Terrorism will slow growth, but Tunisia’s economy has deeper problems
THE loss of human life is of paramount concern, insisted Selma Elloumi Rekik, Tunisia’s tourism minister. But the killing of 38 tourists by an Islamic State-inspired gunman at a beach resort in Sousse on June 26th prompted another worry. “This is a catastrophe for the economy,” she said. Sadly, she is right. Last year Tunisia’s beaches and museums attracted 6m tourists, whose spending accounted for 7% of GDP and supported more jobs than anything but agriculture. Now thousands of visitors have fled. More are cancelling trips.
Tunisia has made political progress since protesters toppled the dictatorship of Zine el-Abidine Ben Ali in 2011. Last year it adopted a new constitution and held parliamentary and presidential elections. But those achievements have not been matched in the economic arena, which is still haunted by Mr Ben Ali’s abuse. Growth slowed to 2.2% in 2014, from an already sluggish 2.6%, estimates the World Bank. The jobless rate remains above pre-revolution levels at 15.3%.
The attack in Sousse comes just three months after jihadists entered the Bardo National Museum in Tunis, the capital, and killed 22 people, most of them foreign tourists. A fall in tourism revenue will not only slow the economy further, but also lead to smaller foreign-exchange reserves and a higher current-account deficit, which was 7.4 billion dinars ($4.4 billion) in 2014. Foreign direct investment, already low, may be scared off. Still, many expect the economic blow to be softened by other exports, cheap oil, a foreign-reserve cushion and backing from the West. Tunisia’s small stockmarket and its currency have fallen only slightly.
Spillover from the war in Libya and a downturn in Europe, Tunisia’s biggest trading partner, also threaten the economy. But the country’s biggest problem is of its own making. The government has failed to cut the red tape and end the corruption that have long stifled business. Tunisia’s revolution—and the Arab spring itself—began after Muhammad Bouazizi, a fruit vendor, set himself on fire to protest about officials who would not let him ply his trade without bribing them. The old regime was so crooked that by the time Mr Ben Ali was deposed, firms connected to him reaped 21% of private-sector profits, while employing just 0.8% of the workforce and producing just 3.2% of output, according to a report from the World Bank.
Most Tunisians think graft has got worse since then. The system that favoured Mr Ben Ali’s cronies remains largely in place, benefiting other businessmen. “It poses a big obstacle to a swift recovery,” says Bob Rijkers, the report’s lead author. Domestic and foreign investors continue to face barriers to entry in sectors representing nearly 60% of the economy. The woes of McDonald’s are typical. Under Mr Ben Ali the fast-food chain was denied access to the country for not picking the “right” partner—ie, a government insider. Four years after the revolution there are still no golden arches in Tunisia.
The pain after the shock: Tourist arrivals before and after terrorist attacks
The public is not just missing out on fast food. Prices are higher than they should be. Based on data from December 2013, Mr Rijkers and his colleagues found that incoming international calls in Tunisia cost about 20 times as much as the market price in the region. Red tape and graft have also distorted the jobs market. Firms that cannot cope with all the paperwork operate in the shadows, but this makes it hard to obtain capital and hire new workers. Outside agriculture, up to 40% of jobs are informal. The official solution has been to hire more government workers.
The new ruling coalition, which has a large parliamentary majority, may enact reforms. But there is still a reluctance to open up certain sectors and little debate over the large role of the state. Powerful trade unions can slow things down and Nidaa Tounes, the party with the most seats, includes many former members of the old regime. Its founder, Beji Caid Essebsi, now Tunisia’s president, has lamented the state of the economy. “We must…confront the fact that poverty is producing terrorism,” he wrote last year. So far, though, little progress has been made on either front.
This article appeared in the Middle East & Africa section of the print edition under the headline "The other victim"
