Tunisia: Tunisia’s economy slow to change, even as election shifts politics

Parliamentary and presidential elections are drawing to a close in Tunisia, marking significant democratic reforms. However while the country is changing politically, residues of the old authoritarian regime are still visible in the economy, stifling increase.

The preliminary results for the initial round of presidential elections were released on 25 November. A second round run-off will be held in next month between Nidaa Tounes, leader of the Beji Caid Essebsi party, and Congress For the Republic party candidate Moncef Marzouki.
The initial run result, while inconclusive, means four candidates who were former officials in the regime of Zine El Abedin Ben Ali can no longer bid for the presidency. Mr Ben Ali was deposed in 2011 during the wave of Arab Spring protests that swept the Middle East and North Africa.

The old regime's former central bank governor Mustapha Kamel Ennabli, former trade minister Mondher Znaidi, former foreign minister Kamel Morjane, and former transport minister Abderrahim Zouari all failed to make an impression on the electorate, and have presently been taken out of the running.

However the failure of some of Ben Ali's men to take power does not mean the old regime has vanished. The leading candidate, Mr Essebsi, as well held senior positions under Mr Ben Ali, and held offices as high as Interior Minister under Ben Ali's predecessor, Habib Bourguiba.
And while the new political landscape is not from presently on fully formed, in the economy the legacy of one party policy is profound. Politically Tunisia has moved on, but economically much of the old regime's system remains in place.

The World Bank believes up to 50 % of the country’s economy is made up of national protected firms that as well receive national funding. These funds accounted for 3 % of the government's budget in 2013. Protected firms are as well granted access to privileged contracts.

Mr Ben Ali’s insiders sit atop this structure. The 220 firms captured by the Ben Ali clan by the end of 2010 accounted for 21 % of all private sector profits in the country - equivalent to 0.5 % of GDP.

In order to penetrate the closely held network of elite interests that dominate the country’s public and private sectors, the country's youth still need wasta (connections) in order to access the better, additional stable jobs. As a result, around 60 % of young workers fall into the informal sector or become unemployed.

On the inside

Connected insider firms are still able to manoeuvre themselves into privileged positions, deadening competition and inviting corruption. This cronyism is most prevalent in Tunisia's financial, telecoms, and transport industries, but span the whole economy.
According to Antonio Nucifora, the World Bank’s lead economist for Tunisia, banking is one particularly egregious example. According to Mr Nucifora, underperformance has dissuaded as much as 20 % of investment into the sector.
“This is critical, but the pattern of exclusion and privilege operates everywhere, from the major national business deals to small licenses,”

“Production is hampered, and so is economic increase, but there is as well the sense of exclusion and injustice that this system entails.”

Counting the costs

The regulations that produced Tunisia's current economic order were initial designed in the 1970s at the same time as the country had only limited domestic industries. They are presently mismatched with the changed needs of the economy.
The effects are clear to see, and exacerbated by lower increase rates since the Arab Spring revolution. Inflation remains high and at 15.2 %, unemployment is rife. Youth unemployment is estimated to be as much as double regular unemployment, and graduates equitable little better than less skilled youth.

Despite signals of political change coming off the back of the electoral process, credit ratings agency Fitch downgraded Tunisia to BB- on 30 October with a negative outlook.

The demands of Tunisia's revolution were closely tied to economic change, like additional employment and access to opportunity. As such, the exclusive nature of the current economic system may pose a direct threat to the transition process.

“It is very significant that the economic problems built into the system during the old regime are addressed,” says the World Bank’s Mr Nucifora.
“The roots of the instability that brought people to the streets in 2010 were mainly economic: people were frustrated and excluded by this system. If it is not addressed, again down the line there is certainly a luck that the same instabilities could re-emerge.”