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Beyond Extraction and Austerity: Tunisia’s Path to Prosperity

Traditional approaches to solving Tunisia’s chronic economic problems have shown little efficacy, highlighting the need for a new attitude toward reform.

Tunisia’s 12 million citizens have seen their living standards drop steadily since the 2011 revolution that toppled president Zine El Abidine Ben Ali and inspired uprisings across the region. Unemployment is high, inflation is accelerating, and public services and social safety nets are lacking due to repeated economic downturns and austerity measures. Shortages of essential goods are frequent, while a quarter of Tunisian children live under the poverty line

Tunisia has been entrapped in a seemingly self-perpetuating loop of economic crises for over a decade. Several interventions by the International Monetary Fund have only exacerbated the situation, and officials have rejected yet another program last year, refusing to enact more public spending cuts.

For Tunisia to forge a path toward sustainable prosperity, it must liberate itself from this cycle by confronting structural issues and reclaiming control over its economic and monetary sovereignty. The current leadership has started to integrate such an attitude in its rhetoric, and has taken some concrete action in that regard, albeit still falling short of what is needed. 

This article examines two main hindrances to Tunisia’s economic development: its chronic trade deficit, and the powerful interest groups entrenched within the country’s political and economic structures. It then briefly explores solutions and paths for moving beyond the current economic model.

Chronic deficit, chronic weakness

The pandemic, the war in Ukraine, and the rise in US interest rates exposed Tunisia as one of the world’s most vulnerable countries to a debt crisis. The country suffers from the same affliction as many Global South countries, rooted in the practice of taking on debt in foreign currencies to fund essential imports such as energy, food, and equipment. Repaying this debt depends on earning foreign currencies through exports, foreign investments, tourism, or remittances from the diaspora, which are often insufficient, precarious, and dependent on geopolitical and global market fluctuations.

Short-term band-aid solutions only serve to delay the crisis, without addressing the root causes of the problem. The Tunisian government, for example, managed to reduce the food trade deficit by reducing the quantity of food imported. Still, in the process, it exacerbated the shortages of subsidized basic food items and increased food insecurity. 

In essence, Tunisia spends more resources on importing goods and commodities than it can recuperate through its exports

Another major contributor to Tunisia’s structural trade deficit is the tendency of the national economy toward low-value-added industrialization. Tunisian exports are dominated by electrical and clothing products, as well as agricultural, energy, and phosphate products, characterized by a relatively short chain of production and low-added value compared with products such as machinery, vehicles, and pharmaceuticals.

These intertwined factors form what is commonly referred to as a structural trade deficit. In essence, Tunisia spends more resources on importing goods and commodities than it can recuperate through its exports. This phenomenon persists irrespective of the actual volume of exports, leading to a consistent pressure on the nation’s currency, amplifying the cost of imports, increasing public debt and inflationary pressures, which accentuates economic disparities and potentially fanning the flames of social unrest.

Austerity, flexibility, and free trade

Under the pressure of international donors in the 1980s, Tunisia adopted conventional economic policies including austerity measures aimed at cutting public expenditures, privatization, free trade, and others. These measures reduced funding for essential public services like social safety nets, healthcare, education, and transportation. During the 1990s authorities began selling state-owned enterprises to the private sector, concentrating capital further in the hands of the existing influential business elite while failing to deliver the promised benefits. 

Another widely accepted strategy was to increase “flexibility” within the labor market, which usually entails loose hiring and firing policies and reduced worker benefits. While this approach aimed to enhance economic resilience, it increased temporary and precarious work arrangements, resulting in job insecurity, inadequate benefits, and limited access to social safeguards. This also widened wage disparities and exacerbated income inequality.

And by adopting a free trade model, which removed many restrictions on imports, Tunisia could not enact some of the protectionist measures needed to nurture infant industries that other countries enjoyed when embarking on building industrial bases.

Political economy barriers to reform

There are also deeply rooted “political economy” obstacles to effective reform. Central to these is the presence of an entrenched, powerful business class that thrives within the current economic structure, making substantial gains through regulatory protection and political connections. Their substantial influence over public policies and decision-making processes has impeded many efforts to enact reforms threatening their privileged position.

Central to these is the presence of an entrenched, powerful business class that thrives within the current economic structure, making substantial gains through regulatory protection and political connections

When parliament voted on the 2019 budget law, for instance, the draft initially included an increase in the tax rate from 25 percent to 35 percent for car dealers and supermarkets. After pressure from the impacted sectors’ chambers of commerce, the tax increase was delayed to 2020. Another example is the “administrative reconciliation law” passed in 2017, which granted amnesty to government officials and businessmen who returned stolen money and ended the prosecution of such cases, undermining transitional justice and enabling impunity, despite resistance from activists.

Successfully navigating these barriers requires a comprehensive understanding of the intricate dynamics between economic power and political influence. Besides creating a hostile investment environment, extracting rents, and perpetuating unsustainable practices, the actions of this business class contribute to the increasing level of inflation perpetuated by abusive market power and price-setting behavior. It is imperative to address this challenge head-on, through stricter consumer protection and competition regulations, recognizing the severe repercussions it could have on the economy’s stability and the well-being of the Tunisian population. 

Pathways toward a new development mode

Tunisia’s pursuit of economic sovereignty and resilience should prioritize critical pillars such as energy and food sovereignty, sober water and energy management, fairer trade policies, and an industrial strategy promoting higher added value. By strategically addressing these areas, Tunisia can pave the way for a more prosperous and resilient future, grounded in principles of sovereignty, sustainability, and social justice.

To address the pressing issue of reducing fossil fuel dependence, Tunisia could adopt a holistic and just renewable energy policy. Allocating strategic public investments to solar and wind energy could reduce the burden of costly fossil fuel imports, create jobs in the renewable energy sector, and align economic progress with sustainability imperatives. Additionally, the foundation of economic sovereignty invariably rests on the bedrock of food sovereignty.

By strategically addressing these areas, Tunisia can pave the way for a more prosperous and resilient future, grounded in principles of sovereignty, sustainability, and social justice

Prioritizing sustainable agricultural practices diminishes import reliance and improves self-sufficiency, addressing climate change and the threat of water scarcity. Notably, this environmental equilibrium aligns seamlessly with economic stability, given that well-managed resources invariably reduce costs and enhance resilience against external shocks.

The traditional approach of relying heavily on the export of raw materials, tourism, and exports of low-value-added products has failed. To break free from this cycle, Tunisia must pivot toward fostering fairer trade relations, particularly with countries in the Global South that share similar economic realities. By shifting focus from merely extracting resources for export to embracing a model that values inclusive growth and mutually beneficial partnerships, Tunisia can enhance its domestic industries, and contribute to the broader regional and continental economy.

The ongoing debate in Tunisia predominantly centers on short-term remedies to address immediate economic challenges. Therefore, it is crucial to shift the focus toward addressing long-term structural solutions that are readily identifiable yet hindered by political economy barriers. Tunisia’s pursuit of sustainable prosperity necessitates a departure from conventional approaches that perpetuate cyclical crises.

Confronting the influence of the oligarchic business class opposing such reforms is a challenge but is necessary. Regulating and taxing their abusive market power can foster fair competition, curb inflation, and channel resources into broader economic growth and welfare. Tunisia’s path to economic transformation requires visionary leadership and a commitment to reclaiming economic sovereignty. By embracing innovative strategies and breaking free from historical constraints, Tunisia can reshape its economic landscape, uplift the standard of living of its population, and inspire progress throughout the region.

Ayoub Menzli is a Nonresident Fellow at TIMEP focusing on political economy in Tunisia. He is an independent consultant, analyst, and researcher from Tunisia.


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