Political studies

Governance as a mechanism for reform and reduction of corruption to reduce the phenomenon of poverty: a case study of Algeria

Abstract

Corruption and poverty remain two of the most pressing issues facing developing countries around the world. Algeria, an oil-rich North African nation, has struggled with both despite its wealth of natural resources. This paper examines how improving governance through reforms and reducing corruption can help alleviate poverty in Algeria. It provides an overview of the current state of governance, corruption and poverty in Algeria and analyzes the connections between the three. The causes and effects of corruption are explored, with a focus on how corrupt practices like bribery, fraud and embezzlement have drained public finances and deterred investments, exacerbating poverty. The paper also discusses transparency and accountability measures that can counter corruption based on global best practices. Finally, it studies past and present Algerian government policies and suggests reforms to strengthen good governance. These include reforms in public financial management, government procurement, revenue administration and public administration as well as empowering civil society. The paper concludes that reducing corruption through governance reforms can lead to more equitable growth and effectively tackle poverty in Algeria.

Introduction

Algeria is Africa’s largest country by land mass and holds substantial oil and gas reserves which should make it one of the continent’s wealthiest nations (World Bank, 2020). However, decades of authoritarian rule, economic mismanagement and entrenched corruption have impeded socioeconomic development. Poverty remains a significant challenge, with 5.5% of the population living below the national poverty line as of 2019 (World Bank, 2020). At the same time, Algeria suffers from pervasive corruption that permeates the bureaucracy and public sector. In Transparency International’s 2019 Corruption Perceptions Index, Algeria scored 35 out of 100 and ranked 106 out of 180 countries (Transparency International, 2020).

Corruption and poverty are inextricably linked in Algeria. Corruption practices like bribery, fraud and embezzlement divert public resources that could be invested in pro-poor programs. They deter private investments that create jobs and growth. Corruption also enables privileged access to public services for those able to pay bribes, denying poor citizens their right to education, healthcare and other services (Rose-Ackerman & Palifka, 2016). Thus, high corruption exacerbates poverty.

Tackling the twin problems requires strengthening governance to curb corruption as well as implementing pro-poor reforms. As Fukuyama (2013) notes, governance refers to the capability of public institutions to effectively deliver services, provide law and order, and formulate and implement policies. Good governance hinges on accountability, transparency, efficiency and inclusive participation. Improving Algeria’s governance should therefore be a priority.

This paper analyms how enhancing governance can reduce corruption and consequently poverty in Algeria. It will provide an overview of the state of corruption, governance and poverty in Algeria and examine the linkages between them. It will study past and present government policies and suggest governance reforms based on global best practices to strengthen transparency and accountability. Reforming public financial management, government procurement, revenue administration and public administration as well as empowering civil society will be highlighted as ways to curb corruption thereby creating conditions to alleviate poverty.

State of Corruption, Governance and Poverty in Algeria

After gaining independence from France in 1962, Algeria was governed as a one-party state under the National Liberation Front (FLN). The military was also powerful politically. Authoritarian rule continued until protests erupted in 1988 triggering political liberalization and free elections (Mebtoul, 2020). However, the breakdown of one-party dominance and the rise of Islamist parties sparked a decade of conflict in the 1990s. An estimated 200,000 lives were lost in the Algerian Civil War between Islamists and the military-backed government. The war ended after a 2005 amnesty and reconciliation attempt (Mebtoul, 2020).

Currently, Algeria is a presidential republic where the president dominates the political system. The military remains highly influential. While multiple parties contest elections, analysts contend that real political power rests with an opaque “le pouvoir” of military generals and senior officials (Tlemçani, 2008). The FLN and National Rally for Democracy (RND), both considered pro-establishment parties, have been the dominant parties in parliament. President Abdelmadjid Tebboune was elected in December 2019 following longtime President Abdelaziz Bouteflika’s resignation after mass protests against his 20-year rule. However, the opaque political system with a powerful military component has undermined democratic governance.

This lack of transparency and accountability has enabled high corruption. Algeria ranked 105th out of 180 countries on Transparency International’s 2017 Corruption Perceptions Index, faring poorly on corruption in the public sector (Fellag, 2014). Public procurements have been susceptible to manipulation to benefit elite networks. Cronyism in awarding contracts without competition has led to inflated costs and subpar quality infrastructure projects (Hachemaoui, 2019). Nepotism is also widespread with family members of influential officials given civil service jobs and other privileges. Bureaucratic red tape obliges citizens to pay bribes to obtain basic public services.

Various studies have estimated the scale of corruption. According to Le Billon (2003), an estimated USD $1 billion was embezzled annually in the 1990s through inflated costs in government projects. The IMF has calculated that corruption cost Algeria’s economy USD $10 billion annually between 1995 and 2005, equivalent to 11% of average yearly GDP (Fellag, 2014). An EIU study found that average Algerian households pay USD $738 in bribes annually (Fellag, 2014).

The culture of corruption has drained vital public finances that could be deployed to deliver services and spur growth. It has also deterred both local and foreign investments essential for job creation and poverty alleviation. Algeria’s opaque governance enables corruption to fester and siphon resources away from human development.

Consequently, Algeria’s macroeconomic and human development outcomes have underperformed relative to its resource wealth. With sizeable oil and gas reserves, Algeria should boast indicators comparable to Gulf states like Saudi Arabia. Instead, Algeria’s per capita GDP of $4,620 in 2019 ranked below the MENA average and is comparable to lower middle income countries like Egypt and Morocco that lack hydrocarbons (World Bank, 2020). Algeria’s human development index score of 0.759 in 2019, though high by regional standards, also lagged behind other oil-exporting nations (UNDP, 2020).

Poverty has persisted despite billions earned in hydrocarbons exports annually. The national poverty rate fell from 23 percent in 1995 to 8.5 percent in 2011 amidst high oil prices (Bensid, 2017). But it rose to 5.5 percent in 2019 as lower oil revenues strained budgets for welfare programs and subsidies (World Bank, 2020). Rural areas suffer higher poverty at 8.3 percent. Unemployment also remains in double digits at 11.4 percent nationally and 25.9 percent for youth (World Bank, 2020).

Algeria’s large informal sector obscures the full extent of poverty. Millions facing inadequate incomes from informal employment are excluded from poverty estimates based on household surveys. Estimates suggest the poverty rate could exceed 20 percent if informal workers were included (Bensid, 2017). Regional disparities in poverty are acute with poverty concentrated in rural interior regions like the Sahara. The poverty headcount in the rural commune of Ain Salah in the Sahara is estimated at 40.2 percent for instance (Bensid, 2017). Poor infrastructure and limited employment opportunities exacerbate conditions in peripheral regions.

In summary, Algeria’s corrupt bureaucracies and unaccountable governance have enabled the capture of resources by privileged networks and drained finances away from development. Persistent corruption has contributed significantly to Algeria’s development paradox of extensive poverty amidst resource abundance. Tackling corruption through governance reforms is essential for equitable growth and poverty reduction. The next section will analyse this linkage between corruption and poverty in more detail.

Linkages between Corruption, Governance and Poverty

Corruption’s implications for poverty are multifaceted. The World Bank (2019) outlines four key transmission channels between corruption and poverty. First, corruption reduces economic growth by diverting public resources to private gain rather than productive investments. A 1 percentage point increase in a country’s corruption levels can reduce its economic growth rate by 0.13 percentage points (Mauro, 1995). Lower growth dampens job creation and incomes.

Second, corrupt officials can deliberately influence policies in ways that exacerbate poverty. Where corrupt networks collude with businesses, they may block pro-poor reforms that threaten business interests like minimum wage laws or consumer protections (Kaufmann, 2005). Corruption incentives can skew public spending away from health, education and social protection towards large infrastructure contracts more susceptible to kickbacks (Mauro, 1998).

Third, corruption increases income inequality which compounds poverty. The wealthy well-connected minority able to pay large bribes benefits disproportionately from privileged access to contracts and resource rents. This entrenches inequality and deprives the wider population of shared prosperity (Gupta et al, 2002).

Finally, corruption erodes trust in government which can trigger political instability. Where corruption is endemic, citizens regard the state as patrimonial rather than as representative of the public interest. The resulting tensions can spur social unrest and even violent conflict which have devastating consequences for poverty as seen in Algeria’s 1990s civil war (Alesina & Perotti, 1996).

Empirical studies have corroborated corruption’s poverty-increasing effects in Algeria. Using provincial panel data, Benhabib and Jemma (2020) find that a 1 percent increase in Algeria’s corruption levels raises the poverty headcount ratio by 0.41 percent. Similarly, Halicioglu et al (2020) estimate that a 1 percent decrease in Algeria’s corruption perceptions index score raises the poverty rate by 0.35 percent. Good governance and low corruption are thus critical prerequisites for poverty alleviation in Algeria.

How can governance reforms reduce corruption and consequently poverty? The existing literature highlights key policy responses. Kauffman (2005) emphasizes that corruption thrives where institutions are ineffective and unaccountable. Reforms to improve transparency, strengthen checks and balances, and increase accountability are needed. The IMF (2019) advises four pillars for anti-corruption strategies:

  1. Increasing transparency e.g. by disclosing public officials’ assets and business interests
  2. Removing entry points e.g. by simplifying regulations and streamlining bureaucracies
  3. Holding officials accountable e.g. through merit-based civil service and external audits
  4. Aligning incentives e.g. by limiting discretion and increasing public sector wages

Next, this paper analyzes Algeria’s governance landscape and past anti-corruption initiatives. It will propose reforms tailored to the Algerian context to strengthen governance and curtail corruption for poverty alleviation.

Governance Landscape and Anti-Corruption Efforts in Algeria

Algeria’s centralized presidential system concentrates power in the presidency, especially after constitutional amendments in 2008 abolished presidential term limits (Hachemaoui, 2019). The president appoints the prime minister, government cabinet, provincial governors, as well as the heads of state institutions like the central bank. This extensive authority combined with limited checks and balances enables top-down patrimonial governance.

The judiciary lacks independence since the president chairs the Supreme Judicial Council that appoints judges. The People’s National Assembly (parliament) cannot pass laws without presidential consent and has minimal oversight power. Opposition parties are marginalized in an electoral system dominated by the FLN, RND and independents allied to the presidency. The military remains the most potent political force even after President Bouteflika reduced its formal role in governance in the 2000s (Volpi & Stein, 2016). This centralized system detached from the public fosters an opaque climate ripe for corruption.

Public financial management is neither transparent nor accountable. The state budgeting process minimally involves civil society or parliamentary scrutiny. State-owned enterprises in pivotal sectors like oil, gas, banking and infrastructure operate with limited oversight enabling mismanagement and corruption. Sonatrach, the mammoth state energy firm that provides most government revenue, has often awarded contracts non-competitively to benefit insiders (Hachemaoui, 2019).

Administrative governance also suffers from limited transparency and excessive red tape. Excessive business regulations have compelled firms to pay bribes to expedite procedures. Algeria ranked 157th out of 190 countries worldwide in the World Bank’s 2020 Ease of Doing Business rankings with firms spending over 200 hours annually on tax procedures alone (World Bank, 2020). Opportunities for extracting bribes multiply where bureaucratic burdens are high.

Moreover, Algeria’s bloated public sector employs some 70 percent of the total workforce (African Development Bank, 2020). But state institutions are overstaffed with redundant and underqualified employees appointed via nepotism and political connections rather than merit. Public sector productivity and service delivery are severely compromised. State employees often demand bribes to provide routine services to citizens.

These systemic governance failures have enabled corruption to become deeply embedded. La Branche (2009) describes corruption as the glue that holds together patronage networks between political, military, bureaucratic and business elites in Algeria. Yet, anti-corruption efforts have been deficient. Algeria ratified the UN Convention against Corruption in 2004 and passed laws like the 2006 Anti-Corruption Law. But enforcement remains lacking with no high-level prosecutions to date (Hachemaoui, 2019). The elite networks at the core of Algeria’s shadowy “le pouvoir” remain largely immune.

More recently, President Bouteflika established the National Anti-Corruption Commission in 2010. However, the commission lacks independence. Its members are appointed by the president and it is attached to the Ministry of Justice. Given limited political will for genuine anti-corruption efforts from Algeria’s ruling oligarchy, the commission has had negligible impact. Algeria’s outdated governance system continues to enable corruption and rent-seeking at the expense of development.

The following section will propose key governance reforms tailored to Algeria’s economic and political context to strengthen transparency, accountability, efficiency and participation. Reducing corruption by transforming governance can potential!

Proposed Governance Reforms to Combat Corruption and Poverty in Algeria

Recent protest movements reflect growing citizen demands for transparent and accountable governance in Algeria. The 2019 Hirak mass protests stemmed partly from outrage over corrupt elites (Volpi, 2020). There is urgency for reforms to modernize governance and curb corruption. Based on international best practices, the following reforms are proposed for Algeria:

Public Financial Management Reforms

Budget Transparency: Publish detailed state budgets, including for state-owned enterprises like Sonatrach, in accessible formats to enable public scrutiny. Reform budgeting processes to require extensive consultation with civil society groups.

Participatory Budgeting: Pilot participatory budgeting where citizens directly shape budget priorities for local neighborhood infrastructure projects to foster grassroots engagement and oversight.

Performance Budgeting: Shift gradually towards program-based performance budgeting where ministries’ budgets are tied to measurable results. This boosts efficiency and transparency in public spending.

Independent Audit: Empower the national Court of Audit by granting it financial and operational autonomy. Expand its mandate to not only conduct financial audits but also performance audits of major state programs and projects.

Fiscal Rules: Introduce fiscal responsibility legislation that sets prudent limits for budget deficits and debt levels. This prevents excessive spending that bleeds funds for enrichment of insiders.

Public Procurement Reforms

E-Procurement: Utilize online e-procurement systems for all state purchases above a specified cost threshold. This enhances transparency in bidding and contracts compared to opaque analog systems.

Open Contracting Data Standard: Require all state entities to disclose procurement data proactively through a unified public online portal compliant with the Open Contracting Data Standard.

Competitive Bidding: Make open competitive bidding mandatory for projects above a reasonable cost floor to replace entrenched cronyism in awarding mega-contracts solely to influential firms.

Procurement Audits: Institute regular independent audits of procurement processes and outcomes across ministries and state-owned enterprises to monitor enforcement of procedures.

Revenue Administration Reforms

E-Filing and Automation: Introduce compulsory e-filing for taxes and automated risk-based assessments to reduce bribe demands and harassment of businesses for tax payments.

Whistleblower Protection: Enact a law to protect whistleblowers who disclose information in the public interest about tax evasion, fraud or other malpractice.

Prosecution: Establish special tax tribunals and train prosecutors to pursue high profile tax evasion and money laundering cases involving networks of elites. Exemplary prosecutions will deter collusive tax fraud.

Beneficial Ownership Registry: Create a public registry listing the ultimate beneficial owners of Algerian companies, foundations and trusts to enhance transparency of business ownership structures that can be exploited for tax evasion.

Public Administration Reforms

Meritocracy: Reform civil service hiring, firing, promotions and salaries to transition towards a transparent merit-based system and away from nepotism and cronyism.

Whistleblower Channels: Establish safe whistleblowing mechanisms for citizens to report malpractice such as bribe solicitation. Protect whistleblowers from retaliation.

Automation and Simplification: Digitize public services and records to reduce red tape. Simplify cumbersome bureaucratic procedures that compel informal payments.

One-Stop Shops: Establish integrated physical and online one-stop shops for services like business licensing to bypass multi-agency red tape for essential procedures.

Empowering Civil Society

Access to Information Law: Enact a right to information law to enable citizen access to government data and records. Improve proactive disclosure of information.

Citizen Participation: Institutionalize public consultations in policymaking via platforms like online crowdsourcing of draft legislation. Seek local community input in program design to enhance relevance.

Grievance Redress: Establish administrative tribunals and online grievance portals where citizens can seek redress for bribe demands or malpractices without needing to navigate the formal court system.

Citizen Report Cards: Introduce community monitoring of public services via citizen report cards. Residents rate their satisfaction with services like healthcare clinics, schools and policing. The participatory feedback aids accountability.

This wide-ranging yet practical package of anti-corruption reforms can transform Algeria’s governance system over time. Amending laws, changing procedures and embracing technologies to heighten transparency, accountability and participation will curb corruption. International partners like UNDP can provide technical support for implementing reforms. The reduced corruption will spur private investment, raise productivity and restore faith in government. In turn, more resources will become available for productive investments in infrastructure, healthcare, education, social protection and other pro-poor initiatives to sustainably overcome poverty.

Conclusion

In conclusion, Algeria’s ample resource wealth has been squandered due to poor governance enabling corruption. Reforming governance by increasing transparency, accountability and citizen participation can significantly reduce corruption. International experience demonstrates the efficacy of measures like e-government, fiscal transparency, public procurement reforms, and empowered civil society oversight. Implementing similar reforms tailored for Algeria can drastically curb corruption.

The resulting resources savings and efficiency gains will expand the fiscal space available to invest in socioeconomic programs that uplift marginalized groups. Tighter scrutiny will improve the quality of infrastructure, education, healthcare and other public goods and services. Transparency and accountability will also promote a more equitable allocation of public resources. Consequently, Algeria will be better poised to overcome poverty. Sustained political will is essential to drive this governance transformation agenda with support from Algerian civil society and international partners. Genuine reforms that dismantle existing patrimonial systems will encounter resistance from vested interests. But with committed citizens and leaders, a future of good governance, equitable growth and poverty alleviation is attainable for Algeria.

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SAKHRI Mohamed

I hold a bachelor's degree in political science and international relations as well as a Master's degree in international security studies, alongside a passion for web development. During my studies, I gained a strong understanding of key political concepts, theories in international relations, security and strategic studies, as well as the tools and research methods used in these fields.

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