A paradox lies at the root of the employment challenge facing Tunisia’s new governing elite as they try to forge a strategy to create more jobs and ease the social strains that fuelled both the revolution of two years ago and the renewed protests in late 2012.

The country boasts higher rates of literacy than its neighbours Algeria and Morocco, impressive growth in secondary school enrolment, and a high level of economic integration with the wealthy markets of the EU. But it has consistently failed to generate new jobs on a scale to keep pace with the rise in population.

More job-seekers

Over the past three years, Tunisia has been hit hard by the recession in Europe - a key source of tourists and investment for the country, and a key market for its manufactured exports - and by the conflict in Libya, another major source of holidaymakers. The domestic political upheavals of 2011 put a further damper on activity.

These recent pressures have coincided with a rise in the number of young people entering the labour market. Although the national unemployment rate has remained below 20 per cent, in some areas about half the work force is out of a job; and countrywide, women and graduates fare much worse than the overall average.

The origins of the problem stretch back more than a decade, before the global economic crisis and the uprising.

Between 2000 and 2008, an average of 75,000 new jobs were created annually - yet each year saw 81,000 young people enter the labour market for the first time. By the end of 2008, Tunisia had markedly higher levels of unemployment than Morocco or Algeria, in all categories: adults, young people, women and men.

The problem became particularly acute in the interior of the country. Lacking the economic dynamism of Greater Tunis and coastal tourist resorts, inland provincial areas suffered from poor health and education provision and attracted few local investors and hardly any foreign companies. Between 2004 and 2011, unemployment averaged more than 22.6 per cent in the regions of Jendouba, Le Kef, Kasserine and Gafsa.

Tunisia boasted francophone North Africa’s highest levels of access to education, with 97.7 per cent of primary-age children at school in 2008, a 91.8 per cent attendance among those in secondary school, and 33.7 per cent of young adults in tertiary education.

But the mismatch between the qualifications and expectations of better educated young Tunisians and the jobs available to them widened, fuelling a surge in graduate unemployment.

In 2005, joblessness among graduates in Tunisia was 15 per cent - just two points above the national average. But while the overall rate remained at 12-13 per cent over the subsequent five years, graduate unemployment rose to 23 per cent. Unemployment was a significant factor behind the discontent that brought down the Ben Ali regime. However, the labour crisis has actually deepened since the revolution. In May 2010, unemployment stood at 13 per cent - broadly in line with levels seen over the previous five years, according to Tunisia’s National Institute of Statistics (NIS). A year later, it had soared to 18.3 per cent, as post-revolutionary tensions scared off tourists and dampened business confidence, and it nudged up to 18.9 per cent by November 2011.

There has been some improvement since then, with unemployment slipping back to about 17 per cent of the workforce, according to recent NIS data. But the scale of the job-

creation challenge facing Tunisia is most clearly shown in the bald jobless numbers: 491,800 in late 2010 under the Ben Ali regime, but 691,700 in June 2012.

Lingering frustrations

Tunisia’s new leaders are starting to feel the heat of public frustration. During the final weeks of 2012, while politicians in the constituent assembly continued to haggle over the shape of future governance structures, a string of provincial towns was shaken by protests over unemployment and the cost of living.

But public anger should have come as no surprise. In two of Tunisia’s seven regions unemployment tops 25 per cent, says the NIS, and in Tataouine in the southeast, more than half the workforce is out of work.

A recent local recruitment round in the Gafsa phosphate mining belt attracted almost 20 applicants for every post. Across Tunisia, graduate unemployment further deteriorated after the revolution, reaching 34.2 per cent in February 2012.

“The slow pace of change is holding back progress on vital reforms that would boost financial stability”

When headline totals are broken down, it becomes clear that the problem affects certain graduates far worse than others. Those emerging from universities in the Tunis conurbation - Al-Manar and Carthage - are better placed to find work, but close to half the graduates of provincial institutions are without jobs. NIS data shows a 40.2 per cent unemployment rate for Tunisia’s female graduates in May 2012, compared with 15.8 per cent for men.

Both the first post-revolutionary administration and the current transitional government, led by the Islamist Ennahda party, have provided employer medical cover for graduates registered as actively seeking work. But last August, apparently on cost grounds, the government scrapped a TD200 ($128.2) monthly grant for graduate job-seekers, which was introduced in 2011.

Emergency public sector job creation programmes helped to reduce the jobless graduate total from 223,700 in November 2011 to 175,000 by May 2012. However, such measures are not a sustainable answer to Tunisia’s fundamental challenge of job creation and economic competitiveness.

Slow progress

Although the country’s political transition has been far smoother than that of Egypt, the slow pace of change is holding back progress on vital reforms that would boost competitiveness and financial stability, and create a more favourable climate for business and job creation.

Morocco’s King Mohammed VI responded to the Arab protests by instigating rapid, top-down political reform in 2011, which opened the door to the election of a new government with a popular mandate and the democratic legitimacy to embark on painful but necessary reforms such as the reduction of fuel subsidies.

In Tunisia, state finances are also burdened by the cost of fuel subvention. But the current Ennahda-led government was elected only for a transitional period and primarily to carry out a narrow political task, leading the constituent assembly in the drafting of a new constitution.

This task is taking longer than originally planned. Tunisia should eventually be equipped with a constitution that has real moral authority, having been hammered out over months of debate and negotiation between the various parties in the new democratic system. But in the meantime, the transitional administration lacks the political clout to take difficult policy decisions, especially since Ennahda and its coalition partners are reluctant to upset Tunisian voters in the run-up to elections to the new legislature, expected later this year.

Although the budget deficit has been high, the government has been reluctant to risk cutbacks that would anger the public. Its main focus currently is maintaining political stability.

“Longer transition periods are not conducive to macroeconomic reforms and could fuel unrest”

Fitch Ratings

The immediate financial pressures are being cushioned by support Western governments and multilateral institutions have been providing to Tunisia in the wake of its democratic revolution. Germany is cancelling debt, while the US treasury has provided borrowing guarantees, enabling the country to raise funds cheaply on international markets; Japan has also offered guarantees.

But while foreign assistance allows Tunisia to keep muddling through, this aid cannot compensate for the lack of fundamental reform and a coherent economic growth strategy. Long-term clarity on such key policy issues is needed if Tunisia is to revive investor confidence and stimulate growth in jobs. But the policy outlook remains unclear for now.

For example, last summer, Mustafa Kamel Nabli was forced to quit as governor of the country’s central bank after a dispute over whether the bank should focus on curbing inflation or adjust its monetary stance to encourage employment and reduce poverty.

In December, Fitch Ratings downgraded Tunisia from BBB- to BB+ with a negative outlook, saying that “longer transition periods and election campaigns are not conducive to macroeconomic reforms and could fuel social unrest”.

In the long term, there are reasons to hope for a resurgence in growth and employment. Some 73 per cent of Tunisian exports go to the EU, so a gradual recovery in European consumer spending should help, and the country has already achieved a marked increase in exports to sub-Saharan Africa.

Legacy issues

Over the past decade, liberalisation of global textiles trade has hurt Tunisia’s competitiveness and dented its market share in a sector that still accounts for about a quarter of all exports. But this trend has been offset by strong competitiveness and steady growth in exports of electrical goods and IT equipment.

Moreover, under the former regime, business diversification and competition was held back by the manipulation of financial and business interests to benefit regime associates.

Tunisia has enjoyed a close level of integration with the EU, but its economy has not been able to take full advantage of this, because of the stifling effect of the Ben Ali regime’s vested interests.

The democratisation and transparency reforms over coming years should stimulate investment, innovation and, thus, job creation in the country. The challenge for policymakers will be to ensure this new activity does not become concentrated solely in Tunis and the main coastal resort areas, and to devise incentives that tempt investors into the poorer inland provincial areas.

However, this is the sort of long-term strategy that can best be tackled by a new government, elected on a democratic mandate for a full term of office.