Tunisia strives for rapid recovery

09 June 2011

A stimulus package to create more jobs will be Tunisia’s first step to recovery. But in the short term, plans to sell the former president’s assets could provide a vital boost to the economy

Tunisia has been at the centre of the popular protests that have spread across the Arab world since the start of 2011. The uprisings were inspired by the actions of Mohamed Bouazizi, an unemployed graduate, who set himself alight on 17 December 2010 in central Tunisia after police confiscated his vegetable cart. His death sparked days of rioting, which subsequently spread across the region. Tunisia’s president of more than 20 years, Zine el-Abidine Ben Ali was forced to flee to Saudi Arabia on 14 January.

Unemployment in Tunisia

While opposition groups have been successful in ridding Tunisia of its dictatorial regime, they have also served to discourage potential foreign investors that would have been instrumental in improving the country’s economy and creating much-needed jobs. Unemployment is one of the biggest challenges facing the country, currently estimated at around 14 per cent. Per capita income, meanwhile, is among the lowest in the region at less than $5,000 a year.

The interim government expects foreign direct investment to fall by TD1bn ($727m) this year and overall investment to decline by TD1.5bn, as a result of political uncertainty.

The upheaval has also dented Tunisia’s tourism industry, an important source of income for the country and provider of jobs. Montreal-based International Air Transport Association said that in March, both Tunisia and Egypt experienced a 10-25 per cent decline in passenger traffic. Tunisia’s tourism revenues fell 45 per cent in the first quarter. Developing the tourism sector had been a priority for the government in recent years. Plans had been drawn up to build a new airport at Enfidha and money set aside for Tunisair to upgrade its fleet.

Per capita income, meanwhile, is the lowest in the region, at less than $5,000 a year

The economic disruption came just as Tunisia was seeing a strong recovery following the global financial crisis. The country’s gross domestic product (GDP) grew by 3.7 per cent in 2010, compared with 3 per cent in 2009. The Washington-based IMF has revised down its forecast for this year, from nearly 5 per cent to 1.3 per cent. The Tunis-based African Development Bank is less bullish, predicting Tunisia’s economy will expand by 1.1 per cent in 2011.

Meanwhile, the interim government has launched a stimulus package, which aims to accelerate economic growth and address some of the issues that triggered the uprising. The package aims to create 20,000 government jobs, as well as to boost youth employment, support struggling firms and promote the establishment of small and medium enterprises. It also includes tax breaks to encourage provincial investment, launching infrastructure projects and doubling the public utility budget.

Tunisia GDP by sector, 2010
Agriculture and fishing8
GDP=Gross domestic product. Source: Ministry of Finance

The interim government, led by Caid Essebsi, is also planning to increase financial support for 185,000 families living below the poverty line. In addition, TD600 will be allocated to each Tunisian family displaced from neighbouring Libya.

Such measures will inevitably place a greater burden on state finances. The government has predicted that additional spending on food and energy subsidies will cost TD900m this year.

Tunisia derives most of its income from oil exports and tourism. The African Development Bank has forecast the country’s budget deficit to rise to 5.2 per cent in 2011, compared with 2.6 per cent last year.

Hydrocarbon reserves and production in Tunisia
Oil production (thousand barrels a day)86
Oil reserves* (billion barrels)0.6
Oil proven reserves* (share of world total)0
*At end of 2009. Source: BP Statistical Review of World Energy

The state coffers could be in for a windfall, however. With the removal of Ben Ali, the interim government is now looking to sell off assets held by the ex-president and his family. The authorities have already frozen the assets of 112 individuals linked to the former regime and suspended the trading of 123 companies. If the new government chooses to float shares of these companies on the stock market or sell them to foreign investors, it could provide a vital boost to the economy.

Tunis is also receiving financial support as it seeks to transition to democracy. The African Development Bank plans to give $400m-$500m in aid and is expected to increase this to $1bn by the end of 2011. The Arab Fund for Economic and Social Development has granted the Tunisian Motorway Company a loan of $140m for the Oued Zerga (Beja)/Bousalem (Jendouba) motorway in an effort to create more jobs and revive the economy.

Tunisia’s path to democracy

The success of the stimulus package and the future of Tunisia’s economy depend on the outcome of elections scheduled for 24 July. This will see the interim government replaced with a permanent administration. It will fall to the new leaders to find ways to create jobs and raise living standards.

US ratings agency Moody’s says that if Tunisia can make a swift and stable transition to democracy, its economy has the potential to rebound and grow at a rate of about 5 per cent a year from 2013 onwards. In the meantime, the country has many challenges ahead.

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