The Economic Challenges Faced By Tunisia Economics Essay

The popular rebellion that led to the expatriate of the Ben Ali/Leila Trebelsi Mafia and finally to the breathtaking and scandalous issue of Hosni Mubarak in Egypt, has put Tunisia on the map of universe personal businesss and given it a hitherto unattained significance. The Revolution offers a alone chance for a new democratic authorities to organize and establish policy alterations that exploit Tunisia ‘s new found importance and convey prosperity to a state tired of empty promises of economic development.

If the lessons of old “ people power ” revolutions, e.g. the overthrow of Marcos in the Philippines, are to be remembered, the overthrow of a autocrat is merely the beginning of a long procedure of political, economic and societal metempsychosis. As of this authorship in March 2011, presentations, deceases and surrenders of high curates continue to transpirate in Tunis. GDP is likely in steep diminution this one-fourth. Stagnation and depression loom on the skyline.

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A insouciant acquaintance with Tunisia reveals that its engines of economic growing depend on touristry and service sector exports. Now that the parasitic Mafia kin has been abolished and no longer acts as a brake on economic activity, it is indispensable that Tunisian leaders initiate structural reforms of out-of-date and disused banking and commercialism ordinances now, while the state is still “ inhaling the Jasmine Revolution ‘s elating aroma of possibility ” V. Walt ( 2010 ) , “ Tunisia ‘s Nervous Neighbors Watch the Jasmine Revolution, ” Time Magazine, 31 January 2011.

. Now is the clip to retire ageing civil retainers long past their prime and the Torahs and imposts with ordinances, patterns, wonts and imposts that will non function a democratic and ambitious state hankering for freedom and economic upward mobility.

This author has identified the offshore banking and company formation industry as a possible new engine of growing for Tunisia that could transform the state into a affluent Mediterranean creditor state and a beacon of stableness within five old ages. Other little states with features similar to Tunisia hold succeeded in pulling capital and concern know how via favourable revenue enhancement and privateness statute law. Switzerland is the function theoretical account. So are the Cayman Islands and Belize.

Challenges Confronting Tunisia

Under the Ben Ali government, Tunisia was ranked foremost in economic fight among African states and members of its equal group states in the Arab universe in the Global Competitiveness Report prepared by the World Economic Forum. Though the Ben Ali government made major paces toward good financial policies, issues that continue to halter the state ‘s ability to make concern expeditiously must be addressed. Some of its top challenges include complex revenue enhancement ordinances and high revenue enhancement rates, deficiency of entree to funding and a cumbrous bureaucratism. It would be a shame if Tunisia ‘s economic ranking slipped in the aftermath of the dictator ‘s going.

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Harmonizing to the Index of Economic Freedom prepared by The Wall Street Journal and The Heritage Foundation in 2008, Tunisia ‘s economic system was ranked at 59.3 per centum free, above the regional norm of 58.7 per centum but somewhat below the universe norm of 60.3 per centum. Its comparatively low mark is a consequence of Ben Ali protectionist economic policies and Mafia intervention in the economic system that scared off foreign investing. Now it is the Ben Ali bequest and sculpt uncertainness that keeps foreign investing off. The new authorities must take bold enterprises to reconstruct assurance by turn overing out the ruddy rug for foreign investing. The best manner to make this is by making a dynamic offshore sector and this author can demo the authorities what needs to be done.

Official unemployment in 2009 was at 14 % and is likely lifting. Datas from the Central Bank of Tunisia2 shows that during financial 2007-08 and 2008-09 occupation creative activity dropped significantly by 12.3 % and 38.1 % severally. This can be partly attributed to the global fiscal crisis and autumn in discretional disbursement such as touristry. Soaring unemployment rates were a factor in the ruin of Ben Ali and will destabilise the new authorities unless economic growing is achieved shortly.

2 hypertext transfer protocol: //www.bct.gov.tn/bct/siteprod/english/indicateurs/comptes.jsp ( accessed 27 February 2011 )

3 World Bank World Development Indexs

Today, the economic system needs political and economic reforms that will pull foreign direct investings ( FDI ) . FDI is closely linked to employment, rewards and ingestion. In add-on, FDI imparts engineering transportations that raise productiveness in Tunisia, the key to higher rewards. For the period 2005-2009, net foreign investing flows were 5.6 % of GDP ( Figure 1 ) . FDI in Jordan was ( 15.0 % ) , Lebanon ( 13.2 % ) and Egypt ( 6.7 % ) . Is it a happenstance that political turbulence occurred in the states with the least investing?

Figure 1: Foreign Direct Investment3, cyberspace influxs ( % of GDP )

In order to lure and efficaciously take advantage of investing flows, nevertheless, it is indispensable for Tunisia to hold a well operation and efficient banking sector. Tunisia has already recognized the importance of fiscal sector reform in advancing economic growing through the efficient mobilisation of domestic nest eggs. Tunisia was among the first to present fiscal reforms in the Middle East and North Africa ( MENA ) part. Tunisia ‘s fiscal sector was tightly controlled through the mid 1980s. Since so, it has undergone three decennaries of gradual but deficient reforms.

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In malice of Tunisia ‘s early execution of fiscal market reform, the state ‘s banking sector is non good developed. Financial deepness in Tunisia, as measured by the mean ratio of domestic recognition to GDP, for the period 1990-1999 and 2000-2001 does non do better compared to other non-oil dependent states in the part ( Figure 2 ) . Furthermore, Tunisian Bankss have a comparatively high nonperforming loan ( NPL ) to entire loans ratio ( Figure 3 ) . This is yet another symptom of the deformation caused by the erstwhile Mafia. The mean NPL to entire loan ratio for the period 2005-2008 was 18.3 % , somewhat lower than Egypt ‘s 19.7 % but significantly higher than that of Jordan ( 4.8 % ) , Lebanon ( 11.9 % ) , and Morocco ( 10.1 % ) . The NPL job of Tunisian Bankss limits their capableness to work efficaciously as fiscal mediators, which is reflected in the low ratio of domestic recognition to GDP.

Figure 3: Nonperforming loans to entire loans

The Tunisian banking sector has ever been characterized as little and extremely concentrated.7 It is comprised of 18 little domestic Bankss and three publically controlled Bankss, which are the largest. State-owned commercial Bankss dominate the banking system and history for more than half of market portion, which implies province control of the banking sector and is a negative for economic growing. It was Ben Ali ‘s position that the province must hold direct and tight control of pecuniary policy and the fiscal system.8 Entry of houses into the fiscal markets is extremely restricted, thereby restricting the proviso of a broad scope of fiscal services and a restricting market entree to Tunisians and aliens alike.9 This blocks ingestion and economic development and is an incentive for extremely educated Tunisians to go forth the state.

7 Romdhane, M. ( 2010 ) , “ The Determinants of Banks ‘ Capital Structure: Empirical Evidence from Tunisian Banks, ”

8 Boughrara, A. , M. Boughzala, and H. Moussa ( 2007 ) , “ Credibility of Inflation Targeting in Morocco and Tunisia, ” presented at the workshop “ Monetary Policy and Inflation Targeting ” in Tunis, Tunisia, 24-25 October 2008.

9 Konan, D.E. and K. Maskus ( 2006 ) , “ Quantifying the impact of Services Liberalization in a Developing Country, ” Journal of Development Economics 81 ( 2006 ) :142-162. 0510152025EgyptJordanLebanonMoroccoTunisiaAverage: 2000-2004Average: 2005-2008

Banking deregulating is desperately needed to stoke domestic recognition and consumer demand, foment foreign investing and cut down unemployment. A modern offshore banking system and free trade zone will pull one million millions in capital and could be an indispensable ingredient in the state ‘s economic recovery.