Tunisia is ready for its economic revolution

Following the revolution, Tunisia revealed two extraordinary assets. The first was the capacity to reconcile between different political, social and religious beliefs to reach a political consensus that respects the society’s pluralism. This stands in stark contrast to the recent turmoil across much of the Arab world.

The second, and perhaps less well-known, is that Tunisians now have an understanding of how even well-intentioned economic policies can get captured by political elites to the detriment of jobs, growth and the welfare of the Tunisian people.  

These assets are important to bear mind as heads of state and business leaders gather in Tunisia this week to pledge support for the country’s ongoing transition. Quite apart from its many comparative advantages, such as a young and well educated population and its geographic location, Tunisia has the raw ingredients that could be transformed into a magnet for investments.

It is critical that Tunisia succeeds. Tunisia is a beacon of hope for the Arab region and shows the world that democracy can be successful. It is time to consolidate and to count on a vibrant private sector to deliver jobs as well as on international businesses willing to invest, seek opportunities and support growth. Building on its young and educated population, we call for increased private sector investments to support Tunisia. The World Bank Group has continued and even increased its support at this critical time. Let the world step up to the challenge.

Investors, be they domestic or foreign, typically look for a combination of political stability and economic policies that are conducive to competition and dynamic growth.  Tunisia could provide both by drawing on the same vision that forged a groundbreaking constitution to undo the economic legacy of the past.

Three years after the revolution, the economy - and its transition - remains a high priority. Young people continue to face unemployment rates above 30 percent, with rates especially high among college graduates. Tunisia has struggled to bring back investors, restart its tourism industry, and provide the credit needed by the country’s businesses to grow and create jobs. 

These are not just short term problems caused by the instability that followed the 2011 revolution. Rather they are result of an economic system inherited from the previous regime that needs to be significantly rethought. 

A new report to be released soon by the World Bank shows how the previous regime used industrial policy and business regulations to protect a web of connected firms from competition. This resulted in higher prices for services such as telecoms, transport and banking, which in turn made it difficult for the exporting sectors—which could potentially employ a lot of people—to compete in world markets. 

In so doing, the firms connected to the Ben Ali regime earned about 20 percent of the profits in the economy while they provided employment to only one percent of the workforce. While the regime and those who benefitted directly from this system are not in power anymore, some of the laws, regulations, and administrative practices that allowed them to capture key sectors of the economy are in need of urgent reform.

The knowledge of how the previous regime operated will help the new government design policies to reform the system and minimize the risk of capture. The transition governments have embarked on the reform path, but the urgency of the political transition has until recently delayed substantial economic transition. The pace of reforms will now have to accelerate, as the macroeconomic situation is precarious, and a recovery in private investment is needed to reach the dynamic growth that the country is capable of; one that provides opportunities for the many rather than the few.

Reforming the economy is a vital step toward unleashing the country’s immense potential. Our analysis identifies a range of activities that remain underexploited. These include the export of labor-intensive goods and services in fields like health and education, and for European firms to offshore accounting and customer services to Tunisia. The country has comparative advantages in the production of Mediterranean agricultural crops, such as durum wheat, dried fruits, and its world class olive oil, yet currently uses only a small fraction of its export quota to the European Union.

Our report calculates that reforms to streamline regulations and increase competition would generate an additional 50,000 jobs per year. An additional 38,000 jobs per year could result from reforms in the banking sector. And changing economic policies to boost agriculture and the export of wage-intensive goods and services would benefit an array of economic actors from farmers to entrepreneurs and college graduates.  

Tunisia does not have to settle for the old economic model. Inclusive politics must now be matched by an inclusive economy. They are the essential ingredients for stability and growth, and the investments that will reinforce both. Tunisia and Tunisians have demonstrated remarkable political courage and determination in the pursuit of a more just, democratic and inclusive society. I have every confidence that if this same determination is placed in the economic field, Tunisia will see not only a successful political revolution, but also a successful economic revolution with a booming economy generating jobs and based on a vibrant and transparent economy, with opportunities for all.  

This editorial was originally published in La Presse on Wednesday, September 10, 2014