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Algerian anti-graft investigation cripples industrial giants

By Djamila Ould Khettab
Posted on Thursday, 29 August 2019 20:31

A worker stands in front of a sign for ETRHB Haddad group in Algiers, Algeria 25 August 2019. REUTERS/Ramzi Boudina

The arrest of Algeria’s most influential businessmen is hurting an already ailing national economy. Some 46,500 workers are employed by the nine Algerian companies whose leaders have recently been arrested.

With the wave of arrests of bosses, Algeria is getting bogged down in an economic crisis as the shock waves spread far beyond the mastodons. Putting giants like Entreprise des Travaux Routiers, Hydrauliques et Bâtiments (ETRHB) and KOU.G.C. at risk, the authorities have weakened the entire industrial sector, 80% of which is composed of family-owned microenterprises.

“Our suppliers are suffering from our situation. It’s difficult to convince them to keep feeding us,” says an ETRHB executive, who calls it a “disturbing domino effect”.

Projects on hold

Hichem Sedok, finance and project manager at KOU.G.C., a company specialising in construction and public works owned by the Kouninef family, says, “We feel powerless.”

Sitting in his office in Hydra, a wealthy district of Algiers, he lists the projects that have been halted for three months due to a lack of resources: the construction of five hospitals, including a psychiatric establishment in Laghouat, the extension of the Algiers metro, as well as hydraulic projects in Constantine and Béchar.

KOU.G.C., created in 1971 by Ahmed Kouninef, has 2,800 employees and creates almost 15,000 indirect jobs. The company is virtually paralysed following the freezing of its bank accounts on 2 June as part of the legal proceedings against the Kouninef brothers. The court’s decision applies to all 50 companies in the family conglomerate. In addition, the government has put on hold all payments for projects already completed.

Frozen accounts and collateral damage

“The impact on our raw material inventories has been gradual. Today, we can maintain a minimum service, about 15% of the activity, thanks to the support of our oldest suppliers, who remain loyal to us. But, at this rate, everything will eventually stop,” says Dahmane Medjek, logistics manager at KOU.G.C.

“We no longer have the means to pay for fuel for business travel,” he adds. “We help each other. We are in solidarity.” Solidarity that he would like to see come from the popular movement against the regime, launched on 22 February. “We are seen as accomplices to corruption when we are mere employees,” he says.

The consequences for the company’s employees were more brutal. Salaries have not been paid for three months, and the 420 people hired on fixed-term contracts, mostly warehouse workers and machine operators, have been fired.

“Due to the slowdown in activity and the absence of the manager, their contracts were not renewed,” explains Medjek. At his side, Sedok sighs: “Workers are the collateral victims of legal cases.”

Since the provisional detention of Karim and Tarek Kouninef in El-Harrach prison, in the eastern suburbs of Redha, Algiers, on 24 April, their sprawling conglomerate, stretching from construction to civil engineering and including the agribusiness sector, has rapidly disintegrated.

In addition, SAFIA an edible oil company and subsidiary of COGRAL SPA, was shut down on 15 June, resulting in its 350 employees being laid off.

Construction halted

Construction on the Nutris oilseed processing plant in the Djen Djen area east of Jijel was also suspended. This major investment, estimated at $250m, was expected to create 500 jobs and 1,500 indirect jobs. “The completion rate is 85%, but they were stopped in June. It was a promising project,” says Medjek.

This project is of particular interest to the magistrates prosecuting the Kouninef brothers, who are close to Saïd Bouteflika, adviser and brother of the former head of state who resigned in April. The courts suspect oversight complacency, including financing being granted without guarantees.

The Kouninef empire is not alone. The arrest of some of the country’s most influential businessmen, suspected of corruption and influence peddling in particular, have plunged their groups, each employing tens of thousands of people, into an unsustainable situation. Bank accounts frozen, activities slowed down or even stopped, raw materials blocked in ports, wages not paid for months, non-renewal of precarious contracts: the spectre of bankruptcy weighs on some of them.

Thousands of jobs at stake

Dzaïr News, the media group created by Ali Haddad, shut down on 25 June, costing 250 people their jobs. Haddad, CEO of the ETRHB conglomerate and former president of the Forum des Chefs d’Entreprise, was sentenced to six months in prison for illegally possessing two Algerian passports.

The businessman also put football club USM Algiers, reigning Algerian champions, up for sale, saying he could not continue to finance it. A source within the group reveals the pessimism of the staff: “We haven’t received our salary for four months. Late payments are not a new problem. But, given the situation, we do not see how the company can survive this crisis.” In 2003, the Algerian authorities targeted the Khalifa Group, which had 15,000 employees in the country, after investigating corruption related to its founder.

Some employees are mobilising to preserve their jobs and claim their wages. Since early August, ETRHB employees have held rallies outside the headquarters in Dar al-Beida, in the eastern suburbs of the capital. Nearly 270km west in Tiaret, employees of TMC, the automotive group owned by Mahieddine Tahkout, arrested on 10 June as part of a money laundering investigation, demonstrated at the factory that assembles models of the South Korean brand Hyundai.

Defending their rights

The 1,400 employees have not been paid for three months and are technically unemployed since the factory was shut down after complete knock-down kits were blocked at the port of Mostaganem. After the government ignored an open letter from KOU.G.C., part of the workforce formed a trade union, affiliated to the Union Générale des Travailleurs Algériens, and says it is ready to “go before the courts to defend its rights”.

Many Algerians argue that the government has not taken into account the impact of cleaning up the business community. Everyone, however, has the same questions: why did they order the freezing of companies’ bank accounts before the trial of the bosses involved took place? Why freeze them when companies and their managers are different legal entities?

“We would like to know if they have thought about a roadmap for the survival of these companies beforehand. It seems not,” says Sedok.

The government has been slow to react to the workers’ distress. The ad hoc intersectoral committee set up at the end of June by prime minister Noureddine Bedoui to safeguard the “industrial fabric”, announced emergency measures on 15 August. It proposes to appoint an administrator to ensure the continuity of the management of companies affected by bank account freezes and to authorise the payment of salaries. in particular. According to the finance ministry, cited by the APS, it will be responsible for “supervising the activities of companies and controlling financial flows and supplies”.

An aberration

The lawyers’ collective defending the bosses incarcerated in El-Harrach prison denounced the move as “an aberration”.

“In what capacity does the Algerian state claim the right to control these companies? This is a violation of the principle of protection of private property,” says Khaled Bourayou, who defends Ali Haddad and the Tahkout family.

On the employees’ side, opinions are divided. “The entire management has been incarcerated. We are on our own. This administrator is our last hope,” says Medjek. But the Bedoui government’s decision, which will take time to implement, is not enough to reassure a large part of the workers, who continue to occupy the streets to demand payment of their wages.

Delayed investments

Several Algerian entrepreneurs have delayed their investment projects. “There is a significant slowdown in activity,” confirms a financial analyst. “Algeria is not yet considered a country at risk because the popular movement has managed to preserve its peaceful character. Foreign investment can resume if positive signals are sent by the government,” he adds, optimistically.

In the meantime, the network of Algerian small and medium-sized enterprises is shrinking. According to a report by the Centre National du Registre de Commerce (CNRC), no fewer than 32,000 companies closed down in the first half of 2019, while the number of new companies was down 10% from last year.

“Not all the companies that have ceased operations were necessarily in difficulty,” says an CNRC official. “On the other hand, it is true that the business climate is not good.”

The short-term outlook is not reassuring in a country where hydrocarbons represent 93.1% of total export volume. “There is a good chance that the cost of a barrel of oil will fall in 2020, which will further reduce public spending and, in turn, affect all sectors,” the financial analyst predicts.

No sector spared

In the current slump, no sector is spared. “The crisis first hit the construction industry, one of the sectors that provides jobs, with nearly one million people, mainly because of the decline in public spending. Then it spread to other areas such as the emerging automotive industry and the booming household appliances sector,” says El Mahfoudh Megateli, secretary general of the Confédération Générale des Entreprises Algériennes.

The banking sector, particularly the public sector, is at the centre of criticism. Since the first legal proceedings, it has acted with the greatest caution. This was reinforced by the detention of the CEO of the Banque Nationale d’Algérie at the end of June.

The magistrates claim to be investigating the conditions for granting loans while he was head of the Crédit Populaire Algérien. According to several business leaders, credit committees in several banks no longer meet, while in other institutions lending operations to investors are delayed.

Fear of a chain reaction

The case of the Entreprise Nationale des Industries de l’Electroménager (Eniem) is edifying. A flagship of Algerian industry, it has suspended most of its activities due to a late rescheduling of its debt repayments. Its 1,300 employees had to take forced leave of absence in July.

“We submitted a request at the beginning of the year and received a response after six months. Bankers are afraid, they grant loans to companies with increasing difficulty,” says Djilali Mouazer, Eniem’s CEO.

El Mahfoudh Megateli warns: “If banks continue to be cautious and no longer support investment, there will be a major chain reaction and serious repercussions on the entire economy.”

This article first appeared in Jeune Afrique.

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