“Elements for a strategic economic and social development of Tunisia in the medium-term”, published a focus on the Tunisian economy
The Euro Mediterranean Economic Forum, financed by European Union funds, by Femise -project EU that aims to strengthen dialogue on economic and financial matters in the Euro Mediterranea- published, on March 26, 2015, a report conducted on ‘Tunisian economy entitled “Elements for a strategic economic and social development of Tunisia in the medium-term”.
This focus is an analysis of the main vectors of economic and social post transitional Tunisian. The publication seeks to provide insight into the factors that might influence the growth for years to come and suggest an effective strategy in this regard. Inside the publication is also a program of social and economic reforms.
The study was conducted under the direction of Professor Chedli Ayari, Emeritus of the Université de Tunis El Manar, Jean Louis Reiffers, Emeritus Université de Toulon and Chairman of Scientific Committee of the Institut de la Méditerranée & Femise.
Scholars have gone from identifying the main problems and the definition of policy priorities that have come to be after the events of January 2011, taking into account the limitations and difficulties of the current growth model, the urgent need to prepare the conditions for a revival of the Tunisian economy and how to get it in the next ten years. This would allow Tunisia to boost access to the rank of first class in emerging countries (with a growth rate of around 7% per annum compared with nearly 4% obtained in the period 2000-2010 and 2% since then).
Deepening the bonds of growth and macroeconomic balance and social Tunisia, the focus made by Femise, warns that nothing will be possible if the economic and social development model used in Tunisia will not take account of the reasons that led to the revolution and does not match the political compromise which was reflected in the approval of the new Constitution.
The reasons that have led the Tunisian people to revolt are:
- The authoritarian model – was composted both by a lack of democracy, especially by heavy restrictions on press freedom and association- that had penetrated too both in the business world, in the political, with high levels of corruption,
- a development that did not allow a sufficient reduction of inequality and greater concern about the spread of opportunities for personal fulfillment,
- the market is not entirely open and polarized on very specific areas.
Considering these problems appears undeniable the need to adopt a new development model more open. However, past experience has shown that this opening should be accompanied by a policy that installs a development model more resistant to shocks of globalization and an inclusive model that allows both the stability of the process that the active participation of all citizens.
To summarize the main points and passages in the report “Elements for a strategic economic and social development of Tunisia in the medium-term”:
Growth – although necessarily if accompanied by excessive inequality, if it is concentrated only in certain territories and only for certain groups in society, is not enough to meet the demands from the population.
It is essential to understand that civil society can enforce its demands, but this will require difficult compromises that can be made only in the context of a new social contract proposed to the population and, in particular, to young people. Without substantial changes in the economic development model, without approval widely shared by the population on the changes needed, without enhanced cooperation with international donors-which must support a national perspective that can sometimes take specific forms in relation to the universal referent , there is a dangerous gap between the constitutional framework and the reality of living conditions. To move in this direction, the report made by Femise, identified the main weaknesses of the Tunisian economy and proposed the resulting changes possible.
According to reports in focus it emerges that Tunisia is now in the situation of a country-despite the great progress made so far, in order to boost the growth momentum geared more to the productivity and diversification of activities- faces a double challenge: It must first find the average growth rate of over 4% who had reached since the mid-90s until 2010; secondly, to establish a strategy for long-term growth and create jobs, in order to get out of what has been called “middle income trap”.
In the short term, however, the challenge is to keep domestic demand enough and try to redirect external demand in new markets. Today, in fact, due to the post-revolutionary situation, the production system Tunisian operates below its potential.
To solve this problem, until now, they have been used wage increases in the public sector and the recruitment of officials, in order to push the growth of domestic consumption. However, they have proved to be false solutions, as they have expanded the deficit and balance the competitiveness of the economy. The solution may lie in the increase in domestic and international investment. You may think that politics should play a stabilizing role in the appeal of direct investment and the recovery of tourist flows.
As for foreign demand, much will depend on the recovery of the main export destination markets Tunisian (ie especially the French and Italian) and the ability of Tunisia to adjust to compliance with technical and health conditions for access to these markets.
Over the next five years, Tunisia will have to increase the value added in the services market and the industry, who have played a significant role before the period of the current crisis. The contraction of these sectors was offset by a strong expansion of non-tradable services, the cost of a significant reduction of the scope of public power.
he mission for the foreseeable future will be, therefore, the reorganization of incentives for: more targeted investment and foreign direct investment (particularly for promising sectors with high technological content, the mechanical and electrical industries, pharmaceuticals, the ITC, which would allow an increase of the production system). In addition, these incentives will be crucial for mobilizing more financial resources for the company, because studies show that the quality of the management, organization and financial support are key success factors of business independent of belonging to a sector. This will involve the strengthening of the quality of institutions, in particular the efficiency of the state and new strategic directions, regarding his choices and industrial land use.
Finally, to make the growth model of the country gradually less dependent on economic fluctuations will require that the production structure of Tunisia become increasingly complex, with relations between the different areas of cross-cutting activities, in which the high-level services are crucial.
According to the report, to achieve a strong growth that creates enough jobs and improve the competitiveness of the Tunisian economy, they must be taken into consideration four issues: first, it must be mobilized human capital. The second problem is to increase the share of growth due to the increase in labor productivity, improving total factor productivity (TFP), the third is to encourage the creation and growth of businesses. Finally, we need to develop innovation.
Enhancing human capital: this is revealed as necessary especially since unemployment mainly affects young people. The Tunisian people, in fact, (10,720,000 in 2012), continues to grow and is made for the 30% of young people under thirty. Plus 90% of the population is concentrated in 25% of the territory.
Population growth, weight gain and the concentration of young people in specific areas makes the situation extremely delicate work, since there is a significant gap between the supply and demand for labor. The labor force participation rates are extremely low in absolute terms and are lower than those observed in other regions with a similar level of economic development. The female participation rate remained very low (25.5%) although slightly improved over time. Currently it is a bit ‘below the value of regional PM, but remains far away from the rates observed in ASEAN and Mercosur.
The report shows that, since the availability of human capital is an asset that must be mobilized, with regard to this issue, there are several key points:
The first key point is the participation rate of young people in the labor force. Approximately 44.5% of young people aged between 20 and 24 were active in 2011, the percentage was 64.4% for young people aged 25-29 years. These low participation rates are due to the marginalization of women and discouragement of young people leaving the formal labor market and move into the informal sector or by creating their own business (81% of enterprises are self-employed in the informal sector) or trying to emigrate.
The second crucial point is that, despite the low turnout, the unemployment rate is very high and is rising since the beginning of 2000. This is due to a growing gap between labor demand (+ 51.6% between 2010 and 2013) and job structurally inadequate and has declined significantly in the same period (-49.6%).
The third key point is that these phenomena particularly affect young people with higher education, this situation is peculiar to Tunisia.
From this it follows that a major reform of the system of education and training is a priority. It is necessary to radically change the nature of the paradox of the Tunisian industry training, the duration of study is directly related to the possibility of being unemployed.
The Tunisian development model should be structured around the knowledge economy, whose human capital is the essential component. Access to public services must be guaranteed to the great majority of university students who so desire and commitment is required of teachers to the development model proposed. In this regard, it seems essential to the development of continuous training of teachers. Also you need to change the programs, which still rely acquiring an encyclopedic knowledge, absolutely distant from the needs of companies seeking to adapt in a rapidly changing environment. Finally, the model of knowledge acquisition does not take into account either the development of capabilities required for the development of new activities.
Other weaknesses that should be changed and improved are the development of cooperation between businesses and educational institutions and the creation of interconnections between different sectors, giving up too many specialist degree courses, in order to develop the mobility of students and decrease the churn.
A point to change the mobility: it should encourage young people to move more towards sectors with high employability -as Science and Engineering-to train managers of Tunisian companies, too often trained abroad. In addition, the teaching of English as an international language deserves to be completely revised.
Finally, the report recommended the generalization and deepening the training of teachers who are often poorly trained and poorly motivated teaching.
Training should also be deeply reformed, because its results are significantly worse in 2011: the vocational training system in Tunisia remains weakened by the lack of coordination that persists between the programs offered in higher education and the training professional reorientation that makes it difficult for students. The weakest link is the training technique because there are technical and vocational schools and ISET are generally considered not sufficiently effective. Training does not produce a sufficient number of graduates in the fields trying to recruit labor such as construction, textiles and agriculture
Increase the total productivity
The increase in productivity, particularly labor productivity, is essential as it allows an increase in wages without the loss of competitiveness of industries that use labor. Until recently, the increase in wages Tunisian followed the growth of labor productivity, but since 2009 the increase in real wages was significantly higher than the productivity of labor, worsened after the revolution.
The increase in labor productivity, while strengthening competitiveness has the advantage of changing the distribution of value added between capital and labor. To increase the productivity of labor without capital replacement work and without excessive use of inter- and intra-sectoral shifts, you need to increase labor productivity by improving the factors of production organization, the quality of work and technology.
Encourage the creation and growth of businesses
It must be a significant change in the banking and financial system, which must be conducted around four key pillars:
The first pillar is undoubtedly the banking system, which must be connected with the financial market to provide loans to companies that need it. This implies increasing modernization, liberalization – to attract investors (including foreign ones) – and reassure many Tunisian companies. In addition, companies often require that a loan him with interest rates higher than those of private individuals, this gap needs to be filled and the availability of credit should be spread throughout the country.
The second pillar concerns the information. The reason that the guarantees are important for the supply of credit is caused by an asymmetry of information suffered by banks and other lenders. It is therefore desirable that companies are evaluated by an independent body or bodies.
The third pillar is to diversify sources of funding. From this point of view, they should be promoted new sources of financing such as micro-credit or crowdfunding platform.
As for the administrative, whose inefficiency is denigrated by all entrepreneurs, we must simplify administrative procedures, establishing one dedicated to the creation of companies. Moreover it is absolutely critical that the state guarantee public safety, the fight against corruption and favoritism and ensure that there is competition in the markets in order to allow Tunisia to become a modern economy and stable.
Encourage innovation and integration with international markets
Tunisia cannot build an efficient national innovation system that will spread throughout the economy. However, innovation is at the center of the development model recommended for Tunisia, because it is thanks to her that she can position themselves in markets with higher added value, creators of jobs more skilled and less competition MENA. In addition, through a system of effective innovation Tunisia improve its competitiveness. Several actions are possible: firstly, it is essential to establish funding for innovative activities because the problem of access to finance is a serious handicap for companies in Tunisia as a whole, but even more strongly affects SMEs and start-up in sight their size and their innovative projects that are inherently risky.
The respect of quality standards must be part of the concerns of Tunisian companies to achieve the level of quality internationally recognized. The state must promote innovation through tax incentives that seem, in the investigation, to be the most effective way to encourage companies to invest in research and development. The establishment of a tax incentive actually encourages the creation of vertical structures, complete with specialized companies of all sizes.
Finally, special attention must be given to the ICT sector in which Tunisia was one of the countries with the best results in the eighties, but now is overwhelmed by its main international competitors (Turkey, Malaysia, Chile). However, investments in this sector are now a priority, because it helps to modernize all other sectors of the economy and the administration, increasing their productivity.
Considerable scope for improvement is present in the web, both the economic point of view (e-commerce, job search, communication with remote areas, crowdfunding), but also social (social network and think tank).
Tunisia needs a deep integration in the international market, which began immediately after independence (1985). The country is asked to allow the liberalization of trade and the removal of tariffs, reducing non-tariff barriers, openness to trade in services, the protection of foreign investment and intellectual property rights. In addition there are requirements in the field of competition and openness of public contracts.
The current situation of the Tunisian economy shows a growing deficit in the current account balance due to the lack of business competitiveness. The trade deficit reached 15% of GDP in 2013 (the current account deficit of 7.9%). Until 2005 the trade deficit was largely offset by income transfers from emigrants, and especially by tourism receipts. With the influx of foreign direct investment, the balance of payments was close to balance, but the situation of trade imbalance is now at a level such that the recovery of tourism and foreign direct investment are not sufficient to restore the balance in balance of payments.
Four main reasons for the commercial situation of Tunisia:
The first reason is the low quality of the products exported which is manifested by the minimum content of technology and price.
The second explanation lies in insufficient diversification of exports and dall’anomala dependence on imported wheat.
The third reason is the insufficient diversification of export markets.
Finally, when the exchange rate depreciates imports do not decrease due to their incompressible nature and strong price rigidity and exports do not increase because of their characteristics, especially if there is inflation (as in this period).
It should, therefore, review the manner of governing. The pre-revolutionary Tunisian society has been characterized by opacity, favoritism and corruption, now needs to be guaranteed fair competition, fair treatment between the various categories of workers, a mode of operation based on transparency and efficiency. These objectives will be achieved only if the social and territorial inequalities will be reduced. The state must therefore ensure that companies operate on a level playing field, not subjected to any pressure and not be left out of the markets in which they have no protection.
It is essential to optimize the resources of the administration, to acquire the administration greater flexibility and restore fair competition between public and private sector in the recruitment of staff. This should improve the productivity of the public sector and help combat the lack of motivation to distinguish between some of its agents.
To encourage youth participation in political life should continue to pursue the path that began with the new electoral law in April 2014, which imposes quotas for the representation of young people in elections. Important is to improve the integration of women in Tunisian society,
fight against corruption and the informal economy, optimizing the management of natural resources, utilities and infrastructure – vital to the development of tourism- and finally establish technology centers or industrial areas zones.