Tunisia: its problems have solutions
The focus on political processes during democratization often leads to marginalizing the role of economics. The National Endowment for Democracy, the Legatum Institute, Foreign Policy, and World Affairs have tried to explore the link between economic and political reform through their Transitions Lecture Series: The Role of Economics in Democratic Transitions. This week, the series presented the case of Tunisia. The discussion featured
- Mondher Ben Ayed, the President and CEO of TMI, a leading information technology firm in Tunisia and advisor to the Tunisian Prime Minister in 2011 and 2012, presented.
- Larry Diamond, co-founder and co-editor of the Journal of Democracy and director of the Center on Democracy, Development, and the Rule of Law at Stanford University, moderated the discussion.
- Jeffrey Gedmin, President and CEO of Legatum Institute, introduced the speakers.
Ben Ayed argued that the economic fundamentals before the Tunisian revolution were not discouraging. For the five years before the revolution, Tunisia’s economy grew at 5 percent a year. The budget deficit reached 3 percent, and inflation was below 3 per cent. The literacy rate among Tunisians reached about 80 percent of the population, and the status of women was one of the highest in the region.
Nevertheless, Tunisians were unhappy with their political life. Ben Ali established an absolute dictatorship with no political space and big economic inequities. Tunisia suffered from large disparities between the flourishing coastal regions and the underdeveloped interior. This resulted in high unemployment in the interior regions, reaching about 35 percent of the workforce. While 5 percent growth a year seems decent, it was not enough to absorb the growing labor force. Of about 800,000 unemployed before the revolution, almost a quarter had college degrees.
The corruption of President Ben Ali’s family did not help. Members of the business community, even though many had ties with the regime, were repeatedly bullied over the past few years, Ben Ayed said.
The economic situation has not substantially improved since 2011. After the revolution, subsidies, and consequently fiscal deficits, persistently increased. For the first time since independence, fiscal revenues did not cover the operational costs of the Tunisian government.
Lack of security and continuous political uncertainty have made matters worse. In addition to impeding investment, those factors contributed to a drop in tourism and other economic activities, reducing foreign currency reserves.
The public image of businessmen does not help, added Ben Ayed. Many Tunisians view businessmen as corrupt and with strong ties to the former regime. This has not only reduced the incentives of domestic businessmen to invest, but also weakened Tunisia’s attractiveness to foreign investors. The impact could be long-lasting impact, as fewer college students may study business and aspire to become entrepreneurs.
The revolution did not occur in a cooperative international environment. The economic crisis in Europe has undermined Tunisia’s economy, as the latter shares 70 percent of its total trade with Europe. While the Libyan war had a positive impact on the food and health industries in Tunisia, the influx of around a million people has strained resources. Arms smuggled into Tunisia have compromised security.
Solutions to these issues have to be political, Ben Ayed said. The country’s security situation has to improve for investors to feel comfortable. Political parties need to understand the vital role of the business community. The government also needs to handle the social movements, such as the labor union (UGTT), which continue to have a strong presence in the country. The country needs to speed up the writing of the constitution and should call for elections soon.
The international community too has an essential role. While Tunisians have to conduct the political process, foreign countries should contribute to security and the economy. The international community could provide Tunisia with equipment, training, and intelligence to fight terrorism and implement law and order. Foreign donors and international organizations could provide financial assistance and encourage foreign direct investment during the transition.
Ben Ayed is optimistic that Tunisia is moving on the right path. Political parties and the general population are aware of the country’s problems and trying to address them. With time and international assistance, they will succeed.
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I don’t share this enthusiasm. Revolution is always bad for business. And Tunisia still is facing a crawling Islamist power grab. As long as this is going on you can expect rather low growth.
Add to that that it is very difficult to introduce painful economic reforms just after a revolution and it is clear that it may take considerable time before the Tunisian economy is back on track.
Tunisia would have been much better off having a gradual transition instead of a revolution.