Despite high hopes for Tunisia's future following the overthrow of President Zine El Abedne Ben Ali, the country has experienced a trend of economic decline since 2011 in tandem with an era of political dysfunction. The rise of President Kais Saied, who has consolidated power and supposedly streamlined decision-making, has not reversed this deterioration in the economic situation. The causes of this decline are partly down to events since 2011 but also structural issues within the economy, make the country an unsafe bet for business investors for the time being.
Tunisia's Post-2011 Economic Woes
What was widely hailed as a flowering of 'freedom' after the revolution that deposed Ben Ali failed to deliver improvement in Tunisia's economy and living standards for ordinary citizens. For example, the World Bank estimates that GDP growth declined to 1.7% on average between 2011 and 2019, while the Economist Intelligence Unit noted that average unemployment was 12.5% in 2010 but reached 16% by 2020, together with a reduction in real per head incomes by 30%.
The causes of this post-2011 economic downturn are multifaceted but partly relate to how the more open political environment created possibilities for economic disruption. In general, workers and the unemployed became more willing to launch strikes and sit-ins, disrupting various sectors of the economy and public services. For instance, the phosphate industry, which is centred on the Gafsa region in central Tunisia and constituted 3.3% of GDP and 9% of national exports in 2010, saw frequent sit-ins organised by unemployed locals. This contributed to a decline in phosphate production from 8 million tons in 2010 to 2.8 million tons in 2020. The country's oil industry similarly saw a major decline in production, declining from 110,000 barrels per day in 2010 to around 40,000 barrels per day by 2019- a decline that can be attributed in significant part to strikes and protests, which both disrupted production and discouraged foreign investment.
In addition, with the more open environment post-2011 came the potential for greater disruption to security in the form of terrorism, which would then have a knock-on effect on the economy. This was most apparent in the blooming of the jihadist phenomenon and networks that proliferated inside Tunisia after 2011 and were bolstered by security vacuums in neighbouring Libya. Threats to security in Tunisia reached their peak in 2015 with the high profile terrorist attacks that hit tourist sites (namely, the Bardo Museum in Tunis and a resort north of the city of Sousse) and killed dozens of foreign nationals. These incidents raised great concerns about safety for visitors and thus severely impacted the country's tourism industry, causing a 35% drop in revenue from tourists during that year. In more recent years, great progress has been made in clamping down on the problem of terrorist cells in the country, but the damage was already done with the major attacks in 2015.
Beyond these issues of strikes, protests and security threats, the country's economy also suffers from broader structural problems that were not addressed in the post-2011 environment. Tunisia retains a large-scale and cumbersome bureaucracy, with the public sector being the largest employer in the country. There is a considerable amount of spending on salaries of state employees and subsidies for the population instead of investment in infrastructure, healthcare and public services, and these trends have been magnified since 2011. For example, the number of civil servants increased by around 200,000 in the period 2011-2017, and by 2020, public sector wages took up 75% of tax revenues. With the expansion of the state has also come a sharp increase in public debt, rising from 40.7% of GDP in 2010 to 79.9% in 2021. Meanwhile, bureaucracy has proven an impediment to the potential for the growth of small and medium-scale private enterprise, with the business scene instead being dominated by a few family-run conglomerates.
Saied Era Continues the Decline
The 2019 election of Kais Saied as president and his subsequent consolidation of power in 2021 did not lead to the positive change in the economy as many of those who initially supported him might have hoped. Instead, the country saw a major economic contraction of -8.8% in 2020 because of the COVID-19 pandemic. The pandemic aside, however, it is apparent that many of the problems that preceded his tenure have only been exacerbated. The deepening economic malaise is reflected in the growing reports on shortages of goods, including those that are subsidised by the government.
A potential lifeline exists in the form of a $1.9 billion loan from the International Monetary Fund (IMF) that could also unlock more funds from Europe and the Gulf. A preliminary agreement for an IMF loan was reached in October 2022. However, the negotiations have since been stalled on account of Saied's rejection of the agreement, as he is unwilling to undertake the reforms stipulated by the IMF as conditions for the loan.
These stipulated reforms notably include gradual phase-out of "wasteful price subsidies," the need for "a comprehensive agenda to reform state-owned enterprises," and the need for "structural reforms to enhance competition and create a transparent and level-playing field for investors." It is the prospect of subsidy cuts that especially worries Saied, who fears they will lead to a repeat of the events of the riots in 1983 that arose when the government announced a removal of subsidy for grains and their derivatives. Public spending on subsidies has substantially increased with the growth in commodity prices, accounting for 8.3% of GDP in 2022 as opposed to 4.6% in 2021.
Outlook
There is now serious talk of the prospect of Tunisia defaulting on its debt in the event that no agreement is reached on a loan or other major financial assistance. The global credit ratings agency Fitch reflected this pessimistic outlook on Tunisia's ability to salvage its economic and financial situation when it downgraded Tunisia's long-term foreign currency issuer default rating from CCC+ to CCC-. In the continued absence of an agreement of an IMF loan, the country may have to rely on generous loans and handouts from Gulf nations, such as the July 2023 agreement with Saudi Arabia for a $400 million soft loan and a $100 million grant.
Overall, the economic crisis is likely to endure at least for the remainder of 2023 and in the run-up to the 2024 presidential election, and poses risks to the country's stability, which in turn translate to risks for businesses. For example, continued economic breakdown may provide an opening for a revival of the terrorism problem of previous years. Moreover, the support of the military and security services for Saied may erode, raising questions about the stability and viability of his regime. In 2024, the country may end up facing an extended period of transition of authority from Saied that generates great uncertainty for investors and business, as the military and security services may take some time to negotiate a replacement between themselves.
More broadly, strikes by workers and the unemployed are likely to continue disrupting various economic sectors, shortages in goods and supplies are set to persist, and reforms to facilitate investment and doing business beyond the family monopolies and state companies that dominate certain sectors of the economy are unlikely to be implemented in the near term. All of these problems post considerable barriers to the potential for investment in what could be a very profitable and attractive business environment, considering the country's proximity to the Europe and member states of the European Union.