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Focus on Tunisia: What the Experts are Saying about its Economy – Jean R. AbiNader

Jean R. AbiNader
September 12, 2019

Jean R. AbiNader, Moroccan American Center

I recently attended a dinner with young Tunisian political leaders and of course the discussion turned to politics, in Tunisia and the US. The only thing that we could find in common is that, at the time, the US had more presidential candidates (27) from both parties than Tunisia (26) from multiple parties. It was also noteworthy that in Tunisia there is a limited period for campaigning (two weeks), that poll-taking had to end with the beginning of the campaigns, and that a two-tiered system is in place to ensure that the ultimate victor would get a majority of the votes.

While I did not see the first presidential debate among 10 candidates, you can be sure that the economy is a key issue, along with corruption and job creation. In fact, current Prime Minister Youssef Chahed has made the economy the priority in his presidential campaign. The mood in the country is tough to gauge. While some companies see better times ahead, there is little consensus on specific steps beyond taking action to implement reforms of the past two years that have yet to come into full force.

According to an article in The Arab Weekly, “Many Tunisians doubt that any of the 26 candidates in the September 15 presidential election can implement his or hers program to save the country from its chronic economic crises.” It points out that GDP growth of 1.1% in the 1H2019, was well below the 3.1% projection in the 2019 budget. Aside from tourism, which is trending up, manufacturing, mining, energy, construction, and agriculture growth have all dropped from 2018 levels. Another challenge is that “Data released by the Central Bank of Tunisia confirmed an alarming 44% rise in debt-servicing costs in the first eight months of 2019, which places extreme pressure on the government to tackle the problem before it gets worse.” Funds allocated to repay loan principals in the national budget increased by more than 50%, which is a cause for concern as Tunisia has borrowed extensively to boost financing for projects.

The Oxford Business Group (OBG), in a survey of Tunisian business leaders, has a mixed view of the economy as a bit over 50% rate it as positive. The article notes that “The prevailing mood is somewhat understandable: GDP growth has struggled to keep pace with pre-2011 levels, dropping from an annual average of 4.4% between 2005 and 2010, to 1.7% between 2011 and 2017… Public debt has been another matter of concern, increasing considerably since 2010, from 40.7% of GDP to 76.7% in 2018.”

While the value of the currency has recovered lately vis-à-vis the Euro and the dollar, it has not recovered to 2015 levels, increasing pressure on containing costs and driving up inflation. Overall, the mood is trending positive as 70% of those surveyed say their companies are likely to make “significant capital investment within the next 12 months.” Of course, much of their optimism will hinge on two factors, implementation of existing business-friendly reforms and the priorities of the incoming government.

One very promising sign is that foreign direct investment increased by some 28.6% in 2018, mainly in existing businesses such as manufacturing and energy.

In terms of progressive reforms and legislation, Tunisia has established a new framework for public-private partnerships, invested along with international donors in programs to support SMEs and start-ups, and improved business standards. OBG mentions the “Transversal Law, adopted in April 2019 with the overarching goal of improving business conditions and aligning Tunisian standards with international best practices.” Its goals are to simplify rules for business start-ups, provide guidance for company governance, and ease access to credit, continuing issues for SMEs and companies in general as “71% of our survey respondents said that access to credit was difficult or very difficult in Tunisia. This compares with an average of 57% in the other markets we cover in Africa.”

This mixed picture of progress and challenge is the basis for another article in The Arab Weekly that looked at how the “deep bureaucracy” and the private sector collude to slow reform steps and project implementation. It says that “Even top officials acknowledge there is a deep bureaucracy that must be fought to implement reforms. They, however, were unable to fight this hidden bureaucracy and gave another proof of the state’s inability to address the power of influential lobbies and individuals.” The World Bank claims that since the economic crisis following the collapse of the Ben Ali regime, “nearly 18% of annual revenues” has been spent by Tunisian companies on “bureaucratic burdens and related corruption.”

The Tunisian Anti-Corruption Commission states that corruption has become “the major factor that is hindering economic growth while the country experienced losses of $830 million every year,” which unfortunately makes it like many other Arab and African countries. The interplay of benefits between the bureaucracy, which demands payment to facilitate licenses, contracts, and other business, and some in the private sector that are all too willing to play the corruption game are a drag on the economy and innovation. The article concludes that “All these factors are causing Tunisia to lose 2-4 percentage points of growth annually and spinning the economy in a vicious circle indefinitely.”

Finally, in some good news that reinforces the donor community’s commitment to reform in Tunisia, the African Development Bank this summer signed a $134.5 million second phase of a program to continue Tunisia’s modernization of its financial sector. The OBG reports that “The plan also looks to support economic growth by strengthening the resilience of the financial sector and capital markets through improved public debt management. It offers a diversified supply of financial products and employs international standards to fight illegal financing.”

One of the challenges is to increase the domestic use of banking services, which is low. By introducing electronic banking for individuals and easing access to bank loans for SMEs, there should be a significant boost in banking transactions and job creation since SMEs are about 90% of Tunisian companies, responsible for more than 55% of all private sector jobs.

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