Although Ben Ali has been associated with economic change in Tunisia, the beginning of this process was slightly before he came to power. The government's mounting debts, caused by its trying to maintain a relatively high standard of living for its people - mainly through overstaffing state companies and subsidising food and energy - led to a financial crisis in 1986. The government negotiated a structural adjustment loan, but not a rescheduling of its debts, with the World Bank, and as a condition of the credit it agreed to implement a standard package of financial reforms and begin a programme of privatisation. Slowly it cut the subsidies it gave its people, though even now it keeps small subsidies on bread, pasta and semolina (for couscous) and there are price controls on gasoline. The tax system was reformed. By 1994 the annual budget deficit had been cut to below 2 per cent of gross domestic product.
The dinar was devalued, initially by 14 per cent, and then the Central Bank organised a managed float, which allowed it to drift slowly downwards against European currencies. Exchange controls were removed on all current transactions and on the capital transactions of foreign investors. Officials now talk of the currency as being "convertible", though there are still restrictions on Tunisians transferring capital out of the country.
The banking system was changed from a socialist to a free market model. Under Bourguiba the banks had operated as arms of the state, taxing the people (in effect) by channelling private savings, on which low rates of interest were paid, to finance the government's deficit and the losses of state companies. The authorities determined how much the banks should lend to each sector of the economy and what rates should be charged to each type of borrower. All substantial transactions had to be approved by the Central Bank. In the early years of Ben Ali the banks were freed to borrow and lend on a commercial basis. To encourage saving interest rates were allowed to rise above the rate of inflation. A normal Western regime of prudential control, adherence to Cooke Ratios, and auditing to international standards was introduced.
All of the changes were brought in carefully and in stages. The reason was not only that the government was committed to social cohesion as a general principle; it remembered very well the week of rioting in January 1984. On that occasion it had been forced to bow to popular pressure and reverse its abrupt cuts in food subsidies. The opinion of foreign creditors, particularly the World Bank and the International Monetary Fund, has been that in recent years the government has been too cautious. They argue that the Tunisia economy has been sound enough for the government to have been able to pursue its reforms with more vigour, and that had it done so the country would have achieved a stronger rate of growth than the 4.5 per cent it averaged in the early 1990s.
The government has been particularly cautious in its approach to privatisation. It is this part of the reform programme which shows how much the instinct for control and the preservation of the interests of the bureaucracy are still ingrained in its thinking.
It began privatising in 1989. Between then and 1992 it sold some forty loss making enterprises, many of them hotels, to groups of local and foreign buyers. Some of the privatisations were striking successes. Several companies that were on the verge of bankruptcy were quickly turned round and have since expanded, diversified and taken on new labour. The government, however, was worried that in some sectors the same groups were buying several companies, and, as its officials said, it did not want "to move its economy from a public monopoly to a private one". So it brought the programme virtually to a halt. In the next two years it sold only a few small transport companies.
The pressures on it to continue privatisation did not go away. Although its debts and spending were under control by the early 1990s, the government was finding that it had to link its economy more closely with Europe, and that to do this its industry had to be brought up to a competitive standard. This required capital for investment which the state did not have. At the same time the government was under pressure from private investors, local and foreign, who were arguing that it was not attractive for them to invest in an economy where their taxes were being used to finance inefficient competitors in the state sector. The government claimed it had never intended completely to stop privatisation - during the pause after 1992 it was simply looking at its methods.
It began the process again in November 1994. This time it made it known that is would sell its holdings either wholly or partly on the stock exchange, which it considers more democratic than sales by negotiation to private groups. Where it sells only a small part of a company, such as the 15 per cent of Tunis Air it disposed of in the summer of 1995, it does the transaction entirely on the stock exchange. Where it sells whole companies, which so far has happened only once, its policy is to find "core buyers" for majorities of the stocks and float the rest. The aim of this policy is to ensure that companies are controlled by Tunisian or foreign firms with expertise in their field of operations. In the first fifteen months of the new policy the government sold parts of only five companies, and in most cases the percentages of each were so small that they could hardly be classed as privatisations.
In all there are some 250 government companies or holdings which might be sold. The government has not published a list, because its officials say, with disarming frankness, that to do so might create problems with the managements and unions. They add that they would lose flexibility and possibly expose themselves to criticism for failing to meet their targets. In broad terms, they say their choices are determined by the aim of getting the state out of companies in which it is competing with the Tunisian private sector.
So far there has been no suggestion of the government selling its controlling holdings in the commercial banks, or in phosphate mining and fertilisers, even though the companies in the latter sector are making big losses and are bad polluters. (Recently, the government passed a law to control phosphate pollution in the Gulf of Gabes, but gave its companies a generous thirty years to comply.) Both the banks and the phosphate companies are regarded as "strategic" assets. In the case of phosphates the government also worries about the effects privatisation might have upon unemployment in a politically sensitive area near the Libyan border. Concerns about unemployment, currently running at around 15 per cent, have long acted as a break on the privatisation programme. In negotiations with private buyers the government has usually sought to ensure that there will be no wage reductions, no changes in social policies and no lay-offs - or, at least, generous indemnities when they are unavoidable.
Another, less creditable, reason for the slow rate of sales, and the small shareholdings offered in most cases, has been the lack of enthusiasm of officials. The civil service and the governing party establishment may accept the necessity of privatisation in an intellectual sense, but many officials still dislike the loss of control of the economy which is involved. They can also see practical disadvantages for themselves. For many functionaries in the ministries and banks the state companies have provided directorships, which have been an important source of prestige, supplements to salaries, cars and other benefits.
The government's privatisation programme has been paralleled in its deregulation of the stock market. Here its reforms began in 1990, when it made dividends and capital gains for individual investors tax free, and exempted individuals from tax on whatever part of their incomes they used to buy shares. It also reformed the bourse regulations, delisted 38 companies whose stocks were inactive and authorised the establishment of mutual funds on the French model. The Paris Bourse was brought in to reorganise the trading system. In November 1994 a new law provided for the transfer of ownership of the bourse from the Ministry of Finance to the brokers and for the establishment of a regulatory body. Both of these changes took effect in October last year. The President of the bourse remains a former director general of the Ministry of Finance. In July 1995 legislation was introduced to allow foreign investors to own up to 10 per cent of a Tunisian company. Previously they had only been able to invest after obtaining the permission of the Central Bank and paying a fee - barriers that had had the effect of excluding them altogether.
The Tunisian investing public has responded to the reforms with enthusiasm. There has been a rush to establish stock broking firms - there are now 40 - and mutual funds. Turnover at the bourse and market capitalisation have soared. A number of private companies have gone to the market for equity capital and debt finance for the first time. What has given the boom a slight air of unreality has been the very small number of companies quoted. At the end of last year there were just twenty five.
For all the government's caution in liberalising its economy, there is no doubting that official attitudes are gradually changing and that the process is set to continue. Last year the government decided that it should opt for build-own-operate (BOO) arrangements for power stations, desalination plants and highway construction, and although no contracts have yet been awarded it seems certain that this radical policy will be implemented. Now that the state has decided to allow not only private companies but also foreigners to own such strategic assets, private businessmen in Tunis believe that the emotional resistance to privatising the banks and the phosphates industry will gradually be undermined.
Part of the reason why the authorities have been prepared to be more ambitious - and why the bureaucracy has become gradually less obstructive - is that the economy has performed fairly well during the period of reform. While controlling its spending - it is aiming to keep its budget deficit at around 2 per cent of GDP in the next few years - the government has been able to reduce the burden of its external debt. Foreign borrowings are now $9.4 bn. After deducting some $1.5 bn of foreign assets the net indebtedness equates to about half of GDP. Debt service is accounting for 20 per cent of the country's foreign exchange income. These improvements mean that Tunisia is no longer classified by Western governments as a country eligible for development aid. In future it will rely almost entirely on the international bond markets for finance. Along with two other Arab countries, Kuwait and Jordan, it has recently received an investment grade rating from the Moody's and IBCA credit rating agencies.
Gradually the economy has become more diversified. It has become less dependent on agriculture, which is an advantage, given the unpredictable nature of rainfall in north Africa. Agriculture is now estimated to account for some 15-16 per cent of GDP, compared with 18-19 per cent in the later 1970s, though, given that a third of the population still works on the land and that every Tunisian has relations in the country, the fate of the harvest is still of great emotional importance. Much of the recent development of the economy has been in tourism and garments production. Tourism, like agriculture, is susceptible to shocks over which the country has no control.
The steady pace of development has enabled the country to keep unemployment to a notional 15 per cent. This is the figure generally quoted, but it means little because the jobless are not required to register at any government office (and do not receive benefit) and are therefore hard to count. Estimates are complicated by the existence of a significant black or informal economy, which gives some part time employment to those in the 18-25 age group which is worst affected. It is also noticeable that some young men seem happy to be without a job and live off a share of the wages of their sisters working in the garments factories.
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