Informal economy presents Tunisia with thorny issue
Tunis - As Tunisian Prime Minister Youssef Chahed continues his war on corruption, renewed attention is being paid to the parallel economy, which officials estimated costs the country $2 billion per year.
“This phenomenon has become very serious,” said former trade minister Mohsen Hassan during a party forum in June. “If we look at the share of small enterprises in the parallel economy, the losses of the state from only the value added tax are equivalent to 3 billion dinars ($1.2 billion).”
“Parallel economy” refers to economic activity outside the bounds of law. This includes unlicensed business ventures and the trade in illicit — often smuggled — goods.
In Tunisia, such activities make up a significant — and growing — part of the economy. From 2011-15 the number of people employed in the informal sector jumped from 28% to more than 32%, topping 1 million workers in 2015, a study by the Research and Social Studies Centre (CRES) and the African Development Bank (AfDB) stated. In 2013, the parallel economy accounted for as much as 38% of Tunisia’s GDP.
The effects of such activity are twofold: It drives economic activity from the formal sector and takes a significant toll on the state purse, Tunisian economist Chokri Jlassi noted.
“The parallel economy in Tunisia is structured around three axes: informal trade, tax fraud and unlicensed work,” Jlassi said. “All of this deprives the state coffers of important tax revenue,” including “income tax on corporations (tax evasion), tax receipts on wages (informal employment), VAT receipts (goods without invoices), customs revenue (smuggling and fraud), consumption rights (tobacco and oil products).”
Beyond the financial effects, the parallel economy puts workers and employers in precarious situations, experts noted.
In a 2014 study, Tunisian economist Karim Trabelsi said informal economy workers often lack standard legal protection and medical care while facing high levels of risk at the workplace, particularly in agricultural and construction. Despite the risks, workers reported a relatively high rate of satisfaction with their income and often resisted moving to the formal sector, where job security is much better. Red tape is another impediment to the integration of informal activities in the formal economy.
Smuggling is a large component of the informal economy (27.5% of informal economy workers rely on smuggled goods) and serves as a major source of profit for barons operating on the Libyan and Algerian borders.
The surge in smuggling and other black-market activities “is mainly due to the large difference between prices of some commodities in Tunisia, Algeria and Libya,” Trabelsi said. “This is particularly true for fuel, as smuggled diesel represents 20% of fuel used by the national economy, according to the Tunisian Oil Activities Company (ETAP).”
Significant government subsidies on petroleum in Libya and gasoline in Algeria, which put the cost of fuel far below the market value in Tunisia, drive demand. In Algeria, fuel is sold for $0.32 per litre, less than half the price in neighbouring Tunisia.
Exacerbating the problem are Tunisia’s high import taxes, ill-adapted regulations and corrupt customs officials, which deter businessmen from complying with official trade and currency exchange laws. This contributes to the extremely low level of formal trade between countries in the Maghreb. In 2013, intra- Maghreb trade made up only 4.5% of the countries’ export volume and 6.6% of import volume, a study by the Centre for Transportation Studies for the Western Mediterranean (CETMO) stated.
Garments, tech products, plastic goods and other commodities produced cheaply overseas — often in East Asian sweatshops — make their way to street vendors in Tunisia through Libya or Algeria.
“Almost 30% of the goods traded in (Tunisia’s) domestic market… are imported illegally,” Jlassi said, with lower-income citizens being particularly drawn to untaxed products such as tobacco, gasoline, clothes and appliances.
Not only does this strip the government of significant tax revenue, it creates unfair competition for local businesses and provides further incentive for workers to move to the informal sector.
The smuggling business is especially rampant in Tunisia’s southern border town of Ben Guerdane, where an estimated 20% of the population works in the trade. Everything from oil to electronics to hard currency to video games can be bought and sold there, with the profits navigating a vast web of global business dealings. There is also suspicion of drugs and weapons smuggling, though that type of trafficking is less conspicuous because of the increased vigilance of security forces.
Some of the gatekeepers of this industry, long viewed as invulnerable in Tunisian society, may finally face justice in court, however.
On May 23, Tunisian businessman Chafik Jarraya was arrested not just for suspicion of trafficking, but on charges of high treason and suspicion of intelligence links with a neighbouring country. Jarraya, who was a “subcontractor” for the in-laws of former Tunisian President Zine el-Abidine Ben Ali, is suspected of managing a smuggling network between Tunisia and Libya, maintaining ties with radical Islamists in Libya and influencing social unrest in the south of the country.
Nearly a dozen other business officials have been detained or arrested on suspicion of corruption and smuggling in recent months and Chahed has pledged more are to come.
“We are persuaded there is a link between smuggling, terrorism financing, cross-border activities and capital flight…,” Chahed said. “Our aim is to dissect the systems of trafficking, to break the smuggling networks and to reveal the financing and sites of this phenomenon.”
Lasting reform will likely require an upturn in employment opportunities. The latest figures indicate that Tunisia’s unemployment rate is at a high 15.3%, with rural and youth unemployment significantly higher.
“The government can do a lot (to crack down on the parallel economy),” Jlassi said, “but it must develop a well-defined strategy with quantified priorities and targets.
“Concerning informal employment, there must be a strategy and serious discussions with the employers’ union to combat illegal work and severely punish companies that resort to it. On the other hand, it is necessary to carry out a public awareness campaign to convince workers of the importance of employment contracts and what they offer in terms of legal and social protection.”