Libya’s crisis continues to affect Tunisian economy

October 08, 2017

Since the death of Libyan leader Muammar Qaddafi and the collapse of his 42-year regime in 2011, Libya’s neighbours have been troubled by spillover effects from its instability.
Italy has seen an increasing flow of African immigrants stream into the country; Algeria experienced a devastating attack on its In Amenas gas field four years ago, Mali saw its country driven to near collapse after hundreds of former pro-Qaddafi Tuareg fighters returned home and Tunisia, struggling to rebound from an economic downturn, has seen extremists threaten to cross the border and wreak havoc.
In the absence of well-docu­mented analysis and statistics, a wide range of figures on the number of Libyans living in Tunisia and their effect on the host country’s economy have been thrown around. However, thanks to a thorough study by the World Bank, titled “Tunisia — Impact of the Libya Crisis on the Tunisian Economy,” released in February, the situation can be assessed with greater clarity.
Before addressing these ques­tions, it is worth painting a broad picture of the human and eco­nomic toll the crisis has taken on Libya. The World Food Programme estimates the number of Libyans in need of humanitarian assistance and protection at 2.4 million — 40% of the population — more than half of whom are women and children. Half of those people are at risk of food insecurity. The report does not consider the plight of the hundreds of thousands of African refugees who survive in far worse conditions than the Liby­ans.
The crisis’s effect on the economy has been severe. The country’s GDP contracted 24% in 2013, followed by 24% and 10% in the two following years. Produc­tion of crude oil fell to the lowest level on record in 2015 — approxi­mately 400,000 barrels today — one-quarter of potential output. This resulted in per person income dropping by two-thirds to $4,500. The fiscal deficit skyrocketed from 4% of GDP in 2013 to 75% in 2015.
The first question to consider is how many Libyans sought residence in Tunisia after 2011. It does not come as a surprise to learn that, in 2014, 1.8 million Libyans entered Tunisia and 1.4 million exited. This suggests the number of long-term and short-term (less than six months) Libyan residents and visitors is larger than the census estimate of 12,783 individuals, 7,212 of whom were long-term residents.
Most of them hail from the middle class, have lived in Tunisia for more than three years and enjoy significant purchasing power — $50 a day — which is two to three times higher than the average Tunisian household.
It is worth noting that more than half of short-term residents are in the country for medical care. Their sharp decline recently has resulted in a major cash crisis for private clinics in Tunis.
The report estimates that 60,000 of the 91,000 Tunisian workers officially registered in Libya returned home from 2010-14. Official remittance inflows declined by 32% to $15.6 million in 2014 compared to four years before.
The poorer southern region of Tunisia has been hardest hit, which explains the huge rise in contraband and illicit trade across the border. Family links between southern Tunisia and north-west­ern Libya are long-standing. Southern Tunisia, which holds most of the country’s oil, gas and phosphate reserves, feels aggrieved as it has received less attention than the richer coastal areas since independence. The fracture between a relatively prosperous coastal area and a land of “siba” — dissidence — remains as great as it was when former President Zine el-Abidine Ben Ali fell in January 2011.
The World Bank report consid­ered the level and dynamics of illicit informal trade and cash flows between the two countries. Libyan funds amounted to 12% of total deposits in seven Tunisian banks the report surveyed. They are funded by wages, including payroll transfers from the Central Bank of Libya.
Informal currency exchange agents processed an estimated $332 million in 2015, a figure three times lower than in 2013 due to the sharp depreciation of the Libyan currency, the decline in the number of Libyans entering Tunisia and deterioration of the country’s economic and security situation.
Informal trade between the two countries in 2015 was estimated at $243.8 million, driven by a large increase in fuel imports — $121.3 million compared to $27.3 million two years earlier. Cigarettes were next on the list.
The value of Tunisian subsidised goods, such as pasta, couscous, sugar and milk, exported illegally to Libya and seized by Tunisian customs doubled from 2013-15, reaching $449 million.
Tunisia has increased defence and security spending sharply because of the turmoil in Libya. From 2011-15 such expenditures almost doubled to $1.9 billon.
In broader terms, the report estimates the effects of the Libyan crisis as follows:
It contributed 24% to the overall drop in Tunisia’s growth from 2011-15.
This has amounted to a welfare loss of $3.59 billion. This loss was driven by the spillover effect on private investment and tourism, which account, respectively, for 60.1% and 36% of the slowdown in growth. One can add the reduction in remittances from Libya and the reduced purchasing power of Libyans in Tunisia. The fiscal cost to Tunisia has been $580 million over the 2011-15 period. This amounted to 6.3% of the tax take every year.
To cover such losses through taxation would require large tax increases while financing it with debt would increase the govern­ment’s financing needs by $2.9 billion over five years (15% of the 2015 public debt-to-GDP ratio). This amount includes $111.9 million in additional interest payments and $375.8 million in more debt amortisation costs.
The report concluded that Tunisia would be well advised to “forthwith address the regulatory and infrastructure obstacles to trade and investment in Libya.” This would allow Tunisia to make full use of “the many comparative advantages in its trade with Libya, including a shared language and proximity.”
The reconstruction and recov­ery of Libya must not be allowed to fuel “the already large informal cross-border markets (and the security and economic challenges associated with illicit trade),” the report stated. Such a policy would have the further advantage of promoting economic develop­ment in the poorer regions of the country.
Needless to say, the West — not least France and the United Kingdom, which, with the United States, spearheaded the operation to rid Libya of Qaddafi despite having no UN mandate to do so — might wish to support such a policy.
Instead of constantly moaning about terrorism and illegal immigration from Libya, they could do worse than to revisit their reckless policy of 2011, continue supporting Tunisia and its nascent democracy and vigorously look at the region as a whole.
If it comes, Libya’s reconstruc­tion — and the manner it takes — would dictate how stable the region is in the decades ahead. Weapons are not the key, even if the aforementioned countries are addicted to selling them to the Arab world. Good economic planning, clear rules of trade and investment, particularly in poorer regions, will act as a solid anchor of stability.