Results Profile: Tunisia

 

In the half century since its independence, Tunisia has made major economic and social advances, including a quadrupling of per capita gross domestic product (GDP) and an increase in life expectancy to near developed country levels.

The creation of an offshore regime in 1971 to reduce the anti-export bias of the country’s strict import-substitution policy of the 1960s contributed to economic performance. It allowed Tunisia to attract foreign direct investment (FDI), break into global manufacturing chains and create jobs in the clothing and manufacturing sectors. 

It was evident, however, that a hybrid trade policy combining heavy protection and control of the domestic economy with an offshore business climate was inconsistent with robust long term-growth and job creation. As students leaving university began to struggle to find work in the early 1990s, the unemployment rate began climbing, reaching 15 percent in 1999.  The jobless rate has declined slightly since then, but remains at around 14 percent. 

The government of Tunisia recognized it needed to enhance the efficiency and competitiveness of its domestic economy to avoid a significant deterioration of the employment situation.    

Tunisia’s 1995 Association Agreement with the European Union (EU) served to lock in private sector development and trade reforms. The government established a plan to gradually reduce protection of the onshore sector but accompanied it with reforms to adjust to heightened competition and to enhance competitiveness of Tunisian firms.

Reforms thus encompassed trade and logistics reforms; administrative and regulatory reforms to enhance the investment climate; creation and empowerment of a competition council; and reform of the banking and insurance sectors to increase access to finance and liberalization of key services, such as maritime transport, port and telecommunication sectors.

Through a range of development policy loan programs with IBRD, Tunisia has boosted its global competitiveness and recorded a doubling of exports over 10 years.

Total productivity rebounded from a negative rate in the 1980s to 1.24 percent in the 1990s and 1.4 percent in 2000-2006. While growth in 2000-2006 remained below South Korea’s and Malaysia’s, it represented one of the best performances in the Middle East and North Africa. Furthermore, exports of goods doubled in value between 1996 and 2007, while annual foreign direct investment (FDI) flows increased steadily, averaging 5 percent in 2006-2008.

Achievements of Bank-supported programs that directly contributed to Tunisia’s competitiveness include:

• Strengthening the competition law and creation of a competition council
• Simplification of procedures for business start-ups, including establishment of a one-stop licensing system and the reduction of “prior-authorization” from over 400 activities to 60
• Elimination of the restriction on foreign participation in capital of insurance firms
• Partial liberalization of the telecommunications sector, which led to a significant increase in access and lower prices for telecom services
• Simplification of the tariff regime by progressively reducing the number of tariff bands from the initial 54 to five
• Reduction in average port clearance time from six to three days; reduction of waiting time for approval of an industrial zone from almost 4 years to 6 months, between 2000 and 2008
  

Tunisia needs to further boost private investment and productivity growth to reach 6-7 percent growth and reduce unemployment. While FDI inflows have been healthy, domestic private investment only increased from 12.3 percent of GDP in 1997 to 14.2 percent of GDP in 2007.

Tunisia’s economic sectors are intensive in low-skilled workers, and only 15 percent of currently employed people have a university degree. Thus, the economic space for absorbing university graduates, who constitute 60 percent of new entrants in the labor market, is limited.

A key challenge will be to promote a gradual transformation of traditional sectors into higher-value-added, knowledge-intensive sectors, as well as increased investments in new technology sectors. The Bank is committed to supporting the Tunisian government’s growth model through analytical work, technical assistance and development policy loans in coming years.