Political instability, informal sector and access to finance are holding back private sector development in Tunisia (Report)

Political instability, the informal sector and access to finance are the main obstacles hindering the development of the private sector in Tunisia, according to a report by the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and the World Bank Group (WB), presented by on Thursday in Tunis by EIB Head of Division Pedro De Lima.
The report, which examines the reasons “holding back the private sector in the MENA region”, is drawn from a survey covering more than 6,000 private sector enterprises in the secondary and tertiary sectors in 8 middle-income economies in
the Middle East and North Africa: Tunisia, Djibouti, Egypt, Jordan, Lebanon, Morocco, Jordan, Gaza and Yemen.
The survey includes data on the experiences of firms in various dimensions of their economic environment. It assesses the access of these companies to financing and their perception of corruption, infrastructure, crime and competition.
According to Pedro De Lima, the survey also gives an idea of the characteristics of enterprises, the cost of labour and other factors of production, the composition of the workforce and the participation of women in the labour market, trade, innovation and management practices.
In Tunisia, private sector held back by political instability and informal activity
For Tunisia, political instability is considered by Tunisian companies the main obstacle to the business climate. Indeed, “60% of these companies covered by the survey saw their sales decline dramatically, i.e. by 9% during the period 2009-2012,” the report said.
The informal sector is considered to be the second major hurdle in Tunisia, where 45% of firms report that they compete with unregistered or informal firms.
As regards access to finance, it ranks third in the list of barriers, although Tunisian businesses depend more on external financing than firms in any other economy surveyed, their working capital and their investments are funded only to the tune of 59% of internal resources.
“Tunisian companies have a lower degree of financial disconnection, but the high level of guarantee required for loans impedes access to finance,” the report said.
High capital intensity of Tunisian companies
The report also points out that Tunisian manufacturing firms stand out as having the highest capital intensity in the MENA region. This is explained by the existence of energy subsidies, which have a distorting effect on production structures by favoring energy-intensive and capital-intensive industries.
The study also reveals that Tunisia has the largest proportion of firms conducting two-way trade (i.e. both importing and exporting).
“This situation may be partly explained by the importance of the offshore sector in Tunisia, which includes fully export-oriented enterprises benefiting from tax exemptions, duty-free access to products and  equipment and lighter customs procedures, “explained the EIB Head of Division.
In addition, Pedro De Lima (EIB) said governments in the MENA region are interested in putting strategies to increase business productivity and reassigning resources to the most productive of them.
It is also essential, according to the same survey, to aim for greater political stability to achieve a better business climate and boost the banking sector of the MENA region. The latter “relatively developed”, has distanced many companies from formal channels of financing.
Speaking at the conference, the academic, Mongi Boughzala, considered that the role of the state is crucial to improve productivity in the private sector, likely to provide jobs to young higher education graduates.
 To this end, he suggested setting up a three-year programme that would ensure the State’s contribution to youth employment.
For his part, former Finance Minister Elyes Fakhfakh stressed that “to support the growth of the Tunisian economy, it is necessary to solve the structural problems of the middle class and revise the wage policy.”
“Corruption is essentially linked to wage cuts and people are sometimes forced to opt for the informal sector to offset the high costs of living,” he said, criticising the choice of further encouraging, through incentives, large companies to the detriment of small and medium-sized enterprises (SMEs).

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