Jean R. AbiNader
May 14, 2019
Two recent reports highlight the challenges of developing an equitable and high performing economy in North Africa. While Morocco and Tunisia have demonstrated a degree of political will in announcing goals for more equitable societies, there is opposition from traditional elites, and the structures of the economies themselves are obstacles to opening up opportunities for economic growth.
For example, patterns of national investment are skewed towards those sectors in which the government plays a role in minimizing risks or providing subsidies for existing companies, but does not provide financial and regulatory practices that enable the entry of new small and medium sized companies. From tax policies to licensing and employment policies, these SMEs face challenges that limit imports of useful technology, hold hostage needed IT infrastructure through monopolistic practices that enable corrupt technicians to have leverage over new installations, and make it difficult to obtain needed documentation for construction and engineering permits.
On the broader societal level, Oxfam critiqued the growing economic disparity that afflicts many countries, amongst which Morocco. One example it cites is that it would take 154 years for a normal employee to earn what the richest people in Morocco receive in a year. This is in contrast to the 1.6 million Moroccans who live in poverty with 12% in a situation of vulnerability. Abdeljalil Laroussi, campaign manager at Oxfam Maroc, said, “inequalities in the kingdom are not a coincidence. They are the result of inadequate public policies and encouraged by international institutions. Since independence, Morocco has adopted growth models that are deepening inequalities and putting a large part of the population in a situation of extreme vulnerability.”
Moroccan leadership, starting with the King and including a number of ministers and members of parliament, has noted that these inequalities are a danger to the country in that they undermine trust in the government, increase social tensions, and support disrespect for rule of law.
The Oxfam report was particularly critical of disparities in tax payments. It noted that a total of “82% of corporate tax revenues come from only 2% of companies. The amount of tax losses suffered by Morocco each year due to the tax practices of multinational [companies] is $2.45 billion.” This has been noted by external agencies working with Morocco on tax reforms because, “Tax justice is an excellent way of social cohesion. It helps to correct inequalities by redistributing wealth when it is badly distributed initially, and to raise the resources needed to finance infrastructure and public services that benefit the entire community,” according to Asmae Bouslmati, the head of the Oxfam Governance Program in Morocco.
Latest unemployment data shared by Oxfam indicated that 42.8% of urban youth lack jobs. Additionally, “nearly half of the working population (46%) does not have medical coverage and women’s pensions are 70% lower than men’s. The report added that only 64% of residents are connected to plumbing with drinkable water.
On the macroeconomic level, the IMF’s recent visit to Morocco found a number of improvements over the past year despite continuing challenges. Its report highlighted a better business environment with the implementation of the country’s new financial inclusion strategy, financed in large part by international donors, to help promote competition and support the development of SMEs. In addition, improved fiscal management and continuing economic diversification are helping Morocco move in the right direction.
“The IMF experts welcomed the reforms aimed at strengthening the governance and efficiency of the public sector and combating corruption, particularly through the adoption of the law on access to information and the publication of the first report on implementation of the national anti-corruption strategy,” according to the IMF news release. Among other reforms, the IMF pointed to “the privatization plan and efforts to refocus public enterprises on their core business. It welcomes the progress made with fiscal decentralization, while emphasizing the need to ensure good governance, transparency, and fiscal discipline at the local level.”
The critical political situation in Tunisia has affected IMF efforts to strengthen that country’s resolve to move forward with needed reforms. Given that the economy remains fragile, the IMF has agreed with the fact that upcoming elections will have a direct impact on certain reforms and it would be better to postpone some of the changes at this time. Despite the support of international donors and technical assistance from the IMF, Tunisia lags in the implementation of agreed to reforms.Given the current tension between the President and Prime Minister, which has literally brought parliamentary actions to a standstill, the IMF did not want the reform program to become hostage to the election campaigns. The socio-political uncertainty and continued structural limitations in the economy, such as access to finance, integration with the global financial system, high rates of unemployment for men and women, and limited activity in new business development, are complex challenges.
The IMF report pointed out that “The Tunisian economy and job creation remain burdened by significant imbalances. Growth is too dependent on consumption, while investment and exports are insufficiently dynamic. In addition, public and external debts remain high and on an upward trajectory, they generate significant non-productive financing needs and a burden for future generations.”
How Tunisia manages its economic challenges is indeed the primary issue facing the next government.