Prof. Abderrahmane Mebtoul: “The widespread financial scandals affecting most sectors of national activity threaten the foundations of the Algerian State.”

Professor A. Mebtoul. DR.

Mohsen Abdelmoumen:  How do you read the current economic situation in Algeria?

Prof. A. Mebtoul: To understand the economic situation, it is interesting to refer to the annual ranking of The Global Competitiveness Report, of the World Economic Forum (WEF), which concerns the constraints of the business community and economic efficiency in the world, established on the basis of some 100 quantitative indicators from member states and international organizations (World Bank, IMF, ITU, ITC, UNESCO, etc.) as well as qualitative investigations carried out by the WEF itself. To make aggregation of heterogeneous data possible, all results are converted to a scale of 1 to 7. These 110 ratings are then grouped into 12 categories called "pillars", which are themselves divided into major "sub-indices". In its 2018 report, the WEF study, conducted among 14,000 business leaders from 137 countries, provides a global ranking of the most competitive countries. To establish Algeria's competitiveness ranking, the Forum based itself on 114 indicators grouped into the following 12 categories: Algeria is ranked 88th, far behind Morocco (49th position) and Tunisia (80th position). As for the level of corruption, (85th place), Algeria is very poorly ranked, corruption being the second biggest obstacle on the path of investors. In terms of public sector performance, the country ranks 81st and 54th in terms of safety. Regarding the index of the Algerian economy's openness to private investment, the ranking is 128th, the economy being considered too undiversified and private initiative is one of the least competitive in the Arab world. Regarding infrastructure, despite significant expenditure, Algeria is ranked 93rd. Briefly, we have the following classification: institutions: 88th position; infrastructure: 93rd; macroeconomic environment: 71st; health/education: 71st; higher education and training: 92nd; goods and market efficiency: 129th; labor market efficiency: 133rd; financial market development: 125th; technological readiness: 98th; market size: 36th; business sophistication: 122nd; innovation: 104th. In terms of investment incentives, the country ranks 98th out of 137 countries assessed, which is an average performance. According to Bloomberg, Algeria, to increase its budget deficit for the 2019 fiscal year, "would need a barrel of oil at $116.40, compared to $95/100 in 2017/2018" stressing that "Algerian production has remained relatively stable at around 1 million barrels per day.” In view of the high expenditure, growth driven mainly by public spending was low: by 1.4% in 2018, compared to 1.3% in 2017, according to the report of the National Statistics Office (ONS), and in current value, GDP increased from 18,575.8 billion dinars in 2017 to 20,259 billion dinars. In 2018, the GDP deflator increased by 7.6% compared to 4.7% in 2017 and per capita, the GDP reached $4,080.7 in 2018 compared to $4,011.2 in 2017. According to the World Bank report and the file on the world economic outlook, growth in Algeria is expected to be 1.7% in 2020, the consolidation of public finances weighing on non-oil activity, whereas the January 2019 edition of the report predicted growth of 1.8% in 2020 and 2021, this projection having been reduced by -0.1 points for 2020 and -0.4 points for the year 2021. This will inevitably lead to an increase in the unemployment rate, which is often inflated by officials, including annuities and temporary non-productive jobs. The current political situation with the imprisonment of the oligarchs is increasing this rate, while the active population is estimated at around 12.463 million at the end of 2018 for a total population of more than 43 million inhabitants as at 1 January 2019. Unemployment affects nearly 29/30% of young people and, importantly, higher education graduates who had reached 17.6% in April 2017, reached 27.9% in September 2018, according to ONS statistics.

Fiscal and trade deficits have been increasing steadily in recent years, what solutions, other than the use of external debt, do you recommend to deal with it?

Any increase or decrease in hydrocarbon prices has had both economic and political implications, as evidenced by the political impacts of the 1986/1990 price decline crisis. Oil prices have fallen sharply since the third quarter of 2019, falling between $5961 and then rising to over $67 following the attack in Saudi Arabia but subsequently stabilized at $64.32 on September 21, 2019 and WTI from 1.13% to $58.67. The open market price of natural gas, which represents 33% of Sonatrach's revenue between 2018/2019, was quoted on 2108/2019 at $2.53 per mmBTU, fluctuating over the past 12 months between 4.93 and 2.06 per mmBTU, where at this rate Algeria will struggle to cover production costs. Concerning the structure of the trade balance for 2018, imports amounted to 46.19 billion US dollars, a very slight increase of 0.30% compared to the results for 2017. Exports amounted to US$41.17 billion, up 16.98% from 2017 results thanks to an average price of US$70 per barrel. This resulted in a trade balance deficit in the period 2018 of about US$5.03 billion and an import export coverage rate of 89% in 2018, compared to a rate of 76% in 2017. Hydrocarbons accounted for the major part of exports abroad in 2018 with a 93.13% share of the total volume of exports, non-hydrocarbon exports were valued at US$2.83 billion. For the first half of 2019, the underlying trends have not changed in their structures. Algeria's trade balance recorded a deficit of $3.18 billion in the first half of 2019, compared to a deficit of $2.84 billion in the same period in 2018, according to Algerian customs. Imports reached USD 22.14 billion, compared to USD 23.14 billion, showing a slight decrease despite all the bureaucratic measures taken, recording a slight decrease despite all the bureaucratic measures taken, with, it should be noted, a decrease in the fuel bill but which, together with high domestic consumption, raises the issue of generalized subsidies requiring targeting and a new energy consumption model. Algerian exports reached USD 18.96 billions during the first half of 2019, compared to USD 20.29 billion during the same period in 2018, a decrease of -6.57 %, which covered 86% of imports, compared to 88% during the same period in 2018. Non-hydrocarbon exports, including hydrocarbon derivatives, remain marginal, with nearly USD 1.31 billion in the first half of 2019 compared with USD 1.45 billion in the same period in 2018, i.e. less than USD 350 million if hydrocarbon derivatives are excluded. Hydrocarbons still represent the bulk of Algerian sales abroad during the first half of 2019 (93.10pc of the total volume of exports and more than 98pc with derivatives, reaching USD 17.65bn, compared with USD 18.84bn in the same period in 2018, down by -6.31pc). Given the trend in the first half of 2019, assuming an annual average of about $60/65 per barrel for oil and $3/5 per mmBTU for gas, Sonatrach revenue would be around $30/35 billion. But the reference document is the balance of payments, the trade balance having a limited meaning. According to the Bank of Algeria, over the past 9 years, imports of services have fluctuated between a low of $10.776 billion (2013) and a high of $11.696 billion (2014) whose invoice fluctuates between 2010/2018 between $10/11 billion annually, which has a negative impact on the balance of payments, including maritime transport ($2.95 billion in 2018), construction ($2.65 billion in 2018) and technical assistance ($3.22 billion in 2018). This refers to the urgent need for a new governmental orientation and general citizen mobilization to avoid severe budgetary tensions in 2021/2022 with dramatic economic, social, political and even security implications, except for the miracle of a barrel price of $100 per barrel.

The return to the IMF in the course of 2022 would have six repercussions: first impact, a devaluation of the dinar with as a result the decrease in the purchasing power of fixed incomes; second impact, reduction of the civil service, including a reduction in the number of civil servants, a reduction in the national defense/security services budget, including DGSN (General Directorate of National Security); third impact, labor market flexibility; fourth impact, targeted subsidies including fuel and essential products; fifth impact, privatization, demonopolization and reduction of the state sector including the financial sector, and liquidation of loss-making enterprises; sixth impact, diplomatic consequences vis-à-vis Algeria's traditional positions at the international level, not to mention possible geostrategic impacts.

The country's foreign exchange reserves are melting like snow in the sun. What will be the significant impact of this downward trend on the country's situation in the near future?

Although external debt is about 12% of GDP, we are witnessing a drastic decline of foreign exchange reserves. It should be reminded that the 2019 Finance Act, which operates on the basis of an oil price of more than 105 dollars per barrel, provided for the period 2019/2021, a decrease in foreign exchange reserves to USD 62 billion in 2019 and then to USD 47.8 billion in 2020 to reach USD 33.8 billion in 2021. However, with the unresolved political crisis paralyzing the economy, these forecasts may not materialize. Indeed, we had a decrease of about $7 billion between January and April 2019, i.e. in four months, and at this rate, the decrease at the end of 2019 would be $21 billion. With foreign direct investment declining due to the political crisis and the pace of public spending, which is more than 80% growth, foreign exchange reserves are likely to fall in early 2022. Indeed we have the following evolution: -2012: $190.6 billion, -2013: $194.0 billion, -2014: $178.9 billion, -2015: $144.1 billion, -2016: $114.1 billion, -2017: $97.3 billion, -2018: $79.88 billion, -end of April 2019: $72.6 billion, -end of 2019: $58/60 billion at the rate of a currency outflow of $21 billion/year (forecast), -end of 2020: $36/38 billion (forecast) -end of 2021: $16/18 billion (forecast), -first half 2022: hypothesis of cessation of payment (forecast).

What is the impact of the decline of foreign exchange reserves on the quotation of the dinar?

Contrary to some recent risky statements comparing the non-comparable (developed countries), the official 1990/2019 dinar rate is correlated to foreign exchange reserves, via hydrocarbon revenues at over 70%. For any comparison, reference should be made not to developed countries (low foreign exchange reserves, but a productive structure) but to the Venezuelan experience. Between 70 and 80% of the needs of public and private companies as well as the needs of households come from outside, the growth rate, the employment rate depending on public spending via hydrocarbons. The previous period was not significant (administrative quotation in 1970 with 5 dinars for one dollar), recently, from 2001 to July 2019, the quotation is as follows: -2001: 69.20 dinars for one euro and 77.26 dinars for one dollar; -2002: 75.35 dinars for one euro and 69.20 dinars for one dollar; -2008: 94.85 dinars for one euro and 64.58 dinars for one dollar; -2014: 106.70 dinars for one euro and 80.06 dinars for one dollar; -2019 (September 21): a purchase price quotation of 132.62 dinars for one euro and 119.96 dinars for one dollar, and on the parallel market, the difference with the official price is about 50% depending on the supply-demand balance.

From a budgetary point of view, there are three solutions in the event of non-use of non-conventional financing: a greater budgetary rigor with the fight against the scourge of corruption, the targeted external debt and the dinar's slippage against the dollar and the euro, which makes it possible to artificially increase hydrocarbon taxes and ordinary taxes, the latter accentuating the inflation borne by the final consumer as an indirect tax. In the event of a drastic drop in foreign exchange reserves to $10/12 billion, which hold the Algerian dinar at more than 70%, the Bank of Algeria will be forced to devalue the official dinar to around 200/220 dinars for one euro with a surge in the price on the parallel market that will fluctuate according to the inflation rate between 300/400 dinars for one euro, which will accelerate the inflationary process. As a result, growth is expected to slow very sharply in 2020, causing an increase in the unemployment rate. It will also result in the persistence of budget deficits and especially external deficits which will gradually eliminate all the possibilities available to Algeria. As I pointed out at the outset of its implementation, after euphoric speeches on the benefits of non-conventional funding by some organic experts, this method of financing risks leading the country towards a Venezuelan-style inflationary drift (it is necessary to compare the comparable) with negative economic, political and social consequences, political slogans being insensitive to the economic laws applicable in all countries and Algeria is no exception. The use of bank notes to finance the budget deficit will have a negative impact in the long term while, contrary to some speeches, it will help to reduce foreign exchange reserves by making dinars available to some companies (70% of the raw materials and equipment of public and private companies being imported, the integration rate not exceeding 15/20%), the latter will be empresses, as the inflationary surge is not yet perceptible between 2018 and September 2019. For the IMF and the European Union, the Algerian government limits itself to short-term measures without a strategic vision, with non-conventional financing representing 23% of GDP. But this method of financing will also have reached its limits from 2020 onwards with high inflation rates. The same projections are included in Coface's business review and several international institutions.

What is your reading of the 2020 draft budget law?

The 2020 Finance Bill foresees a 9.2% decrease in spending with a sharp cut in capital expenditure (-20.1%) and a slight decrease in operating expenditure (1.2%) and an 8.3% decrease in overall tax revenues. The latter, despite an expected increase of 5.3% in ordinary taxation, will be impacted by a decline in oil taxation to 2,200.3 billion dinars in 2020. Despite these pessimistic forecasts, the draft Finance Act 2020 would be prepared on the basis of conventional financing, relying essentially on ordinary budgetary revenues by strengthening taxes and duties on wealth and property, depending on the signs of movable and immovable wealth. The imposition of a tax, ranging from 1% to 3.5%, on any patrimony worth more than 50 million dinars had been introduced in the draft finance law (PLF) 2018, before its abolition, on a proposal from the Finance and Budget Committee of the National People's Congress (APN). The goods covered by the 2018 FDP were mainly real estate, passenger vehicles with a cylinder capacity exceeding 2,000 cm3 (petrol) and 2,200 cm3 (diesel), yachts and pleasure boats, race horses, touring aircraft, works of art estimated at more than 500,000 DA, jewellery and stones, gold and precious metals. The PLF 2020 proposes in its article 95 to amend article 109 of the Finance Act 2018 which concerns the solidarity contribution. According to the text, the latter will increase from 1% to 2%, since it is a tax applicable to the importation of goods released for consumption. It is collected and recovered as in customs law and is intended to be paid into the National Pension Fund (CNR). The measures to tax the owners of the four-wheelers concern the payment of the traditional car tax, a new tax will be introduced on vehicles and mobile machinery, the tax varying between 1500 Da and 3000 Da, paid by motorists when renewing or issuing the insurance contract for their vehicles. This tax will allow the tax administration to collect the equivalent of 12 billion dinars, by drawing on a national fleet that has seen a significant increase in recent years, slightly exceeding the threshold of 6 million vehicles: 70% of the revenue from this tax, or more than 840 billion centimes, will be allocated to the State budget, while 30% of the revenue, or more than 360 billion centimes, will go to the Solidarity and Guarantee Fund of local Authorities.

For non-resident tourists, there will be a tax of 6,000 dinars on any vehicle that enters Algerian territory as part of a tourist stay. This tax will be levied directly at the Customs level when the driving permit is issued. The reason for this tax is justified by the desire to compensate for the consumption of subsidized fuel, as well as the use of basic infrastructure such as roads. With traffic of nearly 150,000 vehicles, this proposal should generate annually nearly one billion dinars for the Public Treasury. Finally, there are taxes on hazardous waste, petroleum products, which will be paid to the National Environment Fund, as well as to the local authorities' fund and the Public Treasury, the operation must be carried out gradually, as less than 3% of different types of plastic are recycled daily, i.e. 200 tonnes per day and 73,000 tonnes per year. The draft 2020 finance bill (PLF2020) plans to lighten the so-called 51/49 rule on foreign investment by lifting restrictions on "non-strategic sectors", but the executive does not provide details on the sectors considered "strategic" that will remain subject to this rule. Moreover, the PLF2020 does not rule out the possibility of using external debt to finance structuring economic projects. The preliminary draft also refers to a return to the import of second-hand vehicles less than 3 years old for Algerian residents, the terms of this measure having not been specified. It should also be noted that it is planned to exempt start-ups and investments by young project leaders from the payment of various taxes and duties as well as from the granting of "incentive measures", which will facilitate their access to land for the purpose of extending their projects.

Is there a real risk of economic collapse, as some observers argue, if the current political vacuity situation in the country persists?

Between 2019 and 2021, I do not think there will be an implosion but strong budgetary and social tensions. Beyond that, without far-reaching reforms, anything can happen. Indeed, Algeria's financial situation today is far less dramatic than on the eve of the October 1988 uprising. Between 2020 and 2021, there are four reasons to believe that state revenues can still serve as a temporary social buffer to avoid social implosion by 2022.

First, Algeria is not in the situation of 1986, where foreign exchange reserves were almost non-existent with a debt that was beginning to become heavy. However, if the political crisis is not resolved, although the external debt varies between ½ % of GDP, extremely low, we will have as impacts a very serious economic, social and political crisis with the loss of political, security and economic independence. These levels of foreign exchange reserves, if properly used, can serve both as a social buffer and as a means of boosting the productive fabric, on condition that the economic policy changes and the political crisis is resolved to attract potential investors.

Secondly, with the importance of the informal sphere as a social buffer, given that between 30 and 40% of the working population is employed and given the housing crisis, family reunification concerns a large fraction of the population and the costs are paid from the overall family income. But we must be careful: solving the housing crisis without boosting the economic machine ultimately prepares for the social explosion.

Thirdly, thanks to their work but also to State subsidies, Algerian families have accumulated savings in various forms. However, it is enough to visit the official places of sale of jewellery to see that there is "de-hoarding" and that these savings are, unfortunately, being spent in the face of the deterioration in their purchasing power. This can continue for another two years. At the end of this period anything can happen. Because for a household living alone with two or three children to be able to support itself, it needs a minimum net income of between 50,00060,000 dinars per month, provided that this household has not taken out car or housing loans or that it does not pay an exorbitant rent.

Fourthly, the State, in all the finance laws of 2019, and certainly that of 2020, continues to subsidize the main essential products, although this is unfair, since those who receive 30,000 dinars/month receive the same subsidies as those whose income exceeds 300,000 dinars. We must move, as I have been advocating since 2008, towards targeted subsidies budgeted by Parliament. For 2019, a budget envelope of 1,763 billion DA has been allocated to social transfers (compared to 1,760 billion DA in 2018), i.e. nearly 21 pc of the total State budget for 2019. The budgeted appropriations for social transfers will cover in particular more than DA 445 billion for family support, while nearly DA 290 billion will be allocated to pensions, to which will be added a support allocation of DA 500 billion to the National Pension Fund (CNR). These social transfers also include nearly DA336 billion for public health policy and more than DA350 billion for public housing policy, to which will be added nearly DA300 billion mobilized for this sector by the National Investment Fund (FNI). On the other hand, less than 40% of the Algerian population has a vehicle and the increase in the price of diesel and petrol is relatively low compared to the international price.

In general, what is the impact of predation and corruption and do they have a negative effect on economic growth, the business climate and the redistribution of wealth?

According to the Financial Transactions and Reports Analysis Centre of Canada, "Le Devoir", which monitors electronic funds transfers over $10,000 from abroad, the figures for transfers from Algeria alone to Canada between January and July 2019 were over $78.6 million. According to the Quebec daily and analysts, because of the political crisis in Algeria, it is the money of "managers, companies or individuals" who, fearing the fall of the national currency "seek to protect the value of their assets in a stronger and more stable currency". What about transfers to other countries showing that the current crisis is a fatal blow to the economy and that economic rules are insensitive to political slogans? According to most international experts, the majority of administrative and economic institutions are affected by the cancer of corruption. It is known that the authors of the IPC consider that a score of less than 3 means the existence of a "high level of corruption, between 3 and 4 a high level of corruption", and that sound deals capable of inducing sustainable development cannot take place, as this corruption favors speculative activities in particular. The informal sphere produces dysfunctions in the system, which cannot limit it by decrees and laws but by transparent regulatory mechanisms, alliances existing between bureaucratic power and this sphere controlling more than 40% of the money supply in circulation, alliances that promote this corruption that tends to become socialized. According to Transparency International's ranking, from 2003 to 2018, Algeria experienced a high degree of corruption, with a score of 3.5 in 2018, ranking 105th out of 168 countries. These indicators refer to the urgency of combating illicit capital transfers through over-invoicing.

What about the illegal transfer of currency?

It is necessary to differentiate between management and normal practices compared with corruption, in order to avoid the demobilization of managers, the security services and the various control organizations having to verify the origin of these amounts of illegal transfers of currencies. The strategic objective is to establish the connection between those who operate in foreign trade either legally or through overbilling and amounts mainly from agents who legally or illegally own dinar amounts at the local level, not connected to international networks. It will be a matter of objective analysis to seriously quantify these illicit transfers of foreign currency that affect national security, hence the urgency of new regulation of the national economy to objectively quantify the impact of the gap of about 50% between the price of the dinar on the parallel market and the official quotation of the Algerian dinar. Generalized and non-targeted subsidies allow the trafficking of goods at borders, with connections to terrorism via drugs. It is necessary to differentiate strategy and tactics to paraphrase the language of military strategists, a confusion that often exists between currency outflows resulting from imports of goods and services of about $700 billion between 2000 and 2018 according to government statistics and total expenditures of about $1.1 trillion (official IMF document, capital and operating budget largely composed of salaries). It is a question of differentiating overbilling in dinars (for projects requiring little or no foreign currency) from overbilling in foreign currencies, two spheres of agents existing: those related only to the domestic market (dinars) and those operating in foreign trade (foreign exchange). This process is carried out in complicity with foreigners, although some economic agents operate in these two spheres.

Let's suppose a 15% rate of overbilling; this is only one supposition that is easier for services where some overbilling can reach more than 20%. As foreign exchange outflows of goods and services between 2000/2018 are estimated at around $700 billion, this would give a total amount of foreign exchange outflows of $105 billion, not counting the period 1970/1999, when many contradictory estimates were made with staggering amounts brought back to purchasing power in 2019. These illegal currency transfers are not new and for serious comparisons, it is necessary to take into account the value of the dinar which is quoted in September 2019 at 119 dinars to one dollar whereas in 1974, we had 5 dinars to one dollar (administrative fixing), and 45 dinars to one dollar around 1974/1975. This amount would be higher if overbilling was about 20/25% by international standards. Unfortunately, we have seen hollow populist rhetoric from those who had to set an example and whose current legal actions have shown that they are guided by their own interests and those of their families and not by the country's higher interests, all of which having contributed to Algeria's dilapidation. Urgent actions to recover these ill-gotten assets at both national and international levels are necessary and can also act as a social buffer. But we have to be realistic. If illicit transfers of capital are in tax havens or in anonymous shares or bonds, it will be difficult to recover them, as these actions only concern tangible real property or investments both in Algeria and abroad in cases where Algeria has international agreements with some countries where proceedings may be lengthy.

How to fight corruption?

We must ask ourselves why the low impact of public spending between 2000 and 2018 : more than 1100 billion dollars (dinars and currencies) on the economic sphere and therefore on the social sphere. International studies show that other countries in the MENA region perform better with three times less expenditure than Algeria with these expenditures due to corruption, overbilling or poor project management. Algeria has the best texts in the world, but experience clearly shows that daily social practices contradict legalism, referring to the democratization of political and economic decisions. How can mobilize citizens at a time when some high-ranking officials or their relatives are involved or supposed to be involved in financial scandals and can they still have the moral authority with their collaborators as well as with the Algerian population? I was in charge of the industrialization review file between 1965 and 1978 for the government of the time and I quantified significant surcharges compared to international standards, I was also in charge of the demurrage file in 1983 as Director General of Economic Studies and Senior Judge as First Counsel at the Court of Auditors for the then Presidency during the anti-shortage program, and therefore in view of the large illegal amounts detected through samples, I advised the then Presidency to establish a real-time value table, linking all the institutions concerned to international networks (price, weight, quality), which unfortunately never came to fruition because transparency of accounts was tackling powerful hidden interests. Because if corruption exists in all countries of the world, as evidenced by financial scandals, if there are corrupt, corrupters necessarily exist, which implies both a moralization of internal leaders and the urgency of a moralization of international relations. For developed countries, corruption is relatively low in relation to the overall wealth created, which is not the case for countries with low GDP, such as Algeria, where corruption has become socialized, jeopardizing the country's national security. The effective fight against corruption requires the urgent reform of institutions and the financial system, the place where the annuity is distributed, which involves understanding the dialectical links between the production of the Sonatrach annuity and its distribution through the financial system, in particular the public banks, which are responsible for more than 85% of the credits granted, explaining that the far-reaching reform of the Ministry of Finance must be coupled with that of the Ministry of Trade, a single Directorate General would suffice for greater consistency, being responsible for many import licenses and other authorizations of convenience.

The reform of the financial system, closely linked to the democratization of society and the freedom to undertake without bureaucratic constraints, cannot be limited to the speed of intermediation through computerization, which is necessary, but has never taken place since political independence, because it is a crucial issue in power struggles and the redistribution of annuity through diffuse customer relations. Without its profound reform as much as that of institutions (central and local government) and justice, it would be utopian to tackle the essence of corruption, limiting oneself to cyclical actions where tomorrow the same causes will produce the same effects of corruption if the same regulatory mechanisms are maintained. The reform must affect all structures of the Ministry of Finance: all public and private banks, in particular credit departments and sub-directorates with their regional appendices, guarantee funds sometimes granting guarantees of convenience, as has recently been noted, the Directorate-General for Taxation with its appendices and regional offices, with huge unexplainable non-recoveries - the only ones penalized being employees and civil servants whose withholding tax is deducted at source -, Estates with their annexes and regional offices unable to have a transparent cadastral register to avoid the sale of national heritage, Customs with its regional appendices, with value tables linked to both national and international networks. The full success of this undertaking, which goes well beyond the strictly technical framework, will continue to depend largely on a number of conditions, the basis of which is the redesign of the State within an increasingly globalised world economy. As we witness the lethargy of the Economic and Social Council, whose component has not changed in decades while society has evolved, the aim in the future is to promote productive dialogue, encourage counter-powers, and inject more dynamism into both political and technical control institutions, including, in particular, the National Energy Council and the Court of Auditors, the other bodies that telescopic depending on the Executive and therefore being judge and party, the action of the security services can only be occasional. In fact, the fight against corruption in the social fabric requires a genuine rule of law and new governance if we want to combat it effectively, because it constitutes the greatest danger, worse than the terrorism experienced by Algeria between 1990 and 2000.

What lessons can be learned from the State-citizen divorce?

According to data from the Ministry of the Interior, the overall turnout for the May 4, 2017 parliamentary elections at the national level and within the national community abroad was 37.09%. The invalid ballots, which amounted to 2,098,324, represent 24.60% reported on the number of voters. Compared to the number of registered voters, we have the rate of 9.02%, therefore 28.07% who voted for parties or independents, giving 71.93% of registered voters who do not trust the political class against 64.70% in 2012. The low turnout rate must also take into account the actual population of voting age, i.e. those who have not registered. All the consequences must be drawn and, above all, action must be taken to remedy the divorce between the State and citizens through the involvement of civil society. Algeria's national and international credibility depends on it and the country's future is at stake. A change of trajectory is urgently needed because the status quo would be suicidal. Also, in the face of this situation - while reminding that the discredit that strikes the partisan system is not specific to Algeria, because the global revolution in communications systems is producing everywhere new behaviors - there is an urgent need to adapt political parties, often disconnected from society and presenting for the majority of them the specificity of being linked to annuities' interests. It is therefore a question of introducing more rigor into the procedure for setting up parties, without going to the excess that inevitably results from any bureaucratic approach to politics. It is undoubtedly useful, even necessary, to take an interest in the representativeness of parties before deciding on their future. In any case, it seems to us fairer, and politically correct, to reason in terms of the electoral market and therefore to allow the rules of the political game and the number of actors involved to be determined in a competitive manner. The role of the public authorities will then consist in setting up the necessary safeguards and ensuring strict compliance with the laws and rules that govern the functioning of this market.

As for civil society, it must be noted that it is impotent. The current confusion in the national associative movement makes it difficult to develop a strategy for its management and mobilization. The involvement of civil society in the affairs of the city is an eminently civilizational act, which integrates the changes of a society in full mutation, and a way to achieve a project of progress. Its diversity, the political-ideological currents that run through it and its complex relationship to society and the State add to this confusion, making collective reflection imperative. Due to the very young age of civil society, the historical conditions that governed its birth and the tragic events in our country with which it has been directly or indirectly associated, the issue of its mobilization must be addressed with sustained attention and vigilance. It was created in the wake of the political struggles that dominated the first years of democratic openness and reflects the major fractures that have occurred in the national political system. Solicited on numerous occasions and at sometimes crucial deadlines, the latter often manifests its presence in a formal and ostentatious manner, almost always powerless to influence the course of events and to clearly articulate the concerns and aspirations of the real society. It is therefore urgent to initiate a vigorous action of reorganization and revitalization that can be beneficial for it. This action will, among other things, provide an adequate framework for collective expression for hundreds of thousands of young and old who are unstructured and who are eager to be useful and to put their good will and generosity at the service of the community. In this context, the creation of associations in sectors that are promising but which remain untouched and completely ignored by the associative movement would contribute to a framework for the living forces that operate in society in a dispersed manner, and would constitute a powerful lever for their mobilization with a view to their active involvement in the national recovery process. But this policy is only likely to succeed if the associative movement is cleaned up and if the associations that make it up are not at the service of unacknowledged and sometimes dubious personal ambitions. Hence the urgency of far-reaching reforms.

Doesn't development depend first and foremost on resolving the political crisis?

Algeria will be what Algerians will want it to be, far from any foreign interference. Because with corruption combined with the deterioration of the business climate, according to most international reports, it is utopian to talk about a real economic recovery. Algeria suffers above all from a crisis of governance and not a financial crisis. But this governance crisis is likely to turn into a financial, economic and political crisis in two years' time with the depletion of foreign exchange reserves. If Algeria wants to overcome the multidimensional crisis it faces in a turbulent and unstable world that foreshadows major geostrategic upheavals, its future challenge, and it has enormous potential for emerging from the crisis, will be to have visibility in the process of essential structural reforms that combine economic efficiency and very deep social justice, with a new institutional architecture based on genuine democratic counter-powers. The presidential election should be transparent and based on three principles: an election monitoring commission that is totally transparent and independent of the executive and the current central and local elected representatives, the revision of the register and the electoral code so that past practices (massive fraud) are not repeated. It is imperative to move quickly towards a presidential election within a reasonable time frame but with the condition that it be transparent, far from the occult practices of the past, where the majority of the population turned a blind eye to the ballot boxes at more than 70 - 75% during the last legislative elections, taking into account the invalid ballots, reflecting the divorce between the State and the citizens. This necessarily implies, as agreed by the Council of Ministers on 9/09/2019, the revision of the register and the electoral code, the creation of an independent body to supervise elections where neither the Executive (Government - especially the Ministry of Interior and the Walis), nor the deputies-senators and representatives of the current APCs (communal popular assemblies) denounced by Al Hirak, will be involved, since it is up to the candidates and civil society to designate their representatives. Attention should be paid to its national component as well as through its networks of 48 wilayas, with moral and neutral personalities. The central and local administration has never been neutral because of its occult practices since political independence, and not only since the current period. The current government, composed mainly of former senior officials directly involved in dealing with the past and therefore responsible for the current situation, as reported in the press, some of whom would be compromised by misdeeds or trafficking in past elections, is massively rejected by the population, which equates it, rightly or wrongly, with fraud, because of its component.

A new government of "neutral" technicians is needed, a compromise between the government, the opposition and Al Hirak, both to give credibility to the action of the judiciary and to promote the success of the dialogue, the current interim President of the State continuing to ensure the functioning of the State without interfering in the elections in order to avoid destabilizing the country's supreme institution. Only a legitimate president elected on the basis of a transparent program, including Al Hirak's legitimate demands, can amend the Constitution and carry out the profound political and economic reforms to bring Algeria into the new world, to make it an emerging country - and it has the potential to do so. The guiding principles should be the rebuilding of institutions and the political system (recognition of the opposition), the restructuring of the partisan system and civil society far from any administrative injunction, the rule of law and good central and local governance (decentralization with five regional poles - see concrete proposals A. Mebtoul www.google.2004), the fight against corruption, de-bureaucratization, good management of institutions (large homogeneous ministries), companies, knowledge enhancement, a new economic policy both for energy (targeted subsidies and energy mix) and for non-hydrocarbons through the overhaul of the entire financial system (customs, taxation, domain, banks and also review the 49/51% rule), from primary school to higher education based on new technologies and artificial intelligence, water and land/agricultural/industrial, health, a new employment policy to avoid the implosion of pension funds, a new foreign affairs and network security policy, taking into account the new challenges of the world.

What are the main axes of Algeria's economic recovery?

I make fourteen proposals, specifying that any economic policy is necessarily driven by social, political and economic forces, while not forgetting geostrategic factors, bearing in mind that we are in an era of global economic interdependence.

First, the fundamental condition is a dialectical link between security and development, a condition for the stabilization of Algeria that also determines the stability of the Mediterranean and African regions. We must avoid a return to the tragedy that Algeria experienced between 1990 and 1999 and, recently, the tragedies of Iraq, Syria and Libya, which implies the establishment of a minimum social income. It is also necessary for the different sensitivities to be able to dialogue within an organized framework based on tolerance and the right to be different, and adapted to the fourth world revolution based on artificial intelligence and digital technology.

Second, the central question of the establishment of the rule of law and genuine political countervailing forces must be considered. Indeed, the current parties and their allies arouse widespread mistrust among the Algerian population. They are unable to mobilize and generate commitment, which has a negative impact on the economy and promotes socialized corruption.

Third, knowing that it has an impact on both the functioning of the political and economic system, the question must be asked about the place of the informal sphere on the bureaucracy by operating in a space that is its own with informal organizations (a dominant informal civil society) and explain the institutional duality drawing more than 40% of the money supply in circulation, and more than 50% of value added and total employment: how can it be integrated through transparent mechanisms away from authoritarian administrative measures with little effect? These objectives must be based on a more participatory plural society, with political parties, with the promotion of women as a sign of the vitality of any society, allowing the full empowerment of all civil society, reconciling modernity and the preservation of our authenticity, unlike lethargy, activism and populism that lead to regression, because in this new world there is no status quo, any nation that does not move forward necessarily moves backwards.

Fourth, the new economic policy must be part, as I have demonstrated in several international contributions, of the Europe-Maghreb-Africa area and, more generally, of the Mediterranean-Africa economic area.

Fifth, improve the functioning of markets and raise the issue of the future role of the State in economic and social development, and necessarily raise the dialectical relations of the respective and complementary roles of the State and the market. Far from the rhetoric, there must be a clear political will to move towards a market economy with a social purpose, reconciling economic efficiency and the necessary social cohesion, while avoiding that market relations destroy bonds of solidarity.

Sixth, it is essential to avoid the utopian economic policy of the past, particularly industrial policy. The new economic policy will have to be characterized by the adaptation to the universalization of the market economy, taking into account social specificities, where the dominance will be the consumer and the arbitrator, the financial markets. True patriotism, not to be confused with narrow chauvinist nationalism, a source of intolerance, will be measured by the ability of Algerians to improve their standard of living through their contribution to local and global added value.

Seventh, support development through a renewed central and local administration (e-administration) and a fight against central and local bureaucratization through a rationalization of companies' budgetary choices (permanent reassessment, additional costs) particularly at the administrative level, and public services whose management methods still date back to the early 1970s, and establish a value table linked to international networks to combat overbilling. Therefore, gradually shift collective services, which are increasingly creating added value (education, health, telecommunications, transport, and infrastructure) by introducing market parameters to test their effectiveness, while encouraging diversity to improve the services provided to consumers.

Eighth, subject to precise socio-economic objectives dated over time, real decentralization must take place around five regional poles, as well as review the functioning of wilayas and APCs by transforming local welfare authorities into local authorities’ managers who create wealth and citizens in order to bring the State closer to the citizen through genuine decentralization.

Ninth, establish a new institutional governmental organization by creating large Ministries, especially those of Economy and Education, with technical Secretaries of State, in order to avoid telescoping. Then, boost the health, public works-transport, energy, agriculture-water, tourism and new technologies sectors where Algeria can have comparative advantages.

Tenth, reconsider outdated global industrial policies and imagine a new policy, not of global industry, but of the company that is not modeled on the old bureaucratic hierarchical organizations and which is based on the flexibility of organizations based on the decentralization of economic decisions, the forward-looking management of skills, group work, while taking into account new technologies.

Eleventh, reform the financial system including banks (at the heart of the reforms) and boost the stock market, consistently boost public/private partnership, capital openings and privatization, avoiding the sale of national heritage.

Twelfth, define a new employment policy based on the development of wealth-creating businesses if we want to avoid the implosion of pension funds, the functioning of which must be reviewed by removing all the constraints of bureaucracy, the financial system, the inappropriate socio-educational system and real estate, by ceasing to create jobs through decrees, by referring to a new training policy adapted to new technologies, by reconciling flexibility and security, finally, by making an uncompromising assessment of all employment agencies and bringing them together in a single centre for greater coherence.

Thirteenth, reduce social inequalities through a new policy of targeted intra-professional and intra-regional subsidies and review the tax system through a combination of vertical equity, and fight corruption, not to be confused with the act of management in order not to penalize managers and creative initiatives.

Fourteenth, never forget the Diaspora, which has significant financial but above all intellectual resources in strategic management and which, like other countries, can contribute to national development if bureaucratic obstacles are removed.

What is your conclusion regarding the future of Algeria?

After several decades of political independence, it is still the price of oil that determines the evolution of foreign exchange reserves. Given the demographic pressure (more than 50 million inhabitants in 2030), at least 300,000 to 400,000 new jobs should be created per year, which requires an annual growth rate of 8 to 9% in real terms over several years. We must be realistic: in September 2019, Sonatrach is Algeria, and Algeria is Sonatrach. With greater budgetary rigor, better governance, a change of course in current economic policy, even with a barrel at $60, Algeria can succeed. To paraphrase the military, we will have to attack the essential and not the secondary. There is a law in political science: 20% of well-targeted actions have an impact of 80%, but 80% of poorly targeted actions have an impact of only 20%. The decades that have characterized the political and economic life of many Third World countries and which, despite considerable natural resources, have not succeeded in establishing a diversified economy within the framework of international values, including Algeria, confirm my conviction today. Development is not about industrial hardware or monetary signs. No matter how large the foreign exchange reserves and monetary expenditures may be, development cannot take place without concern for good management and democratization, and spending without counting. Algeria can only return to itself if false privileges are banned and if the criteria of competence, loyalty and innovation are restored as bridges to success and social advancement. Algeria has no other choice but to accelerate structural, microeconomic and institutional reforms, conditions for macroeconomic, social and political stability, and thus to restore work and intelligence as symbols of success. Algeria, with embezzlements that exceed the human imagination by their scale and that led the country straight to the wall, needs a new strategy away from populist hollow slogans, and must adapt to the new world that will be dominated by knowledge (artificial intelligence). Algeria needs a return to trust to secure its future.

Imperatively, we must move away from the vagaries of the annuitant mentality by rehabilitating good governance. In these difficult times of budgetary tensions, no one has a monopoly on truth and patriotism. This is the only way for Algerians to transcend their differences and find new reasons to live harmoniously together in order to build the exceptional destiny that our glorious elders of the November 1, 1954 generation wanted for them. As the great sociologist Ibn Khaldun pointed out several centuries ago, "when power is affected by immorality, it is the decline of the whole society". The widespread financial scandals affecting most sectors of national activity threaten the foundations of the Algerian State. With the geostrategic situation of the region, the threat is even greater. The last legislative and local elections have already shown a very high rate of non-participation. Hence the urgent need for a renewal of central and local governance, more morality in the management of the city, and the establishment of a rule of law that is essential for reasons of national security. There can be no rule of law if the State is not right, that is to say immoral. The post-hydrocarbon era is at this price with the inevitable depletion of conventional oil and gas reserves by 2030 and a low price for many years to come. However, the Algerian population, which stood at 43 million on 1 January 2019, will be around 50 million in 2030 with an additional demand for jobs ranging from 300,000 to 400,000 people per year, number moreover underestimated since the ONS calculation applies a much lower rate for participation rates to the female population, representing half of the active population and whose enrolment is rising sharply, which will add to the unemployment stock.

We cannot fail to recognize the gap between Algeria's enormous potential and the truly derisory level of development that the country has achieved after several decades of independence, despite colossal monetary expenditures. The necessary reforms will require adaptation strategies that take into account the projection of our environment as a common good, where the dialogue of cultures based on tolerance will be decisive, in order to avoid underdevelopment, poverty and conflicts that could harm the future of humanity. It will be essential to avoid delaying structural reforms, taking into account the desire for change of two thirds of the population, combating corruption, which is becoming a threat to national security and a factor in the demobilization of citizens, and also combating all forms of xenophobia and intolerance. Let us meditate Voltaire: "Sir, I do not agree with what you are saying, but I will fight with all my strength so that you can say it". Given the major global geostrategic upheavals that are expected between 2020 and 2030, Algeria, which is going through a crucial phase in its history, needs a critical and fair look at its situation, on what has already been accomplished and what still needs to be accomplished for the exclusive benefit of a country that needs to find itself and reunite all its children around the same ambition and the same hope.

Interview realized by Mohsen Abdelmoumen

Who is Professor Abderrahmane Mebtoul?

Professor Abderrahmane Mebtoul is a State Doctor in Economics and a member of several international organizations. He is the author of 20 books on international relations and the Algerian economy and more than 700 national and international contributions. He was Director of Studies at the Ministry of Energy – Sonatrach (from 1974 to 1979 – from 1990 to 1995 – from 2000 to 2007) and led the first audit on Sonatrach. He was Director General and High Magistrate at the Court of Auditors (first Counselor) from 1980 to 1983, independent Expert in the Economic and Social Council from 1997 to 2008, president of the National Privatization Council from 1996 to 1999 at the rank of delegate Minister, independent expert to the Presidency of the Republic from 2007 to 2008, and independent expert not paid to the Prime Minister from 2013 to 2016. Professor Mebtoul has been in charge of several important files on behalf of successive Algerian governments from 1974 to 2019 and State institutions and was recently the leader of the Algerian delegation for the 5+5 civil society forum in 2019.

Prof. Mebtoul led the first audit on Sonatrach between 1974 and 1976, the balance of industrialization from 1977 to 1978, the first audit for the central committee of the FLN on the private sector between 1979 and 1980. He led the demurrage and surcharge audits at the building and public works industry level in conjunction with the Ministry of the Interior, the 31 Walis and the Ministry of Housing in 1982, carried out in the Court of Auditors, the audit on employment and salaries on behalf of the Presidency of the Republic in 2008, the audit of the global changes and the axes of the socio-economic revival of Algeria by 2020/2030 for the Prime Ministry in February 2014, assisted audit of Sonatrach Executives, Independent Experts and Ernest Young Consulting « The price of fuels in a competitive environment » for the Ministry of Energy in Algiers in 2008, and the « shale oil and gas, opportunities and risks » audit for the Prime Ministry in Algiers in January 2015.

Annex

Evolution of exports and imports from 2012 to 2018, forecast for 2019

We have the following evolutions.

For exports: -2012: $71.7 billion; -2013: $64.8 billion; -2014: $60.1 billion; -2015: $34.5 billion; -2016: $29.3 billion; -2017: $32.9 billion; -2018: $41.17 billion; -2019: between $30 billion and $32 billion, assumption average price 60/62 dollars and gas 45 dollars the MBTU (forecast).

For imports: -2012: $51.5 billion; -2013: $54.9 billion; -2014: $59.6 billion; -2015: $52.6 billion; -2016: $49.7 billion; -2017: $48.7 billion; -2018: US$46.19 billion; -2019: $45 billion (forecast, incompressible amount).

But for an objective assessment, for 2018, it is necessary to analyze the structure or hydrocarbons which, together with derivatives, represent more than 98% of foreign exchange earnings. Indeed, according to official statistics, mineral or chemical nitrogen fertilizers represent $917 million or 32.42%; $613 million for oils and other products from the distillation of tars, or 21.68%, $446 million for anhydrous ammonia or 15.79%, $51 million for calcium phosphate or 1.80% and $38 million for hydrogen, noble gases or 1.34, or a total of 73.03%, and less than 27% for other noble products, or $764 million in 2018 including cement for $25 million or 96%. The same trend applies for the first half of 2019. We are far from the euphoria of the statements of the Ministry of Commerce. Concernant la période du premier semestre 2019, elle a été caractérisée par un cours moyen du baril entre 65 et 67 dollars et un cours du gaz qui représente 33%  des recettes de Sonatrach  entre 4 et 5 dollars le MBTU.

Corruption Index 2003/2018

According to Transparency International's ranking from 2003 to 2018, Algeria has a high level of corruption: in 2003: 2.6 out of 10 and 88th place out of 133 countries; in 2004: 2.7 out of 10 and 97th place out of 146 countries; in 2005: 2.8 out of 10 and 97th place out of 159 countries; in 2006: 3.1 out of 10 and 84th place out of 163 countries; in 2007: 3 out of 10 and 99th place out of 179 countries; in 2008: 3.2 out of 10 and 92nd place out of 180 countries; in 2009: 2.8 out of 10 and 111th place out of 180 countries; in 2010: 2.9 out of 10 and 105th place out of 178 countries; in 2011: 2.9 out of 10 and 112th place 183 countries; in 2012: 3.4 out of 10 and 105th place out of 176 countries; in 2013: 105th place out of 107 countries; in 2014: score 3.6 and 100th place out of 115 countries; in 2015: score 3.6 and 88th place out of 168 countries; in 2016: score 3.4 and 108th place out of 168 countries; in 2017: score 3.3 and 112 out of 168 countries; in 2018: score 3.5 and 105 out of 168 countries.

Published in American Herald Tribune October 19, 2019: https://ahtribune.com/interview/3581-abderrahmane-mebtoul-financial-scandals.html

In French in Algérie1: https://www.algerie1.com/eclairage/laquo-les-scandales-financiers-generalises-qui-touchent-la-plupart-des-secteurs-dactivite-nationale-menacent-les-fondements-de-letat-algerien-raquo