Protesters from Tunisia's poor rural heartlands chant slogans during a Tunisian Revolution REUTERS

How the legacy of ineffective governance following Tunisian revolution continues to handicap economic development

Background: Tunisian Revolution

Following the Tunisian Revolution in January 2011, the country has been led by six different Prime Ministers, and has been under Prime Minister Youssef Chahed since August 27, 2016. Chahed followed his predecessor’s dismissal in a parliamentary no-confidence vote due to, among various reasons, his inability to successfully impose economic reforms. Since the Tunisian revolution, a continued trend of weak governance and ineffective reform has continued to inhibit Tunisia’s economic growth. In this context, Tunisia’s economy continues to struggle as nationwide unemployment has climbed to nearly 16%. Additionally, Tunisia has experienced a sharp contraction in foreign direct investment, which reportedly fell by approximately 57% from 1.58 billion USD in 2011 to 904 million USD in 2015.

As discontent grows among citizens regarding perceived marginalization by government policies and a lack of economic opportunities in outlying areas, incidents of civil unrest, which have generated disruptions in Tunisia’s most vital economic sectors including the oil and phosphate industries, continue to be reported on a relatively frequent basis. Such repeated incidents portray Tunisia as having an unstable environment in which to conduct business for current and potential foreign investors. This ultimately perpetuates the continued decline in foreign direct investment, resulting in negative consequences for possible economic development.

In addition, militant activity in Tunisia continues to drive away both foreign investors as well as potential tourists, further hindering the country’s economic progress. To this end, the country experienced multiple, highly notable militant attacks during the course of 2015. The first attack occurred at the Bardo National Museum in the capital city of Tunis on March 18, 2015 which left 22 dead, the majority of which were European tourists. Three months later, 40 tourists were killed in a June 26, 2015 attack targeting two resorts near Sousse.

Following this, on November 24, 2015 at least 12 security personnel were killed is a suicide bombing attack targeting a bus carrying members of the Tunisian Presidential Security in Tunis. Finally, on March 7, 2016 militants attacked security forces in southeastern Tunisia’s Ben Guerdane, which subsequently developed into intermittent, high-casualty clashes between militants and security forces in the area over the following days. These led to direct and damaging impact on the country’s economy, as clearly demonstrated by the drop in foreign tourism and foreign investment in recent years following the attacks, after an initial clime following the Tunisian revolution.

How the legacy of ineffective governance following Tunisian revolution continues to handicap economic development | MAX Security

The Challenges Ahead

While a slight uptick of direct foreign investment in the energy and manufacturing sectors may be noted due to eased restrictions under newly introduced investment legislation, a major influx in foreign direct investment in the coming months is not likely given Tunisia’s enduring political instability and civil unrest. Similarly, unless government leaders are able to compromise with Tunisia’s labor unions,  economic restructuring and resulting economic growth will be nearly impossible. Given precedent and the lack of progress in reaching a workable agreement between the parties, as well as the threat of severe, widespread civil unrest should the government attempt to enact a labor measure unilaterally, we assess that such progress remains unlikely in the near future.

Job opportunities and related secondary economic activities in the tourism sector are also unlikely to experience significant expansion in the immediate future due to continued economic stagnation. As a result, we assess that the category’s current contribution to the country’s GDP at approximately 7%, or around 3.1 billion USD using 2015 figures, will likely remain stagnant or experience modest growth of one to two percentage points, reaching an average of 3.7 billion USD (given an estimated 2.5% GDP growth rate in 2016).

Taken as a whole, considering Tunisia’s relative political instability and ineffective governance across the board, persisting country-wide civil unrest and high threat of militancy, we assess that in the coming months Tunisia’s economy is unlikely to either surpass or deteriorate from its present state. Furthermore, substantial economic growth in the country will remain considerably handicapped until the administration attains enough authority to implement significant reforms fostering an increase in both domestic prosperity and foreign investment.

How the legacy of ineffective governance following Tunisian revolution continues to handicap economic development | MAX Security

Causes of Economic Decline

Falling Foreign Direct Investment

Although following the Tunisian revolution, Tunisia has been hailed as an emerging model of democracy in the region, the country’s aspiration to develop a stable and inclusive democratic government has yet to be fully realized. After the ousting of President Ben Ali in January 2011 and the subsequent resignation of Prime Minister Mohammed Ghannouchi shortly thereafter, six Heads of Government have been installed, each serving an average of approximately 13 months in office until their eventual resignation or replacement by Parliament vote. With such frequent changes in leadership, the government is effectively operating in “short-term mode,” which presents a significant obstacle in implementing the much needed long-term, sustainable economic solutions that would, for example, increase domestic employment or attract foreign direct investment.

We assess that such frequent changes in leadership further serve to deter foreign investment, as the slew of administrative transitions since the Tunisian revolution create the perception of political instability in the country. Under these conditions, potential investors likely fear that agreements made under one government may be disregarded by successive governments, causing significant damage to the businesses. In this context, on September 17, 2016 Tunisia’s parliament approved a new investment law which will reportedly ease bureaucratic restrictions in an attempt to present a more stable model of economic conduct and attract more foreign investors.  Such a cycle of leadership changes does little to ensure an investment’s security and in effect likely deters new investments.

Civil Unrest and Powerful Unions

An additional primary force dissuading foreign investment is the recurrent acts of civil unrest due to the general anti-government sentiment and high rates of unemployment across the country, particularly in outlying areas where industrial production is often based. To this end, during the month of September, a British gas company declared a temporary force majeure on the Chargui gas field in Kerkennah Island and Canadian oil company employees held a sit-in at the company’s headquarters and oil fields in Tataouine Governorate, underscoring the significant impact of such incidents on foreign business continuity in the country.

Due to repeated work-stoppages and protests over the last year, the phosphate industry reportedly suffered a 4.5 billion USD operational loss, while over 4.9 billion USD were lost as foreign companies have divested from the economy. Such activity places a major obstacle before foreign entities who may consider investing in Tunisia, as the country’s ineffective system of governance as well as pervasive unemployment and the resulting anti-government sentiment does not provide an environment ripe for economic opportunity and investment security.

Current Prime Minister Youssef Chahed has promised major economic progress to come under his leadership, citing a need to crackdown on country-wide protests, and to implement austerity measures including pay cuts and tax hikes, likely in order to satisfy the requirements that come along with the 2.9 billion USD IMF loan granted to the country in June 2016. In this context, public sector salaries in Tunisia accounted for 38% of the 2015 budget and 13.5% of the country’s GDP, one of the highest proportional costs in the world. To this end, Chahed imposed a 30% pay cut to ministerial salaries in September 2016, and reportedly plans to extend similar cuts to other employees in the public sector.

However, regardless of Chahed’s desire to impose such measures, broad public income cuts and other austerity measures have proven to be unachievable given the strong position of labor unions, primarily the dominant Tunisian General Labor Union (UGTT), which exists as a major force in representing citizens’ and workers’ rights in the country, often in opposition to government policy and directives. This conflict was clearly demonstrated on October 6 when the UGTT Secretary General openly asserted that the union would reject any delay or cancellation of wage increases in response to Chahed’s call to put such salary raises on hold as part of a public sector income freeze. Furthermore, on October 20, the UGTT threatened to stage mass protests in response to the the proposed 2017 budget which included measures such as delayed wage raises and new taxes on doctors and lawyers.

While Tunisia’s administration understands these measures to be crucial in revitalizing the country’s economy, sections of the public as well as the labor unions strongly oppose the measures which they view as policies against the interest of Tunisian citizens and laborers. In this context, the ongoing disputes between labor groups and the government present a significant obstacle to initiating sustainable economic development in the country.

Declining Tourism, Persistent Militant Threats

Following the aforementioned four large scale militant attacks in 2015-2016, foreign tourism in Tunisia has dropped by a reported 46% in 2016, with a 48% decline in European tourism overall. Despite significant declines in the conventional European tourist market, an increasing number of Russian and Algerian tourists have been recorded over the past year. However, the tourism sector which provided 400,000 direct and indirect jobs at its height, is unlikely to make a prominent recovery in the near future given the enduring perceived threat of militancy targeting European tourists. Such sentiment is clearly demonstrated by the October 6 announcement from a major UK-based tour operator that has cancelled all services in Tunisia through October 31, 2017. Furthermore, the UK’s Foreign Foreign and Commonwealth Office’s (FCO) current recommendation advises against all but essential travel to Tunisia, further amplifying the perceived danger in the country.

In this context, while we assess that Tunisia’s tourism industry may experience a gradual recovery over the coming year as it becomes farther removed from recent attacks, and depending on its ability to effectively combat the enduring threat of militancy in the country,  it is likely that the sector’s growth will remain limited given the reluctance of Europeans, the bulk of available foreign tourism in the region, to travel to the area thus further hindering potential economic growth. Furthermore, as the cyclical nature of Tunisia’s economic deterioration is perpetuated, it remains likely that local support for militants will continue to grow as some sectors of the population feel that such activity is the only way to take action against the government which they perceive to have implemented policies of marginalization and economic oppression, thereby possibly exacerbating the challenges facing the country.

Recommendations

Travel to Tunis may continue while adhering to all security precautions regarding militancy and civil unrest. Those operating or residing in Tunisia are advised that we maintain operational capabilities in the country. Contact us at [email protected] or +44 20-3540-0434 for itinerary and contingency support options. We currently advise against nonessential travel to outlying towns and cities in Tunisia, due to the lack of travel and tourist infrastructure and a heightened risk for civil unrest and militancy. Furthermore, avoid all travel to within 50 km from the border with Libya, due to the increased threat of attacks originating from Libya targeting Tunisian interests. Those operating in Tunis are advised to avoid nonessential travel to the al-Intikala, Le Kram, Ettadhamen, Ibn Khaldoun, Ennasr, Ariana, Bab el-Khadra, Mornaguia, and Manouba Districts of the capital, due to the potential for unrest as well as militant activities.

 

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