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Tunisia must increase investment and push through reforms, says OECD

By Daniel Finnan

Tunisian authorities need to boost investment and continue with economic reforms to help create new jobs, according to a new report by the Organisation for Economic Cooperation and Development. The international economic body has published its first economic survey of Tunisia since the 2011 toppling of President Zine al-Abidine Ben Ali.

“The Tunisian economy and society has changed quite substantially in the last few years,” Alvaro Pereira, the OECD’s acting chief economist, told Spotlight on Africa. “There were some issues that needed to be solved and I think they’re getting more pressing.”

Q&A: Alvaro Pereira, OECD’s acting chief economist

A lack of jobs and high prices were two of the major factors contributing to mass protests that led to the so-called Arab Spring in 2011. And there have been some improvements since the overthrow of Ben Ali, according to the OECD’s research.

“Poverty has declined quite substantially if you compare Tunisia with countries like Indonesia, India and many other emerging market economies,” says Pereira, during a telephone interview from Tunis.

“One of the consequences of the revolution has been to help some of the poorest parts of society and make growth more inclusive,” the economist adds. However, many people still do not have jobs while others are working in the informal sector or relying on family to get by.

The OECD, a club of mainly rich countries, says facilitating and boosting investment will help create new jobs. Removing barriers to entrepreneurship and simplifying complex legislation will also spur economic growth.

But the conditions to create jobs, which should be a top priority for Tunisia, are not in place yet, says Pereira, who previously served as minister for economy and employment in Portugal.

“There’s sectors that are still closed to competition, there’s some rent seeking behaviour, there’s some monopolies and oligopolies that need to be open to competition,” he says.

Uncertainty following Tunisia’s so-called Jasmine Revolution, coupled with the sharp decline in visitors following terrorist attacks in 2015, put the country’s tourism industry in jeopardy. Three years later the outlook is starting to look brighter, according to the OECD’s top economist.

“Tourism is starting to grow fairly significantly in Tunisia,” says Pereira, referring to the improving security situation. “We believe that the potential for tourism to continue to dramatically grow will continue over the next few months and years,” he says, adding that it is time for the government to open up the sector to investment and economic liberalisation.

Tunisia is also dealing with the repercussions from civil war in neighbouring Libya. Pereira says the outbreak of war following the end of Muammar Gaddafi’s reign resulted in a large displacement of people as well as an impact on investment and trade between the two countries.

“We do see Libya as an upside risk for Tunisia,” the economist says. “If the Libyan situation continues to stabilise, this will have a very positive impact on Tunisia.”

The civil war in Libya has affected remittances from Tunisian workers in Libya, the businesses and services servicing Libyans in Tunisia and private investment flows between the two countries, according to a 2017 report by the UN Economic and Social Commission for Western Asia.

The Tunisian authorities have already begun to put in place some economic reforms such as changes on rules surrounding overseas investment. New laws on foreign investment, voted by parliament in 2016, aim to give foreign investors more flexibility on transferring funds and certain tax benefits for major projects, but he says these need to be followed through.

Pereira, who was previously responsible for economic reforms in Portugal, says the government must make sure regulation is being implemented by the authorities and any existing backlog of investment must be cleared. Some projects remain stalled over approvals and contracts not yet in place.

“Dramatically simplify licensing,” he says, referring to the Tunisia’s bureaucracy. “Licensing and registering a company in this country is still very difficult,” Pereira says, describing the streamlining of legislation as helping to tap the country’s potential.

The government is also somewhat constrained by its fiscal situation, running a twin deficit, Pereira says. This means the country imports more than it exports and the government spends more than it generates in taxes.

The OECD economist says the best way to tackle this is to remain “fiscally prudent at the same time as you do reforms”. This year’s budget makes some attempt at cutting the deficit with increased taxes on cars, alcohol, phone calls, the internet, hotel accommodation and other items, according to a Reuters news report.

Pereira points to forecasts of 2.8 per cent economic growth for 2018, accelerating to 3.4 per cent next year.

“We do predict that growth will be much healthier this year and next,” he says. “We see some reforms that are being undertaken right now and I believe that this government is undertaking courageous reform that needs to be nourished and supported.”

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