TUNISIACreating An Enabling Environment For

Domestic And Foreign Investments

Tunisia

REGION Middle East & North Africa

INCOME CATEGORY Upper middle income

POPULATION 10,996,600

GNI Per Capita (US$) 4,459

*Data from http://www.doingbusiness.org/data/exploreeconomies/tunisia (2016)

• Achievements towards the Millennium Development Goals (MDGs)** Data from http://www.aidflows.org/TN_Beneficiary_View.pdf

Millennium Development Goals Units 2009

Goal 1:Eradicate extreme poverty and hunger

Poverty headcount ratio at $1.25 a day PPP, % of population 0.00%

Goal2: Achieve universal primary education

Primary school enrollment % net 98.48%

Goal 3: Promote gender equality and empower women

Ratio of girls to boys in primary and secondary education (%) % 101.22%

Goal 4: Reduce child mortality

Under-5 mortality rate per 1,000 18.10

Goal 5: Improve maternal health

Maternal mortality ratio modeled estimate, per

100,000 live births

56.00

Goal 6: Combat HIV/AIDS, malaria, and other major diseases

Prevalence of HIV, total % of population ages 15-49 0.10%

Goals 7: Ensure environmental sustainability

Access to improved water source % of population 94.00%

Goal 8: Develop a global partnership for development

Mobile phone subscriptions per 100 people 94.52

Tunisia - Challenges

• Tunisian Revolution (January 2011) unveiled significant issues previously masked by years

of economic and political stability:

Economic weaknesses

Unemployment remains stubbornly high at 15 percent overall and 31 percent among

university graduates. * http://www.worldbank.org/en/country/tunisia/overview

Governance concerns: democratization, corruption control, capacity-building, electoral

systems, judicial systems

• In order to maintain positive MDGs indicators and progress towards the Sustainable

Development Goals (SDGs) agreed upon in the 2015, Tunisia need to Create an enabling

environment to attract foreign investments and private sector investment

Current Economic Framework

• The current economic framework is a legacy from the development models of the 1960s and

1970s:

Dominant role of the state government

Large and inefficient public enterprises (Health care, education, sanitation, electricity,

etc.)

High barriers to trade and monopolistic markets

Isolation from the global economy

Exchange rate policy has not been active in improving the international competitiveness

of exports

Policies that protected capital-intensive activities from competition (high taxation of

imports and a complex system of non-tariff barriers)

Legacy Economic Frameworks Limits

• The legacy economic framework and the fiscal discipline helped Tunisia:

Keep inflation under control and fight poverty through tight fiscal policies

But Economic Growth may likely have been higher without them

Persistently overvalue the local currency TND (Tunisian Dinar)

But made it more difficult for producers to compete with other developing country exporters

(China for example)

Control the public deficit and the external debt: Tunisia was mildly affected by the

Global Financial Crisis and maintained macroeconomic stability and avoided economic

crises during the Democratic Transition after the Arab Spring

But prevented the country from enjoying higher and sustained economic growth through a

bolder attempt of scaling up public spending, mainly to improve infrastructure.

Legacy Economic Frameworks Limits

• The Legacy Economic Framework represents a real obstacle towards improving domestic

competition that would be healthier for economic growth and led to:

Isolation from the global economy and fragmentation

Slow economic modernization

Low competitiveness and productivity.

Limited transfer of technology

• Tunisia needs Reforms to:

Overcome substantial economic challenges

Build an enabling favorable business environment

Move from state-dominated to private investment

Increase access to finance

The Economic Framework Reform

• Tunisia has enormous potential to reform: the rating agency Fitch points to “Tunisia's banking

sector representing a key structural weakness and ripe for an overhaul”.

• Although the country has ratified a democratic constitution in 2014 that reinforced SDGs

such as Gender Equality, Reduced Inequalities, Peace and Justice Strong Institutions, it

still need to reduce the unemployment rates by reforming the economic framework to create

an enabling environment for foreign investment

• Tunisia signed a two year deal with the International Monetary Fund in 2013, agreeing to follow

certain economic policies such as keeping its deficit under control, making the foreign

exchange market more flexible and structural reforms.

The Economic Framework Reform

Tunisia needs to:

• Intensify structural and governance reforms

Reduce subsidies in favor of public spending in better-targeted social protection and

on growth-enhancing public investment

• Reform the monetary policy framework :

Remove interest rate caps and making the central bank more independent.

Remove gradually price controls to reduce distortions to economic activity and enhance

the transmission of monetary policy

Enhance exchange rate flexibility further to boost competitiveness ,and build reserves

as a buffer

Audit the general government fiscal position, and improve general government fiscal

statistics.

Tackle the fiscal deficit and the contingent liabilities with structural fiscal reforms.

Reduce trade barriers to integrate Tunisia into the world economy

• Implement labor market and education reforms to stimulate employment

• Improve collection of taxes on income and profits

Establishing an Enabling Environment

• Tunisia has undeniable advantages that can encourage foreign investments and attract

private sector investments:

Geographic location: proximity to European, African and Middle Eastern Markets

Skilled workforce: young and well educated population (65,000 graduates looking

for employment every year)

Huge infrastructure growth: The government has pledged major investment to

improving roads, industrial areas and technology regions

• Tunisia has a rank of 74 (out of 189 economies) according to the World Bank Doing

Business Report 2016

• According to the ranks below, Tunisia have to improve policies to attract foreign

investments

* http://www.doingbusiness.org/data/exploreeconomies/tunisia#starting-a-business

Starting a

business

Dealing with

Construction

Permits

Getting

Electricity

Registering

Property

Getting

Credit

Protecting

Minority

Investors

Paying

Taxes

Trading

Across

Borders

Enforcing

Contracts

Resolving

Insolvency

103 57 38 86 126 105 81 91 81 57

Establishing an Enabling Environment

Tunisia needs to:

• Establish a new investment code that will comply with international standards

• Improve aspects of the business climate, such as competition, bankruptcy, and investment

regulations

• Strengthen tax policies and administration

• Stimulate job creation and reduce skills mismatches in the labor market

• Reduce dependence on the public sector and establish a new public-private partnership law

Tunisia Foreign Direct Investment, percent of GDP

(World Bank http://www.theglobaleconomy.com/Tunisia/Foreign_Direct_Investment/ )

Official Aids Role

• Tunisia still counts on the support of official aids, international lenders and bilateral aid o

effectively implement these reforms and leverage other resources of financing.

* http://www.aidflows.org/

Sources

• http://www.imf.org/external/pubs/ft/fandd/2015/06/mazarei.htm

•

• http://www.oecd.org/about/publishing/Tunisia-a-reform-agenda-to-support-competitiveness-and-

inclusive-growth.pdf

• http://www.doingbusiness.org/data/exploreeconomies/tunisia

* http://www.aidflows.org/