In March 1994, fighting between Algerian security forces and armed Islamist guerrillas reached a critical intensity around Blida, about 90 miles east of Algiers. A commercial strike to protest army killings of young men became the target of yet another military action. Blida is a center for private agriculture, where numerous small private food processing plants operate, not all of them licensed. With its concrete villas surrounded by high walls that conceal both family space and underground production, Blida presents an interesting conjunction of private property and wealth that has escaped state assessment and control, and support of political movements challenging the state.

Policies of centralized economic control and extremely uneven liberalization have contributed to the development of a large informal economy in Algeria, licit and illicit, linked to the formal economy but evading state accounting. Although the private sector statistically accounts for a low rate of investment, it produces a high rate of profit. This suggests both efficiency and a “parasitic” mode of operation, using subsidized inputs and operating in high-profit sectors. Since only a minimum of such profits are declared, it represents substantial wealth outside state control, and has a strong interest in decreasing the state’s dense network of administrative regulation. Invested in politics and society, this private wealth contributes to the social welfare organizations that undergird Islamic politics, and may well fund armed resistance to the state.

The conjunction of private wealth and state challenge is not unknown in European history; the liberal model of a bourgeoisie pushing back state authority from their market practices is the classic explanation for democracy’s emergence. This relationship of social forces has been less familiar in the Middle East, where nationalist regimes have dealt heavy-handedly with private wealth — appropriating and nationalizing, then liberalizing by fiat. Where economic elites retained their property, the tradeoff was usually political marginalization and compliance. But expanding economies and new, albeit often contradictory, policies of liberalization are changing the political significance of private wealth. Channels for the articulation of private economic power may remain in the hands of the regimes, but there are now too many people, and wealth is dispersed in too many different directions, for the state to exert the same degree of systematic control. And the state listens to private capital in ways it did not 20 years ago.

In Egypt, Turkey and Morocco, this combination of economic and political weight is legal and fairly visible. In Algeria, domestic private capital continues to be administratively embattled and politically marginalized even where it has been permitted to operate. [1] Private firms of any size constantly skirt the law to evade state claims of administrative hegemony. The liberalization measures of the 1980s were accompanied by credit constrictions and ambiguous regulations that effectively offset ostensible openings and continued to push private operators into parallel networks of finance, credit and investment. [2] Private capital, especially small-scale, has been cast into a residual category from which it is emerging with difficulty.

An Economic Aesthetic

The dominant model of the economy still privileges a vision of large factories, high technology and rationalized management practices, with an emphasis on orderliness, production and transparency to state gaze. This economic aesthetic categorically relegates small-scale commercial activities to a non-modern, archaic and traditional realm — “folklorique,” Algerian economist Ahmed Henni has termed it. “They are, from the beginning, condemned to disappear or to exist under the form of the ‘informal,’” writes Henni. “The informal is as old as economic science, or as science altogether. It becomes almost its bad conscience.” [3]

Because much of this commerce evades customs, it is illegal. Because much of the trade is in consumer goods, it is regarded with contempt by socialist-minded intellectual elites. Because the trade sends hard currency abroad and theoretically displaces domestic products, it is regarded as unpatriotic. In much public discourse, and especially in the press, trade in smuggled consumer goods is said to finance Islamist politics, and so condemned as transgressive and anti-state. Because these primarily distribution networks do not “contribute to development,” they are considered parasitic. In a well-ordered, modern economy, Algerian state elites believe, this sector would not exist.

Now, as the “economie de marche” is considered both desirable and inevitable, an orderly, sanitized vision of the market has emerged, abstracted from a dense collection of economic practices, as if there was only one kind of market. A cartoon from L’Opinion demonstrates this tension. It shows a customs official barring passage of a motley-looking group representing the informal economy — an old man, an old woman and a young man who probably did not pass his baccalaureate exam — all carrying messy parcels. “Halt,” cries the official, “We are going to a market economy.” “But the market economy, that’s us!” they call back, unsure of themselves against officialdom.

The informal sector is cast by default with all of the “non-modern.” This, too, has its icons and myths. In the fall of 1992, one Hajj Bettou, chief of a large “import-export” operation in the southeast, was arrested and imprisoned for possession of a military weapon. Large and stolid, sitting on a sheepskin on the floor, wearing the robes of the desert, a turban and a Rolex, director of a gang or clan that includes African Tuareg, he is definitely outside of the modernist vision. As a smuggler trafficking in weapons and camels as well as state-subsidized staples, he is also outside of the dominant culture.

Algerian journalists who interviewed customs officials on the Algeria-Morocco border told me of vast donkey caravans smuggling grain or drugs over the border. To avoid the expense of donkey attendants, each donkey was fitted with a Walkman with a cassette programmed to repeat “Rah, Rah, Rah” to keep the donkeys moving. One does not need much familiarity with donkey psychology or North Africa’s unskilled male labor market to detect the absurdity of this story. But such a tall tale evokes the alliance of technical sophistication and traditional methods to evade the state.

Ethic vs. Attitude

The dominant discourse on Algerian society tells us little about this other Algeria — how large is it, whom it comprises, what it believes. It tells us rather how this other Algeria is perceived from the center: traditional and superstitious; criminal, selfish and corrupt. This emergent economic elite (legal and illegal) is said to comprise those not eligible for bureaucratic jobs. They have money but no education, goes the complaint; they are not worthy. If they have meretricious Westernized habits, they are “tchi-tchi” — tacky; if they are conservative they are assumed to support some version of Islamist politics.

Because of the gravity and intensity of the Islamist challenge, an underground economy that may contribute to its domestic funding is considered a menace simply because it is concealed. Not every expensive wedding is financed by trabendo (black-market goods). Not every boy selling notebooks or underwear on the sidewalk is pledged to an Islamic state. But the conjunction of these attributes clouds over all these activities. The informal economy takes on enormous symbolic importance as “the bad conscience of modernity.”

Or an economy with attitude. In a state bound by regulation and infuriating shortages, trabendo can stand for evading a corrupt and inefficient authority. The trabendist may seem richer and freer than he is. Journalists emphasize the enrichment facile of young men hawking their goods, though they stand hour after hour on the sidewalk. A Moroccan economic journal described a damp and depressing pedestrian underpass in Algiers filled with imported and domestic consumer goods as an “Ali Baba’s cave” of merchandise.

Why is this parallel economy, romanticized as well as condemned, considered so antithetical to a “modern” state and society? Why do cartons of Marlboro cigarettes confiscated on the border figure prominently on the evening news? It is difficult to believe that every old woman in a haik selling gold in front of the baroque French-built headquarters of the FLN challenges modernity and the state. The sense of challenge is partly determined by the particular relationship between state and economy in Algeria. At independence, Algerian nationalists sought a particular vision of modernity and development, not merely an increase in prosperity. An Algerian peasant-fighter explained the goals of the struggle for independence in al-Tahir Wattar’s novel: “We shall become clean, instructed, modern, like the French.” [4]

The pre-independence real-life economic education of many Algerian nationalists left them little interested in markets per se, and more concerned with the political constraints that shaped markets. The ability of the state to negotiate at the international level was crucial to determining Algeria’s access to markets. [5] President Houari Boumedienne (1965-1978) candidly characterized his economic plan as “state capitalism.” Factories and estates taken over by Algerian peasants and workers from French owners during the war, formally recognized as self-managed after the war, came under increasing state control under Boumedienne’s rule. Whatever their ideological importance, laborers and peasants were not to be managers.

Peasants were not the only ones subordinated to a modernist vision, nor were intellectuals the only group seduced by it. Workers remained within an organization of authority and discipline that Europe knew best: the factory. Although the war had not destroyed Algerian elites, they did not command the same wealth and social prestige they retained in Tunisia, Morocco, Egypt or India. The political field was smaller in Algeria, colonization had been longer and harder, the war more intense. Post-independence Algeria was strongly populist and private wealth was marginalized in political discourse, even if Algerian industry was spared complete nationalization.

It is difficult to know whether to blame too much central planning or not enough, when factory complexes were built with inadequate transportation networks or worker housing. Ali El-Kenz’s study of the El-Hadjar steel plant, built by French, American, Russian and German engineers, documents the incongruity between social spending and capital spending. [6] Late buses leave without the night shift; supervisors without housing sleep in hammams and hotel lobbies. High absenteeism represents costs for industry. The facility has never operated at capacity and has been plagued by chronic strikes since its inception. Only by bending the rules, leaving work, being absent, working every connection possible, could workers meet their social needs.

Agriculture received little investment. Algerian critics feel local elites manipulated their way around the land redistribution requirements of the Agrarian Revolution of 1974. But rural landowners opposed the measures as if they were seriously intended, and several prominent Islamist figures organized against the reforms. Religion, too, had been ostensibly nationalized, although the persistence of independent religious orders and the political activism of other Islamic figures speaks to the early inability of the state to maintain its hegemony in that field.

Despite subsequent partial reprivatization, the inflexibilities of state marketing and credit boards made agriculture less attractive for investors and peasants. Factories remain unable to deal with agricultural surpluses when they do exist. Chronic shortages of basic foods are a daily fact of life. Both luxuries and staples move on the black market, which insures availability in Algeria and gains better prices in Morocco, Tunisia and sub-Saharan Africa. In the 1980s, Algeria “consumed” more sugar per capita than any other nation; in fact, the subsidized product was being resold outside of Algeria.

Liberalization in the 1980s has had unintended consequences. Import licenses were easier to come by. We see greatly increased income flows: increased government funds through petrodollars and borrowing; increased food and consumer goods subsidies; increased income from legal and illegal imports; increased income from illegal exports of subsidized goods; and increased agricultural income from loosened control and gradual privatization. A private sector, formal and informal, legal and less so, long-rooted and totally parvenu, expanded.

The change in leadership at the end of the 1970s opened space for sharp criticisms of past policies. Through the 1980s, this discursive space expanded to the point where liberalization and the importance of profitability became open topics for newspaper and academic discussion. The collapse of oil prices only served to increase the importance of quasi-legal private economic activity. But while government policies and the public sector were delegitimized in both popular and academic circles, the parallel economy continued to look unattractive in terms of public values of modernity, orderliness and rationality.


As in Egypt’s case, even liberalization of an unsystematic sort can offer economic opportunities to others besides existing elites. The political effects of liberalization may fund a broad, diffuse network of political activism, especially where an alternate political network has access to a well-developed ideology of opposition. In China, where liberalism has little history of even semi-independent political organization, there is no challenge to the state with the coherence of Islamist politics in Algeria or Egypt. Domestic capital, in large units or tiny amounts, is vulnerable to state action, but it can be more vexatious to the state than international finance capital. An IMF delegation comes and goes, and much can be gained by promising compliance. But the investments of domestic capital have political consequences, whether the investment is explicitly political or not, such as funding Islamist social services. Domestic capital and its influence do not get back on the plane.

Algeria has seen more than a decade of uneven liberalization, with evidence of a change in the distribution of wealth and hostility between older and newer economic elites. Algeria’s older intellectual elites embody an economic/political strategy that endorsed external capital which functioned as an intermediary between national and transnational capital. This managerial elite has pushed for greater economic liberalization. But with the growth of a semi-informal polymorphous private sector comes increasing pressure for a non-technocratic, domestic political participation.

The dominant Algerian economic discourse still invokes an aesthetic that places the orderly, the planned, the modern in a mythic binary opposed to the informal, the traditional, the Islamic. Given this ideational configuration, we should not be surprised to see an opposition movement that is populist, anti-technocratic and culturalist, articulating an Islamist ethic of enterprise, hurriyyat al-tabaddul, freedom of exchange, within a market bounded by morality.

Many Algerian observers insist that the Islamists’ populist base is augmented by those with an interest in private enterprise, petit and not-so-petit bourgeoisie, and elements of the state bureaucratic elite. There is no reason to assume any of these groups define a unified collective interest. The extreme unevenness in Algerian economic experience has produced class fractioning rather than coherent class interests. Still, old money, new money, those who want money — their combined political weight is considerable even if they are divided.

The IMF and World Bank estimate the parallel economy at approximately 10 percent of the official economy. Because of the greater size of Algerian hydrocarbon revenues, the amount of money is more significant in social and political terms than this estimate would suggest, even assuming it is accurate. [7] Then there is the structural bias. After all, as Henni notes, the informal is defined by its very escape from the statistics. [8] Using a variety of figures, including the number of expatriate workers, amounts permitted to be repatriated, the parallel rate of exchange, salaries, reported private sector income, fraud estimations, bank holdings and the Algerian money supply, Henni has estimated the parallel economy to be as much as 50 percent of the official economy.

The uneven Algerian liberalization, often a de facto liberalization owing to slack and uneven enforcement, began in the early 1980s to distribute income to those with entrepreneurial as well as larcenous skills. Those who could benefit most were those close to the state: their information was better, they had better access to funds and contracts. The pipeline of hydrocarbon revenues, development loans and state-distributed goods and services has produced serious, high-level corruption — what Algerians refer to as “the Mafia.”

These developments set the stage for competition between the bureaucratic elite — which laid claim to the patriotism and morality that went with the legacy of the struggle for independence — and the new money which was conscious of its uneasy relation to the law and its distance from the legitimate exercise of state power. The high end of the informal economy is associated with “the Mafia,” the low end with the petit trabendist and iqtisad al-shabab, the economy of youth.

In popular culture, political discourse, and on the streets, the public spaces of the informal economy are dominated by young men engaged in “import-export” who crowd any international entry point, known for their dangerous boisterousness. They riot at soccer stadiums and chant angry expressions of generalized discontent. They are the major component of the crowds who listen to independent preachers. When the state invited them to demonstrate against state inefficiency in October 1988, they took to the streets with such unexpected gusto that the army was called in to repress them. Subsequent demonstrations and marches, including FIS and FFS marches and the funeral of Boudiaf, drew on the same pool of young political manpower.

When the FIS won municipal elections in 1991 and constituted the city government in most large cities, it permitted and encouraged street trade. When the FIS was banned in 1992 and driven underground, there was a corresponding crackdown on street vending. “The bazaar economy is not going to help Algeria with her economic problems,” snapped an Algerian academic, with a modernist contempt for small-scale economic activity. The optimistic modernist vision that placed the private with the traditional is trying to recuperate the market economy for modernity, but the existing market has already begun its assault on the state.


[1] See Jean Leca and Nicole Grimaud, “Dossiers et documents: Le secteur privé en Algérie,” Magreb/Machrek 112 (April-June 1986), pp. 102-19; and Djilali Liabes, Capital privé et patrons d’industrie en Algérie, 1962-1982: Propositions pour l’analyse de couches sociales en formation (Algiers: CREA, 1984).
[2] Redha Hamiani, minister for small and medium industries, interviewed by Areski Menmokhtar, “Investissements: Le Gage de liberalisation,” in Algérie Actualité, October 5-10, 1993.
[3] Ahmed Henni, Essaisur l’èconomie parallele: Cas de l’Algérie (Algiers: ENAG, 1991), pp. 147, 151.
[4] Al-Tahir Wattar, al-Laz [The Ace] (Algiers, 1974).
[5] Mahfoud Bennoune and Ali El-Kenz, eds., Le Hasard et L’Histoire: Entretiens avec Belaid Abdesselam, vol. 1 (Algiers: ENAG, 1990).
[6] Ali El-Kenz, Le complexe sidérurgique d’El-Hadjar: une expérience industrielle en Algérie (Paris: CNRS, 1987).
[7] Statistics from the Algerian National Office of Statistics, burdened by both technical and organizational inadequacy, are considered significantly weaker than comparable efforts in Morocco, Tunis and Egypt, which have more bureaucratic depth.
[8] Henni, pp. 9, 10.

How to cite this article:

Deborah Harrold "The Menace and Appeal of Algeria’s Parallel Economy," Middle East Report 192 (January/February 1995).

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