Tunisia Suffers from Economic Paralysis
17 September 2014
Read by 1790 persons
“Tunisia is an economic paradox.” This statement summarizes the blunt diagnosis given by the World Bank in a new report titled “The Unfinished Revolution: Creating Opportunities, Quality Jobs, and Wealth for All Tunisians,” officially presented on Wednesday, September 17, 2014, at a meeting organized jointly with the Arab Institute of Business Leaders (IACE).
This report, according to a press release, is “the first complete study of the Tunisian economy carried out by the World Bank since the 2011 revolution.” It provides a quantitative and qualitative analysis of Tunisia over the past fifteen years.
The paradox, according to the report's authors, Antonio Nucifora and Bob Rijkers, economists at the World Bank, lies in the fact that Tunisia has “all the conditions to become a ‘Mediterranean Tiger.’”
The country has many advantages: “a skilled workforce with a relatively high number of graduates who study abroad,” “good public administration,” “good road infrastructure,” “a good number of ports and airports,” “good electricity connection,” “access to drinking water and telecommunications,” privileged access to the European market, etc.
But despite these advantages, “this economic potential never seems to materialize.” Because policies that were successful in the past are now stalled. Consequently, “the economy has remained stagnant with weak performance and unable to take off.” The result is a high unemployment rate –over 13% since the early 1990s.
Factors of Paralysis…
The report attributes this economic paralysis to three main factors: obstacles to competition, excessive bureaucracy, and economic policies that are “numerous, mostly well-intentioned but misguided.”
First, a lack of openness. Economically, Tunisia is only half open; more than 50% of the economy remains closed to both local and foreign investors. The report is highly critical, pointing out that the lack of competition costs the economy more than $2 billion a year, “or nearly 5% of the country's wealth,” highlighting “privileged companies authorized to operate in protected sectors” in both the public and private sectors.
In the public sector, these companies –representing 13% of GDP and 4% of total employment–which also benefit from additional state financial support (3% of the budget in 2013) are protected from competition from “more efficient” private companies, which are thus prevented from “developing and competing” with them.
In the private sector, the lack of competition benefits “a few private companies, mostly linked to Ben Ali's family and friends” operating in “lucrative” sectors. This means, according to the report's authors, that “nearly four years after the revolution, the system of economic policies and regulations that serves as a smokescreen for rent-seeking remains intact.”
Next, regulatory and bureaucratic burdens that compromise the competitiveness of businesses. These burdens penalize businesses twofold. First, they “absorb 25% of managers' time and nearly 13% of turnover.” Second, “excessive” regulation and the “omnipresence of the state” encourage illegal practices such as “corruption (estimated to cost 2% of annual GDP), cronyism, tax and customs evasion, etc.”
Finally, “misguided” economic policies. The World Bank report criticizes the Labor Code, which “does not encourage investment in labor-intensive activities and paradoxically contributes to worker exploitation and job insecurity,” and, conversely –because of the “dichotomy between the rigid indefinite-term contract (CDI) and the precarious fixed-term contract (CDD)–“encourages investment in activities that can easily use CDDs.”
The report also criticizes the financial sector, which “is not very efficient.” The World Bank experts cite as evidence “the overall level of loans granted (...) to the private sector (which) remains below potential by about 10% of GDP.” “The quality of the projects financed is also disappointing, as evidenced by the high rate of projects unable to finance the repayment of the loans used to set them up,” and “significant governance shortcomings.”
Mediocrity of Public Companies…
Within this system, large public banks have the double defect of being “protected from competition” and of “constantly receiving subsidies that allow them to remain mediocre and to lend to well-connected entrepreneurs instead of selecting the most efficient projects.”
Finally, the investment incentive policy –which “is expensive” (2.2% of GDP in 2009)–is “costly and has not contributed to job creation or to reducing regional disparities.”
Moncef Mahroug.
Webmanagercenter.com
Published September 17, 2014.
Posted online September 17, 2014.
This report, according to a press release, is “the first complete study of the Tunisian economy carried out by the World Bank since the 2011 revolution.” It provides a quantitative and qualitative analysis of Tunisia over the past fifteen years.
The paradox, according to the report's authors, Antonio Nucifora and Bob Rijkers, economists at the World Bank, lies in the fact that Tunisia has “all the conditions to become a ‘Mediterranean Tiger.’”
The country has many advantages: “a skilled workforce with a relatively high number of graduates who study abroad,” “good public administration,” “good road infrastructure,” “a good number of ports and airports,” “good electricity connection,” “access to drinking water and telecommunications,” privileged access to the European market, etc.
But despite these advantages, “this economic potential never seems to materialize.” Because policies that were successful in the past are now stalled. Consequently, “the economy has remained stagnant with weak performance and unable to take off.” The result is a high unemployment rate –over 13% since the early 1990s.
Factors of Paralysis…
The report attributes this economic paralysis to three main factors: obstacles to competition, excessive bureaucracy, and economic policies that are “numerous, mostly well-intentioned but misguided.”
First, a lack of openness. Economically, Tunisia is only half open; more than 50% of the economy remains closed to both local and foreign investors. The report is highly critical, pointing out that the lack of competition costs the economy more than $2 billion a year, “or nearly 5% of the country's wealth,” highlighting “privileged companies authorized to operate in protected sectors” in both the public and private sectors.
In the public sector, these companies –representing 13% of GDP and 4% of total employment–which also benefit from additional state financial support (3% of the budget in 2013) are protected from competition from “more efficient” private companies, which are thus prevented from “developing and competing” with them.
In the private sector, the lack of competition benefits “a few private companies, mostly linked to Ben Ali's family and friends” operating in “lucrative” sectors. This means, according to the report's authors, that “nearly four years after the revolution, the system of economic policies and regulations that serves as a smokescreen for rent-seeking remains intact.”
Next, regulatory and bureaucratic burdens that compromise the competitiveness of businesses. These burdens penalize businesses twofold. First, they “absorb 25% of managers' time and nearly 13% of turnover.” Second, “excessive” regulation and the “omnipresence of the state” encourage illegal practices such as “corruption (estimated to cost 2% of annual GDP), cronyism, tax and customs evasion, etc.”
Finally, “misguided” economic policies. The World Bank report criticizes the Labor Code, which “does not encourage investment in labor-intensive activities and paradoxically contributes to worker exploitation and job insecurity,” and, conversely –because of the “dichotomy between the rigid indefinite-term contract (CDI) and the precarious fixed-term contract (CDD)–“encourages investment in activities that can easily use CDDs.”
The report also criticizes the financial sector, which “is not very efficient.” The World Bank experts cite as evidence “the overall level of loans granted (...) to the private sector (which) remains below potential by about 10% of GDP.” “The quality of the projects financed is also disappointing, as evidenced by the high rate of projects unable to finance the repayment of the loans used to set them up,” and “significant governance shortcomings.”
Mediocrity of Public Companies…
Within this system, large public banks have the double defect of being “protected from competition” and of “constantly receiving subsidies that allow them to remain mediocre and to lend to well-connected entrepreneurs instead of selecting the most efficient projects.”
Finally, the investment incentive policy –which “is expensive” (2.2% of GDP in 2009)–is “costly and has not contributed to job creation or to reducing regional disparities.”
Moncef Mahroug.
Webmanagercenter.com
Published September 17, 2014.
Posted online September 17, 2014.
