ShiftingWealth

(This post, a translated version of my article in MakronomMagazin, replaces an earlier post here on Tunesia.)

On the tenth anniversary of the Arabellion, Tunisia´s youth fought street battles with the police. People are angry and disappointed about the desolate situation of the country. "Those in power are now others, the system has remained". "What good is press freedom if I have no work?" they complain.

The Federal Ministry for Economic Cooperation and Development (BMZ) has significantly increased funding for Tunisia over the last decade. At the heart of Germany's engagement is the reform partnership with Tunisia within the framework of the Marshall Plan with Africa. It was concluded in 2017 as a bilateral contribution to the G20 Compact with Africa initiative. According to the BMZ, Tunisia is a beacon of political hope in North Africa and, after a long phase of dictatorship, is on its way to transforming itself peacefully into a constitutional state. Despite political and social tensions, democratic development in the country is considered exemplary, says the BMZ on its official Tunisia page. Civil society has been strengthened after the end of the Ben Ali regime. The Federation of Trade Unions, the Employers' Association, the Human Rights League and the Bar Association were honoured with the Nobel Peace Prize in 2015. In short: Tunisia is a donor darling and, in the eyes of many "Westerners", something of a prime example of a successful democratic transformation.

Recent analysis praises[1] Tunisia's comparatively good social contract and its inclusive development model. But doubts are allowed as to whether Tunisians on the ground also see it that way. Violent clashes between demonstrators and the police, looting of supermarkets and hundreds of arrests currently characterise the Tunisian provinces and cities. Libanese economist Ishac Diwan warned some time ago that things were getting out of hand in Tunisia[2]. Even before the Covid pandemic, cronyism and illegal underground activities were draining the growth of Tunisia's economy - except from the corruption-prone construction sector - a consequence of weakened state capacity to enforce law and order. While public investment languished at 5% of GDP, the public wage bill rose from 10 to 15% of GDP over the past decade. The increase in social spending also benefited mainly civil servants, not the poor hinterland. The Gini coefficient remained high, at 40%.

Nearby Italy in particular is feeling the unabated wave of migration from Tunisia. In Tunisia, illegal emigration to Europe, typically by boat, is commonly referred to as Harqa (Arabic for burning the border). Harqa is an exit strategy for those who experience severe marginalisation at home. While Tunisia is also a transit country for migrants from sub-Saharan Africa, it is primarily a country of origin. According to Migrationdataportal, Tunisia's total migration loss (immigration - emigration) between 2011 and 2020 was 170,000 . Almost 7% of Tunisia's population (nearly 12 million) live abroad. In 2020, the Tunisian diaspora supported the notoriously deficit-ridden current account balance with private remittances amounting to 5% of national income (GNP).

A multitude of problems continue to plague Tunisia after the Arab Spring. Some prominent examples are the stagnation of the nationwide standard of living, pervasive corruption and an exceedingly high unemployment rate. According to the IMF, the external value of the dinar against the euro has halved since the Arab Spring, and foreign exchange reserves have also halved over the past decade ^[3].

Of course, the covid pandemic hit Tunisia particularly hard, as employment and foreign exchange earnings depend heavily on tourism. But according to OECD analysis[4], direct investors have been very reluctant to invest since the Arab Spring, so the country has not been able to diversify away from its dependence on tourism by creating new jobs. Formal employment has grown too little to engage the youth and give them a perspective. The relatively good education of young Tunisians also implies frictions in labour supply: What kind of industrial manufacturing jobs are even accepted?

Advice comes easy from "backbenchers" in Washington, Paris or Berlin[5]. It is known ad nauseam:

·       promote labour-intensive industries, ideally through attractive location conditions for foreign direct investment;

·       reduce or eliminate subsidies for fossil fuels;

·       consolidate the state budget by cutting public consumption.

However, the government's fiscal space and the people's patience seem to be exhausted. Cutting public consumption, half of which is civil servants' salaries, would also turn civil servants against the government.... High energy prices hit the province and the poorer part of the population. Foreign direct investors, despite lower political governance scores, prefer Egypt as a destination, where the military complex determines industrial policy and guarantees the security of direct investment [6]. Is Tunisia's young population too close to Europe and too well educated for the Asian model of transformation through labour-intensive industries to really have a chance there? A mismatch between skills supplied by the formally well-educated youth and the basic skills required for labour-rich manufacturing may stand in the way of replicating East Asian development strategies.

No doubt: In principle, Tunisia has undeniable assets and is quite well integrated into global value chains: its geographic location on the border between Europe and Africa, many years of investment in education, specialisation in future niches, including the pharmaceutical or information technology sectors. However, Tunisia's attractiveness suffers from

·       the numerous, often cumbersome regulations and administrative procedures,

·       the foreign investment regulations, which are more restrictive than in Egypt and Morocco, and

·       the delays in crossing the border (customs and transport logistics), which are often longer than elsewhere.

·       Some investors also complained about a skills gap, even though 28 per cent of graduates are unemployed. [7]

A remark made in 2017 by the Middle East expert Torelli of the Roman policy institute ISPI (Istituto per gli studi di politica internazionale) rings today as a warning[8] , also for the BMZ: "One of the mistakes of recent years has been the EU's tendency to sing the praises of Tunisian democratisation. While the country has achieved a good degree of formal democracy, there are still many critical problems related to the economy and political instability." Consensus politics against a backdrop of rising polarisation between Islamists and secularists has stymied Tunisian politics.

In retrospect, euphoric donor rhetoric (praising Tunisia´s rule of law and human rights) has proved counterproductive by intensifying authorities´ moral hazard. The Tunisian government had the upper hand in renegotiations with the IMF and multilateral lenders, not least backed by donor rhetoric. Conditionality was undermined (especially with regard to wage costs in the public sector), without impact on disbursements (Diwan, 2019, op.cit.). On the other hand: Instead of warm words, the EU has not been able to offer tangible incentives for higher productivity - such as an accession perspective along the lines of EU enlargement to the East.