The biggest challenge facing the Tunisian government today is kickstarting the economy.
The Arab spring was arguably as much about jobs and economic prosperity as it was about freedom. Successive governments – there have been seven in seven years – have been constrained by limited fiscal space due in part to a bloated public sector. For Slim Feriani, Minister for Industry and SMEs, there seems to be light at the end of the tunnel. He argues that prospects for the country are better than they have been since the revolution.
Feriani joined the current government a little over a year ago. He came from the private sector where he worked in the City of London for investment and private equity funds, gaining extensive experience in frontier and emerging markets. He wanted to contribute to the country and put to the test the concepts he had taught while a professor in the US and had witnessed as a global investor.
The way Feriani sees things, Tunisia is on the mend. He expects growth to improve from an anaemic 1% in 2015-6 to 1.9% in 2017 and 3% in 2018 – it was averaging 4-5% consistently prior to 2011. The government has set a goal of 5% growth by 2020. Tourism numbers are picking up and other sectors such as services, industry and agriculture are performing better. Tourism numbers this year should hit 8m, the highest numbers ever and nearly double that of 2015.
The challenge, like that for many economies on the continent, will be tackling the perennial problem of unemployment, which is averaging 15%, and as much as 20% for women. To seriously make a dent, he says, Tunisia will require growth rates north of 6%.
The growth of the past few years has been made possible because of domestic consumption, but that comes with its challenges, not least inflation. Without that, the country would have gone into recession a long time ago. But today, the emphasis is on driving job creation through investments and exports.
Fortunately, for the first time in many years, the rate of growth of exports is outpacing that of imports, which is impacting positively on the balance of payments. The former grew by 27% in the first half of the year, while imports grew by 20%. The main challenge facing the government is now on the fiscal side. Debt to GDP, currently at around 70%, is already high, leaving little room for manoeuvre.
Feriani feels that if the government can bring back oil and phosphate production to pre-2011 levels – Tunisia was once the second biggest producer of phosphates on the continent – they will provide much needed export and tax revenues.
Perhaps more significantly, the industrial sector is the one that provides the greatest opportunity. Industry, at 17% of GDP, contributes more than tourism (5%) or agriculture (10%). Feriani sees the country’s competitive advantage in mid- to high-level technical industries such as aeronautics, auto-components or pharmaceuticals. Tunisia today is the second biggest exporter of auto-components to Europe after South Africa. It is in high-end value-addition industries that Feriani believes the country has a competitive advantage. He cites the techno parks that are leading innovations across the country and working with the aeronautics industry on sophisticated solutions.
Hence a renewed focus on fostering SMEs, which Feriani believes can become the industrial giants of the future. Today, roughly 90% of industry is SMEs, he explains. And these SMEs contribute approximately two thirds of GDP. Improving their productivity and getting them back on track has been his ministry’s main focus. One of their most successful facilities has been a $170m fund to help SMEs refinance non-performing loans and kickstart their businesses.
“Out of roughly 5,500 industrial companies, all sectors included, we have targeted some 600 companies to basically give them a second chance. We are working with their own banks to reschedule their loans because the banks are not giving them a penny anymore and they often need liquidity or working capital, or they just can’t repay the banks.”
These SMEs suffered from a sudden downturn following the revolution, an external shock outside their control. This facility is now providing them with the breathing space they need to grow. The programme has been popular as it helped these companies preserve jobs and retain existing know-how.
The government is also pushing through changes in regulation to enable SMEs and entrepreneurs to crowdfund, which up to now was not permissible by law. With 90% of the economy currently financed by banks, crowdfunding may offer a new way of increasing liquidity in the business sector. He says that the number of start-ups has grown considerably and there has been growing interest by international PE firms.
New export markets
Given the importance of Europe to Tunisia – three quarters of Tunisia’s trade is with the EU – economic growth in the Mediterranean provides reasons for optimism. But Africa to the south also provides new opportunities. Tunisia joined COMESA in July and is encouraging its national champions to venture outside its borders to seek growth by setting up in different locations and become truly multi-national. Moroccan companies offer a model for successful African expansion, having expanded their services and operations to Francophone West African countries, with whom their government developed strong bilateral ties.
Is he worried that the global trade wars will hurt local industry and SMEs as countries devalue their currencies and dump goods? He doesn’t seem too perturbed. The country already has trade deals with Europe, Africa and the USA. And he’s confident that moving up the value chain will protect its industries from collateral damage.
“If you look at imports and exports; you add them up, they make up 80% of our GDP roughly as a ratio, which is a good indicator of openness of an economy. We are not shutting the doors on imports because we can’t do that. That’s irreversible.”
Yet boosting exports abroad will require a stable labour situation at home. Since the revolution, trade unions have felt more emboldened to push for better pay and conditions for their members. Strikes and other forms of direct action have increased as a result.
Feriani feels that there is now a constructive dialogue between the private sector (represented by UTICA, the voice of business) and the UGTT (the largest and most influential union in the country). Critics say that labour laws could be more flexible in a country that underwent a transformation because of the inequity between the haves and have-nots. There is certainly a new need to get the right balance between the protection of workers and unadulterated capitalism. Yet future efforts to reduce the size of the public sector, where the wage bill has increased by over 50% since 2011, could challenge the relationship between government and labour.
Calls for assistance
To radically boost the economy, Feriani says that the government will require significant financial support. Feriani makes the case for greater assistance from foreign partners, seemingly advocating a Marshall Plan for the country. If Central and Eastern Europe managed to come out from communism so successfully, he says, it is thanks to the support that they received from their western neighbours. And to a lesser extent, the countries from the south, such as Greece, Portugal, Spain and even Ireland, all received considerable assistance following the financial crisis. He does have a point: Greece received a bailout of some $350bn. He feels that Tunisia, despite promises from partners – most notably at the G7 Deauville Meeting in 2011 – has not received as much assistance as it warrants, given that it’s fighting on the front line of terrorism and immigration and dealing with the repercussions of instability in Libya.
“The international community did stand up to the fact that they like to see a democratic system applied to this part of the world and they like to see Tunisia succeed on that front. However, on the financial side of things money did not flow in, we had to borrow [from the markets]. We had to roll up our sleeves and sacrifice some of our budget to security at the expense of economic and social development and growth-led initiatives.”
Indeed, tightening security in light of terrorist threats has put more pressure on a tight budget. For decades a third of the budget went into education, he explains, a third into healthcare and a fair chunk to economic and social development. But with the chaos in Libya and a rise in local terrorist threats there was little choice but to increase spending on security.
To really kickstart the economy, Tunisia needs an injection of $10-$20bn, he argues. “I am not asking for grants for the sake of it, but if we want sizeable, meaningful, game-changing impact, $10-$20bn would transform Tunisia and push it to the next level, especially if it’s mostly in the form of investments and PPP rather than grants. This is the time when we need the biggest help. In 10 years’ time, I don’t know. But today, this is the time where we need the helping hand to come in and help you overcome whatever challenges you have because challenges remain.”
Despite the challenges, Feriani appeared to be enjoying the role. Two weeks after we met, the Ministry of Energy, Mines and Renewable Energy was added to his portfolio. He says that the pace of change in the country is quicker than people realise, helped along by the youth of a 43-year old PM and a diverse cabinet. International financial assistance, combined with the export potential of Tunisia’s industrial economy, could offer the chance of a new dawn.