Economy of Tunisia

Source: World Bank.

Tunisia was ranked 95th out of 137 countries covered by the Global Competitiveness Index 2017-2018, the same position as 2016-2017. Its performance has remained stagnant over the past years, with no significant movement since the end of the political crisis in 2014. The lack of improved labor market efficiency remains the primary reform priority, an area where the country has continued to decline in recent years and now ranks 135th globally.

The macroeconomic environment remains challenging, with a decline in gross national savings (13.1 per cent), a raise in the general budget deficit (5.7 per cent of gross domestic product) and an increase in debt (60.6 per cent of gross domestic product). According to the Global Competitiveness, the performance of the country’s markets is hampered by high tax rates (60.2 per cent of business profits in 2016), as well as inadequate trade integration, constrained by both non-tariff barriers (119) and customs procedures (122).

The quality of institutions has slowly improved, but inefficient government bureaucracy, corruption and political instability remain among the three most problematic issues facing businesses in the country. Technological readiness is the biggest improvement since 2013, and Tunisia is the country using the most information and communications technology in North Africa (81st globally).

Source: Global Competitiveness Index 2016/2017 and 2017/2018.

Illegal tank station near Sousse / Photo ShutterstockAn estimated 35 percent to 42 percent of the Tunisian labor force works in the informal sector, including half of the country’s unemployed. The informal sector accounts for approximately half of Tunisia’s GDP. The most frequent sort of informal work in Tunisia is in small street shops. According to Tunisia’s National Institute for Statistics, about 490,000 of an estimated 520,000 informal sector workers earn money through such illegal shops. The state can theoretically fine but, in practice, usually tolerates. Another significant informal work category is domestic economic activities, such as handicrafts, and domestic services such as cooking and cleaning.

Cross-border smuggling is another common kind of informal work in Tunisia. Smuggled goods frequently come from neighboring Libya or Algeria, where many goods’ prices are considerably lower, making their sale on the Tunisian market lucrative, if illegal. Many Tunisians work at various illegal repair or towing jobs, and some work informally in flea markets.

Information and communications technology: the 2010-2011 World Economic Forum’s Global Report on ICT ranked Tunisia first in Africa and 35th globally.

Tourists on camels in the Tunisian desert /Photo ShutterstockTourism is a mainstay of the Tunisian economy, with a value of around 2.5 billion USD. More than 400,000 people (out of a total of about 10 million) work in tourism. Tourism suffered greatly in 2011 due to Tunisia’s social unrest and political turmoil. Although the tourism industry’s performance improved slightly in 2012, there is still a lack of tourists, resulting in fewer jobs and the closing of many hotels.

Important tourist destinations include Tunis, Carthage, Hammamet, Sousse, and the island of Djerba, in the south. Important tourist markets are France, Germany, the United Kingdom, and Italy, countries well connected to Tunisia through low-priced airlines.

Continuous protests against the economic crisis shake the country, 27 November 2013, Gafsa, Tunisia Photo Corbis.The workforce-activity rate for men in 2010 was almost 70 percent but only about 25 percent for women. Although women enjoy a high education level, traditional gender roles still dominate in the Tunisian work environment. Men and women are increasingly moving into urban centers, especially greater Tunis and Ben Arous, Sousse, and Monastir’s coastal cities to find work. With opportunities limited in Tunisia and unemployment worsening, some people try their luck in neighboring countries such as Libya, which enjoys close economic ties with Tunisia.

Tunisia’s faltering economy was one of the major contributing factors to the 2011 revolution, and in the years since the revolution, it has continued to deteriorate. Closely tied to the eurozone (around 80% of Tunisia’s trade is linked to Europe), the economy keenly felt the euro crisis’s effects from 2008 onwards. Moreover, the high number of university graduates, which number 80,000 per year out of a population of just over 10 million, has exacerbated unemployment. The unstable security situation in Libya, Tunisia’s second economic partner, has added insult to injury.

Unemployment is at 15.3%, with that figure even higher among young people and women. Economic growth at the end of 2014 was just 2.4%, almost 4% below what is needed to curb unemployment. Tunisians deeply resent the 5.5% inflation rate and unfavorably compare commodity prices to their pre-revolution levels. The Tunisian dinar (TND) has lost more than 20% of its value since 2010, with 1 TND now worth around $2, and the country’s international debt had climbed from 40.7% in 2010 to 52.9% in 2014.

The worsening economic conditions have directly contributed to growing disillusionment among the Tunisian public with the revolution’s outcomes, despite its political successes, and has led to some yearning for a return to the old regime. All the political parties that ran in the October 2014 parliamentary elections against the winners of 2011 stressed the economy to seduce voters. The secularist Nidaa Tounes party, for instance, had an electoral banner showing a shopping bag in a popular market with the words “Temporary Dearness,” meaning that commodity prices would go back to their pre-2011 levels if they won. The banner was also a clear political jibe: “Temporary” is the nickname for the troika government of the Ennahda, CPR, and Ettakatol parties.

Although the plummeting oil prices in 2014 were expected to help shore up the Tunisian economy, rampant corruption in the energy sector and the declining security situation in Libya (Tunisia’s key oil supplier) meant any benefits were negligible. Drivers filling up at a petrol station still pay more for fuel than they did a year ago.

Tourism revenues, which are crucial to the Tunisian economy (6.5% of GDP and around 350,000 jobs), have almost returned to their 2010 levels. European tourists, whose tour operators redirected to struggling European countries such as Greece and Spain or have avoided Tunisia since the start of the Arab Spring, have largely been replaced by Algerian and Libyan tourists.

European tourists are preferred to their Arab counterparts, however, as they enhance Tunisia’s international appeal. They also bring a strong currency (euro) and are willing to buy traditional items, such as chechia headgear and jebba tunics, which are of little interest to most Arab tourists. There is widespread concern that the March 2015 terrorist attack on Tunis’ Bardo Museum, which killed 21 people, including 17 tourists, will further hurt foreign tourism.

There is also a fear that Libya’s declining security situation will impact disposable incomes in that country, making holidays across the Tunisian border an unaffordable luxury. Coupled with this is the concern that the growing number of Libyan refugees in Tunisia could become a drain on the economy as their financial resources dwindle. Still, they continue to consume Tunisia’s subsidized goods (bread, oil, and so on) and push up real estate prices.

Since the revolution, people have become less respectful of state authority, seen as a remnant of the dictatorial regime. With waning state bureaucracy in Tunisia and Libya’s quasi-collapse, informal trade across Tunisia’s land borders has expanded considerably. Estimates indicate that informal trade now accounts for around 40% of Tunisia’s economy, depriving the state of significant tax revenues and diminishing its control over the foreign currency. This has accelerated Tunisia’s tumble in international credit ratings (Moody’s, Standard & Poor’s) and tarnished its pre-2011 image as “the model pupil of the international institutions.”

In the face of this economic decline, the Tunisian government is likely to adopt unpopular measures advocated by the World Bank and the International Monetary Fund. These include cutting subsidies, reducing the number of public-sector jobs, crushing informal trade, and the sine-qua-non conditions for receiving those institutions’ loans and grants. The USA, one of Tunisia’s main sponsors after the revolution, is also pushing for reforms, particularly of the judicial system, before it agrees to invest in Tunisia.

Government officials are reluctant to announce the measures publicly but rely on allusions and gradual change. This has not stopped the spread of social movements. These are co-opted by UGTT, the leftist trade union, which is known for its oppositional stance and broad power base.

Demonstrations and strikes are legion, affecting offices and factories’ productivity and contributing to the country’s general economic malaise. Local and international investors have threatened to withdraw from Tunisia if the movements continue at their current pace, but their threats have so far been ignored.

Leftist movements such as the Popular Front, and populist ones such as former President Moncef Marzouki’s Citizen People Movement, will spearhead the opposition to these measures, as Syriza has done in Greece or Podemos in Spain. The extent of their success remains to be seen. Economic indicators show that the country is fragile, with the looming specter of a return to authoritarian rule or a second revolution.

The latest poverty figures are from 2015, when the Tunisian National Institute of Statistics (INS) published a new series of poverty rates based on consumption patterns observed in the Household Budget and Living Conditions Survey. According to these figures, the poverty rate was 15.2 percent, well below the 20.5 percent rate in 2010 and 23.1 percent in 2005.

Similarly, when measured using the international poverty lines of $1.90 and $3.20 a day (2011 purchasing power parity, PPP), it has also sharply decreased. Using the poverty rate of $1.90 PPP, poverty was almost eliminated in 2015 (less than 1 percent), while using the poverty line of $3.20 PPP, it decreased to 3.2 percent from 9 percent in 2010.

Poverty is usually concentrated in the north-western regions (28.4 percent) and the midwest (30.8 percent). The poverty rate in the northern coastal areas is 11.6 percent, 11.4 percent in the central region, and 5.3 percent in the Grand Tunis metropolitan area. However, there are pockets of relatively high poverty in the latter.

However, inequality took a downward path in 2005. According to official figures, the Gini index was 36 in 2005 and fell to 33.9 in 2010 and 32.8 in 2015. In October 2018, the World Bank predicted that the poverty rate would remain unchanged at 8.7 per cent, using the poverty line of $3.20 PPP, and about $1.90 using the poverty line of $1.90 PPP.