Tunisian economy stalls

Friday 29/01/2016
A site of phosphate production in Metlaoui, in Tunisia’s Gafsa governorate.

Barcelona - In December, four eminent Tunisians were applauded in Norway as they were pre­sented the Nobel Peace Prize for their contributions in avoiding civil war and keeping the country on the rocky road to de­mocracy.

The uprising in Tunisia, which toppled the Ben Ali regime in 2011, sparked revolts across the region. While virtually all other countries descended into bloody mayhem, Tunisia was seen as a bastion of hope.

What a difference a few weeks make. The newly appointed gov­ernment of Prime Minister Habib Essid has failed to generate any en­thusiasm that Tunisia’s economy will grow and create jobs. Accusa­tions that President Beji Caid Es­sebsi is attempting to impose his son, Hafedh, as the head of Nidaa Tounes, the party he had created in 2012, are the talk of the town even if they have been denied by the 89-year-old president. The move has split Nidaa Tounes and handed the Islamist Ennahda the position of most important party in the na­tional assembly.

Political shenanigans are one thing, economic recession another. Contrary to forecasts of the Cen­tral Bank of Tunisia and the World Bank, a number of Tunisian busi­nessmen and bankers say the econ­omy is in recession. Growth in 2016 is expected to be flat or negative and the economy is shedding jobs.

The acute youth unemployment problem has been at the core of recent violence that started in Kas­serine and spread to the rest of the country. In the crisis the govern­ment seemed at a loss as how to respond. The last three quarters of 2015 saw the economy contract or post minimal 0.1% growth, which is tantamount to stagnation.

One of the government’s most prominent critics is Ezzeddine Saidane, the former chief execu­tive officer of private sector bank ABC Tunisia. Many of his views are shared by the think-tank Cer­cle Kheireddine and those who run the Institut Arabe des Chefs d’Entreprises. If Saidane and his peers in the business community are right, and the leader of the powerful Tunisian General Labour Union (UGTT) Houcine Abassi seems to agree with them, the only question worth asking is: What ur­gent measures are needed to get the economy moving?

The first major engine of growth — consumption — is foundering. As prices of staple foods increase and jobs are shed, most Tunisians are tightening their belts. Some stud­ies suggest that as much as half of all private consumption comes from smuggled goods (the employ­ers’ federation UTICA speaks of more than half the economy be­ing “informal”), in other words not paying taxes.

Flows of petrol and sugar from Algeria and a wide variety of con­sumer goods, drugs and weapons from Libya are forcing Tunisian factories to close. These flows have created two regions in Tunisia — from the southern town of Gafsa to the Algerian border and from Tataouine to the Libyan border — where smuggling thrives and offers the only means of employment to young people.

These are traditionally poor re­gions that are now getting their own back against the coastal re­gions and Tunis where wealth and jobs have traditionally been con­centrated.

Furthermore, smugglers some­times operate as jihadi fighters, adding to a growing sense of inse­curity in a country that has been the theatre of major terrorist at­tacks.

Fighting the informal economy and devising a regional policy that has quick effect is therefore essen­tial. These factors explain why it would be unwise to use higher con­sumption as an engine of growth.

The current account continues to deteriorate and is close to 9% of gross domestic product (GDP), much higher than what is prudent. The balance of trade and services is deteriorating despite a reduction of importing capital goods. This spells a growing foreign debt and the risk of Tunisia rescheduling its foreign debt for the first time since inde­pendence in 1956. The country’s rating would suffer as would its ca­pacity to raise loans on favourable terms.

The export sector has been saved by a bumper olive crop. More than $1 billion worth of olive oil was shipped abroad in 2015 but such miracles occur once in a blue moon. Two other economic sectors — tourism and phosphates — are drags on the economy.

The first has been hard hit by terrorist attacks and, as a result, more than half Tunisia’s 570 ho­tels are closed. The knock-on effect is huge: 300 travel agencies have closed, 80% of tour guides have no work and the craft sector and res­taurant trade are bleeding. Flights from Europe have been curtailed as nearly two-thirds of European visi­tors who once could be expected to travel to Tunisia are finding other destinations.

What the sector needs is a bold policy to dispose of the billions of dinars of non-performing loans that weigh heavily on the balance sheets of STB and other Tunisian banks, tying up precious funds that could be used to help younger Tunisians set up in business.

Such loans could be “parked” in a specially created financial instrument and, as their price is discounted, could allow owners who are effectively bankrupt to sell their hotels. Many hotels were built in the 1990s and 2000s in a wave of speculation by people who had no inclination to be serious managers. They should be offered an honourable exit. The Ministry of Tourism has taken measures to ensure many hotel employees get a minimum amount of financial help but such measures are short-term palliatives.

A fundamental restructuring of the sector is needed so is con­fidence in the security measures taken since the 2015 terrorist inci­dents

Production of phosphates, a ma­jor sector, languishes at one-third of its previous level of 8.3 million tonnes a year as the social crisis in the mining region of Metlaoui shows no sign of abating and Tu­nisia loses export market share for phosphoric acid and fertilisers.

The crisis in the phosphate re­gion has deep roots and must be addressed in all its complexity. The state has an obligation to clean up industrial pollution in the region and improve labour conditions. The Compagnie des Phosphates de Gafsa and the Group Chimique Tunisien are run by civil servants who may be competent but sim­ply do not have the political and managerial nous to face up to such a challenge. Only a strong govern­ment deciding to pull the sector out of its doldrums might do the trick.

Saidane argues investment is, in the absence of consumption and exports, the lever to get the economy moving. How is this to be done when 45% of the budget is earmarked for civil service pay? The $1.4 billion Tunisia borrowed from abroad in 2015 will be used to pay the civil servants.

Investment represents approxi­mately 15% of GDP, well below the 25% that was the norm before 2011. Even at such paltry levels, the gov­ernment only manages to disburse 40% of the sums earmarked for in­vestment.

The government is failing in its duty to use public investment as the key tool of economic policy. If the state does not invest, nor will the private sector and foreign in­vestors will walk away.

People cannot live on free speech alone. They need bread. If the so­cial situation continues to dete­riorate and the government dares not tackle the difficult — but by no means impossible — challenges the economy faces head-on, a major political crisis is inevitable.

The political turmoil that has en­gulfed Nidaa Tounes, the absence of an economic policy worthy of the name — and in this respect the Islamists have nothing to contrib­ute — all spell trouble. The West will no doubt continue to pledge financial support for Tunisia and help the country in its fight against terrorism but it is up to the Tuni­sian people to sort out their prob­lems.