Tunisia - Economy
Three Islamist militant attacks in 2015 – including gun attacks on foreign visitors at a museum and a beach resort – have badly damaged the tourism industry, which makes up around eight percent of the economy and is a major source of jobs.
Real GDP growth averaged 0.8 percent (y-o-y) in 2015, with record agriculture production offsetting declines in mining, energy, and tourism activities (arrivals and FX receipts declined by 25 percent and 54 percent (y-o-y), respectively). A revision in the GDP series led to a significant reduction in historical nominal GDP levels and a shift towards higher contributions from investment and exports. Despite having declined from 19 percent in 2011, unemployment remains high at 15 percent, particularly for youth (35 percent), young graduates (67 percent), and women (23 percent).
Tunisia preserved macroeconomic stability during a very difficult time—prolonged political transition, increased social tensions including strikes and work stoppages, and security tensions arising from conflicts with Salafists and the tragic terror attacks of 2015 that devastated the tourism industry. Amid this challenging landscape, by mid-2016 the authorities were able to implement an ambitious reform agenda aimed at supporting private sector development, tackling high unemployment, and reducing regional disparities. Despite significant progress, Tunisia still faced many economic challenges — spending composition worsened, external imbalances are high, the dinar remains overvalued, banking fragilities remain, and reforms to strengthen the business climate had been slow.
Tunisia had a high overall unemployment rate of 15 percent, and youth unemployment of 35 percent. Changing the long-standing development model — which is based on pervasive state intervention that led to an economy dependent on low-value added exports, excessive regulation, and limited competition — requires moving quickly with the new investment code and implementing the new competition law.
The authorities formulated in 2015 their five-year economic vision 2016–20, which is being developed into a detailed plan. The authorities’ vision aims at promoting stronger and more inclusive growth by transforming Tunisia’s growth model through a strategy predicated on macroeconomic stability and including five pillars: effective public institutions; economic diversification; human development and social inclusion; regional development; and green economic growth.
Reforming the civil service is the number one priority listed by all the key stakeholders, and not surprisingly is at the top of the authorities’ list in their economic vision. All stakeholders recognize both weaknesses in the quality of public services and the unsustainability of the current wage bill path, which represent 65 percent of tax revenue, 14 percent of GDP, and 45 percent of total spending. Civil service reform should go hand in hand with tax reform that improves fairness by widening the base and increasing the purchasing power for the lowest income taxpayer (e.g., by raising the income tax threshold).
By 2014 the unemployment rate in Tunisia was 16 or 17 percent, which is quite high and comparable to levels before the Tunisian uprisings. And youth unemployment is over 30-35 percent.High youth unemployment and regional disparities represent key challenges for more inclusive growth. Tunisia faces a challenging economic environment, with timid growth, and rising external imbalances that have continued to put pressure on the exchange rate and reserves. Prudent fiscal policy, a tight monetary policy and greater exchange rate flexibility will help reduce higher external and fiscal deficits and anchor inflationary expectations.
Growth is expected to reach 2.4 percent in 2014, driven by some acceleration in manufacturing and services activity. Growth projections for 2015 have been revised down to 3 percent to reflect weaker-than-expected external demand and remaining investor uncertainty. Weaker oil and gas production slowed growth to 2 percent (y-o-y) in the second quarter of 2014, while inflation remained contained at about 5.6 percent (y-o-y) at end-September. Despite a 10 percent depreciation of the exchange rate since mid-March, the current account deficit continues to widen mostly because of higher energy and food imports.
The economic system that was developed by the newly independent Tunisia was neither liberal nor Marxist. Though it was labeled as socialist by the new leaders, it was not really Marxist and was not propelled by ideological considerations. What emerged in post-colonial Tunisia was an economic system dominated by the state. It became the country's major entrepreneur, employer, and provider. The state used its prerogative of making legally binding decisions to discriminate against the few competing entrepreneurs. The antecedents and contributing factors to this situation are comparable to those in most LDCs: scarcity of private investment capital, little accumulation of wealth, absence of an industrial base, and low technological levels. Moreover, most production and assets were tied up in traditional agriculture.
The state found itself in the position of having to counteract almost all of these adverse factors to achieve adequate economic growth. As in other LDCs, the state was seen as the only force capable of raising funds for investment capital through taxation, customs, and foreign loans. Also, unlike Tunisia's private entrepreneurs, the state was not adverse to risk taking.
These factors contributed to the Tunisian population becoming increasingly economically dependent on the national government. It expected the state to take economic initiatives, both in providing basic needs and services and in taking a leading role in building the economy.
The transition to limited political pluralism and an open market system inthe 1980s was preceded in the early 1970s by the lifting of some discriminatory restrictions against private entrepreneurs. Active encouragement of private businessmen resuscitated private enterprise and improved export performance. However, the private sector continued to be limited by the state's domination of the industrial and services sectors.
Tunisia's economy has emerged from rigid state control and is now partially liberalized. Beginning in the mid-1980s, Tunisia's prudent economic policies, coupled with World Bank and International Monetary Fund (IMF) support, have resulted in stable growth with healthy exports, a strong tourism sector, and favorable climatic conditions for agricultural production.
Economically and commercially, Tunisia is very closely linked to Europe. Tunisia signed an Association Agreement with the European Union (EU), which went into effect on January 1, 2008. The agreement eliminates customs tariffs and other trade barriers on manufactured goods, and provides for the establishment of an EU-Tunisia free trade area in goods, but not in agriculture or services; trade negotiations in these areas are ongoing.
Manufacturing industries, producing largely for export, are a major source of foreign currency revenue. Industrial production represents about 31.5% of GDP. It primarily consists of petroleum, mining (particularly phosphates), textiles, footwear, food processing, and electrical and mechanical manufactures. Textiles are a major source of foreign currency revenue, with more than 90% of production being exported. The Government of Tunisia, working with the European Commission and other partners, has implemented several programs to upgrade the capacity of key industrial sectors to remain competitive while the country gradually opens to trade with Europe and other regions.
Tourism is a major source of foreign exchange, representing about 11.57% of hard currency receipts ($2.572 billion), as well as an important sector for employment. In 2009, 6.9 million tourists visited Tunisia, hailing largely from Europe and North Africa. While the influx of tourists represents a boon to the economy, Tunisia's large diaspora (about 1 million) also makes a positive and significant contribution. In 2009, remittances from abroad reached 2.652 billion dinars (approximately $1.965 billion), or roughly 4.51% of Tunisia's GDP and 7.25 % of the country's foreign currency earnings (TND 11.687 billion, or U.S. $9.583 billion).
The country is a net importer of hydrocarbon products. Domestic crude production is 91,380 barrels per day, but refining capacity is only 34,000 barrels a day. Proven reserves are in the region of 400 million barrels. Tunisia has one oil refinery on the north coast in Bizerte and in May 2006 awarded a tender to Qatar Petroleum for a second at La Skhira, near Gabes. Natural gas production is currently about 3 million tons oil equivalent. Proven reserves are about 65.13 billion cubic feet, two-thirds of which are located offshore.
The United States and Tunisia signed a Trade and Investment Framework Agreement (TIFA) in October 2002 and follow-up TIFA Council meetings were held in October 2003, June 2005, and March 2008. Although TIFAs could serve as precursor agreements leading to bilateral Free Trade Agreements (FTAs), little progress has been made toward generating the necessary reforms required to engender an FTA. In 2004, Tunisia signed the framework agreement for a multilateral trade agreement with Egypt, Jordan, and Morocco, known as the Agadir Agreement. The Agadir Agreement creates a potential market of over 100 million people across North Africa and into the Middle East.
The government still retained control over certain "strategic" sectors of the economy (finance, hydrocarbons, aviation, electricity and gas distribution, and water resources) but the private sector is playing an increasingly important role. Tunisia is a founding member of the World Trade Organization (WTO) and is publicly committed to a free trade regime and export-led growth. In August 2010, the Government of Tunisia passed a law opening the Tunisian economy to foreign franchises in the sectors of retail/distribution, tourism, automotives, and training. Tunisia must approve franchising in other sectors, such as food service and real estate, on a case-by-case basis.
The Government of Tunisia is beginning to take a more proactive stance on intellectual property rights (IPR) enforcement and education. Tunisia's recent intellectual property rights law is designed to meet WTO TRIPS (Trade-Related Aspects of Intellectual Property) minimum standards and there is ongoing collaboration between the United States and Tunisian governments to promote public awareness of these rights.
The Central Bank is moving from direct management of the financial sector toward a more traditional supervisory and regulatory role. Commercial banks are permitted to participate in the forward foreign exchange market. The dinar is convertible for current account transactions but some convertible dinar/foreign exchange account transactions still require Central Bank authorization. Total convertibility of the Tunisian dinar is probably still some years away, though the Government of Tunisia has publicly pledged full liberalization by 2014.
Tunisia has a relatively well-developed infrastructure that includes six commercial seaports and seven international airports. Eight Arab and foreign groups were shortlisted for the construction, financing, and exploitation of a deep water port project at Enfidha (approximately 100 miles south of Tunis).
Average annual income per capita in Tunisia is over $3,851. On July 1, 2010, the minimum monthly legal wage for a 48-hour week was raised to TND 272.480 ($179.56) and for 40 hours to TND 235.040 ($154.89).
While Tunisia's growth rate has averaged 5% over the first decade of the 21st Century, its development goals require an average 6%-7% growth rate. In 2009, real GDP growth was 3.1% and inflation was 3.7%, down from 5.1% the previous year. According to official figures, Tunisia had 13.3% unemployment, but it is generally believed to be much higher in some regions. Despite the present low rate of population growth, a demographic peak is now hitting higher education and the job market. Tunisia has invested heavily in education, and the number of students enrolled at university has soared from 41,000 in 1986 to over 357,472 in 2009. Providing jobs for these highly educated people represents a major challenge for the Government of Tunisia.
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