THREE years to the day since then-president Zine al-Abidine Ben Ali fled the country, Tunisia is faring better than other countries that ousted their leaders in 2011. Tunisia’s politicians have opted for compromise rather than zero-sum politics. Democratic institutions appear to have a good chance of taking root. Some Tunisians, including outgoing prime minister Ali Laarayedh, hope the country can be a model for how to transition to democracy, something he branded “Made in Tunisia”.
The Tunisian economy recovered somewhat in 2012, with GDP growing by 3.3%, but this was insufficient to respond to the country’s main challenges: unemployment, especially among young graduates, and regional disparities.
Tunisia’s political transition has taken longer than expected, with postponed elections and a growing political divide. Political debate prevails over an economic reflection.
Tunisia has maintained its development potential, but reforms must continue to strengthen sectors with a high value added. Modernisation of agriculture and the development of energies should help Tunisia make better use of its natural resources.
Overview
Tunisia’s economy rebounded in 2012, growing by 3.3%. A good agricultural season and the relative recovery in tourism, foreign direct investment (FDI) and hydrocarbon and phosphate production, which almost stagnated in 2011, contributed to the economic recovery. However, the European crisis and the decline in external demand had a negative impact on exports, particularly of textiles and machinery and electricity. Overall, production benefited from a more stable social climate in 2011 and continued domestic demand, but the economy as a whole is not improving as fast as was expected. Unemployment remains high, as do the current-account and budget deficits, because of the lack of structural reforms and the failure of the country’s main economic partner, Europe, to achieve a strong economic recovery. The greatest risks are ideological tensions, protests and possible pre-election populist policies, which could lead to overspending.
Political uncertainty is slowing down economic decisions and weakening the recovery that has begun. Security has deteriorated, tarnishing Tunisia’s reputation as a safe country. The government is expected to continue with the line of reforms undertaken by the transitional authorities to improve growth and governance and diminish regional disparities. These reforms should be accompanied by a stable climate that can be maintained in the long term to restore investor and public confidence.
Tunisia’s main natural resource, phosphate, remains vital to an economic recovery in 2013. For many years the country has been developing its phosphate processing industry to produce phosphoric acid and fertilisers, becoming the world’s second largest producer and leading exporter of trisodium phosphate (TSP), with 21.7% of global production and 31.2% of global exports. To expand its exports, the public corporation Groupe chimique tunisien (GCT) is involved in international co-operation projects with partners from India (Tunisian Indian Fertilizers, Tifert) and China. The structural changes under way are set to continue, with improvements to the way natural resources are used.
Figure 1: Real GDP Growth 2013 (North)
Africa – Real GDP growth (%)
Northern Africa – Real GDP growth (%)
Real GDP growth (%)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-2.5%
0%
2.5%
5%
7.5%
10%
12.5%
Real GDP Growth (%)
Figures for 2012 are estimates; for 2013 and later are projections.
http://dx.doi.org/10.1787/888932805840
Table 1: Macroeconomic indicators
2011 2012 2013 2014
Real GDP growth -1.9 3.3 3.4 4.6
Real GDP per capita growth -3 2.2 3.3 3.5
CPI inflation 3.5 5.6 5.5 4.5
Budget balance % GDP -3.4 -6 -5.9 -4.8
Current account % GDP -7.4 -8 -7.5 -6.7
Figures for 2012 are estimates; for 2013 and later are projections.
The coalition government led by Nahda, Tunisia’s main Islamist party, is handing over power to a non-party government. The move comes after the assassinations of two opposition politicians prompted street protests last summer calling for its resignation. The new government will rule until elections later this year. Nahda’s voluntary exit from power will allow it to go into the next polls claiming to have put the country’s stability ahead of its narrow party interests.
Meanwhile, an assembly elected in 2011 is in the final stages of approving a new constitution. The document has so far pleasantly surprised observers, some of whom were worried that Nahda’s Islamist views would dominate. The document endorses freedom of religion. And it commits the Tunisian state to working towards equal representation of women in all elected bodies—a measure unprecedented in the Arab world. (This article passed because 46 Nahda members of the assembly, including a large cohort of the party’s female parliamentarians, voted in favour of it.)
Tunisia’s ability to broker compromise between those who espouse Islamist principles in government and those who want to keep religion out of public affairs has given it the edge over other Arab states in transition. The relative homogeneity of this nation of 10.6m helps. Education levels are higher than in Egypt. The army prefers to keep out of both politics and business while career civil servants have developed a professional ethos. A feisty civil liberties lobby finds a willing ear in the media at home and abroad. This has obliged Nahda to face down conservatives within the party, as well as more radical Islamists outside it.
Yet, to keep the democratic process on track, the authorities will have to improve Tunisians’ quality of life. A series of riots across the country in the past week have once against demonstrated how local gripes—from tensions with customs officials in a village where contraband is a mainstay to a protest against a rise in vehicle tax—can trigger unrest. Many, especially outside the capital, feel that their demands for better infrastructure and heath services have not been addressed. Unemployment is stubbornly high. Food prices are rising. Incoming prime minister Mehdi Jomaa will have his work cut out.
According to recent reports by the International Monetary Fund (IMF) and World Bank, the global recession set off by the financial crisis in late 2008 has strained Middle Eastern economies, but early signs suggest that the downturn in the region has not been as severe as it has in other emerging markets. Arab economies are, on the whole, weathering the crisis better than others in the short term. In the long term, however, a prolonged recession is likely to create the potential for social and political instability. Oil economies have managed to maintain high levels of capital spending despite the decrease in oil revenues. Non-oil producing countries, on the other hand, might show delayed effects as capital inflows from remittances, foreign investment, and tourism revenue fall and affect the rest of their economies. Countries less integrated into the global economy are not likely to see severe losses.
Gross domestic product (GDP) growth for the entire Middle East in 2008 was 6 percent, but is projected to fall to 3.1 percent in 2009. This is a radical departure from the IMF earlier forecast of 5.9 percent growth for 2009, but still compares favorably to other emerging economies, such as Latin America’s, where GDP growth fell from 4.2 percent in 2008 to -2.2 percent in 2009.
Middle East and North Africa Forecast Summary
annual percent change unless indicated otherwise
Oil Exporters: Effects of the Crisis
Oil-exporting countries experienced a sharp decline in oil revenues at the onset of the economic crisis. Although forecasts show relative increases in oil prices, it is unlikely revenues will soon return to the all-time highs they reached prior to the crisis.
Lower oil prices and declining government revenues in Gulf Cooperation Council (GCC) economies created significant deficits in fiscal balances, which affected investor confidence and contributed to a drop in equity prices.
The real estate market, a major investment market in the Gulf, reflected similar investor fears and a credit crunch.
Despite the fall in oil and gas revenue, the decline of the stock markets, and the problems of the real estate sector, the region’s oil exporters (including GCC countries, as well as Algeria and Libya) have proven resilient, due to sustained high oil prices in the pre-crisis boom and government responses that helped mitigate the effects of the downturn. Between 2005 and 2008, high oil prices facilitated robust economic growth, including various diversification efforts throughout oil economies, leading to increased non-oil growth between 2005 and 2008. This helped oil-exporting countries build up foreign assets and lower government debt, cushioning their financial systems, although they did suffer losses from investing in foreign assets.
Oil Exporters: Responses to the Crisis
According to IMF reports, aggressive government responses to the downturn included fiscal stimulus and rescue packages and sustained high governmentspending. Saudi Arabia increased government spending for 2009 by 15.8 percent, with a $124.7 billion stimulus package. After a long period of political deadlock, Kuwait passed a stimulus package of $5.2 billion in April 2009 to help speed up economic recovery. The United Arab Emirates provided some $32.7 billion in subsidies and assistance to its financial and investment institutions. GCC sovereign wealth funds, though they lost significant percentages of their values, also played a role in mitigating the effects of the crisis by providing liquidity and increasing financial stability. The funds’ increased involvement in financial transactions has brought them under greater scrutiny by regulators throughout the world.
Although GCC countries face significant reductions in economic growth over the next two years, their overall performance will largely be determined by the duration of the global recession and the fluctuation of oil prices. As these economies try to ride out the crisis, economists stress the importance of coordinated policy responses, tighter control of financial structures, and greater measures to improve investor confidence.
Oil Importers: Effects of the Crisis
Net oil importers including Morocco, Tunisia, Egypt, Jordan, Syria, and Lebanon are likely to see a delayed impact of the downturn. Economists, including Masood Ahmed, director of the Middle East and Central Asia department at the International Monetary Fund, predict that pressure will intensify throughout 2009, as major industries in these countries suffer the effects of decreased remittances, which are a significant source of national income. These countries will also suffer an overall decline in foreign direct investment, and lower tourism revenues―notably Jordan and Morocco, where international tourism made up 10 and 9 percent of GDP respectively in 2008.
Remittances totaled $33.7 billion across the Middle East’s oil-importing economies in 2008, constituting 8 percent of GDP in Morocco, 14 percent in Jordan, and a remarkable 20 percent in Lebanon. Remittances across the region are expected to fall from a total of $33.7 billion in 2008 to $29 billion in 2009. Though the drop in remittances seems marginal, coupled with an anticipated $11 billion decline in foreign direct investment across these economies from 2008 to 2009, the effects are likely to be painful for individual households. In addition to a decrease in annual exports and imports, capital flows are also expected to fall. The effects of the tightening financial conditions in the GCC countries are already discernable in the form of decreased FDI flows to non-oil countries, which traditionally targeted the industrial sector, infrastructure, and real estate markets.
As Middle Eastern economies are not deeply integrated into the global economy and have fewer links to global financial institutions, they have not been as hard hit by the crisis. But they are likely to suffer secondary effects resulting from decreased capital flows, slumping further into poverty and higher unemployment. Unemployment rates are expected to jump from 9.5 percent in 2008 to 10.3 percent in Morocco in 2009, for example, and from 8.4 percent in 2008 to 13.9 percent in 2009 in Egypt. Inflation has also increased following a spike in commodity prices in early summer 2008, causing social unrest in Tunisia, Lebanon, Morocco, Egypt, and Mauritania.
Economists expect the impact of the crisis to intensify as Middle Eastern countries’ trading partners and leading investors focus on their own recoveries, and as the global economy experiences slower, if not altogether stymied, growth. As long as the major industrialized countries continue to experience uncertainty about their own growth prospects, the future of direct investment in Middle Eastern economies will also face uncertainty.
Oil Importers: Responses to the Crisis
Most oil importers have responded to the crisis by adopting fiscal and monetary policies to ease the pressure and reducing fiscal deficits. Tunisia, Jordan, and Morocco have taken measures to ease monetary pressures by lowering interest rates, but until now, policy measures have been largely inadequate due to limited resources. International Monetary Fund economists stress the need for these countries to pursue better coordinated measures including structured fiscal reforms, improved financial supervision, and long-term planning.
Tunisia leading the economy boom across the Arabian spring THREE years to the day since then-president Zine al-Abidine Ben Ali fled the country, Tunisia is faring better than other countries that ousted their leaders in 2011. Tunisia’s politicians have opted for compromise rather than zero-sum politics. Democratic institutions appear to have a good chance of taking root. Some Tunisians, including outgoing prime minister Ali Laarayedh, hope the country can be a model for how to transition to democracy, something he branded "Made in Tunisia". The Tunisian economy recovered somewhat in 2012, with GDP growing by 3.3%, but this was insufficient to respond to the country’s main challenges: unemployment, especially among young graduates, and regional disparities. Tunisia’s political transition has taken longer than expected, with postponed elections and a growing political divide. Political debate prevails over an economic reflection. Tunisia has maintained its development potential, but reforms must continue to strengthen sectors with a high value added. Modernisation of agriculture and the development of energies should help Tunisia make better use of its natural resources. Overview Tunisia’s economy rebounded in 2012, growing by 3.3%. A good agricultural season and the relative recovery in tourism, foreign direct investment (FDI) and hydrocarbon and phosphate production, which almost stagnated in 2011, contributed to the economic recovery. However, the European crisis and the decline in external demand had a negative impact on exports, particularly of textiles and machinery and electricity. Overall, production benefited from a more stable social climate in 2011 and continued domestic demand, but the economy as a whole is not improving as fast as was expected. Unemployment remains high, as do the current-account and budget deficits, because of the lack of structural reforms and the failure of the country’s main economic partner, Europe, to achieve a strong economic recovery. The greatest risks are ideological tensions, protests and possible pre-election populist policies, which could lead to overspending. Political uncertainty is slowing down economic decisions and weakening the recovery that has begun. Security has deteriorated, tarnishing Tunisia’s reputation as a safe country. The government is expected to continue with the line of reforms undertaken by the transitional authorities to improve growth and governance and diminish regional disparities. These reforms should be accompanied by a stable climate that can be maintained in the long term to restore investor and public confidence. Tunisia’s main natural resource, phosphate, remains vital to an economic recovery in 2013. For many years the country has been developing its phosphate processing industry to produce phosphoric acid and fertilisers, becoming the world’s second largest producer and leading exporter of trisodium phosphate (TSP), with 21.7% of global production and 31.2% of global exports. To expand its exports, the public corporation Groupe chimique tunisien (GCT) is involved in international co-operation projects with partners from India (Tunisian Indian Fertilizers, Tifert) and China. The structural changes under way are set to continue, with improvements to the way natural resources are used. Figure 1: Real GDP Growth 2013 (North) Africa - Real GDP growth (%) Northern Africa - Real GDP growth (%) Real GDP growth (%) 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -2.5% 0% 2.5% 5% 7.5% 10% 12.5% Real GDP Growth (%) Figures for 2012 are estimates; for 2013 and later are projections. http://dx.doi.org/10.1787/888932805840 Table 1: Macroeconomic indicators 2011 2012 2013 2014 Real GDP growth -1.9 3.3 3.4 4.6 Real GDP per capita growth -3 2.2 3.3 3.5 CPI inflation 3.5 5.6 5.5 4.5 Budget balance % GDP -3.4 -6 -5.9 -4.8 Current account % GDP -7.4 -8 -7.5 -6.7 Figures for 2012 are estimates; for 2013 and later are projections. The coalition government led by Nahda, Tunisia’s main Islamist party, is handing over power to a non-party government. The move comes after the assassinations of two opposition politicians prompted street protests last summer calling for its resignation. The new government will rule until elections later this year. Nahda's voluntary exit from power will allow it to go into the next polls claiming to have put the country’s stability ahead of its narrow party interests. Meanwhile, an assembly elected in 2011 is in the final stages of approving a new constitution. The document has so far pleasantly surprised observers, some of whom were worried that Nahda’s Islamist views would dominate. The document endorses freedom of religion. And it commits the Tunisian state to working towards equal representation of women in all elected bodies—a measure unprecedented in the Arab world. (This article passed because 46 Nahda members of the assembly, including a large cohort of the party’s female parliamentarians, voted in favour of it.) Tunisia’s ability to broker compromise between those who espouse Islamist principles in government and those who want to keep religion out of public affairs has given it the edge over other Arab states in transition. The relative homogeneity of this nation of 10.6m helps. Education levels are higher than in Egypt. The army prefers to keep out of both politics and business while career civil servants have developed a professional ethos. A feisty civil liberties lobby finds a willing ear in the media at home and abroad. This has obliged Nahda to face down conservatives within the party, as well as more radical Islamists outside it. Yet, to keep the democratic process on track, the authorities will have to improve Tunisians’ quality of life. A series of riots across the country in the past week have once against demonstrated how local gripes—from tensions with customs officials in a village where contraband is a mainstay to a protest against a rise in vehicle tax—can trigger unrest. Many, especially outside the capital, feel that their demands for better infrastructure and heath services have not been addressed. Unemployment is stubbornly high. Food prices are rising. Incoming prime minister Mehdi Jomaa will have his work cut out. According to recent reports by the International Monetary Fund (IMF) and World Bank, the global recession set off by the financial crisis in late 2008 has strained Middle Eastern economies, but early signs suggest that the downturn in the region has not been as severe as it has in other emerging markets. Arab economies are, on the whole, weathering the crisis better than others in the short term. In the long term, however, a prolonged recession is likely to create the potential for social and political instability. Oil economies have managed to maintain high levels of capital spending despite the decrease in oil revenues. Non-oil producing countries, on the other hand, might show delayed effects as capital inflows from remittances, foreign investment, and tourism revenue fall and affect the rest of their economies. Countries less integrated into the global economy are not likely to see severe losses. Gross domestic product (GDP) growth for the entire Middle East in 2008 was 6 percent, but is projected to fall to 3.1 percent in 2009. This is a radical departure from the IMF earlier forecast of 5.9 percent growth for 2009, but still compares favorably to other emerging economies, such as Latin America’s, where GDP growth fell from 4.2 percent in 2008 to -2.2 percent in 2009. Middle East and North Africa Forecast Summary annual percent change unless indicated otherwise Oil Exporters: Effects of the Crisis Oil-exporting countries experienced a sharp decline in oil revenues at the onset of the economic crisis. Although forecasts show relative increases in oil prices, it is unlikely revenues will soon return to the all-time highs they reached prior to the crisis. Lower oil prices and declining government revenues in Gulf Cooperation Council (GCC) economies created significant deficits in fiscal balances, which affected investor confidence and contributed to a drop in equity prices. The real estate market, a major investment market in the Gulf, reflected similar investor fears and a credit crunch. Despite the fall in oil and gas revenue, the decline of the stock markets, and the problems of the real estate sector, the region’s oil exporters (including GCC countries, as well as Algeria and Libya) have proven resilient, due to sustained high oil prices in the pre-crisis boom and government responses that helped mitigate the effects of the downturn. Between 2005 and 2008, high oil prices facilitated robust economic growth, including various diversification efforts throughout oil economies, leading to increased non-oil growth between 2005 and 2008. This helped oil-exporting countries build up foreign assets and lower government debt, cushioning their financial systems, although they did suffer losses from investing in foreign assets. Oil Exporters: Responses to the Crisis According to IMF reports, aggressive government responses to the downturn included fiscal stimulus and rescue packages and sustained high governmentspending. Saudi Arabia increased government spending for 2009 by 15.8 percent, with a $124.7 billion stimulus package. After a long period of political deadlock, Kuwait passed a stimulus package of $5.2 billion in April 2009 to help speed up economic recovery. The United Arab Emirates provided some $32.7 billion in subsidies and assistance to its financial and investment institutions. GCC sovereign wealth funds, though they lost significant percentages of their values, also played a role in mitigating the effects of the crisis by providing liquidity and increasing financial stability. The funds’ increased involvement in financial transactions has brought them under greater scrutiny by regulators throughout the world. Although GCC countries face significant reductions in economic growth over the next two years, their overall performance will largely be determined by the duration of the global recession and the fluctuation of oil prices. As these economies try to ride out the crisis, economists stress the importance of coordinated policy responses, tighter control of financial structures, and greater measures to improve investor confidence. Oil Importers: Effects of the Crisis Net oil importers including Morocco, Tunisia, Egypt, Jordan, Syria, and Lebanon are likely to see a delayed impact of the downturn. Economists, including Masood Ahmed, director of the Middle East and Central Asia department at the International Monetary Fund, predict that pressure will intensify throughout 2009, as major industries in these countries suffer the effects of decreased remittances, which are a significant source of national income. These countries will also suffer an overall decline in foreign direct investment, and lower tourism revenues―notably Jordan and Morocco, where international tourism made up 10 and 9 percent of GDP respectively in 2008. Remittances totaled $33.7 billion across the Middle East’s oil-importing economies in 2008, constituting 8 percent of GDP in Morocco, 14 percent in Jordan, and a remarkable 20 percent in Lebanon. Remittances across the region are expected to fall from a total of $33.7 billion in 2008 to $29 billion in 2009. Though the drop in remittances seems marginal, coupled with an anticipated $11 billion decline in foreign direct investment across these economies from 2008 to 2009, the effects are likely to be painful for individual households. In addition to a decrease in annual exports and imports, capital flows are also expected to fall. The effects of the tightening financial conditions in the GCC countries are already discernable in the form of decreased FDI flows to non-oil countries, which traditionally targeted the industrial sector, infrastructure, and real estate markets. As Middle Eastern economies are not deeply integrated into the global economy and have fewer links to global financial institutions, they have not been as hard hit by the crisis. But they are likely to suffer secondary effects resulting from decreased capital flows, slumping further into poverty and higher unemployment. Unemployment rates are expected to jump from 9.5 percent in 2008 to 10.3 percent in Morocco in 2009, for example, and from 8.4 percent in 2008 to 13.9 percent in 2009 in Egypt. Inflation has also increased following a spike in commodity prices in early summer 2008, causing social unrest in Tunisia, Lebanon, Morocco, Egypt, and Mauritania. Economists expect the impact of the crisis to intensify as Middle Eastern countries’ trading partners and leading investors focus on their own recoveries, and as the global economy experiences slower, if not altogether stymied, growth. As long as the major industrialized countries continue to experience uncertainty about their own growth prospects, the future of direct investment in Middle Eastern economies will also face uncertainty. Oil Importers: Responses to the Crisis Most oil importers have responded to the crisis by adopting fiscal and monetary policies to ease the pressure and reducing fiscal deficits. Tunisia, Jordan, and Morocco have taken measures to ease monetary pressures by lowering interest rates, but until now, policy measures have been largely inadequate due to limited resources. International Monetary Fund economists stress the need for these countries to pursue better coordinated measures including structured fiscal reforms, improved financial supervision, and long-term planning.
