Friday, February 25th, 2022 – Hybrid Workshop
- Maher Gassab, Economic Expert and University Professor
- Lobna Jribi, Former Minister in charge of Major Projects
- Ali Kooli, Former Minister of Economy
- Aram Belhadj, Economic Expert and University Professor
- Achref Ayadi, Economic Expert & Banker
- Habib Karaouli, Chairman & CEO of CAP Bank
- Safouane Ben Aissa, Professor of Economics, University of Elmanar Tunis
- Bilel Sahnoun, CEO of Tunis Stock Exchange BVMT
- Ridha Chkoundali, Economic Expert and University Professor
- Maher Gassab, Economic Expert and University Professor
- MEF: Maghreb Economic Forum
- ACET: African Center for Economic Transformation
- JICA: Japan International Cooperation Agency
- TICAD: Tokyo International Conference on African Development
- DEPTH: Diversification, Export, Productivity, Technology, Human,
- NEPAD: New Economic Partnership for Africa’s Development
- OSBP: One Stop Border Posts
- ITEQ: Tunisian Institute of Competitiveness and Quantitative Studies
- GDP: Gross domestic product
- GFCF: Gross Fixed Capital Formation
- NSDC: National Social Dialogue Council
- GVCs: Global Value Chains
- SOEs: State-owned enterprises
The Government of Japan and Japan International Cooperation Agency (JICA) have been supporting Africa’s transformative efforts since Ticad3 in 2003, when the New Economic Partnership for Africa’s Development (NEPAD) was agreed as the main theme of Africa’s development. More specifically, JICA has been taking the lead in initiatives such as: doubling rice production, corridor development, One-Stop Border Posts (OSBP) since the 2000s, and more recently, promoting Japanese business in Africa, digital innovation, start-ups, etc.
While the global COVID-19 pandemic is a crisis it can also offer the opportunity for Africa to “build back better” in the post-COVID-19 era. In this context, the forthcoming Ticad8 in Tunis, 2022, is expected to discuss what African countries and their development partners should and will do in the post-COVID-19 Era.
ACET (African Center for Economic Transformation) received from JICA the task to carry out policy-oriented research on “New Policy Agenda” to be discussed with the government of African countries and their development partners during the 2022 TICAD8.
The Maghreb Economic Forum had the privilege to be assigned to conduct Tunisia’s study with consultancy services performed by Prof. Aram Belhadj.
The purpose of this study titled “New Policies to Build a Resilient Economy in the Post-COVID-19” Era” is to contribute specific policy recommendations in Tunisia for the formulation of a “New Policy Agenda” to guide the discussions in 2022 TICAD8 meeting between co-organizers and African governments.
It is this background that this workshop webinar was organized.
It took place at MEF’s Podcast Studio with the presence of Prof. Aram Belhadj and Prof. Maher Gassab as keynote speakers and online participation of many Tunisian public figures with high expertise on economic issues. The discussions revolved around finding answers to the following questions:
- How are the different development plans of the last two decades in Tunisia (coherence, prioritization, sectors, etc.) judged?
- Which sectors have contributed the most to growth? And was this contribution linked to specific sectoral policies?
- Has Tunisia succeeded in its structural transformation? Can you identify some public policies that can influence this type of transformation?
- How is the economic impact of Covid-19 assessed? Does this constitute a proof that the economy is resilient/fragile?
- How should Tunisia be prepared to avoid the same scenario of the pandemic shock and its effects on the economy?
- If you had to rank Tunisia’s main vulnerabilities in order of importance, how would you do it and why?
- Purely economic vulnerabilities: trade and globalization
- Climate change and increasing stress on natural resources
- Social dynamics and inequalities
- Technological changes
If not, what other key vulnerabilities are missing from this list?
- Is Tunisian economy resilient? If so, what are the determinants of this resilience?
- Is the expansion of fiscal space a prerequisite for any reform? Or is it possible to carry out reforms in education and training (human capital) and investment in infrastructure (physical, agricultural, technological, etc.) while acting on substantive issues (liberalization of the economy, rentier economy, etc.)?
- Given the context of the exit from the progressive Covid-19 crisis, what economic opportunities are within Tunisia’s reach in 2022?
- What are the fundamentals of the Tunisian economy that you think should be kept (or ensure its continuity) and what are the areas where you feel a “break” with the past is necessary?
Tunisia’s growth and economic transformation context over the last 20 years can be divided into two periods. The break is represented by the events that took place during weeks between the 17th of December 2010 and the 14th of January 2011 when the people (particularly the youth) revolted against the incumbent political regime forcing a democratic transition that has come to be known as the “Arab Spring”. The events of the “Arab Spring” are relevant for the current study for two reasons:
- They are rooted in deep seated structural features that partly reflect past weaknesses of the growth and transformation process and its failure to respond to the expectations of the people.
- They continue to have a significant economic implication as the democratic transition has become a long and at times chaotic process, delaying the establishment of the national consensus around the economic reforms and transformative policies needed to promote inclusive, sustainable, and resilient economy.
According to ITEQ [Tunisian Institute of Competitiveness and Quantitative Studies (2020d)], the average real rate of growth of total GDP of the Tunisian economy fell from 4.4% between 2002 and 2010 to 0.7% between 2011 and 2020 against, which balanced against the fact that this is a late demographic dividend taker), the GDP per capita regressed from 3.4% to -5%, followed by a decline in public consumption (by 0.9% to 0.5% of the GDP) and private (from 2.7% to 2.1%) in GDP as well as an investment rate in decline and going from 23.3% of the GDP to 19.4% of the GDP after the revolution. In fact, the average Gross Fixed Capital Formation (GFCF) during 2011-2020 is in the negative (-4.7% compared to 3.3% for the preceding period).
He started by recalling the context and the objectives of the study and thanking all the parties involved in making this research possible and particularly ACET for Africa for their reliable and valuable comments and suggestions.
Then, he gave a brief outline the research’s results followed by explanation of key findings. the first is coherence and consistency of national plans and development strategies over the last 20 years then comes the assessment of policies for structural change and economic transformation. Third, we have Covid-19: implications and the lessons learned.
The fourth point is the key vulnerabilities and the risks faced by Tunisia to Global Drivers of Change. The fifth point revolves around the key challenges in addressing vulnerabilities and achieving a resilient economy for Tunisia. Last and not least we have the key lessons and policies to economic transformation and resilience.
While analyzing the first point, he discovered that:
- Tunisia’s growth and economic transformation context over the last 20 years can be divided into two periods:
- 2000-2010: non transformative and non-inclusive growth.
- 2011-2021: absence (or weakness) growth.
- GDP growth was linked to a good performance of few main sectors: the agriculture, mining, and the tourism (10th plan).
- The decline of GDP growth was a natural consequence of a combination of internal (insufficient support to exporters, business climate deterioration, social troubles) as well as external factors (crisis, increase of competition, etc.) (11th plan).
- The absence (or weakness) growth was the result of “political economy” considerations: political instability, bad governance, and absence of structural reforms (2016-2020 plan).
Development plans failed to achieve their objectives and economic policy kept postponing structural problems of the economy which caused a deterioration of the economic as well as financial situation.
As for the evaluation of the assessment of policies for structural change and economic transformation, it was important to highlight what follows:
- During the 2000 decade:
Merchant services had the primary role, with a contribution in economic growth reaching an average of 54.6% followed by non-merchant services (16.1%) and manufacturing industries (11%).
Tertiarization of the economy, but, at the expense of qualified workforce, modern industries, and R&D investments
- During the last decade:
Change in the contribution of every sector in the economic growth. The sector of non-merchant services took over with a contribution valued at 70.9%, on average, followed by agriculture (due to good harvests).
Deindustrialization is due to the decrease of investments, small market size, and reliance on one main partner (EU).
The pace of the progression of labor productivity in Tunisia continued to decline throughout the last two decades in all sectors (except agriculture). This decline is due to cyclical and (especially) structural factors:
- The decline in service sector is due to a dependence on external shocks and the lack of diversification.
- The decline in manufacturing sector is due the absence of subsector development strategies, presence of financing problems, the insufficiency of commercialization/marketing activities and the disconnection between entirely exporting companies and others.
- The decline in non-manufacturing sector is due to social unrests.
The growth in labor productivity is achieved through an intra-sectorial progression of productivity (within effect) instead of an inter-sector factor one (structural effect) because of the absence of structural reforms.
The decomposition of sectoral Total Factor Productivity shows that the continual decrease in growth in Tunisia was the result of a decline in technological progress in all sectors, except agriculture:
Even in episodes where the economy succeeds to grow, this growth lacks «DEPTH» (Diversification, Export, Competitiveness, Productivity, Technology, Human well-being).
Assessing the Covid-19 impacts, Aram briefly noted that it did not only cost lives in Tunisia, but also had costly economic and social repercussions. It also impacted social groups in varying degrees, further aggravating inequalities.
In addition, despite the variousness of the containment measures put in place by the Tunisian government, the macroeconomic situation remains fragile. Therefore, the resilience was rather microeconomic.
While examining the main vulnerabilities of the Tunisian economy, four types of risks were identified:
- Economic, related mainly to trade and globalization and are characterized by:
- Severe inability to cover imports through exports
- The price effect would have a considerable impact on the commercial balance with high dependency on imported goods & equipment
- Complex and opaque customs procedures and insufficient port infrastructure remain a key bottleneck.
- Climate, environmental, and natural resources stress, characterized by:
- Progressive raise of average annual temperatures and decrease of precipitations in the next years is expected to disrupt agricultural seasons and subsistence farming.
- Reducing national carbon intensity in Tunisia by 45% in 2030 needs 19,3 billion USD.
- Evolution of electricity produced through renewable energy in Tunisia is not sufficient.
- Dependency to fossil energy is still high.
- Population dynamics and social inequality:
- Tunisians are getting married less, at an increasingly later age, and are having less children.
- Increasing number of women with higher education degrees compared to men.
- Women are increasingly involved and active in the civil society, claiming more social and civil rights, which has caused social disruptions that complicate marriages and their endurance in a conservative country.
- Technological changes:
- More democratic access to the internet and a quality of bandwidth in constant improvement.
- Tunisia is considered as being relatively better performing than other countries with a similar level of development, producing relatively more innovations.
- A substantial legislative change remains hampered by the political environment.
The key challenges Tunisia needs to confront to address the above-listed vulnerabilities and achieve a resilient economy are as follows:
- Fiscal space
- The fiscal pressure on wages and indirect taxes are evolving faster than on companies.
- Public companies generate weak revenues, and they absorb significant resources to deal with their debts (towards banks and suppliers) or debt guarantees.
- Social dialogue issues and governance problems are blocking restructuring of these companies.
- Tunisia is ranked 5th in Africa according to the regional integration index of ADB.
- Maritime and aerial transport reform are a matter of priority to adjust Tunisia’s international competitiveness.
- External debt for 10 years period was used essentially to finance management expenses, and not for investments in infrastructures.
- Liberalization-related challenges
- Tunisia is categorized in the group of countries considered generally not free with a ranking of 119 of 178 countries.
- Key weaknesses are:
- Vulnerable property rights, a judicial system with a susceptibility for corruption, a costly fiscal system, the complexity of social law and a particularly archaic monetary exchange law which penalizes international transfers
- Human Capital
- UNICEF indicates that only 48,7% of adolescents finish their second level of education (high schools) and blames it on an underperforming educational system, with insufficient bases.
- Studies show inadequacies between qualifications and the needs of the market which offers low-quality jobs to those with degrees.
- Tunisia is facing an accelerating massive brain drain.
Aram ended his presentation by listing the key measures that should be adopted to help bring the Tunisian economy back on track. These measures include:
- Multiplying the numbers of those employed in exporting sectors, and faced with the rise in international demand, which would allow better control over the commercial balance deficit, and refilling the reserve in foreign currency, which are critical for debt.
- Raising the support capacity of the Tunisian diaspora for the economy, by trying to share the transactions between the needs of local families, productive investment, and the public financial debt.
- The sustainable transformation of the tourism sector, by reestablishing the affordability of process to attract new clients, namely officials and high officials, and exiting the position of the low-cost destination for short stays by relying on a mix of quality of life and for several months.
- Relocating a part of the value chain, or at least repositioning them close to exploitation and consumption centers due to post-covid logistic difficulties.
- The decarbonization of processes in the value chains, with the will of Europeans industries to relocate their productions where they can find engagements concerning consumption and green energies, reduction in reliance on fossil energy, and recycling capacities.
- Implementing an equilibrated governance between economic rights given in the constitution and the necessary sources of revenues needed to cover them, is a important first step. It means that the constitution of 2014 needs amendments to be aligned with a realistic economic ambition.
- A new organization of public powers in economic matters between the government and the central bank, the fiscal administration, and corporations (accountants, doctors, lawyers, etc.) and activation of an Economic and Social Council.
- The State cannot commit instead of the economic actors and must prepare for them a modern and dynamic framework (active sectorial policies, strategic planification, etc.) and then allow margins of execution.
- Climate change plan and development of a green economy need a voluntarily policy that political stakeholders should agree as a long-term commitment of the country whatever the government is.
- The ability of the innovation ecosystem to attract foreign investors and to benefit from abroad money flows need deep reforms, particularly related to the exchange code and the liberalization of current account in foreign currencies.
- Activating volunteering policies of relaunching growth and public investment (especially in transport infrastructures), the attractivity to direct foreign investments, and the acceleration of public companies’ reforms.
- Investment in the human capital and innovation, with special focus on linking R&D activities.
Who gave some inputs regarding the evaluation of the development plans and the reasons behind the failure in implementing them.
The design of Tunisia’s strategic plan 2022-2025 needs to address and consider the different factors acting as barriers ad make the necessary recommendations.
One of the inherent barriers she faced while serving as a Minister of Major Projects was the local factor, and the lack of ownership among local authorities and local public agencies which made it impossible for many projects to be completed.
Considering participatory approaches to planning can deal with this kind of issues.
The second point raised by Lobna was the necessity to reorganize the public administration and rethink the government’s role to improve the efficiency of their work, and therefore accelerate the country’s economic transformation.
Regarding the social dialogue, Lobna insisted on emphasizing the crucial role the National Social Dialogue Council (NSDC – CNDS) – created in 2018 – could play in facilitating the social negotiations and contributing to socioeconomic stabilization.
The last she raised was the necessity to assess the corruption and rentier economy that still paralyzes the Tunisian economy and block all transformation attempts.
He believes that the problems Tunisia’s economy faces date back to the early 2000s despite the opportunity it was given then.
He added that all the different reform endeavors adopted since the revolution has deepened the economic stagnation.
There are many reasons explaining this stagnation such as the political instability, the absence of clear plans for economic reforms, and prioritizing tax incentives over technological transformation. That’s why we ended up now with an amorphous and more sluggish economy with poor companies and wealthy businessmen.
What makes the situation even worse is that no lessons have been learnt. Three-year plans are no longer viable. Long-term visions are required for every sector.
He finished his analysis by expressing his disappointment at Tunisia’s continuing inability to produce economic growth. Only sustainable and inclusive growth can pull the country’s economy out of slump.
In his introductory address appreciated Aram for introducing the business resilience. This resilience was justified in the stock market activity which is a good thing.
His intervention mainly focused on the following remarks:
- Public policies: Mainly those adopted since the 70s, Tunisia should have adjusted them to meet current needs rather than abending them. The emergency to save state-owned companies, particularly those capable to deliver added value.
- Missed opportunities: Tunisia missed two major opportunities in its economic transformation process. The first was the sustainable and solidarity economy and the second was the digitalization.
- The redistribution of the Global Value Chains (GVCs): Tunisia was unable to reposition itself and benefit from its geographic and economic proximity to Europe.
- Agriculture: This sector deserves more attention in economic reforms. As the study shows, it was the only sector that achieved productivity gains.
- Legal framework: The legislations that regulate the employment relationship between different parties. The labor code included.
His presentation mainly focused on the study’s methodology. His remarks concerned:
- Periodization: he opined that it would be beneficial to this study to propose another periodization which is 2002 – 2008 / 2008 – 2010 and then 2010 – present. He believes that the events that took place in Gafsa mining basin 2008 and the world financial crisis of 2008 had an acute impact on the Tunisian economy reflected by the growth rate and the increase in social revindications.
- State-owned enterprises (SOEs): heavily-loss making machines that dominate and plague the Tunisian economy. Habib opined that an entire section should have been dedicated to these SOEs.
- Covid-19 and unemployment: Covid-19 was responsible for the appearance of another type of unemployment that should be treated differently.
- Business demography: Habib emphasizes the need to add an entire section to this aspect. The number of deaths of newly born enterprises is staggering. 60% of enterprises in Tunisia die 3 years after their creation.
- Bureaucracy as a blocking element: Habib elucidated that reforming the public administration is senseless. He also stressed on the importance of limiting and shrinking its scope instead.
- Regional disparities: deepened by a paradoxical deceleration in investment and deindustrialization of the thirteen internal governorates during the last decade.
- Resilience: Habib vouches that the Tunisian economy can be resilient as it had gone through similar crises in the past, particularly in 1969, 1986 and 1990 and experienced negative growth rate. However, the recovery is conditioned by the implementation of a clear vision, well-designed tools, and policies.
In his address, he briefly focused on the following areas:
- The emergency to unblock the political issue and amend the constitution. This latter stands for a social project that the Tunisian economy cannot meet.
- The emergency to prioritize reforming the public investment systems and stabilizing the relationship with social partners.
- The emergency to anticipate the profound transformation of the Tunisian society and women participation in the economic development.
- The emergency to innovate the role of public administration and stop the brain drain.
Safouane Ben Aïssa
He delivered the inaugural address emphasizing the need to have such reports assessing different issues other than the four cliched ones so often imposed by the IMF and for devoting an entire chapter to the Covid-19 pandemic.
While addressing the “climate, environmental, and natural resources stress” part in the study and the ecological transition, Safouane expressed his concern in its implementation, especially with the problems the national Tunisian company of electricity and its new renewable energy branch are facing.
Coming to the structural transformation and inclusiveness, Safouane appreciated the first part, but had few remarks concerning mainly poverty.
Another point highlighted by Safouane was the necessity to rethink the economic reforms that must go hand in hand with major projects.