/MEDITERRANEAN September 2011 Tunisia 9 propositions for boosting economic development

in acting out its democratic revolution, Tunisia Supporting and encouraging democratic transition turned a new page in Euro-Mediterranean history. The in Tunisia is an urgent necessity. Yet the fate of this revo- upheaval will have considerable repercussions in the lution will be decided in the short term: its success region. It will not only alter the nature of the bonds bet- depends on an upturn in economic development and ween Tunisia and the European Union, but it will rapid job creation. Without an emergency recovery plan, change the future role played by countries south of the the efforts of the Tunisian people will have been in vain. Mediterranean in the regionalization process. The This report is based on around fifty interviews European Union’s attitude towards Tunisia over the made between March and September 2011 with diffe- coming months is therefore crucial: through its rela- rent stakeholders in the Tunisian economy. It puts for- tionship with this country, the EU will be deciding on ward nine propositions aimed at boosting the country’s the direction that partnership with its south Mediter- economic development and encouraging job creation ranean neighbours will take from now on. in the short term.

Make it easier for SMEs to access Help open up the skies to encourage Redefine spatial planning policy funding with a guarantee fund more diverse tourism by giving regions more power The creation of a guarantee fund for A support package for would and resources SMEs would boost business and job help continue the liberalization of air Decentralizing authorities would be an creation in the whole of Tunisia. transport in Tunisia, which is efficient way to promote better necessary to inject new energy and diversify tourism in the country. territorial balance in spatial planning Facilitate Tunisians’ professional and identify each region’s economic mobility by relaxing visa procedures potential. The requirement for mobility inherent Develop vocational training to constructing a new partnership institutes between Europe and Tunisia will entail Creating training centres integrated Secure long-term investments inventing a visa system that makes it into the private sector would guarantee To encourage a pickup in investment easier for Tunisian professionals to an operational workforce for despite the economic and political access Europe. companies setting up in Tunisia. risks of transition, Tunisia should sign a treaty with its European partners Reassure investors about Tunisia’s Simplify the administrative securing long-term investments. business climate and socio-economic machinery stability Democratic transition is a chance Redefine the country’s economic A campaign to promote investment to give new impetus to the process for strategy highlighting the Tunisia’s progress and simplifying administrative procedures To optimize mid-term investment potential is needed to improve the and stem the corruption that strategies, a skills assessment should country’s image after years of developed under Ben Ali’s regime. be drawn up for Tunisia, clearly dictatorship. pinpointing the country’s comparative and competitive advantages.

Maxime Weigert Research fellow, Ipemed 2 TUNISIA 9 PROPOSITIONS FOR BOOSTING ECONOMIC DEVELOPMENT ~ SEPTEMBER 2011

country only showed a 17% loss in incoming FDI INTRODUCTION compared with 2010. From now until the end of the year, this percentage is set to drop further and in acting out its democratic revolution, Tuni- start to grow again in 2012. In fact, we can even sia turned a new page in Euro-Mediterranean his- expect a real upsurge in investment in Tunisia tory. The upheaval will have considerable reper- over the coming months and years. Although cussions in the region. It will not only alter the most economic stakeholders are currently still nature of the bonds between Tunisia and the Euro- cautious, many others have already taken a stand. pean Union, but it will change the future role Since the revolution, hundreds of European com- played by countries south of the Mediterranean in panies have signed up to join the various cham- the regionalization process. The European bers of commerce that represent their interests Union’s attitude towards Tunisia over the coming in Tunisia. months is therefore crucial: through its relations- These potential investors are aware that the hip with this country, the EU will be deciding on current political transition has every chance of a the direction that partnership with its south Medi- favourable outcome and that it contains the seeds terranean neighbours will take from now on. of important economic reforms. All the major The aim of this paper is to answer the follo- political parties battling it out in the constitutional wing questions: At this time of Tunisian demo- elections are putting democratization of the state cratic transition, how can we turn cooperation and liberalization of the economy at the heart of between Europe and Tunisia, pioneer of the Arab their programmes for the nation. It could hardly revolutions, into a genuine development model? be otherwise: these parties must respond to the How can we make sure that this model can be aspirations of a people emerging from revolt who reproduced in other Southern countries that are would undoubtedly not tolerate any further poli- embarking on or planning transition? Given the tical deviation. Ultimately, Tunisia will probably role played by the economy in this kind of model, succeed in its historic feat. how can business be included in the project? The challenge is commensurate with Tuni- tunisia is a competitive country that, for its sian political performance: before the revolution, size and resources, has achieved a remarkable employment creation in the country was around performance in attracting foreign investors, par- 60,000 new jobs per year. To absorb those cur- ticularly in the industrial sector (car parts, textiles, rently out of work (since the revolution, over etc.). After decades of socio-economic develop- 500,000 people have lost their jobs) and those ment and industrialization, it has numerous com- newly arrived on the employment market, and to petitive advantages: available skilled labour, a reach a tolerable employment rate at least the good standard of infrastructure and equipment, same as it was before the revolution, 800,000 attractive tax packages for foreign companies, etc. jobs will have to be created in Tunisia over the However, the revolution highlighted one of Tuni- next 5 years. This will involve creating around sia’s little-known assets: huge contingents of 150,000 jobs per year, in other words, double young graduates seeking work and willing to par- what the country achieved over the last decade. In ticipate in building up their country. What until this context, it is clear that the outcome of the now constituted a favourable environment for will be decided in the short activities with low added value must today act as term: its success depends on an upturn in econo- a step towards a new stage of development. After mic development and rapid job creation. Without years of focusing on the availability of cheap an emergency recovery plan, the efforts of the labour, foreign investors must now overcome Tunisian people will have been in vain. their often unfounded fears and give the Tunisian Fortunately, democratic transition presents an economy a chance. It is time for them to envisage immense economic opportunity for Tunisia. The sharing added value more fairly between Europe fall of Ben Ali’s regime and the end of the dark and Tunisia and to promote better corporate practices associated with it provide an occasion governance within their installations (i.e. corpo- to restore confidence between foreign investors rate responsibility, upgrading jobs, co-develop- and a country that the whole world currently ment). This renewal of the Euro-Tunisian looks upon favourably. Just a few months after “contract”, which is amply justified by the demo- January’s events, there are healthy signs of a pick- cratic transition underway, would generate signi- up in economic activity. In September 2011, the ficant development impacts in Tunisia (e.g. create 3 TUNISIA 9 PROPOSITIONS FOR BOOSTING ECONOMIC DEVELOPMENT ~ SEPTEMBER 2011

qualified jobs, transfer of technologies, etc.) and standards, etc.); sustained participation from in Europe (e.g. improved company competitive- business, especially German companies, to ness, development, etc.). industrially and economically integrate these for- In addition, the regional dimension of the mer Soviet countries into the Union. Coopera- Tunisian economy carries new significance. The tion between Tunisia and Europe needs to be fall of Gaddafi’s regime in and the gradual devised along similar lines of massive integra- opening up of Algeria offer new perspectives for tion. This political project is all the more achie- extending the North African market. Tunisia, vable since, for several years, economic stakehol- which has shown exemplary solidarity towards ders have been preparing the foundations of this Libyans over recent months, and which has always kind of Euro-Tunisian integration. had very close economic links with the country, will undoubtedly be one of Tripoli’s privileged this report is based on around fifty inter- partners in reconstructing Libya. If it can prove its views made between March and September 2011 stability and its precursory role in democratization with different stakeholders in the Tunisian eco- in the region, Tunisia will in future constitute a nomy. The point of these interviews was to gather prime regional investment base, both in the accounts on the Tunisian business environment Maghreb and in sub-Saharan Africa. Opportuni- and identify the obstacles and difficulties that ties for co-development between European and companies have come up against over recent Tunisian companies will only be more numerous. years. This diagnosis set out to define ways to It is on these bases and promises that the boost the country’s economic development and European Union and Tunisia must now work on encourage job creation in the short term. The creating a new regional development model, nine propositions that emerged from these inter- similar to what was done with the EU and views follow. CEECs. As a reminder, this model was based on two crucial stimuli: a joint European effort in favour of CEECs with the aim of rapidly linking them into the regional project (i.e. infrastructure development, updating of administration and

1 Make it easier for SMEs to access funding with a guarantee fund

ISSUE PROPOSITION private initiative is hindered in Tunisia, par- to overcome this structural deficit in the Tuni- ticularly small-scale projects created by nationals sian banking sector and trigger a momentum of with low investment capacities. This failure is the local development based on aid for creating busi- responsibility of the banking sector which, accor- nesses, the European Union should urgently ding to all economic stakeholders in the country, create a guarantee fund aimed at SMEs. The has shown itself to be excessively pusillanimous. fund’s objective would be to guarantee loans Tunisian bankers are not trained to evaluate pro- granted by local banks and thus make it easier for jects or analyze risks, to the extent that if the pro- SMEs to secure funding. In addition, the fund ject’s promoter cannot provide a personal guaran- could back loans with favourable rates for young tee equivalent to the credit requirement (e.g. investors in priority sectors or geographical areas, mortgage on property, collateral security, etc.) no based on an assessment of the project’s relevance project can expect to secure funding from local and feasibility. The project could also include trai- banks. SMEs and new investors suffer greatly ning programmes in the bank credit professions from this situation, especially in poorer regions, (e.g. risk analysis, applications processing, finan- where family backing is harder to find. Obviously, cial packages, etc.), given at local banks partne- the potential for job creation and untapped wealth ring the fund. Courses should be taught by Euro- is considerable. The industry and tourism sectors pean practitioners specializing in lending to are particularly affected by this failure. SMEs and regional banks. n 4 TUNISIA 9 PROPOSITIONS FOR BOOSTING ECONOMIC DEVELOPMENT ~ SEPTEMBER 2011

2 Facilitate Tunisians’ professional mobility by relaxing visa procedures

ISSUE PROPOSITION mobility represents a significant constraint the requirement for mobility inherent to to Tunisian economic leverage. The documents constructing a new partnership between Europe required for visa applications are plethoric, appli- and Tunisia will entail inventing a visa system cations take a long time to process (up to two or adapted to this new situation. The system could three weeks), and validity periods are insufficient be based on a listing of professions and jobs for (sometimes just a few days). Added to this, obtai- which the need to travel to Europe is recognized, ning a visa can be a humiliating process (several with the possibility of granting annual visas, auto- hours queuing at the consulate, last-minute refu- matically renewable for the duration of the work sals, etc.). These constraints are detrimental to contract of the employee concerned. European Tunisian professionals, particularly those who companies located in Tunisia and Tunisian com- work with European partners or in multinational panies working with Europe (e.g. service provi- companies: many miss urgent meetings or do not ders, customers and suppliers) should be able to benefit from direct contact with clients and sup- benefit from this system on equal footing, thus pliers, which can be necessary in some lines of promoting a balanced partnership between North business (e.g. design, engineering, etc.). Entre- and South. The employer or partner European preneurs in the North are also penalized by closed country would guarantee the visa application of European borders: Tunisian businesspeople who the working party. n complain that they cannot attend European trade fairs and events are usually looking for suppliers, not customers. Strengthening Euro-Tunisian integration and defending the principles of co- development necessarily involves facilitating South-North mobility.

3 Reassure investors about Tunisia’s business climate and socio-economic stability

ISSUE during the last decade, at a time when mark in our minds. The question of security is Tunisia should have been moving up to a higher crucial to reviving economic activity, and commu- level of development, the lack of transparency and nication is the main way of reassuring investors the anti-democratic and anti-competitive practices on this issue. permitted by Ben Ali’s regime (e.g. lack of respect for human rights, plundering, biased attribution of public markets, corruption and preferential PROPOSITION treatment, etc.) gave out extremely negative to boost tunisia’s image to outside markets, it signals to the community of foreign investors. would be a good idea to take advantage of the high This deficient image, which highly impeded the media profile that the country is likely to continue quantitative and qualitative growth of investment enjoying over the coming months. It would be use- in Tunisia, continues today in the questions being ful to launch a campaign in Europe to promote asked by Europeans regarding the country’s capa- investment in Tunisia. This campaign, which city to find stability and successfully carry through would include testimonials from entrepreneurs its democratic transition. Although the situation installed in the country, should target strategic has generally calmed down, the images of organizations likely to relay the information fur- January’s Tunisian revolt have left a long-lasting ther (e.g. chambers of commerce, employers’ asso- 5 TUNISIA 9 PROPOSITIONS FOR BOOSTING ECONOMIC DEVELOPMENT ~ SEPTEMBER 2011

ciations, professional networks and investment sion, which would have first carried out an apprai- funds). A presentation of the German-CEEC sal of the risks linked to security and socio-econo- industrial integration model and the benefits resul- mic stability in Tunisia. A solemn commitment ting from this kind of stimulus could also generate from the Tunisian state that it will continue to interest from European companies in Tunisia. To improve the business climate should also be one boost the operation’s credibility, and so its impact, of the messages transmitted to investors. n it should be sponsored by the European Commis-

4 Help open up the skies to encourage more diverse tourism

ISSUE tunisian tourism, traditionally based on mass contract deals for tour operators) and partly the coastal resorts, has been in decline for several drop in tourist numbers caused by the revolution, years. Having been neglected by Ben Ali’s risk delaying the decision even more. regime, it is now in need of renewal and diversi- So as not to slow down the liberalization of air fication. Among the different possible develop- transport in Tunisia, the European Union should ment options, one of the most promising is inde- draw up an assistance package for Tunisair to pendent tourism integrated into the territories help the company tackle competition with major (e.g. cultural tourism, green tourism, social tou- European airlines. This package, which could rism, etc.). Acting as a complement to seaside take inspiration from the experience of Royal Air tourism, this new type of product would be a way Maroc (confronted with the opening up of Moroc- of combating the main weaknesses of Tunisian can skies in 2006), should be two-fold: tourism: excessive coastal tourist development, • Conversion of -Carthage Airport, Tuni- seasonal peaks and dips, total dependence on tour sair’s homeport, into an airport hub for flights to operators, languishing image of the country, sub-Saharan Africa, the Middle East and Europe, under-development of cultural and natural rather like Casablanca. The project will involve resources, etc. To support this kind of diversifica- creating new infrastructures (runways and termi- tion, Tunisia needs to be made more accessible, nals) and completely restructuring the airport in particular by aeroplane. (transfer system, reorganization of the customs system, etc.) The European Union could assure funding for the necessary work and technical PROPOSITION support. one indispensable tool to reach this objec- • Aid in creating a low cost branch of Tunisiar. tive is to open up the Tunisian skies, so that peo- In 2006, Royal Air Maroc created its own low cost ple can reach Tunisia on low-cost airlines, the airline, Atlas Blue, which enabled it to keep some main way of attracting independent tourists loo- share of the market that it had lost to regular air- king for an alternative option (as well as seaside lines. Tunisair could take inspiration from this tourists). The conclusion of the Open Sky agree- model and develop a low cost airline for flights to ment between Tunisia and the European Union secondary airports in some outbound markets in is due at the end of 2011, which is later than plan- which the company already has a foothold. The ned because of the revolution. The Tunisian European Union could offer technical support in government’s reticence to sign this agreement setting up this project. n was mainly due to doubts about the future of Tunisair, one of the country’s principle employers, and the national airline’s capacity to deal with free competition. The losses recorded by Tunisair in 2011, which can partly be explained by its contribution to the rescue plan for the tou- rist season (promotional offers, price cuts and 6 TUNISIA 9 PROPOSITIONS FOR BOOSTING ECONOMIC DEVELOPMENT ~ SEPTEMBER 2011

5 Develop vocational training institutes

ISSUE SOLUTION the availability of qualified labour is Tuni- it is urgent to restructure the technical trai- sia’s prime economic asset, according to compa- ning and higher education system, particularly nies. It is extremely rare that an entrepreneur can- given the upscaling of activities achieved in Tuni- not find the human resource he is looking for sia. In the short term, it would be preferable to locally, whatever the specific profile (e.g. profes- create specialized training institutes in the coun- sional speciality, level of qualification, language, try’s major industrial and service areas, with etc.). Despite the impressive high rate of school courses designed to meet the needs of the private attendance in the country, this advantage does sector. These centres should work in partnership however include some significant imperfections with local, Tunisian and foreign companies, that foreign and Tunisian entrepreneurs unani- which would commit themselves to taking on mously deplore. For example, the education sys- pupils and initiating them in a particular trade tem in its current state is completely divorced (i.e. internships, sandwich courses). In exchange, from the private sector and thus unable to trans- these companies would have the guarantee of mit to young graduates the skills they need to being able to recruit operational staff in manage- immediately integrate the workplace. In these ment, engineering and technical trades (e.g. spe- conditions, it is generally left to companies them- cialized labourers, computer programmers, logis- selves to provide operational training for their tics staff, bankers, etc.). These centres could be new recruits. This cost is all the harder to bear funded by the European Union. Training would since employees, once they are trained, are focus on practical experience and be taught by rapidly swept up by more powerful companies. In professionals from the private sector, preferably both the industry and the service sectors, this with some experience in Europe or in European situation is slowing down the upscaling of busi- companies, with a view to transferring capabili- nesses achieved in Tunisia in strategic domains ties. There should also be an emphasis on student (e.g. R&D, new technologies, BPO, etc.). exchanges with European universities and com- panies. n

6 Simplify the administrative machinery

ISSUE numerous tunisian and foreign companies plex and opaque (the multiple controls jeopardize complain about the country’s administrative set- the chances of meeting deadlines, and the multi- up. The problems most frequently encountered ple middlemen increase the risk of corruption). are the amount of red tape and slow procedures Secondly, texts relating to commercial and cus- (i.e. diverse authorizations, customs, investment, toms regulations are often ambiguous and impre- company creation, etc.) and the attitude of civil cise, which creates a hotbed for corruption since servants working in administration. The unpre- intermediaries can take advantage of the lack of dictable, arbitrary and uncertain nature of the clarity. costs and delays required to obtain administrative authorizations are highly detrimental to Tunisia’s competitiveness, especially given the way that the PROPOSITIONS new global economy works, with its core empha- tunisia has been working on simplifying its sis on smooth running (i.e. responsiveness, just- administrative system for several years. However, in-time production, secure delivery times, etc.). the transition underway provides an opportunity Entrepreneurs come up against two types of dif- to inject new impetus into improvements awaited ficulty: Firstly, validation procedures generally go by the whole economic community. This urgent through several agencies and ministries, which challenge could be met through European tech- makes administrative channels particularly com- nical assistance. Two projects could be set up: 7 TUNISIA 9 PROPOSITIONS FOR BOOSTING ECONOMIC DEVELOPMENT ~ SEPTEMBER 2011

• A project to help computerize and automate • With a view to clarifying and standardizing administrative procedures, which would reduce Tunisian regulations, Tunisia and European the need for human intermediaries and ensure countries should set up a system of administra- the systemization of administrative regulations. tive twinnings. Inspired by the TACIS pro- This project could be introduced gradually, star- gramme developed by the EU with Eastern Euro- ting with institutions (ports, customs) or pilot pean partner states, this system would be a way ministries. of extending good practices within authorities and making upgrading swifter. n

7 Redefine spatial planning policy by giving regions more power and resources

ISSUE PROPOSITION infrastructure and equipment form the foun- to boost competitiveness and develop new dations of a country’s industrial competitiveness. activities, Tunisia must continue to structure its In Tunisia, spatial planning is often considered to territory (e.g. land transport, storage areas, logis- be satisfactory by entrepreneurs, yet in reality tical centres, etc.). To set up a spatial development significant loopholes exist, including blatant ine- policy in line with the objective of recreating a qualities in spatial planning. Since independence, balance between territories, the country will need coastal zones have received the lion’s share of to reform the way that land development is mana- public investment in infrastructure. This failure ged. Decentralization and administrative regiona- is essentially the result of an excessive decentra- lism would be one way of balancing the distribu- lization of decision-making, particularly in recent tion of budgets allotted to spatial development decades, when the state’s spatial planning mono- and optimizing expenditure in this domain. The poly was administered by corrupt managers who aim is to organize a new administrative appor- constantly put their personal interests ahead of tionment and create administrative macro- the national interest. The effect of their policy was regions organized around major urban centres on to widen already considerable gaps between the the coast (Tunis, , , Gabès, ) that regions, creating clear territorial antagonism bet- would be responsible for developing their inland ween privileged coastal areas and neglected areas. This solution is as economically relevant as inland areas. This situation has totally conditio- it is historically relevant, given that for centuries, ned the geography of Tunisian development: the major coastal towns have been in permanent coastal development of tourist and industrial acti- connection with their hinterlands, from where vities, with a particular North-East bias (from they obtain their workforce and farming produce Tunis to Sousse); the emergence of major coastal (35% of the inhabitants of Sfax come from the urban centres (Tunis, Sousse, Sfax, etc.); rural region of Sidi Bouzid). Only the regional capitals exodus; under-development of the hinterland; are in a position to identify priority spatial deve- bad connections with neighbouring countries. lopment projects and implement them to develop These multiple imbalances, which provided fer- their spheres of influence. n tile ground for the Jasmin revolution to take root, penalize the whole Tunisian economy in preven- ting the development of new activities and the exploitation of the whole country’s potential (agri- culture and the food industry, renewable energy, diversified tourism, etc.). 8 TUNISIA 9 PROPOSITIONS FOR BOOSTING ECONOMIC DEVELOPMENT ~ SEPTEMBER 2011

8 Sécuriser l’investissement de long terme en Tunisie

ISSUE PROPOSITION to pave tunisia’s path towards achieving defi- to encourage a massive pickup in investment nitive democracy and provide support for its eco- and reduce the economic and political risks of the nomic and social modernization, a considerable current transition, Tunisia should immediately amount of equipment and infrastructure will need sign with its partners a treaty securing long-term to be put in place over the forthcoming years, in investments. This treaty must firstly define a the domains of energy (e.g. power stations, rene- regime for protecting strategic and structuring wable energy), urban planning (e.g. water, sanita- investments. It should also include the creation tion, waste treatment), logistics and transport (e.g. of a Euro-Tunisian body for settling disputes. roads, ports, airports) and in the social sector (e.g. Devised in this manner, the treaty could consti- hospitals, universities). These major projects will tute the basis of a modern, uniform investment cost several billion euro and require participation framework for Tunisia, and go on to be used as a from major international building contractors. model by all countries South and East of the Given the uncertainty of the unprecedented tran- Mediterranean. n sition that Tunisia is going through, it is urgent to minimize the risks facing these potential inves- tors. Without genuine security for long-term investments, it will be difficult to rally these stake- holders, who are crucial for rebuilding the country.

9 Redefine the country’s economic strategy

ISSUE tunisia fits into a regional and global environ- would take the form of a skills assessment pin- ment that has seen deep-seated changes in the pointing the country’s comparative and competi- space of the last decade. Competition from tive advantages and listing its most significant eco- CEECs and Asian countries, the European econo- nomic successes (e.g. IT, car industry, luxury mic crisis, and southern Mediterranean coun- textiles, etc.). This diagnosis would be a way of tries’ opening up to tourism have all threatened identifying the branches and activities in which the Tunisian economy and should have obliged it Tunisia can claim genuine assets: in prime sectors to regularly redefine its position in the regional (i.e. electronics, fashion fabrics, tourism) and block. Leaders under Ben Ali were unfit to carry buoyant sectors (i.e. food industry, renewable out the necessary reforms to continue the coun- energy, health, construction, etc.). It would also try’s modernization, and so opted to maintain the show in which ways the Tunisian economy can status quo throughout the last decade. As a conse- complement European economies (mutual North- quence, the country’s comparative strong points South enhancement, shared added value, exploi- are less advantageous: attractive tax conditions, ting regional markets, etc.). The study should also available skilled workforce, tourist facilities and take into account the country’s specific territorial proximity are no longer Tunisian monopolies in features, with a focus on solutions to promote for the Mediterranean area. under-developed areas. The failure of policies to industrialize inland regions results from ignorance of the resources available on these territories. Since PROPOSITION these zones have little available labour and no busi- an economic strategy that takes the country’s ness fabric, subsidies designed to encourage potential into account in its own environment is industrial investment inland have had little chance clearly the starting point for its renewal. This of convincing industrials to relocate there. This would be an efficient way to target investments and negligence has proved as harmful as the potential provide long-term visibility for foreign investors. is high (e.g. mineral and tourism resources, far- Such a project calls for a large-scale study that ming, renewable energy sources, etc.). n