes behindit. The overestimation of criteria of political loyalty above criteriaof political efficiency is yet another cause for the sub-optimalperformance of government leaders. General behavior andthought-processes based solely on criteria of loyalty have only beenstrengthened under President Bouteflika, for example, through thereplacement of critical judges, restructuring of the army, and thereplacement of the Director of the Conseil National Economique etSocial with a loyal “Algerian soldier”, etcetera.

 

The massive problems associated with corruption have beenrecognized, but their prevention is made difficult by governmentalstructures controlled by personal interests and allegiances.Consequently, the fight against corruption continues to be deficient,even in the presence of legal regulations, and will continue to bedeficient even if further control mechanisms were to be introduced,such as full-disclosure rules for high-ranking officials before andafter the assumption of office. A new and intensified anti-corruptionlaw has been in the works since the end of 2004. According to Algerianopinion polls, however, its impact will be cosmetic at best. The fightagainst corruption takes place selectively and according to party-ties.Between 1999 and 2004, only 4,302 cases were brought before the court.


3.4. Consensus-building

A formal agreement exists between all relevant politicalparticipants with regard to whether they wish to see the implementationof "democracy" and a social "market economy". The PT, which arguesstrongly against privatization and capitalism, is not a centralpolitical actor. There is, however, disagreement over content, forexample, over the future role of the state, social components, thedegree of national regulation and/or state disengagement, and thetimeframe for reforms. There is a formal agreement between the majorparticipants over the goal of political democracy. For some politicalparticipants (those of Islamic orientation), the goal of "politicaldemocracy" is, however, only one stage on the way to the implementationof their own political and social concept. This concept is notidentical to the concept of a liberal democracy/liberal society thatforms the basic understanding of this report.

 

Reformers have proven to be too weak to maintain the pace of reformin the face of President Bouteflika – who is the current sole vetoholder – and against the enemies of reform. The military, which upuntil recently had been a veto power itself, relinquished its“prerogatives” through its neutrality in the 2004 presidential race andwith the departure of General Lamari. It withdrew from politics andreturned to concentrating on the professionalization and modernizationof the armed forces. A reactivation of the military’s veto role is notexpected in the near future. The government was not able to create agroup-wide feeling of solidarity during the period of review. Thus far,the political-ideological and religious division of the country is toodeep-seated to allow for a compromise.

 

While President Bouteflika has tried since 1999 to introduce aprocess of reconciliation between the victims of Islamic terrorism andthe perpetrators or members of terrorist groups and formerly activeunderground organizations, large parts of the population are ambivalentto the process.

 

Altogether, the present conflicts, including the one in the Kabylie,are not threats to the state, but they do obstruct the path of reformand negatively affect the climate for investment.


3.5. International cooperation

Since 1994, the Algerian government has been working with externaleconomic actors including the IMF, the World Bank, and the Paris andLondon Clubs. Under President Bouteflika, this cooperation was expandedin both the economic and political fields. The attacks of September 11,2001 have led to active political cooperation with the United Statesand North Atlantic Treaty Organization (NATO). One result is thatAlgeria was ranked as one of the United States and NATO’s closestallies in North Africa in the fight against terrorism in 2004 and 2005.In contrast to this, regional cooperation is only slightly pronounceddue to Algeria’s claim to leadership and the historical support fordecolonization efforts. The Arabian Maghreb Union has been bannedbecause of Algerian support for the Polisario since 1994, and themembers of the regional organization SinSad are rejected because of theleadership role played by Libya. However, Algeria has been one of themost involved member states (aside from South Africa and Nigeria) inthe African Union/New Partnership for Africa (NEPAD) over the pastseveral years. In 2004, as part of the Arab League, Algeria promotedreform suggestions that represented positions contrary to those ofEgypt and east Arabian states.

 

The decision to pursue a market-oriented economic opening has madetwo central cooperation tracks possible. In 2002, Algeria formulatedits intention to join the WTO. Since then, the process of integrationhas been prepared in countless rounds of negotiations. WTO admission isplanned for 2007. Also in 2002, an association agreement was signedwith the European Union. At the beginning of 2005, after intensedomestic discussions, the agreement was ratified by Algeria.

 

Under President Bouteflika, the cooperative inclusion of Algeria inthe international system has played a prominent role in politics.However, several domestic political figures pleaded for a slowerintegration into the world market due to feared negative effects on thenational economy. All-important political participants are aware,however, that there is no long-term alternative to this step. Thedemand for support of social cushioning mechanisms is very importantamong the relevant political actors in Algeria with respect to foreignpartners. An abrupt change in political policy is not to be expectedunder the current administration. All political participants, incontrast, vehemently reject any pressure from outside to democratizeand implement social reforms. This explains the corresponding negativereaction in particular to the Greater Middle East Initiative by theUnited States since the end of 2003.

 


4. Trend of development

4.1. Democratic development

The development of democracy and a market economy differed onlyslightly from the 2003 BTI observation period. The institutional basicstructure remained unchanged except for the following: the politicalsystem experienced a boost in legitimacy with the high confirmation ofPresident Bouteflika in the presidential election of April 2004 (84.99%voted in support of him), and the de facto withdrawal of the militaryfrom politics initiated a new phase in civil-military relations after40 years. These events, however, did not produce progress in theprocess of democratization. Instead, they simply proved the flexibilityof an authoritarian political system whose central leader showedtendencies toward securing his own power and emphasizing his monopolyover the formulation of policies. The obsessive control associated withthis also ultimately hindered the development of market reforms and theacceptance of the free play of market forces. In the course of thetransformation of the political order, Algeria has had great difficultymaking progress while simultaneously maintaining domestic order.Counteractive forces are at work among all relevant actors.


4.2. Market economy development

In light of Algeria’s great wealth of resources and high foreignexchange incomes, the development of the HDI progressed only modestlyfrom 0.664 (1995) to 0.693 (2000) and 0.704 (2002). As a result,Algeria (currently ranked 108th) ranks behind the occupied Palestinianterritories (102nd).

Starting in the mid 1990s, the Algerian government was forced toinitiate a market transformation. After years of careful steps anddelays since the end of President Bouteflika’s first term of office(2003-2004), the government decided, at least rhetorically, to granteconomic reforms a high priority. Keeping in mind the real hurdles toreform, transformation deficits generally rise with respect toderegulation and de-bureaucratization, the restructuring of the publicsector (the banking sector, among others) and the reversal of thepension economy, which continues to have many proponents both insideand outside the administration.

Economic reforms are progressing but they are too slow and selectivein spite of foreign consultation from the IMF and the World Bank andbecause of the consideration paid to domestic power relations. Riskestimates submitted by rating agencies (Coface, etcetera) have improvedslightly over the past few years as a result of consistently decreasingincidents of terrorism, economic reform measures (in spite of a stillhigh level of regulation), the will of the government to increaseforeign direct investment, and improving business prospects, thanks toincreasing income from oil and continued growth in the economy (6.8%growth in 2003, the highest rate in 15 years). This growth was stillnot enough to significantly decrease high levels of unemployment, inparticular among young adults under 30, of which 70% are unemployed, orto fight against high levels of poverty. With its one million“employees” and an estimated $14 billion in sales at the end of 2002,the informal sector remains – with an ever-increasing tendency – aneconomic buffer zone for the absorption of latent social protestpotential.



Development of macroeconomic fundamentals (2000-2004)

 
2000 
2001 
2002 
2003 
2004  
Growth of GDP in % 
2,2 
2,6 
4,0 
6,9 
5,5  
Export growth in % 
+65,0 
-11,9 
-0,2 
+31,0 
+35,5 
Import growth in % 
+1,0 
+2,2 
+26,3 
+10,8 
+32,3  
Inflation in % (CPI) 
4,0 
4,2 
1,4 
2,6 
3,6 
Investment in % of GDP 
24,6 
27,0 
30,5 
29,6 
29,7  
Tax Revenue in % of GDP 
33,3 
Similar 
s. 
s. 
s. 
Unemployment in % 
34 
34 
31 
28,4 
25,4  
Budget deficit in % of GDP 
+9,7 
+3,4 
+0,2 
+5,1 
+5,4 
Current account balance in billion $ 
9.143 
7.062 
4.359 
8.840 
10.801 


Source: Middle East Economic Survey, 7.2.2005; Euro-Stat; IWF; AfDB/OECD 2005

 


D. Strategic perspective

 

The strategic perspectives and future development of Algeria must be evaluated seperately, at least in terms of domestic and foreign politics. In matters of foreign policy, close cooperation with the United States and the European Union as well as with Russia and China, along with a marked commitment in Africa will continue to dominate the scene. These policies rank among the top foreign policy priorities of President Bouteflika, who is seeking to rehabilitate and expand Algeria’s role in international politics after the image loss of the 1990s. Algeria’s diplomatic skills, along with its oil and natural gas resources – which automatically make the country a “pivotal state” – as well as its geo-strategic location, support these ambitions. In other words, in the future, Algeria will continue to be a force to be reckoned with (although not so openly formulated as such) in its ambition to become a regional power player.

 

The prospects for the internal political and economic reform process in Algeria are, in contrast, much more difficult to estimate. Even an analysis of the structural conditions can not produce any tangible predictions on the future intensity and speed of reform. The only possible concrete statement may be made with respect to the reform sector where the goal of economic reform is dominant. The maintenance of political control over all reform processes is, however, in each case sacrosanct.

 

The positive self-perception of the inner-Algerian condition is evident: President Bouteflika regularly refers to essential democratic structures and all parties call themselves democratic. Positive appraisal has even come from other Arab states: Amr Musa, General Secretary of the Arab League, referred to Algeria as an “Arab locomotive” with respect to its reforms. Part of the logic of this self-perception involves the rejection of external calls to democratize and initiate reform, as well as in the proud postulate: “Ça ne nous concerne pas.” Calls to reform and democratize are considered unnecessary and misplaced. Thus, any attempt to influence Algeria from outside is de facto ineffective. This evaluation is, however, only one side of the perception; in real life one sees not only a high degree of reform blockage and democratic deficit, but President Bouteflika also tends to strengthen his own authoritarianism in spite of his support for democracy, economic reforms and the decreeing of partial liberalization measures, primarily in the economic sector. Algerian commentators speak increasingly of a “facade democracy” and skilled tactical behavior on behalf of the president in an attempt to secure his own personal power.

 

The destiny of economic and political reforms and the president’s power consolidation process are dependent more upon the domestic Algerian power balance and less on the ideological models that some Algerian analysts recommend based on their political position. The development of a power balance between reform proponents and reform opponents may lead in the short term to reform blockage, to reform acceleration or to the maintenance of the status quo, i.e. a reform program with inconsistencies and only selective reforms. With respect to the question of Algeria’s future, only the following answer may be given: the country’s political and economic transformation is uncertain. This also applies to the democratization so desired by Western states and estimated so pessimistically by the Economist Intelligence Union at the beginning of 2005. Up until now, no adequate cooperative Algerian movement has arisen that would be able to pursue the successful implementation of external reforms and democratization initiatives and make democracy (in the Western liberal sense) into a long-term and realistic alternative.

 




BTI 2006


COUNTRY REPORT
Algeria


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BTI 2003


COUNTRY REPORT
Algeria


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BTI 2003


LÄNDERGUTACHTEN
Algerien


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