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Tunisia: A new dawn for the economy?

Tunisia: A new dawn for the economy?

Tunisia is perhaps the only country to have thus far significantly benefitted from the Arab Spring. The autocratic government of President Zine El Abidine Ben Ali has been removed, moderate Islamists have been brought into the political system and democratic elections were held at the end of 2014.

The economic benefits have yet to materialise but the government hopes that its Tunisia 2020 strategy will boost growth and ensure that the economic benefits of the revolution begin to emerge. Under Tunisia 2020, the government hopes to attract $60bn in additional investment over the period 2016-20, with this to be divided 60:40 by the private and public sectors.

Tunis hopes that higher growth and taxation levels will enable it to cover its share of that investment. Tunis aims to promote human development, renewable energy and building ties with a wider range of trading partners in order to reduce its dependence on tourism and low cost manufacturing by diversifying the economy.

The country has previously based its economic strategy on attracting investment from manufacturers wanting to target the European Union. As a result, it has competed with many Eastern European states for investment but most of those countries are now EU member states and so better placed than their North African competitors.

It has also relied on the tourist sector to generate employment. However, tourism’s contribution to GDP has fallen from 7% in 2010 to an expected 3.5% in 2016. This is partly the result of public perceptions, which in turn have largely been driven by the deaths of more than 70 people in four major terrorist attacks in 2015 and 2016.

Economic growth has averaged just 1.5% a year since the revolution because of uncertainty, economic weakness in the EU, lower visitor numbers and the lack of employment for Tunisians in neighbouring Libya.

Probably the biggest step in the new economic strategy to date has been the Tunisia 2020 conference, which was held at the end of November and which attracted more than $8.2bn in funding and $6.5bn in agreed investment. The former includes €2.6bn in loans from the European Investment Bank, €3bn in loans from the French government spread over four years, $1.5bn from the Arab Fund for Economic and Social development and $1.25bn from the Qatari government.

Balancing the budget

This money is intended for capital investment rather than plugging gaps in government finances. Speaking at the end of the conference, Tunisia’s Prime Minister Youssef Chahed said: “Tunisians had to make sacrifices, but these are now bearing fruit.” Tunisia’s President Beji Caid Essebsi said: “Tunisia has been passing through a very particular phase and requires a level of support that it would not normally need.”

In return for support from the IMF and others, the government will try to reduce its deficit this year by cutting expenditure and boosting taxation, although it still expects a deficit of 5.4% of GDP for 2017. However, such measures have the potential to affect industrial relations and social stability, as the government aims to freeze the wages of public employees.

Economic opportunities 

The 2011 revolution was in large part driven by the lack of economic opportunities open to young people, so Tunis and many of its key donors are determined to boost the economy in order to make sure that such pressures do not boil over again. Chahed toured the country in December and January to promote a new $250m microcredit programme for young entrepreneurs. A third of unemployed people have a degree.

Despite the success achieved in stabilising the political situation, there has been limited economic reform since the 2011 revolution. Mohamed El Kettani, the chairman of Moroccan bank Attijariwafa, said: “Tunisia has successfully completed its democratic transition; it must now succeed in its economic transition.” However, new investment legislation passed in September made it easier for foreign investors to expatriate profits; reduced the tax burden on profits; and cut – or at least aimed to cut – red tape.

Neil Ford

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