There are a number of reasons to be optimistic after the recent ‘Invest in Tunisia: Start-up Democracy’ conference. Prime Minister Mehdi Jomaa made it clear that fixing the economy was now a top priority. There was consensus around the reforms needed and a sense of urgency about tackling them. The conference attracted business and political leaders from over 30 countries, including the prime ministers of Algeria, France and Morocco, in a strong signal that Tunisia can count on international support as it meets the challenges ahead. Above all, it has generated a momentum that can now be built on.
The next step should be bold actions to create an environment that will indeed attract investment and kick start growth and job creation. With growth slowing and the macroeconomic situation becoming ever more precarious, there is no time to waste. Getting there will require both seizing the momentum and broadening the consensus to build a national coalition around critical economic decisions. The National Economic Dialogue will be an important vehicle for bringing together the full cross section of society in an inclusive debate on the reform program needed for the country’s economic transition. Last week, the World Bank released a report that we hope will contribute to this process. The Unfinished Revolution: Bringing Opportunity, Good Jobs and Greater Wealth to all Tunisians offers a comprehensive diagnosis of the health of the Tunisian economy. In identifying the underlying structural problems that have long prevented Tunisia from reaching its full potential, the report provides the facts and objective analysis that citizens and policy makers alike need for informed debate and decisions.
One overarching problem that the report highlights, and which the interim governments have taken steps to address, is the lack of competition. Policies designed to protect domestic industries have effectively closed off large sectors of the economy, while businesses in the private sector are weighed down by excessive regulations. The report estimates that the lack of competition costs the economy over US$2 billion per year, or nearly 5 percent of the wealth of the country. It is now well documented how the regulations were manipulated for the profit of a few connected firms, but it has also exacted a significant toll in job creation. In a competitive economy, new firms are launched all the time, and the most efficient and productive grow and create more and better jobs. Very few new firms emerge in Tunisia. Protected businesses operating in restricted parts of the economy have little incentive to innovate or become more productive. Tunisians bear the burden for this in higher prices for lower quality goods and less efficient services. Most existing firms neither grow nor disappear, they simply stagnate. Everyone has a stake in overcoming this economic paralysis. This is especially true for the growing number of unemployed graduates, whose skills would be in demand in an environment in which innovation and greater productivity were rewarded.
Much has been achieved in the past three years, under very difficult circumstances. It is yet another cause for remaining optimistic. There has been a concerted effort to simplify regulations and reduce administrative hurdles. ‘One-stop-shops’ now make it easier to register new businesses. The renewal of permits is no longer a yearly chore, but has now been extended to every three years. The opening up of the telecommunications sector has improved services and brought prices down. The ambitious project, Tunisia Digital 2018, to ensure access to broadband internet throughout the country, is a significant investment in providing the infrastructure businesses will need to grow. It is a good start, but much more needs to be done to keep the flame of optimism alive. More opportunities should be seized to turn momentum into action. The dynamism of the economy and the quantity of jobs it is able to generate hang in the balance.
Our report further estimates that increased competition which results in a five percent decrease in the current profit margins of existing firms would end up boosting labor productivity by five percent on average, and raise the growth of the Gross Domestic Product by 4.5 percent along with creating approximately 50,000 new jobs per year. The consolidation of much of the progress already made would be a step toward this goal. Apart from easing regulations, increased competition requires a level playing field, so that firms compete on an equal footing and succeed only on the basis of their greater efficiency and productivity. The passing of the draft competition law would lay the foundations for just such a business environment. It will need to be overseen by a reformed Competition Council that, far from ceremonial, has the teeth and the independence to ensure regulations are predictably and evenly enforced, and that the playing field stays level. It is in this kind of environment that productive firms will be able to grow and become the source of the quality and quantity of jobs needed.
Our report maps out the fundamental economic challenges and offers detailed suggestions on how to meet them, but change will only occur if all stakeholders share a common view of the way forward. Business and labor leaders, and civil society organizations all have an important role to play. The coalitions that were instrumental in shepherding in the new constitution will be equally important in implementing the vision laid out at the ‘Invest in Tunisia: Start-up Democracy’ conference. We hope our latest report can help build that coalition, as we remain as committed as ever to supporting the transition with our resources and expertise.