One Year After the Revolution: The Tunisian Economy is in the Red

Residents sit outside the refinery compound of Italian oil company Eni as they continue their blockade of several days on the premises at the town of Tazarka, south-east of capital Tunis in this 27 October 2011. The message on the floor written in Arabic reads "protest". (Photo: REUTERS - Zohra Bensemra)

By: Nizar Maqni

Published Monday, December 19, 2011

The political turmoil that has rocked Tunisia over the past year has crippled its economy. All the key sectors have declined, while unemployment has risen dramatically. Can Tunisia bounce back?

A year after the outbreak of the Tunisian revolution on 17 December 2010, the country’s key economic indicators are quite alarming, as they approach the danger zone that the central bank has warned of since Zine el Abidine Ben Ali fled Tunis early in the year.

The political volatility that Tunisia has experienced is obviously the main cause of the economic malaise. The country has undergone a year of unprecedented political turmoil combined with equally destabilizing regional uprisings that rocked neighboring countries like Libya.

Economic indicators point to a decline in all sectors of the economy: industrial, agricultural, and services. That means the crisis has eaten away at all components of the real economy, in addition to the crucial financial and monetary sectors.

The decline in manufacturing, tourism, and investment, combined with higher inflation and a decline in agriculture — even though the crop yields were not bad this year — led the Central Bank of Tunisia to issue warnings that the growth rate might actually be negative.

Perhaps some of the worst numbers were in manufacturing, which fell by 12 percent in the first four months of this year, after direct foreign investments fell by 27 percent compared to previous years.

This decline was the outcome of a volatile security situation – a function of two factors:

The first was deteriorating regional security, particularly in neighboring Libya, where reports indicated that weapons were becoming increasingly widespread. In turn, this generated fear that the violence might spread into neighboring Tunisia and Algeria.

The second factor was the unrest inside Tunisia itself, especially in the interior regions of the country, due to many reasons that boil down to one basic demand – employment.

These developments resulted in a 50 percent decline in mining production, particularly in phosphates. In this key sector of the economy, strikes and protests have not stopped since the revolution.

These same factors have also led to a 40 percent decline in tourism, one of the pillars of the Tunisian economy, which in turn has led to a 25 percent drop in the travel industry.

According to government sources, the country is losing 7,000 jobs every month. Unemployment have increased from 13 percent last year to almost 20 percent this past November, which means 800,000 people are looking for work.

A third of the unemployed have lost their jobs since the outbreak of the revolution, as foreign companies in Tunisia closed down after a series of strikes demanding higher wages.

According to indicators leaked from the Central Bank of Tunisia, the country’s foreign exchange reserves continue to dwindle. They fell from 13 billion Tunisian dinars (TND) (US$8,740,000) in late 2010 to TND10 billion (US$6,720,000) today. The country is also approaching alarmingly low levels of Tunisian currency reserves as exports continue to fall.

Key sources of income for the state treasury, such as phosphate exports and the tourism industry, have declined, and remittances from Tunisian expatriates have dropped by 12.5 percent compared with last year.

The Libyan revolution has imposed a new economic reality on Tunisia, as hundreds of Tunisians who had been working in Libya were forced to return. In the south, refugees fled across the Tunisian border, posing further burdens on state expenditure, despite the influx of international aid.

The Libyan revolution also led to the closure of many import-export companies, leading to the loss of a major source of hard currency and employment, especially as trade between the two countries was significant.

The severe economic crisis in European Union (EU) countries, in addition to the global financial crisis, have only exacerbated existing economic problems. The uncertain fate of the euro will continue to have a negative impact on the economies of south Mediterranean countries, including Tunisia.

The difficult economic situation requires both immediate and long-term solutions. The short-term solution involves improving the political and security situation, which should in turn open the way for a stronger tourism season in 2012. This would serve as a first, modest step to put a stop to the drain on hard currency.

As for the long-term solutions, there are many options available. There should certainly be some attempt to open new and promising markets. The next budget, which has not been discussed yet, must also explore the possibility of increased borrowing from abroad to close the widening budget deficit.

This article is an edited translation from the Arabic Edition.

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