Introduction
Algeria has long occupied a strategically significant position in the economic profile of Northwest Africa. With its neighbor states, Tunisia and Morocco, it comprises the region known as the Maghreb, a diverse mixture of Arab, Berber and Kabylian cultures, political systems and socio-economic activities. Algeria, as a single nation, contributes to the Maghreb's productivity somewhat less than might seem, at first glance, to be the case, given its geographic size and extensive history of French colonial occupation.
Following the Evian Accords, bringing to an end a long and brutal War of Independence from the French, Algeria inherited, in 1962, a well-developed industrial, transportation and agricultural infrastructure which enabled it to continue to produce goods and services at approximately the same level of proficiency as during the colonial period. However, it will be the position of this paper to demonstrate that major reprioritization initiatives turned the Algerian Economy from the path it had been pursuing under the French, toward a new centralized pattern of industrial growth. The path was not always successful and may have led to economic disequilibrium in many sectors, particularly in recent years.
The problem to be analyzed will focus primarily on the Algerian Ministry of Planning and its relationship to major para-statal and state-owned Monopolies which, even today, continue to influence heavily the direction of Algeria's economy. The underlying hypothesis of this report, therefore, is that the Planning Ministry, in conjunction with its subordinate State Monopolies, may have misinvested state funds in a number of sectors (oil, gas, chemical, and agriculture) to the ultimate detriment of Algeria's domestic and international economies.
In Part I, this paper will, firstly, discuss the general characteristics of Algeria's economy, providing statistical insight into the scope of each major production-sector, secondly, include a brief assessment relating to the former colonial power's influence in modern-day Algeria and, thirdly, provide an explanation of the specific nature of Algeria's centralized economy, which has been undergoing gradual change toward a free-market model. Details relating to employment trends, import-export quotients and various demographic considerations will also be highlighted.
In Part II, the paper will turn to an in-depth analysis of the problem alluded to earlier, i.e. the Planning function and the role of two major State Monopolies in the expansion of the Algerian Economy. The directions taken have not always met with favor among the population. For these reasons, it may prove useful to examine the general characteristics of the Algerian economy with a view toward elucidating those factors which may contribute to the validation of this paper's hypothesis, which contends that the Planning Ministry, and major State Monopolies, have skewed the nation's growth in directions which may have proven injurious to certain vital sectors.
Part I
In spite of the widely recognized hostile conditions of the Sahara Desert, which occupies all of its territory lying south of the Atlas Mountains, Algeria is a nation of considerable wealth. Natural gas resources, oil, mineral production, tourism, fruit and fruit juices, wine, fishing, handicrafts and textile activity comprise the major contributions of this North African nation to its principal trade-partners located in or near the Mediterranean Basin. This has been historically the case, and remains so in contemporary times.
The Gross Domestic Product of Algeria is derived principally from its vast natural gas and related petroleum reserves, in the form of condensates, making Algeria one of the world's leading exporters of natural gas at a rate, in recent years, of some 400,000 barrels per day. Sources indicate that natural gas comprises approximately 70% of Algeria's production of hydrocarbons.
For further analytical purposes, major components of Algeria's GDP can be broken down for convenient examination in Figure I below. It is important to note the nation's heavy reliance for revenue on petroleum related industries. Distribution of this wealth, prioritized by the Planning Ministry in Algiers, typically feeds other sectors of Algeria's development programs.
THE THREE PRIMARY COMPONENTS
OF ALGERIA'S GROSS DOMESTIC PRODUCT
(for 1989 - 1995, in percentage of total GDP)
Natural Gas 65.6%
Petroleum Products 29.4%
Minerals & Agriculture 5.0%
Slightly Adjusted Total 100.0%
FIGURE I
Because the vast preponderance of economic activity in Algeria is related to oil, gas and mining, it might be fair to state that certain sectors of the Algerian economy have been neglected, according to a growing number of social critics who recognize that construction, housing and social services have been chronically underfunded, creating a shortage, for example, in the housing sector of more than one million units in recent years.
Algeria's workforce is heavily concentrated in the North of the country, along the Mediterranean Coast in locations such as Oran, Cherchell, Algiers, Bejeia and Annaba. There is some tendency toward growth of interior cities such as Constantine, Soukharas, Biskra and Blida. Deeper within the nation, secondary cities are also established but seem to be dependent on the flow of capital from Algeria's industrialized north. Oil production facilities, of course, are located in the interior, but the economic impact of their revenue is felt in the larger cities of the Mediterranean Coast.
In the 1980 - 1988 time frame, for example, the nation's work-eligible population, amounting to 2,336,972 persons, was employed in production, agriculture, clerical, service, and technical occupations in the proportions indicated in Figure II, below:
A REPRESENTATIVE DISTRIBUTION OF ALGERIA'S WORKFORCE (1980-1988 Census)
Sector No. Of Employees Percentage of Total
Production 872,260 37.33
Agriculture 650,358 27.83
Service 191,169 8.18
Sales 153,828 6.58
Clerical 230,724 9.87
Administrative 12,348 .53
Technical 170,001 7.27
Not Classified 12,811 ----
Unknown 43,473 ----
TOTAL 2,336,972 100.00 (adjusted)
FIGURE II
Unemployment has been a chronic dilemma in post-colonial Algeria, in spite of socialized programs to reduce the problem, and recent figures bear out that this phenomenon has not diminished. Opportunities in many job categories would seem limited, particularly in clerical, service and some technical sectors. According to Brahim Younessi, in his assessment of unemployment in the last three years, Algeria's national jobless rate is currently surpassing 35% of the active population. He notes that, although " net birth gain" has decreased from 3.1% in 1985 to 2.2% recently, more than 225, 000 new young people in Algeria seek employment annually, beyond the 130,000 young Algerians who migrate annually from rural areas to urban centers in search of employment. This unfortunate situation is due, in large measure, to poor economic planning and inadequate funding of programs aimed at proper training, insertion and maintaining of young workers in the work force through realistic wage and benefit incentives. Expansion of industry is occurring in Algeria at a rate incapable of absorbing the growing numbers of young workers, analysts feel. Inadequate academic preparation is occasionally a source of unemployment, as are cultural constraints placed on members of certain ethnic groups and on women in most sectors of the economy.
Algeria has enjoyed cordial relations with most nations of the world for purposes of trading and commercial activity. During the period of French colonization, Algeria produced goods and services which largely met the needs of Metropolitan France, and was able to sustain itself in terms of food production. It imported luxury items at that time, but these items were principally reserved for the French "pied-noir" population, a social class able to afford the manufactured goods produced abroad. After colonization, there was a major period of readjustment, involving the brief presidency of Ahmed Ben Bella and the accession to power of Colonel Boumedienne, who began to reform or even "radicalize" the economy. It is sometimes felt that Boumedienne's presidency turned Algeria's agricultural economy toward heavy industry, and ushered in the period of post-colonial development which, today, has made Algeria a nation emerging from its Third World status, in spite of internal unrest.
In Figure III, below, a brief synopsis of Algeria's significant economic indicators is presented. Essentially, the GDP and GNP depend on production of various forms of hydrocarbons to generate funds for internal development in other sectors of the economy, notably in construction, diversification of industry and modernization of agricultural methods.
SIGNIFICANT ECONOMIC INDICATORS FOR PERIODS CITED * 1989-1995 95% of Total Export Revenue was generated by Oil and Gas production. * 1996 An increase of GDP on the order of 5% is anticipated, in spite of on-going
infrastructural damage and strife. * 1996 Algeria's overall external indebtedness amounts to $31.6 Billion.
* 1996 The debt-service ratio of Algeria is 35%, a considerable fiscal burden.
FIGURE III
Algeria, in recent years, has been the recipient of much external assistance from developed nations. Europe, in particular, has a vested interest in the internal modernization of Algeria since it depends to a large degree on gas, oil, fruits and vegetables from Algeria. Proximity to France, Italy and Spain make Algeria a useful trading partner for certain commodities. The ways in which the highly centralized economy of Algeria has utilized this external funding are, some economists feel, open to question. Indeed, the 50% devaluation of the Dinar and the projected increase of the overall indebtedness of the country to $37 Billion in the forthcoming year would not seem to bode well for the immediate future.
The people of Algeria, in the 1980s and early 1990s, lived reasonably well, in spite of natural disasters, such as the El Asnam Earthquake, border disputes with neighboring Libya, the War with Morocco over the Spanish Sahara, diplomatic incidents with France and various complications related to the government's position on the Palestine Liberation Organization, Hamas and other Middle Eastern Political Movements. All of these factors impacted the local economy, but due to an influx of capital from oil and gas revenues as well as international loans, the basic standard of living remained intact. Housing, transportation and food were all subsidized in Algeria throughout this period, according to readily available source material.
Theoretically, income is distributed in Algeria in accordance with a socialist model which evolved gradually in the post-colonial era. In general, there has been a consistent attempt to provide essential subsidization of basic commodities for the population. Although
the Boumedienne government turned the nation in the direction of militarization, under pacts with the Soviet Union, France influenced the social and commercial sectors sufficiently to ensure that, on balance, equitable distribution of wealth remained a dominant governing principle. This is not to say that hard-line military advisors did not attempt to derail social programs aimed at improving the living standards of the people. It is sometimes thought that the Ben Bella Government was overthrown by Boumedienne and Bouteflika (then Foreign Minister) because both were dissatisfied with the enormous amounts of funding made available for education and social programs under Ben Bella's short-lived Presidency.
It is crucial to note that, in the wake of French Colonization, basic French concepts relating to the political and economic structure of the nation were left essentially intact. Ministries, administrative practices and bureaucratic systems were only slowly modified under post-colonial governments. There was a distinct tendency toward socialization of industry. Ideologically, Soviet influence was pervasive under Algeria's second and third Presidents.
The successive governments of Algeria emphasized economic development of several diverse, often conflicting, sectors of the economy, in accordance with the following chart, compiled and adapted from a variety of political and socio-economic sources as footnoted.
A CONCISE ECONOMIC APPRAISAL OF
POST-COLONIAL ALGERIAN GOVERNMENTS
Ahmed Ben Bella ---> Reform of Education, Small Business and Social Benefits
Houari Boumedienne ---> Militarization, Industrialization, Logistical Infrastructure
Chadli Benjedid ---> Agricultural Reform, Housing, Revenue Stabilization,
Lamine Zeroual ---> Coping with Political Upheaval, Disarray and Decline
FIGURE IV
At the present time, the Algerian Government requires more than 10 Billion Dollars annually in importations, only partially offset by revenue. In fact, although external assistance is available, much of it is being wasted on military and obscure projects, according to opposition leaders within the country. The net impact of this apparent misappropriation of available resources will constitute the second portion of this report.
Part II
It is particularly useful to trace the approximate development of the Algerian economy with data sporadically available from reliable and unbiased sources. Much data for Algeria was not published in World Development Reports for the mid-1990s, and, had it been published, might have been either controversial or unreliable due to conflicting reports from diverse, politically motivated sources. Mismanagement of funds or improper prioritization of development objectives can be analyzed, however, on the basis of certain salient facts, published in reliable journals or almanacs which provide an objective outline of events in post-colonial Algeria.
In the 1981-1986 time frame, Algeria expended the entirety of its GDP, internally, in the manner indicated on Figure V. It is useful to note that, although Algeria was considered a socialist state during the period in question, the central government spent less than one-fifth of the nation's GDP, and the private sector seemed quite dynamic. The negative figure opposite "imports" is indicative of the fact that imports actually contributed to the GDP, often in the form of raw materials, and did not constitute an expenditure drawn against it, hence the negative impact on the total expended. This chart, Figure V, indicates the approximate
ANNUAL EXPENDITURES OF THE ALGERIAN NATION AS A PERCENT OF GDP
Investment....................................30.7
Government Consumption..............18.8
Private Consumption......................49.6
Imports........................................-14.3
Exports.........................................15.3
Source: Adapted from The Book of Vital World Statistics, 1990. p. 49.
FIGURE V
pattern which developed over successive years, although independent sources indicate that the government, in the early 1990s, began to influence more substantially the economy by infusing funds, whether generated by natural gas, taxed as a function of productivity of the population, or derived from international sources, into sectors which may not have been the wisest choices to ensure continued stability. These decisions were made at the Ministerial and State-Monopoly levels of government. They began under Colonel Boumedienne , were continued under Chadli and, as instability worsened, were also implemented, at times unwittingly, by the Zeroual government.
Two years after this period of relative freedom accorded to the private sector, there were some indications of a tightening of government policy, implying that a larger share of revenue was commandeered by the Presidency and allocated to Ministries for large industrial or infrastructural projects.
In 1988, the GDP of Algeria attained the level of 54.10 Billion U.S. Dollars, and, in spite of this achievement, an abrupt increase in external indebtedness occurred, in relation to France and other nations. In fact, 1988 seems to have been a watershed year for the Algerian economy. Social unrest began to surface sporadically, in the form of an Islamic Movement, spawned not so much by ideology or religious fervor as by inappropriate distribution of funds available, and improper earmarking of essential social programs.
To adequately understand the workings of the major Ministries of Algeria which, during the late 1980s and early 1990s, controlled major sectors of the economy, it is indispensable to present a graphic overview of the upper-echelons of the Algerian Bureaucratic State, a highly centralized model by western standards. Figure VI, below, demonstrates, in simplified form, major relationships among the Executive, three Ministries and corresponding State-Monopolies, forming a partial overview of the hierarchical structures involved:
President of the Republic Economic
Planning Ministry
Ministry of Industry & Energy Ministry of Tourism Ministry of Mining
SONATRACH SONATOUR SONAREM
FIGURE VI
It would seem logical to assume that decisions flowing from the Presidency might be in the best interest of the nation; however, some analysts feel that interference with the Planning Function, through dotted-line communications, as indicated on Figure VI, can be damaging to the overall balance of the economy, since it is done haphazardly and often on the basis of personal contacts, not on the basis of deliberation or thoughtful reflection. Because the Colonial Power, in this case France, has substantial influence -- even today -- within the upper echelons of SONATRACH and SONAREM, it is possible to disrupt the Ministry of Planning's objectives through personal influence-peddling or "privileged" contacts. French Firms, such as TOTAL and ELF have sometimes (opposition economists assert) availed themselves of preferential access to high government officials.
It is also speculated, for example, that American contacts, in the case of Atlantic-Richfield's latest project at the Rhourde El Baguel Oil Field, may have successfully lobbied to achieve their goals. Whether this agreement, negotiated over a three-year period with SONATRACH, is in the interest of Algeria remains to be seen. ARCO will be entitled to 49% of the total revenue generated from the oil field, according to an ARCO Media Relations Release. These types of contractual arrangements could be interpreted as depriving the Algerian people of their resources in the long run, depending on petroleum reserves at this, or other sites. SONATRACH under the ARCO agreement will receive an up-front payment of $225 Million, an amount which may actually under compensate Algeria for the 49% share ARCO obtains under the agreement. Because the negotiations extended over a three-year period of time, it can be assumed that this "deal" was approved by the Ministry of Planning and proper authorization was received at all levels of government. In the case of smaller contracts with other firms, "honesty" may not always prove to be the "operative policy."
Although, generally speaking, it might be fair to state that the major oil companies are acting fairly straightforwardly with members of the ruling Government, whether working with SONAREM, the Mining Monopoly, or with SONATRACH, the Energy Monopoly, statistics for smaller businesses, foreign and domestic, show that, during 1994, more than 48% of small firms doing business in Algeria disregarded minimal wage regulations, and that 72% failed to adhere to health and safety standards. What this could imply for larger firms is uncertain, given the information available from government sources.
Certainly, the Planning Ministry's function should not be undercut by personal arrangements with doubtfully motivated enterprises. The greater interests of the Algerian State must be served by astute officials who know how to establish priorities and avoid distorting the Central Planning Function. Surely, an increase in petroleum revenue for Algeria is not a "bad thing", but other sectors of the economy should be developed, as well, in order to balance across-the-board productivity and enrich the experience of the entire population. It is disturbing to note that, in 1994, for example, growth of productivity in the Algerian food sector was not able to keep pace with population growth, thus gradually making of Algeria a net importer of food. An intrinsic imbalance in the economy could lead to further social disruption in Algeria. If French, Italian, American and Belgian firms continue to develop the oil and gas industry to serve, on an equal footing, their own interests and the interests of Algeria, there could be "trouble" in the medium or long term future of Algeria.
Algerian economists, schooled in France and the United States, are absorbing many of the tools required to ensure the welfare of their nation's economic health. They are beginning to implement the principles of the Harrod-Domar Growth Model, calling for a portion of national revenue to be reinvested in the economy, and are adhering to the realities of cost-benefit analysis. These tools, coupled with a desire to ensure the welfare of their people, may motivate Algerian economists and Planning officials to insist on balanced, sane development for the entire country in the years ahead.
What lies in store for Algeria may not be determined by economic forecasting models, all of which are equally valid in many respects, but may be determined rather by the tenacity of Government Officials in the face of external forces which seek profit and corporate enrichment at the expense of the Algerian people. Algeria has learned a harsh lesson in its relationship with France and will be inclined, in this student's opinion, to exercise due caution and proper judgment in its dealings with foreign firms, thus minimizing potential imbalances or deficiencies in the "central economic planning" process.
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