In yet another step in Tunisia’s transition, Tunisians will vote for a new parliament Oct. 26. Polls suggest the economy remains Tunisians’ highest priority. Despite economic turmoil since the 2011 revolution, expectations are high for a quick turnaround once the new government is in place. While this optimism is admirable, economic growth will require a much deeper political resolve than has been apparent.
Recent research published by the World Bank, much of which would have been impossible to conduct prior to 2011, highlights that Tunisia’s economic problems are not the result of the insecurity and lower investor confidence after the revolution. Rather, they are the direct outcome of poorly designed economic policies, which were in place under ousted president Zine el-Abidine Ben Ali and still remain. The resulting lack of jobs and unequal access to economic opportunity were at the heart of the 2011 revolution. The World Bank report argues that the continuation of the economic status quo poses a threat to Tunisia’s transition.
In March, the World Bank published a study documenting the extent to which Ben Ali’s clan was able to manipulate Tunisia’s investment policies to its own benefit. The analysis found that companies that were confiscated and given to his extended family accounted for just 1 percent of jobs but were able to reap a formidable 21 percent of the country’s private-sector profits.
For more than two decades, Ben Ali was able to preserve this economic system through coercion, repression and patronage. Close connections might be rewarded with a top spot at a state-owned company, a hotel license or access to a lucrative closed sector. Lower-level associates might get access to a government job or face fewer restrictions obtaining land or getting a business license. Loyalty rather than merit was rewarded.
The World Bank’s latest research highlights that, beyond the extractive nature of the former ruling family, Tunisia relies to a large extent on these same restrictions and appears to be trapped in an economic model that was designed in the 1970s. Tunisia’s investment regime, for example, limits potential new investment to less than 50 percent of the Tunisian economy. Whether through public or private monopolies or oligopolies, dozens of sectors are either explicitly or de facto closed to any meaningful competition. The laundry list includes telecoms, road and air transport, tobacco, fisheries, tourism, advertising, health, education, vocational and professional training, real estate, agricultural extension services, retail and distribution and telecommunication services. And the list goes on.
Furthermore, many of these restrictions on competition rely on a complex bureaucracy in which the room for discretion in administering the web of regulations further encourages corruption. The study documents, for example, how the prevalence of corruption “to speed things up” in Tunisia is among the highest in the world. More than a quarter of all firms declared they have to provide an informal payment to accelerate some form of interaction with the administration. The report estimates that close to 13 percent of firm annual sales are spent to deal with these regulations. This, in turn, fosters corruption, costing firms an additional 2 to 5 percent of their revenue every year – revenue that cannot be reinvested into greater productivity or more employment.
This economic environment has had three complementary results. At the firm level, there is very little entry of new businesses and very few businesses grow or even exit the market. So, rather than grow or die, firms simply stagnate. At the aggregate level, the economy has remained stuck in low productivity sectors, and has experienced surprisingly little reallocation of factors of production toward more productive, and remunerative, activities. Thirdly, more than half of Tunisia’s exports consist of low value added products for France and Italy, which are largely just assembled in Tunisia from imported intermediate components.
The result is that Tunisia is underperforming its competitors in the global economy. The report estimates that this lack of competition costs the country nearly 5 percent of GDP each year – approximately the same amount spent on public investment.
Economists almost euphemistically call these problems structural, but that misses the broader point. The impact is more nefarious than underperformance of the domestic economy. In Tunisia, a patronage-based economy succeeds not only in enriching a privileged few, it entrenches severely exclusionary, non-competitive and distortional elements into the heart of the Tunisian economy.
These issues are not unique to Tunisia, and in some respects are a feature of most dictatorships. But as public opinion polling has confirmed, they are at the heart of why so many citizens across the Arab world have demanded change over the past several years – a change from a system in which whom you know matters more than what you know.
The good news is that Tunisia has many institutional elements that will help any government that takes on these challenges, in particular the country’s much lauded new constitution, which enshrines the critical principles of neutrality and transparency into law. Whether this will be enough to unseat the vested interests that are content with the status quo will be a large determinant of Tunisia’s ongoing transition.
Antonio Nucifora is a lead economist at the World Bank and lead author of “The Unfinished Revolution.” Erik Churchill, a World Bank consultant, was an adviser to the report. Both were based in Tunisia from 2010 to 2014.