Tunisian economy awaits its own revolution

As Tunisia prepares for elections billed as the culmination of the country's passage from dictatorship to democracy, a failing economy is still frustrating the aspirations of the country's youth.

On Sunday, national elections to determine the composition of the 217 member National Assembly will begin. They are expected to be followed by the first round of presidential elections on 26 November.

The elections are not the first since the overthrow of Zine El Abidine Ben Ali in 2011, but will differ from those held three years ago this month in one key respect: where the post-revolution election was fought primarily on the grounds of identity and ideology, this time it is the economy that many believe will be most important.

The struggle for power between the country's various political parties and groups has not abated. However, three years of economic stagnation and high unemployment may now overshadow the splits, a fact underlined by the visit of the leader of the Ennahda party, Rachid Ghannouchi, to the economically marginalised mining town of Gafsa on 19 October.

Tunisia is a developed country by the standards of the region. Illiteracy is relatively low in comparison with neighbouring countries, defence spending as a percentage of the budget represents a fraction of the excesses of other North African states, and spending on health is high. Tunisia's Human Development Index ranking (90th globally) is better than that of Algeria, and considerably better than those of Egypt and Morocco.

However unemployment, although down from the dangerous highs of two years ago, is rife. With 15.2 percent of the working population jobless, Tunisia has higher unemployment than any of its neighbours. For the young the problem is doubly severe; youth unemployment was estimated to be over 30 percent last year.

In addition, although Tunisia is ostensibly more developed than its neighbours, income is distributed less equitably than every other country in North Africa except Morocco, and there are striking differences between the level of development in the capital and rural south.

Ghosts of the past

The root of the problems, according to a recent World Bank report, is that the fundamental economic order established by the Ben Ali regime is still in place. Corruption is routine and crony capitalism, as the report notes, firmly entrenched. Young workers still feel that unless they have "wasta" (connections which imply nepotism), for them there are no real opportunities.

World Bank data show that by 2010 the total value of the Ben Ali family's assets was around $13 billion, or more than 25 percent of gross domestic product, according to the Tunisia's Confiscation Commission, a body set up after the revolution to investigate the Ben Ali family's holdings. 

The former president's relatives owned 220 companies that had a combined share of 21 percent of all private sector profits, yet these companies were responsible for employing just 0.8 percent of the workforce.

The legacy of this system remains. “While predation likely has disappeared with the exit of President Ben Ali and his family, however, most of the system of rents and privileges remains untouched,” the World Bank said.

The basic economic framework of institutions, regulation, and corruption hasn't changed and is still concentrating wealth while preventing growth in employment. In a recent survey conducted by the Pew Research Center, 88 percent of respondents described the economy as bad, and 56 percent opted for “very bad”.

This perception is substantially correct. Inflation is running at around 6 percent, although dipping from that level in July to 5.8 percent in August, and the trade deficit continued to worsen. Foreign direct investment has been falling sharply.

The government now expects GDP growth to be between 2.3 and 2.5 percent this year, a level that is insufficient for employment to rise, and unwelcome news for the quarter of the population who live on less than $4 a day.

The decision announced on 19 October by the Minister Delegate for economic affairs, Nidhal Ouerfelli, to raise the retirement age by two years (to 62) in order to reduce the size of the hole in the state's social security funds will also be met with chagrin. 

International finance 

Tunisia has until now been kept above water primarily by financial support from the United States, Europe, and Japan, which see the country's political trajectory as favourable to their strategic interests.

The decision of the Ennahda party, in light of two high profile political assassinations and the considerable public anger that followed, to cede control of government (and the prime minister's office) in January this year to a technocratic cabinet led by current interim Prime Minister Mehdi Jomaa was well received by international capital.

By February of this year, Prime Minister Jomaa (a former minister of industry who spent over 20 years working for a branch of the French multinational Total, including time as the head of its defence and aerospace division) was  leading a drive for international support.

The results were good. In March Tunisia secured a total of $1.2 billion from the World Bank. The Vice President of the European Investment Bank, Phillipe de Fontaine Vive, visited Tunis that month and the EIB  increased its funding to Tunisia for 2014 to €300m ($380m). 

The African Development Bank announced that it was extending an offer of $2.1 billion in loans to Tunisia, and the Japanese government agreed to lend the country almost $500 million for infrastructural development.

Tunisia signed a two-year $1.78 billion loan agreement with the International Monetary Fund last year, on the understanding that it would pursue the Fund's economic reforms. By the end of August, the IMF had approved the release of about $1.1 billion of the loan.

Central Bank governor Chadli Ayari said in February that the bank would issue $1.8 billion in bonds this year, with $1 billion of the total backed by Japan and the remainder backed by the United States. 

On 3 June, a US loan guarantee worth $500 million was officially signed, and on 10 October Tunisia issued a $825 million bond on the domestic Japanese market, guaranteed by the state-owned Japan Bank for International Cooperation. 

On 17 October, Reuters reported that Tunisia had selected Western financial institutions Citigroup, Natixis and Standard Chartered for a début US dollar sukuk that would raise yet more capital.

Austerity ahead

Despite this international financial support, the prime minister has announced that in order to finance the 2015 budget, Tunisia will need to borrow around $4.5 billion, the majority from international sources. 

Prime Minister Jomaa himself, partly because of his association with efforts to marshal international donations, enjoys widespread popularity. While approval ratings for other leading politicians, including   interim President Moncef Marzouki, are low, Jomma receives 81 percent approval,  well above that of Ennahda leader Rachi Ghannouchi, who has just 33 percent, and the Islamist Ennahda party itself at 31 percent. 

The prime minister recognises that, economically, Tunisia is in trouble. "The economy does not grow through pressing a button - it will take some time. So we need at least three years of painful reforms to revive the economy,” Jomaa said in a recent interview. 

"Because of continuing internal and external pressures, we expect only 3 percent gross domestic product growth in 2015," he told Reuters, warning of the need for fiscal austerity. The government cut fuel subsidies on 1 July, raising the price of diesel and other fuels by between 6 and 7 percent, and Jomaa was clear that further subsidy cuts would be needed.

The scale of the problems in Tunisia's economy has led some old regime figures positioning themselves for a return to high-level politics. Ben Ali's former foreign minister, Kamel Morjane, former transport minister Abderrahim Zouari, and former health minister Mondher Znaidi are all running in the coming presidential elections.

One of the front-runners, Beji Caid Essebsi, the leader of the largest secular party, Nidaa Tounes, and who once headed parliament under Ben Ali, has taken on Muhammad Ghariani, the last secretary-general of Ben Ali’s dissolved ruling party, the Constitutional Democratic Rally, as his adviser.

The old guard politicians are counting on nostalgia for the supposed economic stability of the pre-revolutionary political order overshadowing the fact that the old regime economic order in fact survives.

In Pew's recent poll, 96 per cent of Tunisians listed improved economic conditions as "very important for Tunisia's future", whereas just 48 percent named the ability of religious parties to be part of government, news which may worry Ennahda.

However, the Ennahda leader, Ghannouchi (who recently oversaw the hiring of public relations firm Burson-Marsteller to improve the party's image in the US), said he expects his party to take as much as 41 percent of the vote in the parliamentary elections, the same share they won in 2011.

While Ennahda is seeking to overcome the centrist secular parties to repeat its victory of three years ago, and pursue its mission to "turn Tunisia into a hub for Islamic economy", as Ghannouchi told reporters this week, the elections is unlikely to bring an outright winner and considerable deal making will be neccessary.

What is certain is that whatever the composition of the National Assembly, and whoever becomes president, resuscitating Tunisia's economy will be the first and most serious task.