Tunisia’s economy today is on the brink. Believe me, I know from first-hand experience.
In late February, the International Monetary Fund Executive Board issued a report concluding that the pandemic had caused an “unprecedented economic downturn” in Tunisia: economic output in 2020 fell a post-independence record 8.2 percent, the unemployment rate skyrocketed to 16.2 percent, the fiscal deficit grew to 11.5% of GDP, and public debt rose to roughly 87 percent of GDP, all while public payrolls bloated to nearly 18% of Tunisia’s economic output.
As is all too often the case, the IMF noted that those hurt the most by the deteriorating economy are low-skilled workers, women, and young people.
At the same time that the IMF was preparing its report, as then-CEO of Tunisair, I was in the midst of trying to return the country’s second largest state-owned employer to financial and operational health as part of an agreement with the current government that I would develop and lead the restructuring of the national carrier. As a politically independent, I was inspired to take on this challenge knowing that success in such an endeavor would pave the way and create a template for reforming the rest of state owned companies and would give hope to see the Tunisian economy become more inclusive and free.
Along the way, I discovered how the pandemic had only worsened what was already a fundamentally broken system built around structurally unhealthy economic conditions, and that just as IMF’s Executive Directors had concluded, real reforms are necessary to prevent an economic catastrophe.
As one example, in the last few years before the pandemic, Tunisair had been forced to fly millions of tourists at a loss in order to make the privately owned tourism sector seem more attractive and create the perception of a healthy tourism industry. With an executive decision made by then Prime Minister Chahed and his Tourism Minister who have financial interests in Tunisian travel agencies and hotels, one might ask about the absence of safeguards against conflict of interest. Were it not for the country’s lack of safeguards against conflicts of interest, this off-the-books mandate and the Prime Minister’s creation of a political party funded by hotel interests would not have been possible.
Tragically, Tunisair’s precarious situation mired in a total lack of transparency as shown for instance by the absence of public financial statements for a company listed in the Tunisian stock market. Tunisair is merely a microcosm of what is going wrong more broadly across the economy in Tunisia, which today essentially finds itself in a state of undeclared bankruptcy.
…because of the formal economy’s extractive nature, Tunisia’s informal economy has now become dominant, making youth even more susceptible to the low wages, poor benefits, and illicit dealings associated with life in the shadows. Click To Tweet
Making problems even worse, because of the formal economy’s extractive nature, Tunisia’s informal economy has now become dominant, making youth even more susceptible to the low wages, poor benefits, and illicit dealings associated with life in the shadows.
Although Tunisia’s economy is built around state-owned enterprises, bringing inefficiency and corruption, the problems that are threatening the nation’s democratic future go far beyond ownership. Indeed, it would be shortsighted to suggest that privatization would provide the silver bullet to boost the economy in Tunisia, which has regrettably transitioned from a middle class to poor country.
In reality, the country’s public companies have been lacking reform and overwhelmed by corruption and poor governance. Mismanagement and corruption, including the illegal and unethical reallocation of public company assets to the benefit of a handful private family owned companies, are obstacles to a more inclusive and free economy and have been drivers of Tunisia’s economic and overall fragility.
Further illustrating the alarming downward trends in recent years, while Tunisia was traditionally a top five nation for phosphate production and a leader in chemical production, heavy-handed influence by corrupt union officials transformed an efficient public enterprise into a tool for social and political welfare, resulting in a bloated fivefold increase in employment over less than seven years. As a result, and combined with the effects of recent protests and labor strikes, Tunisia’s leadership in this area has evaporated, with the country now forced to import phosphate for the first time in 2020.
As to addressing the problem at hand, rather than delving into the merits of state-owned entities, the solution is reform that ensures corporate integrity, rule of law, good governance and economic freedom best practices that successfully position current state-owned companies as engines for inclusive economic growth. As part of this solution, Tunisia must begin to utilize hard currency, in addition to the Tunisian dinar, as a benchmark for analyzing and communicating about the country’s finances. The current system lacks transparency and provides a poor basis for creating a prosperous economy, with worker salaries appearing artificially high due to runaway inflation, which is another challenge that must be met with tough measures.
Amid all the instability, foreign companies are leaving the country, with Shell, Eni, and OMV reportedly among the latest looking to jump ship. The status quo is simply untenable.
To complete its democracy and avoid the looming geopolitical disaster that otherwise awaits it, Tunisia requires real economic reform and strengthened security through reinforced alliances with freedom-loving countries and organizations like the United States and NATO that have been traditional partners. It also requires modern leadership that is willing to enact an executive rather than survivalist political agenda, making economic reform a top priority and standing up against corrupt forces and for universal values.
To that end, Tunisia’s current government has shown itself to be politically weak and incapable of reform and defeating corruption. More specifically, the current Prime Minister, Hichem Mechichi, has failed to effectively set the tone on national priorities, and as I learned firsthand earlier this year when unsuccessfully seeking a financial hardship exemption for Tunisair stemming from the Prime Minister’s authorization for unions to collect fees in advance from state owned companies, he is merely appointing individuals to critical positions such as heads of public companies, not empowering them to make necessary reforms.
It has become crystal clear that changes are urgently needed to improve the situation in Tunisia — which ranks 10th out of 14th in the Middle East-North Africa region for economic freedom — and place the country back on course toward a successful democratic consolidation. In the meantime, allies and lenders alike should make clear that further assistance to Tunisia will be conditioned on true reform. With elections approaching in 2024, if Tunisia is to avoid economic and social calamity, the political calendar will require that the required steps for reform be taken by the end of 2022. For the safety, security, and well-being of Tunisia and the region, the time for reform is now.
Olfa Hamdi is the founder and president of the Center for Strategic Studies on Tunisia, which aims to ensure a strong and lasting alliance between the United States and Tunisia; she also serves as the founder and CEO of Concord Project Technologies in Palo Alto, Calif., and is the former CEO of Tunisair.