What economic recovery in Tunisia requires

Friday 09/10/2015

While Tunisians can feel proud that they have had a rather bloodless uprising in 2010 that has led to a democratic transition, many of the country’s socio-economic ills that had triggered the popular revolt have not been addressed and have only become more apparent in the country’s free media environ­ment. And while numerous countries have been helping Tunisia and continue to offer more help, the question now being asked of Tunisian authori­ties requesting additional funding is, “Let’s see your plan?”

A veteran Tunisian diplomat bemoans that “people do not want to make decisions that may be economically painful to part of the population, so they simply avoid making such decisions”.

Ever since the 2010 uprising, successive governments have yielded to social demands by acquiescing to higher salaries and more recruitment of employees in public service under trade union and street pressures. Terrorist incidents rendered the business environment even more difficult.

“It has been a less painful deci­sion for politicians to carry on big spending policies to keep people happy,” notes an American con­sultant who has lived many years in Tunisia. Rather, Tunisian politi­cians have been trying to “buy people’s happiness by spending money hiring friends and relatives for already bloated ministries and keeping subsidies which the coun­try can ill afford”.

Tunisian authorities are well aware of studies done by organi­sations such as the World Bank and the International Monetary Fund that clearly point out the country’s problems as well as the steps to remedy them. However, implementing decisive plans that address factors which inhibit eco­nomic growth, such as the bloated bureaucracy and its excessive red tape, does not seem a prior­ity. Queries as to when such plans will be implemented are usually answered with: “We are studying them.”

Tunisia’s social pressures, added to domestic and regional security threats, have constituted extraor­dinary challenges since 2011. Even before that, Tunisia was plagued by an inertia problem. Refusal to introduce necessary reforms led to economic stagnation and eventu­ally to social implosion.

Contrast Tunisia with countries that have truly shown foreign investors that the welcome mat is out and that they are “business friendly”. The United Arab Emir­ates, Singapore, Malaysia, Poland, the Czech Republic and Turkey are a few of the countries that have cut the red tape required to start a business. All have made the process of converting profits into exportable currency and changing banking regulations to provide the opportunity for businesses to take advantage of e-commerce. And all accomplished these goals in a few years.

In the 1990s and early 2000s, Tunis used to boast about the op­portunities available to tech busi­nesses in Tunisia taking advantage of the country’s multilingual and relatively well-educated popula­tion. Many in the tech industry did start using Tunisia but not for development. Rather, Tunisia became the low-cost, low-value as­sembler for European companies. There was little “value added”, although value-added jobs were what the country needed to pro­vide for the tens of thousands of unemployed college graduates.

“The problem for a Tunisian who has the tech knowledge, who per­haps studied abroad and returns to Tunisia to be a contributor is they find that funding sources for tech start-ups are nearly non-existent,” notes Ahmed Fessi, a Tunisian executive who is based in France but frequently returns to Tunisia and to Algeria for projects.

Unless someone has family money, there are essentially no funding sources for the creation of new products in Tunisia.

“Tunisian banks and venture capitalists still do not understand the tech world. Here in Tunisia, banks do not understand funding a concept. Give them a box with content, note what it is on the invoice and who it is being shipped to and what the person will pay… this they understand how to fund,” Fessi says.

One sector of Tunisia’s economy that has done well for certain businesses is imports and exports. Trade, however, has always been overdependent on Europe. As the economy in Europe slumped, so did Tunisia’s.

The real reason some of the import/export businesses flour­ished before 2011 was cronyism that allowed for exclusive licences for imports and distribution-retail of goods in the domestic markets, as noted in 2014 by a World Bank study.

Politically sanctioned crony­ism encouraged the emergence of a more nefarious phenomenon: the informal economy, which constitutes more than 50% of all economic activity in the country. Cross-border trafficking in all kinds of goods deprives the state of tax revenues and finances illicit activi­ties. It threatens the formal econo­my and discourages international businesses. For years, Tunisian authorities promised to make nec­essary changes for the economy to grow. Today, the country faces ad­ditional challenges that are making the economic recovery a struggle. But the basics the decision-makers need to tackle are still there.

Tunisia’s political leaders must recognise that decisiveness, rather than continued delays of needed reform, are a benefit of democracy. What the people want more than anything from its new democracy is the economic opportunities that can ensue when both foreign and domestic business thrive.