The government of President Béji Caïd Essebsi is working with the IMF and investors to turn around the economy within the next three years.
Tunisia’s government considers the country’s post-2011 political transition a big success, but the economy has been sputtering. The ratings agency Fitch downgraded the country’s credit rating in late January, at a time when the government was in the market to raise $2.8bn in order to meet its national budget deficit. Fitch cited government uncertainty, a weak tourism sector and a lack of investment as causes for concern.
These issues and several others have long been on the agenda of President Béji Caïd Essebsi and his government, led by prime minister Youssef Chahed. To address some of the economic problems that contributed to the revolution and the downfall of the regime of President Zine el-Abidine Ben Ali – like unemployment and regional disparities in growth – Essebsi’s government organised the Tunisia 2020 forum on 29-30 November 2016.
Mohamed El Kettani, the chief executive of Morocco’s -Attijariwafa Bank, outlined the stakes at the Tunisia 2020 conference: “Tunisia pulled off its democratic transition; it must now succeed in its economic transition.”
Hachemi Alaya, an economist and founder of the Tema think-tank, spoke to The Africa Report at his office in the quiet coastal town of Carthage. He says the role of the government is a major challenge: “Like in Egypt, the Tunisian economy is controlled by the state, and this is what has caused problems in our countries.”
A lesson from Egypt
Over the two days of the Tunisia 2020 conference, the government in Tunisia received financing pledges of D34bn ($14.9bn), which included signed investments and aid promises. However, it will take a huge political will to turn the conference agreements into meaningful changes in people’s lives.
Egypt offers a key point of comparison for Tunisia. While Egypt faces magnified versions of Tunisia’s economic ailments, its political sphere has been weakened since 2011. A similar conference organised in 2014 in Sharm El-Sheikh was meant to lure billions of dollars of investments into major projects. Despite garnering a sizable number of agreements and pledges during the event, the fanfare has borne little results.
The International Monetary Fund (IMF) estimated that the Tunisian economy had grown by just 1.5% in 2016, not enough to make a major impact on unemployment and poverty levels. Alaya says that the economic crisis has grown more complicated due to political power struggles that impede the implementation of broad reforms. “One of the advantages of the revolution […] is that it birthed a new political class. Unfortunately, it is not competent enough, it is weak and has no awareness of the economic problems,” he argues.
Tunisia has a government that includes several parties, but infighting has limited its ability to pass reforms due to the parties’ divergent opinions.
Labour unions continue to play an important political role. The Nobel Prize-winning Union Générale Tunisienne du Travail has more than half a million members, giving it more power and credibility than any party. It also enjoys a stronger presence on the street.
Resistance to austerity
When the government passed a new budget late last year and decided to temporarily freeze public sector wage increases in a bid to ease the deficit, the union retaliated by threatening a general strike that was planned just a week after Tunisia 2020. The threat worked well to scare off the politicians.
One area where the government has been slow is in creating new mechanisms to raise finance. For years it has shown interest in rolling out more sharia-compliant financial instruments to attract more money from the Gulf and other parts of the world. A sukuk – an Islamic bond – worth $500m has been under discussion since 2015, and finance minister Lamia Zribi says she is confident that it will finally happen this year.
Working with the IMF on a $2.9bn programme that was approved last year has helped to crystallise the government’s focus. It rushed through a new banking law in July of last year and issued a new investment code in September.
One of the biggest recent economic challenges has been the harsh blow dealt to the vital tourism sector after the terror attacks of 2015. Tourism arrivals were down 38% in the first quarter of 2016.
Drawing on its need to diversify the economy, at Tunisia 2020 the government presented a list of potential infrastructure projects for roads, airports, water plants and renewable energy. Panelists discussed tourism as well as investing in the green economy, aviation, textiles and automotives in order to capitalise on the country’s competitive labour, energy and transportation costs as well as its pool of engineers.
Arif Naqvi, Group Chief Executive of private equity investor Abraaj Group, said his firm’s interest in Tunisia is driven by the government prioritising the private sector’s role. At the forum, he announced plans to invest in pharmaceuticals and agribusiness. “When you deploy capital, you cannot do so without accepting some measure of risk, and in Tunisia, the level of risk has minimised due to economic reforms,” he said.
The Africa Report