In this episode, Arezki Daoud of risk assessment firm MEA Risk LLC and editor of the North Africa Journal, looks at the intersection of business corruption and political corruption in Algeria.
Heralded as a model of the country’s new industrialization drive, involving private and foreign capital, the automobile assembly industry in Algeria has completely collapsed. The recent announcement that Volkswagen has frozen its participation in the sector, was the latest indicator, among so many, that confirmed the vanishing of an entire sector due to a plethora of problems confronting Algeria, from intense corruption to a bankrupt industrial policy. It is now clear that not a single vehicle will leave the assembly plants because there are no spare parts and kits to assemble. While the assembly sector is dead, only peripherals activities such as servicing, maintenance and spare parts activity are maintained on the temporary basis. To make things worse, and while most industry CEOs are in prison, there is no single economic or industry official in government able to say what’s the outlook for the sector.
In this utter failure to set up an automobile industry, Algeria is not only losing jobs, but it also losing all credibility vis-à-vis international auto makers, be they in Asia, like Kia and Hyundai, or Europe like Renault and Volkswagen. Affected assembly plant are those that bear the brands of Volkswagen, KIA, Hyundai and others. For private Algerian firm Ival Group, the brands it represents include those of Mazda and Fiat.
The teams hired by the deposed president Abdelaziz Bouteflika, including former Minister of Industry, Abdessalem Bouchouareb, now on the run and sentenced in absentia to 20 years in prison, did everything they can to harm the industry, including no vision, except one that enhances corruption and bribery in their favor. Worse, they caused immeasurable losses to the public treasury. More than 1 billion euros vanished, according to figures revealed during the trial and sentencing of industry executive Mohamed Bairi of Ival, Hassan Arbaoui of KIA and Ahmed Mazouz of GM Trade.
The new Tebboune administration is now formally responsible for cleaning up the mess. But with new president having no legitimacy in the eye of the Algerian public after a dismal election turnout, he will likely focus on populist measures to buy public trust and often such measures tend to clash with economic logic. The new president may not spend a great deal of political capital in fixing the industry’s mess but will spend more time on attempting to clean his own image instead.
Within Algeria, there is already talk of international car makers seeking to get rid of their existing agreements and switch partnerships with other Algerian partners, believed to be cleaner on the corruption front. This undoing of an industry is already causing harm on the employment front. This shift from corrupt businesses to seemingly less corrupt competitors may accelerate after the Algerian justice system cleared former partners of Kia and Hyundai, Mohamed Achaibou and Omar Rebrab of corruption but who were initially swept away by the clan warfare that pitted generals against generals. While the Algerian public remained unimpressed about the first round of trials of former officials, the trials of two former prime ministers and a number of former senior government and business figures have exposed the depth of corruption in Algeria, and which has crippled the country’s economy for decades.
The recent corruption trials had a narrow and targeted focus on one sector of the economy and that is the auto assembly industry, and how President Bouteflika’s most recent election campaign got financed. Which means that the hefty sentences and fines ruled against the now-convicted officials are just a subset of what these convicts will eventually get once the other cases are added. In his indictment, the prosecutor asked the judge to impose heavy sentences against all the defendants, especially former prime ministers Ahmed Ouyahia and Abdelmalek Sellal and the former Minister of Industry, now a fugitive sheltered in France, Abdeslam Bouchouareb, against which 20 years of imprisonment have been requested. The other two former ministers of industry, Mahdjoub Bedda and Youcef Yousfi, faced a 15-year jail sentence. Others include businessmen Ali Haddad, Ahmed Mazouz, Mohamed Bairi and Hassan Larbaoui, and the son of Prime Minister Sellal.
Addressing the court in tears, former PM Abdelmalek Sellal told the judge: “I beg you, do not let me end my days in prison. I served the state for 47 years, I’m not a corrupt …”
The court eventually ruled that by the actions of the defendants, officials and businessmen on trial, resulted in Algeria suffering financial losses of nearly 1 billion euros (130 billion dinars) just in the auto assembly space. The companies of Hassan Larbaoui who owns the Kia assembly plant in Batna, caused the biggest loss (87 billion DA), those of Mazouz (39 billion) and the group Ival of Bairi Mohamed (1 billion DA). None of the foreign companies involved in the sector has been cited, even though they were also partners of these convicted businessmen and therefor were participant in corruption.
The prosecutor’s office has concluded that there has never been a car assembly industry, accusing the businessmen of having set up front companies to benefit from tax, customs and land advantages. This, without any positive impact for the market or the consumer. The prosecution said it was never a secret for the Algerian consumers, who have long known, and well before this trial, that the prices of the vehicles assembled locally were much higher than the ones that were imported as fully assembled vehicles.
Abdeslam Bouchouareb, the Minister of Industry between 2014 and 2017, was the most cited official in the auto-assembly industry debacle. It was he, according to the findings of the public prosecutor’s office and the various testimonies, who directly headed the commission responsible for ruling on the applicants’ filings. The commission was “fictitious”, the investigation concluded, and legitimate companies such as Achaibou and Cevital groups, heard as civil parties, found themselves eliminated in favor of other operators close to the minister. Prime Minister Sellal admitted that he had no authority over his industry minister.
Fleeing abroad, Bouchouareb could not be heard, especially on the two bank withdrawals he made estimated at 10 (about $84 million) and 13 billion dinars ($109 million). The ex-minister is accused of having helped the Tahkout family, who was close to President Bouteflika, against Rebrab’s Cevital group in doing business with Hyundai. Rebrab and Achaibou told the court what Korean business executives told them: “Your problem is political. The authorities in your country do not want us to deal with you.”
The successors of Bouchouareb continued to manage the sector in the same way and refused to correct his mistakes. Among them was Mahdjoub Bedda, who admitted that he continued to work with the technical commission inherited from his predecessor in pretty much the same way. Bedda owns massive funds spread in nine bank accounts, real estate holdings in Algiers and two publishing companies, and has not been able to justify the origin of the funds.
Prime ministers Ouyahia and Sellal were eventually convicted of criminal activity tied to the auto assembly sector. The latter, according to the prosecution, supervised “in person” the automobile assembly’s legal and business transactions without informing the Presidency and, more importantly, his son entered the capital of the Mazouz Group, acquiring a 23% stake without spending a single dinar. Ahmed Ouyahia has been found guilty of embezzlement and money laundering because he could not justify the origin of more than $2.5 million (DZD 300 million) found in his bank account.
Yamina Zerhouni, former governor of Boumerdes province, was convicted for granting agricultural land to Bairi Mohamed, CEO of Ival Group, while several officials of the Ministry of Industry, who played a role in illegal land transfers will spend several years in prison.
Illegal election funds:
In exchange for steering auto-assembly business toward the convicted businessmen, the senior ministers, in particular former Prime Ministers Sellal and Ouyahia, did not just get massive personal benefits channeled into their bank accounts and through advantages for their families. They also managed to get massive amounts of money for the financing of the Bouteflika fifth-term election campaign. The brain of the operation, according to the findings of the prosecution, was businessman Ali Haddad who, paradoxically, had no official role in the president’s campaign. The former head of the business confederation FCE said he was working under the direct orders of the president’s brother, Saïd Bouteflika. Serving a 15-year prison term for treason in a military cell in Blida, the latter refused to testify on this issue, despite a brief appearance in the Algiers court. The contributors to the illegal fund are the same business cited earlier, namely Ahmed Mazouz, Hassan Arbaoui, and many others who collectively gave the Bouteflika campaign the equivalent of nearly $6.3 million in just a few days (DZD 750 million). The money was deposited in two accounts in the name of prime minister Abdelmalek Sellal, as the campaign manager, and another man, called Abdelghani Zaalane. The prosecutor noted that this constituted a breach of the electoral law “which allows for the opening of a single account”.
It is from the account of Abdelghani Zaalane that Ali Haddad proceeded to withdraw millions in cash to store them in his office at the ETRHB company. Haddad explained that the move was ordered by Said Bouteflika who feared that the money could end up stolen if it stayed in the Zaalane account.
The auto-assembly scandal and its ties to illegal campaign financing is just one of the thousands of corruption cases that Algeria is confronted with. The truth is that this case has made it to the public because of the former army chief and now deceased General Gaid Salah waged a direct war against the Bouteflika family because the latter was planning to remove him from the leadership of the military. The reason we know about this case is because of a vendetta and a clan warfare in which the winner allowed full exposure about the illegal practices of his foes to ensure that his political enemies and their support network spend the rest of their lives behind bar. The general public knows that the country’s leaders in government and business are deeply corrupt and hence the start of the anti-regime movement on 22 February and which will continue for a long while in an effort to create a new governance model dominated by the rule of law and accountability.