The Economic Reforms’ Agenda and Bottlenecks
- 101 Downloads
Since January 2011, the ninth successive Tunisian government dedicated specific social programs and mechanisms in the objective to send short-term positive signals while trying to undertake critical structural reforms. Despite several positive measures and governmental actions, the economy is still suffering from slow progress in implementing the economic reforms, overwhelming corruption and weak business environment. This chapter begins by exploring the current economic reforms’ agenda and presents the ongoing comprehensive macroeconomic reform program which is supported by the International Monetary Fund. Then, it delves into the factors explaining the resistance to change and questions the ability of the state’s institutions to conduct effective and fair integrated reforms. It finally analyzes the structural factors that are preventing the transformation of the Tunisian economy: (1) lack of an integrated development strategy, (2) lack of consensus and weak institutional capacities and (3) extractive political institutions.
3.1 The Tunisian Economy Challenges
It can be concluded from the above diagnosis that the current challenge of Tunisia is to achieve two development objectives: escape the middle-income trap and break out the post-revolution vicious circle.
The middle-income class is facing a continuous deterioration of its purchasing power. The citizens do not perceive credible and well-spread signals related to the improvement of their daily life. The freedom of expression and the emergence of a vibrant civil society are frequently stressed as the only perceivable positive outcomes of the revolution.1 The disadvantaged regions and the economically excluded population are despairing from politicians who promised them better conditions of life (at different electoral occasions). Therefore, the challenge for Tunisia is to fulfill the expectations of the deprived population through short-term programs while gaining the confidence and the adhesion of the population to a broader development strategy.
But are these measures part of an integrated economic reforms’ agenda targeting the resurgence of the Tunisian economy? If yes, what are these reforms and the bottlenecks it is facing?
3.2 The Economic Reforms’ Agenda
Consolidating macroeconomic stability (establishing (a) an appropriate fiscal policy, (b) a prudent monetary policy aimed at containing inflation and (c) greater exchange rate flexibility)
Reforming public institutions and strengthening the monitoring and performance of the state-owned enterprises
Establishing a high-level anti-corruption entity
Facilitating financial intermediation and strengthening banking sector resilience and regulations (including public bank restructuring, the development of a proper resolution framework and a risk-based supervision system)
Improving financial inclusion (developing new credit bureaus, revising the cap on excessive lending rates, developing financing mechanisms for small and medium enterprises and microenterprises)
In September 2016, a new investment law was approved by the parliament and became effective in April 2017. The new code which comprises 36 articles intends to facilitate investment and entrepreneurship. It aims to increase the gross capital formation to GDP to 24% at the horizon of 2020. To that end, it removed many administrative obstacles facing the foreign investors. In March 2017, the Minister of Investment and International Cooperation announced the creation of the Higher Council of Investment that will play the coordination role between the multiple stakeholders (Central Bank of Tunisia, the multiple concerned ministries and the private sector) and be in charge of developing the government investment strategy and monitoring the reforms intended to improve the business environment. In its press release of 12 June 2017, the IMF recalls that the authorities are willing to enhance the governance framework and improve the business environment. Meanwhile, it notes that the establishment of the high anti-corruption authority and the creation of the one-stop shop for investors as well as Tunisia’s participation in the G20 Compact with Africa will support these objectives (IMF, 2017).
3.3 The Economic Reforms’ Bottlenecks
During a seminar, a senior adviser from the government announced that two conditions are required for the country to join a sustainable macroeconomic path: (1) an average growth rate of 3.7% over 2017–2020 and the implementation without delay of the major reforms. I expressed my skepticism about the likelihood of fulfilling these two conditions in the absence of national cohesion and consensus around an integrated development strategy. Without achieving national cohesion and consensus, the implementation of the reforms is likely to generate even more social tensions and exacerbate the economic difficulties.
The slow progress in fighting corruption and improving public services (health, education, transport and judiciary), the declining trust in the political elite and the deterioration of the purchasing power are fueling social tension and despair among the Tunisian population. This climate is going to complicate the ability to conduct the transformation of the country. At several times, the government was not able to apply administrative and tax measures and procedures which targeted specific professional activity (doctors, lawyers, agricultural intermediaries, etc.). One of the reasons that explain the resistance to change (corporatist resistance) is the lack of trust in the ability of the state’s institutions to conduct effective and fair integrated reforms. This lack of trust in the state’s institutions to conduct the transformation of the country seems to result from the following factors that will be detailed respectively: (a) lack of an integrated development strategy, (b) lack of consensus and weak institutional capacities and (c) extractive political institutions.
3.3.1 Lack of an Integrated Development Strategy
For a successful transformation of the Tunisian economy the government (state and the public sector) shall produce a development strategy which identifies the areas of the country’s (dynamic ) comparative advantage (resulting in identifying entry into new technologies or new industries) as well as pinpointing the impeding barriers to an inclusive economic growth (Stiglitz, 1998).3 Despite the adoption of the national development plan 2016–2020 by the assembly in April 2017, Tunisia lacks a broader and integrated development strategy defining the role of the state in transforming the economy. The Tunisian economy is still exposed to partial approaches of reforms emerging annually (often at the occasion of the preparation of the state budget), lacking the guarantees that it will result in a positive and shared outcome for the entire society.4
3.3.2 Lack of Consensus and Weak Administrative Capability
The slow progression of the reforms is also due to the lack of political and social consensus and the absence of a strong political leadership assuming full responsibility within its electoral mandate. Although there is a large awareness among the social partners and the elite on the necessity for the country to implement a series of structural changes, divergences are due to the lack of a comprehensive and fair approach for implementing it during a post-revolution and socially instable environment. The risk for the Tunisian economy is to remain in the “middle-income trap” and not to be able to create sufficient jobs for the youth, to reduce regional disparities and to limit the proliferation of corruption and informality.
I have already presented the important role played by the National Dialogue Quartet5 in resolving the conflicts between the political parties. These conflicts disrupted the political transition process and would have degenerated in civil violence. It was in recognition for that role that the Quartet received the Nobel Peace Prize in 2015. The time is now for the socioeconomic development (transformation) of Tunisia. It is worthwhile to extrapolate the consensus-building approach to deal with divergent point of views in matter of resolving the socioeconomic challenges. As argued by Stiglitz (1998), this approach constitutes a precious ingredient for the transformation process to succeed. In this regard, he notes that the process of constructing a development strategy could itself serve in building a consensus not only about a broad vision of the country, key short- and medium-term objectives, but also about the necessary conditions for achieving those goals. During this process, the consensus-building improves the political and social stability and enables the “ownership” of policies and institutions, which in turn increases the likelihood of their success (Stiglitz, 1998).
In Nabi (2011), I called for the constitution of an “economic pact” gathering the different political actors around the main economic urgencies in order to minimize the ambiguity about the future orientations of the Tunisian economy and to restore the confidence of the economic actors. Unfortunately, the country was trapped in a political turmoil for many years and the economy suffered from the absence of a clear development strategy. What I called for at that time was not the unification of the political parties’ ideas and conceptions of the economic policies. After all, it is normal to have pluralistic visions about the remedies to the challenges facing the economy of the country. What I suggested at that time of extreme ambiguity, was a consensus on the economic priorities and the respect of the principles of a market economy and openness on the global economy, letting each political party the freedom to suggest its own remedy. Regrettably, such an “economic pact” was not considered as an urgency. The political competition and instability fueled by ideological conflicts had priority in the public debate and the media. In February 2016, the civil society exemplified in the Association of Tunisian Economists (ASECTU) organized the “Forum of the Future: The main economic and social choices to support the democratic process in Tunisia”. The objective was similar to that of the national political dialogue, but focusing on achieving consensus on main broad economic issues.6 The forum aimed to just enhance the awareness of the political actors and the civil society to the main challenges facing the Tunisian economy.
The report of the Council of Economic Analysis of the Presidency of the Government published in January 2016, identifies the institutional bottlenecks facing the implementation of the reforms. The emphasis is on the difficult coordination and dialogue between the multiple stakeholders of the Tunisian economy even within the executive, as well as the lack of institutional capacity within each ministry to conceive the details of the reforms. Lant Pritchett7 qualifies this failure as the weak “administrative capability of the state”. He argues that the implementation of the public policies is constrained by the real-world context. The latter creates different norms that shape the people at the implementation level (Clappison, 2011).
Pritchett distinguishes between the formulation of the policy and its implementation. The main issue is the ability of the state to ensure that the planned objectives are met. In the case of Tunisia, the execution of many planned public investment expenditures was not realized due to the limited implementation capacity of the government. In addition to these institutional deficiencies, most of the governments performed very poorly in terms of communication strategy.8 During the last two years the governmental communication improved mainly through better utilization of the social media channels. “People have had enough of experts” written by Sheila Dow9 emphasizes the “post-democratic” era in which policy decisions are made on the basis of experts’ opinions rather than any democratic process.10 In Tunisia, it seems that people have had enough of experts due to the ambiguity they are diffusing among people via the media in relation to the economic policies.11 Hence, it is important for the government to benefit from new technologies in order to improve its communication policy.
3.3.3 Extractive Political Institutions
The governance framework comprises mechanisms, processes and institutions determining how power is exercised, how issues of public concern are considered and how citizens articulate their interests, exercise their legal rights, meet their obligations and mediate their differences (UNDP, 2010). It is clear that in most of the developing countries such a governance framework is weak and suffering from the capture of the state by the political elite. Acemoglu (2006) develops a conceptual framework where the political institutions are not inclusive and controlled by the elite. This group sets policies to increase its income and extract resources from the rest of the society. This political configuration generates an inefficient economic equilibrium through the following mechanisms: (1) revenue extraction, (2) factor price manipulation and (3) political consolidation. In this framework, the only chance for the economy to escape the inefficient policies of the dominant political group is the emergence of long-term investments combined with improvements of the marginalized groups’ property rights.12
Therefore, it is urgent to immunize the Tunisian economy from the conflict of interests between politicians and economic actors. The deterioration of people’s trust in the ruling political parties has already increased in recent years due to the prolonged socioeconomic crisis. Fortunately for the country a vibrant civil society is emerging and gaining the citizens’ confidence. Nucifora et al. (2015) note that the openness of the Tunisian economy requires a new policy infrastructure which eradicates social exclusion and corruption. They argue that the previous system of laws and regulations remains largely in place, perpetuates cronyism and corruption in the business environment and limits the economic opportunities for the unconnected Tunisians. Therefore, I deem it crucial to empower the civil society so that it can play an important role in calibrating the choices in the political economy arena and reinforce the checks and balances in Tunisia. In 2011, Joseph Stiglitz noted that in order for Tunisia to prevent special interests from capturing its government, it shall restrict lobbying and ban the private financing of electoral campaigns. In addition, it shall establish transparent procedures of privatization auctions and competitive bidding for procurement in order to reduce the scope of rent-seeking behavior (Stiglitz, 2011). Another Nobel Prize laureate in economics, Edmond Phelps, talked about the development transformation of the Tunisian economy a few months after the revolution. He emphasized two prerequisites for the modernization of the economic system. The first prerequisite is to free the business sector from the control of the privileged set. The second one is to end the bureaucratic control on entrepreneurship through licenses and other barriers (Phelps, 2011).13
The new constitution adopted in 2014 assigned an important role to the institutional building in order to favor an inclusive development and immunize the country against the pullback to the dictatorship regime.14 This threat to the successful transition is generating loss of trust, especially among the Tunisian youth. They are still feeling excluded from the political system and their trust in public institutions is low, especially in the rural regions.15 Without fairness and trust in the state’s institutions, it would be difficult for Tunisia to peacefully undertake the set of necessary economic reforms.16 The need of trust to conduct reforms is emphasized by many Tunisians with various professional backgrounds. For instance, Mohamed Meddeb—a retired General of the Tunisian Army—emphasizes the need of minimum political audacity, sincerity and pedagogical as well as communicational efforts from the government toward the citizens. These are necessary conditions for the emergence of a national will and citizens’ general adhesion to the revival of the economy. He notes that citizens are just requesting equity and fairness before the law and the necessary sacrifices (Meddeb, 2016).
Porter (2015) argues that instability and unrest often result from the imbalance between economic growth and social progress. Indeed, failing in addressing basic human needs, in equipping citizens to improve their quality of life, in protecting the environment and in providing opportunities for citizens are signs of a fragile17 and failing state. Thus, it becomes clear that there is an urgency to restore citizens’ confidence in the Tunisian state institutions in order to avoid further fragility. To this end, the elite should develop and implement an inclusive growth strategy encompassing both economic and social progress dimensions.
3.3.4 The Difficulty of Reforms During the Transition: A Personal Experience
In January 2014, I joined Tunisia Polytechnic School18 (TPS) in the position of Associate Professor of Economics after almost three years in the research institute of the Islamic Development Bank Group where I served as Senior Researcher Economist. TPS was established in 1991 to provide Tunisia with multidisciplinary engineers to lead teams, contribute to the modernization of the economy and occupy high administrative positions. It has been also assigned the national mission to contribute to the acquisition and development of technology. Despite many successful achievements, the institution has been suffering from governance problems and the inadequacy of the administrative framework it is obliged to operate in. Just after joining it, the management of TPS charged me with leading the Governance and Quality Commission mandated to undertake a diagnostic of the situation and to suggest recommendations to modernize the institution. In cooperation with other colleagues, we distributed questionnaires to multiple stakeholders, benchmarked with the international standards, organized meetings and finally published a report entitled “Unlocking the potential of TPS: The required reform” in October 2014 on the occasion of the 20th anniversary of TPS.19 Among the recommendations of the report was the adoption of a new legal status that guarantees the operational autonomy of the institution. The latter is required to enable sufficient flexibility in dealing with the administrative processes and improve its efficiency. In addition, the report suggested a new governance framework and made various recommendations related to the updating of the curriculum as well as the status of the faculty staff. At the time of its publication, the reform received the support of the University of Carthage . In February 2016, the reform gained the support of more than 60 eminent academicians and executives.20 However, a conflict between the director of TPS and the presidency of the University of Carthage emerged in 2015 and undamaged the functioning of TPS. It resulted in impeding further advances in the legal reform, but fortunately the faculty staff had sufficient legitimacy to update the curriculum and obtain its official recognition.21 From January 2014 to January 2017, the Ministry of Higher Education and Scientific Research was marked by the turnover of three ministers. This instability was an additional impediment to the implementation of the recommended reforms.22 Indeed, the priority of the successive ministers was given to the reforming process of the entire national system of higher education. This broader reform is progressing very slowly after 2011, given the complexity of the tasks and the diversity of the involved stakeholders including the association of the elected presidents of the Tunisian public universities. As a consequence, the reform of TPS has not yet begun and many international cooperation opportunities have not yet been materialized.23 The situation at TPS became unsupportable to the extent that obliged its director to resign in February 2017 and the Alumni of the School to intervene trying to resolve the structural administrative problems.
As noted previously, the “voice and accountability” pillar of the governance indicators has clearly improved contrarily to the other pillars of the governance indicator.
The Council of Economic Analysis of the Presidency of the Government published in January 2016 a report about the “Major National Economic Reforms for the period 2016–2020”. The report develops the main pillars of the reforms: improving the financing of the economy, reinforcement of the budgetary equilibrium, development of the human resources, renewal of the social protection system and reinforcement of the institutional and regulatory framework.
I have participated in the first stage of the production of the development plan 2016–2020 through a consultation in 2014 ordered by the UN-ESCWA for the benefit of the Tunisian Government. The report I delivered was entitled “Structural reforms for the Tunisian Economy: A smart matrix”. It was the result of a detailed and methodological analysis of 12 strategic reports developed by various actors: the civil society (UTICA, UGTT and independent experts), the main political parties and the government agencies. I have constructed a smart matrix covering the priority structural reforms classified into three categories: institutional reforms, industrial reforms and economic programs with a geographic dimension. In cooperation with colleagues from ITCEQ and my students from Tunisia Polytechnic School (in the context of their End of Studies Project) we have generated multiple scenarios and simulated their economic impacts as well as their financing needs.
As we will note in the next chapter, this transformation is not an easy task as it requires the conjunction of policy choices based on the following fundamentals: inclusive social contract, inclusive national identity and narrative, and inclusive social covenant. The policy choices are multidimensional in relation to the rule of the law, security, education, transitional justice, elections and political party, institutional design, political dialogue, taxation and the administration of public resources, nation-building programs and economic growth.
This recalls me the introductory remarks in “Rethinking economics after the crisis” by Benoit Coeuré in June 2014. He noted that economists tend to progress step by step toward answering the bigger questions which interest the policy makers. At the opposite, the latter have a different temporality and need short- and medium-term actions in response to complex questions. It also recalls me the remarks of one of the political leaders of Tunisia, Ahmed-Néjib Chebbi, during the Forum of the Future of the Tunisian Association of Economists in February 2016. After assisting to a plenary session about the long-term challenges of Tunisia and the need for drastic structural adjustments to cope with the changing trend of the labor force, he asked the panelists about the short-term economic urgency and how to fulfill people’s expectations mainly in the disadvantaged regions. Benoit Coeuré is Member of the Executive Board of the European Central Bank. His entire speech is available here https://www.ecb.europa.eu/press/key/date/2014/html/sp140624.en.html.
A consortium of four organizations: The Tunisian General Labor Union (UGTT), the Tunisian Confederation of Industry, Trade and Handicrafts (UTICA), the Tunisian Human Rights League (LTDH) and the Tunisian Order of Lawyers.
The main issues were unemployment, taxation policy, social transfers, role of the state, role of the private sector, institutionalizing the social dialogue, reform of the administration and the social security system.
From Harvard University on the occasion of the Economic Research Forum Annual Conference in Egypt in March 2011.
On the occasion of my participation in the meeting of the Council of Economic Advisory of the Presidency of the Government (chaired by the President of the Government in June 2016), I have had the opportunity to raise the importance of developing an efficient communication strategy in order to restore the confidence of the citizens, especially during the transition period. Among the suggested ideas are developing an interactive map of the country (encompassing the 24 governorates), enabling the user to discover the planned projects and public investments, as well as the achievements and the progress. I have also suggested improving communication about the priority subjects which interest the citizens: the fight against corruption, the governance of the state-owned enterprises, the modernization of the administration, the solution to the chronic deficit of the pension system, the tax evasion and the informal economy. I have also stressed the importance of improving the coordination between the Ministry of Finance, the Ministry of Development and International Cooperation and the Central Bank of Tunisia.
In the blog of the Institute for New Economic Thinking in February 2016. See https://www.ineteconomics.org/perspectives/blog/people-have-had-enough-of-experts.
The article criticizes the functioning of the policy-making institutions in developed countries mentioning how they have been captured by vested interests.
In the absence of a credible national institution capable of communicating efficiently and transparently about the economic situation, the economic policies’ choices and the progress toward the implementation of the reforms, the media often invited experts who criticized the economic choices from a political opposition lens. The systematic “opposition” of some experts has to some extent fueled the ambiguity in the future of the economy.
In the case of Colombia, Acemoglu and Robinson (2012) observe that the economic and political institutions have become more inclusive progressively. However, they note that major extractives dimensions such as lawlessness and insecure property rights remain due to the lack of control by the national state in many parts of the country. They explain this fact by the prevailing vicious circle: the lack of incentives for politicians to provide public services and law and order in many parts of the country. They also argue that the existing political institutions do not put enough constraints on politicians to prevent their collusion with paramilitaries and thugs (Acemoglu and Robinson, 2012).
He advocated a modernization approach à la developed countries in the nineteenth century that he baptized “capitalism 1.0” with the following components: rights against the government, property rights, rights of contract, rule of law, local banks supporting local entrepreneurs, financial firms supplying venture capital, free entry of new companies into industries and so on. In addition, respect of individual rights, tolerance toward differences and acceptance of competition are stressed as important values that shall be shared in the society for the modernization process to succeed.
Yet, the building of the new institutions and the implementation of the new spirit—of designing reforms for the benefit of the entire society and not for privileged groups—is still an unachieved long process as exemplified by the tugging around the rules governing the decisions of the newly created independent Supreme Judicial Council.
According to a study conducted in 2014 by the World Bank and the Tunisian National Youth Observatory, the trust in politics was quantified to less than 5% among the young in the rural regions and around 30% in the urban regions. The average scores of trust in police, justice, military and family were respectively around 50%, 60%, 80% and 100% (World Bank, 2014). In March 2017, the blogger Mhamed Mestiri tried to answer why many skilled young Tunisians are still leaving the country. He focused on the profile of four different individuals who tried to contribute to the development of their country but finished by leaving it. They cited the following common factors: the absence of equal economic opportunities and the unfairness in professional promotion (Mestiri, 2017).
In commenting on the success of his government in undertaking the delicate reform of the social security system in his country, the prime minister of Turkey declared in 2013 that “the people need to be able to trust those who govern them and not feel that their interests are being betrayed. Without that trust, we would not have been able to make the very difficult readjustments in our social security system” (Erdogan, 2013).
According to the definition of OECD/DAC (2007), states are fragile when there is a lack of political will and/or capacity to reduce poverty, to generate development and to guarantee the security and human rights of their populations.
TPS is a public Engineering School founded in June 1991, and welcomed its first students in September 1994. The school is accessible only to the top 50 ranked students selected among more than 2000 students who pass a competitive national exam following two years of intensive university-level preparation in mathematics and physics after the Baccalaureate.
See the article “69 universitaires, experts et dirigeants appellent à la réforme de l’Ecole Polytechnique de Tunisie”, Leaders.com.tn, News 19 January 2016.
The reform of the curriculum improved the chances of the TPS students to compete for internships and jobs at the international level in multiple domains (e.g. data science, financial engineering, supply chain management, IT, electronics and mechanics).
Not only in TPS but also in other engineering schools, as the ministry itself published a report in October 2015—produced by an ad hoc independent committee of experts—joining several recommendations of the TPS’s report published in October 2014.
Including a comprehensive cooperation with an economics school ranked within the top 200–300 by the Times higher education world university rankings.
- Acemoglu, D. and J. A. Robinson (2012) “Why nations fail: The origins of power, prosperity and poverty,” New York: Crown Business.Google Scholar
- Clappison, A. (2011) “Building new democracies: Norms shape practice not policies,” ERF 17th Annual Conference, https://erfblog.org/category/erf-17th-annual-conference/.
- Erdogan, R. T. (2013) “The Turkish economy meets EU entry criteria,” huffingtonpost.com.
- IMF (2016) “Tunisia: Program note,” August 2016, https://www.imf.org/external/np/country/notes/pdf/tunisia.pdf.
- Meddeb, M. (2016) “Dans quelles conditions l’armée nationale peut-elle contribuer à réduire le chômage?” Leaders, 9 February 2016.Google Scholar
- Mestiri, M. (2017) “Immersion au cœur de la fuite des cerveaux,” Nawwat.org, 27 March 2017.
- Nabi, M. S. (2011) “Moins d’ambiguïté, plus d’optimisme et de cohésion pour une reprise rapide de l’économie tunisienne,” Leaders, 31 May 2011.Google Scholar
- Nucifora, A., E. Churchill and B. Rijkers (2015) “Cronyism, corruption, and the Arab Spring: The case of Tunisia,” Chapter 4 in 2015 Index of Economic Freedom: Promoting Economic Opportunity and Prosperity, The Heritage Foundation.Google Scholar
- OECD/DAC (2007) “The principles for good international engagement in fragile states and situations,” OECD, Paris.Google Scholar
- Phelps, E. (2011) “For a successful Arab revolution,” http://web.stanford.edu/~johntayl/PHELPS LeMonde On G8 Proposal 2011-5-20.pdf.
- Porter, M. (2015) “Why social progress matters,” Project Syndicate, 9 April 2015.Google Scholar
- Stiglitz, J. E. (1998) “Towards a new paradigm for development: Strategies, policies, and processes,” Prebisch Lecture at UNCTAD, Geneva, 19 October 1998.Google Scholar
- Stiglitz, J. E. (2011) “The Tunisian catalyst,” Project Syndicate, 4 February 2011.Google Scholar
- UNDP (2010) “A Guide to UNDP democratic governance practice,” http://www.undp.org.
- World Bank (2014) “Tunisia: Breaking the barriers to youth inclusion,” World Bank, Report No. 89233-TN.Google Scholar