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TUNISIA ECONOMIC MONITOR
Middle East and North Africa Region Tunisia Economic Monitor
With a Special Focus on Rebuilding the Potential of Tunisia’s Firms
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Cover photos used with the permission of ShutterStock.com. Publication design and layout by The Word Express, Inc. TABLE OF CONTENTS
Abbreviations and Acronyms … … … … … … … … … … … … … … … … v Acknowledgements … … … … … … … … … … … … … … … … … . . .vii Executive Summary … … … … … … … … … … … … … … … … … . . ix Résumé Exécutif … … … … … … … … … … … … … … … … … … . xiii
… … … … … … … … … … … … … … … … … … … … . xvii
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Recent Economic Developments … … … … … … … … … … … … … … . . 1 Growth and Employment … … … … … … … … … … … … … … … … … … … … … … … . .1 The External Sector … … … … … … … … … … … … … … … … … … … … … … … … … 3 Fiscal Policy … … … … … … … … … … … … … … … … … … … … … … … … … … … .5 Monetary Policy and Inflation … … … … … … … … … … … … … … … … … … … … … … . 6
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Outlook and Risks … … … … … … … … … … … … … … … … … . .11
Special Focus: Rebuilding the Potential of Tunisia’s Firms … … … … … … … … … . 15
List of Figures Figure 1 Growth is Expected to Contract by 9.2 Percent in 2020 … … … … … … … … … … … . . .1 Figure 2 Economies that are More Dependent on Tourism have Tended to Experience a Sharper Downturn… … … … … … … … … … … … … … … … … … … … … … . . 3 Figure 3 Contributing to Tunisia’s Performance, which is Considerably Below Peers and Trading Partners … … … … … … … … … … … … … … … … … … … … … … … 3 Figure 4 The Current Account Deficit and Reserves Improve in 2020… … … … … … … … … … … 4 Figure 5 … as Imports Decline Faster than Exports … … … … … … … … … … … … … … … . . .4 Figure 6 The Fiscal Deficit and Debt Levels Increased in 2020 … … … … … … … … … … … … . 5 Figure 7 Tunisia is Experiencing a Larger Increase in the Fiscal Deficit than some of its Regional Peers … … … … … … … … … … … … … … … … … … … … … … … . 5
iii Figure 8 Most of the Increase in 2020 Budget Financing Needs is Due to the Costs of the Pandemic… . . .5 Figure 9 But Structural Weaknesses, such as a Large and Growing Wage Bill,
Continue to be a Challenge … … … … … … … … … … … … … … … … … … … . . .6 Figure 10 Declining Inflation Set the Stage for Policy Rate Cuts in 2020… … … … … … … … … … . . 7 Figure 11 …Supporting Private Sector Credit Growth in the Second Half of the Year… … … … … … . . 7 Figure 12 Even though GDP Growth is Expected to Rebound in 2021, Output is Forecast to
Remain Below Pre-Pandemic Levels … … … … … … … … … … … … … … … … … 11 Figure 13 Bureaucracy, Bribes and Banking … … … … … … … … … … … … … … … … … . . 16 Figure 14 Annual Employment Growth Rate … … … … … … … … … … … … … … … … … . . .16 Figure 15 A Steady Decline in Investment is Tilting Tunisia towards a Consumption Based Economy … . 17 Figure 16 Tunisian Firms are Investing and Innovating Less than Before … … … … … … … … … . . 17 Figure 17 Investment is Highest in the Center-East Regions… … … … … … … … … … … … … . . .17 Figure 18 … while R&D has been Most Stable Amongst Large Firms … … … … … … … … … … . . .17 Figure 19 Exports According to Type of Growth Dynamics … … … … … … … … … … … … … . . 18 Figure 20 The Context for Exporting Firms has Deteriorated … … … … … … … … … … … … … . 19 Figure 21 Reliance on Domestic Markets is Highest in the South East and South West… … … … … . . 19 Figure 22 Labor Productivity has Continued to Decline … … … … … … … … … … … … … … . . 20 Figure 23 Within Sector Productivity Dispersions have Increased in All Sectors,
with the Exception of Textiles … … … … … … … … … … … … … … … … … … … .20
List of Tables Table 1 Selected Macroeconomic Indicators, 20172022 … … … … … … … … … … … … … . . 8 Table 2 Outlook for Selected Macroeconomic Indicators, 20202022 … … … … … … … … … . . 13
List of Boxes Box 1 How is COVID-19 Affecting the Poor? … … … … … … … … … … … … … … … … … 2 Box 2 Government and Central Bank Measures to Support Households and Firms during the COVID-19 Crisis … … … … … … … … … … … … … … … … … … .9 Box 3 Impact of the COVID Crisis on the Tunisian Private Sector … … … … … … … … … … . . .13 Box 4 Bright Spots in Tunisia’s Firm Landscape Amid a Generally Gloomier Trend … … … … … . . 16 Box 5 Is the Decline in Innovation Amongst Tunisian Firms Universal? … … … … … … … … … . 18
iv TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS ABBREVIATIONS AND ACRONYMS
BoP Balance of Payments MENA Middle East and North Africa BCT Banque Centrale de Tunisie MSME Micro, Small and Medium Enterprises CAD Current-Account Deficit NPL Non-Performing Loan CPI Consumer Price Index PPP Purchasing Power Parity FDI Foreign Direct Investment REER Real Effective Exchange Rate GDP Gross Domestic Product SOE State Owned Enterprise GEP Global Economic Prospects US United States GFSM Government Finance Statistics Manual USD United States Dollar IMF International Monetary Fund WDI World Development Indicators INS Institute National de Statistiques WEO World Economic Outlook LMIC Low Middle Income Countries WB World Bank MEFIMinistere d’Economie, Finances et YoY Year on Year
Investissements
v ACKNOWLEDGEMENTS
T he Tunisia Economic Monitor (TEM) presents IFC). Helpful comments were received from Gabriel timely and concise assessments of current Sensenbrenner (Program Leader, EMNDR), Paul economic trends in Tunisia in light of the Moreno-Lopez (Lead Economist, MTI) and Fatma country’s broader development challenges. Each edition Marrakchi (Consultant, MTI). It was prepared under includes a section on recent economic developments the direction of Jesko Hentschel (Country Director, and a discussion of the economic outlook, followed by MNC01), Eric Le Borgne (Practice Manager, MTI) and a special focus section drawing on recent World Bank Tony Verheijen (Country Manager, MNTCN). The team analytics on Tunisia. The focus section in this edition is grateful to Muna Salim (Senior Program Assistant, discusses the evolution of firm landscape using the MTI) and Olfa Limam (Program Assistant, MNCTN) for recently published enterprise survey for Tunisia. The their administrative support. report is intended for a wide audience, including policy makers, business leaders, financial market participants, The findings, interpretations, and conclusions and the community of analysts and professionals expressed in this Monitor are those of World Bank engaged in Tunisia. The Tunisia Economic Monitor is staff and do not necessarily reflect the views of the a product of the Middle East and North Africa (MENA) Executive Board of the World Bank or the governments unit in the Macroeconomics, Trade & Investment (MTI) they represent. Global Practice in the World Bank Group. For information about the World Bank and its The report was prepared by Shireen Mahdi activities in Tunisia, please visit www.worldbank. org/ (Senior Economist, MTI), Ali Ibrahim Almelhem (ET en/country/Tunisia (English) or www.albankaldawli. Consultant, MTI) and Natsuko Obayashi (Consultant, org/ar/country/tunisia (Arabic). MTI). The team included Filip Jolevski (ET Consultant, DEC), Nazim Tamkoc (Economist, DEC), Safia For questions and comments on the content Hachicha (Senior Financial Sector Specialist, FCI), of this publication, please contact Shireen Mahdi Mihasonirina Andrianaivo (Senior Financial Sector (smahdi@worldbank.org) or Eric Le Borgne Specialist, FCI), Mouna Hamden (Operations Officer, (eleborgne@worldbank.org).
The cutoff date for this edition of the TEM was December 11, 2020.
vii EXECUTIVE SUMMARY
As 2020 draws to a close, the depth of the pandemic’s days a year earlier), strengthening a much needed impact on the Tunisian economy is becoming more external buffer at this time of heightened risk. apparent. Tunisia is expecting a sharper decline in growth than most of its regional peers, having entered The policy response, in this challenging context, this crisis whilst already experiencing slow growth has been broadly adequate. Declining inflation set and rising debt levels. Output is expected to contract the stage for interest rate cuts in 2020, supporting by 9.2 percent this year. moderate growth in credit to the economy. Fiscal policy has also been accommodating. The authorities With this, some of the past gains in job creation responded to the pandemic with a package of fiscal and poverty reduction will be lost as unemployment measures to support households and businesses. edges up and the share of the population vulnerable These measures, along with revenue losses due to the to falling into poverty increases. Specifically, poverty is downturn, were behind 82 percent in the fiscal deficit to estimated to increase from 14 percent of the population 10.5 percent of GDP (up from around 3 percent of GDP pre-Covid to 21 percent in 2020, with most of the in the original 2020 budget). As expected, the increase impact being felt by the poorest households, which in financing needs has worsened debt vulnerabilities. are concentrated in Tunisia’s Center West and South Public debt is forecast to rise from 72 percent of GDP East regions. As for the most vulnerable individuals, in 2019 to around 89 percent of GDP in 2020. they are likely to be women, living in large households, without access to health care and employed without Outlook and Risks contracts. It is clear that the pandemic’s impact on the economy A 15 percent reduction in exports by September has been severe and that the costs of mitigating 2020 (YoY) contributed to the downturn as weak global its effects have worsened Tunisia’s already weak demand depressed industrial and tourism exports. public finances. The outlook is also challenging and Despite this, the current account deficit is expected to uncertain. After an expected 9.2 percent contraction shrink to 7 percent of GDP in 2020, against 8.8 percent in 2020, growth is temporarily expected to accelerate of GDP in 2019, as remittances picked up and imports to 5.8 percent as the pandemic’s effects begin to dropped faster than exports. With a lower current abate, before returning to a more subdued growth account deficit, the external position showed some trajectory at around 2 percent, reflecting pre-existing resilience to the economic shock. At USD 7.8 billion as structural weaknesses. Downside risks to this outlook of end-October, foreign exchange reserves increased are significant given the extent of the ongoing second to the equivalent of 147 days of import (against 103
ix wave of the pandemic and its impact on Tunisia’s Restarting Growth by Rebuilding the main trading partners. In line with this, the current Potential of Tunisia’s Firms account deficit is expected to narrow to 6.3 by 2022 as export industries begin to recover, but at a sluggish The special focus section in this edition of the Tunisia and uncertain pace. The fiscal outlook points to a tight Economic Monitor draws on the recently published budgetary setting and limited room for stimulus as the enterprise survey for Tunisia to discuss the latest impact of the pandemic spills into 2021. The fiscal evidence on firm performance and present priorities deficit is expected to decline to around 4.5 percent for a growing and more productive private sector. of GDP by 2022 but risks from a still growing wage For much of the past decade, stunted growth and bill, subsidies, pensions and underperforming state- a less dynamic private sector have contributed owned enterprises may compromise recovery efforts to persistently high levels of unemployment. In if not managed proactively. parallel, a vision of the State as a provider of jobs, in the absence of private opportunities, has led to In this difficult context, a coherent plan for a ballooning public sector wage bill and dwindling restarting the economy and restoring the credibility of fiscal space to invest in the economy. The COVID-19 the macroeconomic framework is a critical next step pandemic has compounded these existing structural for Tunisia to successfully navigate its way through difficulties. In this context, dynamizing firms and their this crisis. job creation potential is more urgent than before if Tunisia is to begin recovering from the COVID-19 The first priority is to save lives by controlling crisis. the pandemic and preparing to make COVID-19 vaccines available to the population. The authorities The analysis finds that Tunisian firms have lost handled the first wave of the pandemic well, avoiding much of the spring in their step. Looking back over a large outbreak through an early and strictly the seven year period between 2013 and 2019, the enforced lockdown. A second round of infections is data shows a number of areas where the environment now far exceeding the first and a set of new, albeit less has improved and where Tunisia performs better than stringent, containment measures are in place. Work is regional peers. But more generally, the evidence also underway to prepare for the rollout of vaccines shows a weakened private sector landscape. Firms as Tunisia participates in the World Bank initiative to are investing less and are less innovative: the share of finance the purchase and distribution of COVID-19 firms investing in fixed assets fell from 44 in 2013 to vaccines, tests, and treatments.1 30 percent in 2019, with the decline being registered across all sectors. Similarly, the share of Tunisian Second, restoring the credibility of the firms introducing a new product or service has halved macroeconomic framework will lay the foundation for from 28 percent in 2013 to 14 percent in 2019. Firms a more durable recovery in growth. In particular, this are also less export oriented than before. The share requires emphasis on financing the recovery more of exporting firms decreased from 38 percent in 2013 sustainably going forward to manage debt levels. This to 32 percent in 2019. This occurred as trade related means restructuring public finances by reducing the indicators deteriorated: the number of days to clear size of the wage bill, shifting social assistance from exports through customs more than doubled from 3 subsidies to more targeted transfers and addressing days in 2013 to 7 days in 2019. The situation is worse fiscal risks from SOEs to free up resources for public for imports, whereby the number of days to clear investment and the recovery. imports through customs jumped from 7 in 2013 to 16 days in 2019. Lastly, firms are less productive: real Lastly, with limited fiscal space and a fragile external position, structural reforms to boost private 1 https://www.worldbank.org/en/news/ sector performance must form the backbone of the factsheet/2020/10/15/world-bank-group-vaccine- recovery effort. The pace of the recovery will be announcement---key-facts. stunted in the absence of an ambitious program to restart growth at the firm level. This is the topic of the special focus section of the report.
x TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS annual productivity growth, was negative in 2013 at include increasing the ability of new firms to enter -4.5 percent and deteriorated further to -5.1 percent by the market and to offer new products or services, 2019. And although some sectors have been adding tackling structural bottlenecks that complicate jobs to the economy, these jobs are not being created firms’ access to finance, dealing with the significant in areas with the highest levels of unemployment. deterioration in customs performance and building a clear vision for innovation policy to nurture sectors The report concludes by discussing some where innovation and comparative advantage are of the most urgent structural measures needed to beginning to emerge. help bring the private sector back on track. These
Executive Summary xi xii TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS RÉSUMÉ EXÉCUTIF
Récentes Evolutions touristique. En dépit de cela, on s’attend à ce que le déficit du compte courant tombe à 7% du PIB en Alors que l’année 2020 touche à sa fin, l’ampleur 2020 contre 8,8% du PIB en 2019, grâce à la plus des répercussions de la pandémie sur l’économie grande contribution des envois de fonds et parce que tunisienne se fait de plus en plus ressentir. La Tunisie les importations ont chuté plus rapidement que les doit faire face à une baisse de croissance plus exportations. marquée que celle des autres pays homologues de la région, la crise se rajoute à une situation de La baisse du déficit du compte courant a permis croissance lente et d’endettement en hausse. A la à la position extérieure de faire preuve de plus de production qui devrait se contracter de 9,2% en 2020. résilience aux chocs. Au 31 octobre, les réserves de change de la Tunisie se sont élevées à 7,8 milliards de S’ajoute à cela la perte des gains réalisés en dollars, c’est-à-dire à près de 147 jours d’importation matière de création d’emploi et de réduction de la (contre 103 jours une année auparavant), contribuant pauvreté, de par la plus forte exacerbation du chômage ainsi au renforcement des réserves extérieures, très et de la paupérisation des segments vulnérables de la utiles en ces temps de crise. population. Plus particulièrement, il est attendu que la pauvreté passe de 14% de la population — taux Dans ce contexte pour le moins critique, la enregistré avant l’avènement de la pandémie — à 21% réponse politique a été globalement adéquate. Le de la population en 2020, avec de plus importantes déclin de l’inflation a créé les conditions favorables répercussions dans les régions du Centre-Ouest à une réduction des taux d’intérêt et au soutien à et du Sud-Est du pays. Parmi les segments les plus la croissance (modérée) du crédit à l’économie. La vulnérables, on compte essentiellement les femmes politique budgétaire a également été conciliante. qui vivent en familles nombreuses, dépourvues Les autorités ont réagi à la pandémie en proposant d’accès aux soins de santé et souvent employées en un paquet de mesures budgétaires en appui aux dehors de toute forme contractuelle. entreprises et aux ménages. Ces mesures, ajoutées aux pertes de revenus engendrées par le ralentissement Le secteur des exportations a considérablement économique, ont été en grande partie responsables contribué au ralentissement : en septembre 2020, il a de l’augmentation du déficit budgétaire à 10,5% du enregistré une baisse de 15% en glissement annuel, PIB (il était à près de 3% du PIB dans le budget de en raison du fléchissement de la demande mondiale 2020). Sans surprise, l’augmentation des besoins de et de l’affaiblissement des secteurs industriel et financement a exacerbé la vulnérabilité liée à la dette.
xiii On estime que la dette publique augmenterait à 89% décrétées aussitôt que la pandémie a frappé et à du PIB en 2020, comparativement à 72% du PIB en leur stricte application. Mais la deuxième vague 2019. dépasse de loin la première et de nouvelles mesures de confinement sont instaurées, quoique moins Perspectives et risques strictes que les premières. Beaucoup d’efforts sont également entrepris pour préparer le déploiement de Le constat de l’impact de la pandémie sur l’économie vaccins, la Tunisie étant membre de l’initiative de la tunisienne a été sévère et les coûts d’atténuation ont Banque Mondiale pour le financement de l’achat et de davantage nui aux finances publiques du pays, déjà la distribution de vaccins, de tests et de traitements.2 particulièrement dégradées. Aussi, les perspectives s’annoncent difficiles et incertaines. Après une C’est également en réhabilitant la crédibilité contraction attendue de 9,2% en 2020, la croissance du cadre macroéconomique qu’on arrive à jeter devrait temporairement s’accélérer pour se situer à bases nécessaires à une reprise plus durable de 5,8% en 2021 à mesure que les effets de la pandémie la croissance. Plus particulièrement, il s’agit de commencent à s’atténuer, avant de revenir à une mettre l’accent sur le financement durable de la trajectoire plus modérée de près de 2% d’ici à 2022, relance, de manière qui permet de gérer les niveaux en raison des défaillances structurelles préexistantes. d’endettement. Cela exige de restructurer les finances Les risques à la baisse qui pèsent sur ces perspectives publiques en endiguant la masse salariale, en faisant sont importants, au vu de l’ampleur de la deuxième passer l’aide sociale des subventions aux transferts vague de pandémie qui continue de sévir et de son ciblés et en maîtrisant les risques budgétaires impact sur les principaux partenaires commerciaux induits par les entreprises publiques, le tout dans de la Tunisie. Dans le même ordre d’idées, on s’attend l’objectif de dégager plus de ressources en faveur de à ce que le déficit du compte courant commence l’investissement public et de la relance. à s’améliorer avec la reprise des exportations, quoiqu’à un rythme lent et incertain. Les perspectives Au vu de l’espace budgétaire limité et de la budgétaires misent sur un cadre budgétaire serré et position extérieure fragile du pays, le pivot du plan une marge de relance budgétaire limitée, l’impact de relance réside dans l’engagement de réformes de la pandémie devant s’étendre jusqu’en 2021. Les structurelles visant à stimuler les performances risques budgétaires liés à la croissance incessante du secteur privé. La relance se trouverait freinée de la masse salariale, aux subventions, aux retraites en l’absence de programme ambitieux qui ravive et à la faible performance des entreprises publiques la croissance des entreprises. Cette question est commencent à se faire concrètement sentir et, à explicitée dans la section 'Focus spécial'' du présent défaut d'être gérés de manière proactive, risquent de rapport. compromettre les efforts de relèvement engagés. Relance de la croissance et Devant cette conjoncture difficile, la reconstruction du potentiel des prochaine mesure importante que la Tunisie se doit entreprises tunisiennes d'entreprendre pour passer avec succès au travers de cette crise consiste à élaborer un programme La section ’Focus Spécial” de la présente édition du cohérent de relance de l’économie et de réhabilitation Moniteur Economique — Tunisie s’approfondit sur les de la crédibilité du cadre macroéconomique. résultats de l’enquête récemment menée auprès d’un ensemble d’entreprises tunisiennes, pour débattre des La première priorité consiste, bien sûr, à sauver dernières données disponibles sur la performance des vies, à travers le contrôle de la pandémie et la des entreprises et déterminer les priorités dont il mise à disposition, de la population, de vaccins contre faut tenir compte pour relancer la croissance et la le virus Covid-19. Les autorités ont réussi à bien gérer la première vague de la pandémie et à endiguer 2 https://www.worldbank.org/en/news/factsheet/2020/10/15/ la contagion, grâce aux mesures de confinement world-bank-group-vaccine-announcement---key-facts
xiv TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS productivité du secteur privé. Au cours de la majeure 2013 à 14% en 2019. Les entreprises sont moins partie de la décennie écoulée, les principales causes tournées vers l’exportation qu’avant et le pourcentage du chômage ont été attribuées au ralentissement d’entreprises exportatrices est passé de 38% en 2013 de la croissance et à l’atonie du secteur privé. à 32% en 2019. Cela a coïncidé avec la détérioration Au même temps et en l’absence d’opportunités des indicateurs commerciaux : le nombre de jours privées, l’Etat a continué à être considéré comme nécessaires au dédouanement des exportations a le principal pourvoyeur d’emplois, alourdissant ainsi plus que doublé, passant de 3 jours en 2013 à 7jours la masse salariale du secteur public et réduisant en 2019. La situation est pire pour les importations, l’espace budgétaire qui aurait pu servir à investir où le nombre de jours nécessaires au dédouanement dans l’économie. La pandémie Covid-19 est venue des importations est passé de 7 jours en 2013 à 16 exacerber ces difficultés structurelles existantes. jours en 2019. Les entreprises sont également de Dans ce contexte, il devient plus que jamais urgent de moins en moins productives : la croissance annuelle dynamiser les entreprises et de booster leur potentiel réelle de la productivité a été négative en 2013, de de création d’emplois pour que le pays puisse enfin l’ordre de 4,5% et a empiré en 2019, en tombant à se remettre de la crise liée à la pandémie Covid-19. 5,1%. Certes, certains secteurs ont réussi à créer des emplois dans l’économie, mais jamais dans les L’analyse a révélé que les entreprises régions où le chômage est le plus élevé. tunisiennes ont perdu beaucoup de leur ressort. Les données relatives aux sept dernières années — Le rapport conclut en examinant quelques- de 2013 et 2019 — montrent qu’il existe bon nombre unes des mesures structurelles les plus urgentes à de domaines où l’environnement s’est amélioré et introduire pour aider à remettre le secteur privé sur les où la Tunisie a pu être plus performante que ses rails. Il s’agit, notamment, d’accroître les capacités des pairs régionaux. Mais dans l’ensemble, ces mêmes nouvelles entreprises à entrer sur le marché et à y offrir données montrent à voir un secteur privé affaibli, où de nouveaux produits ou services, de lutter contre les les entreprises sont moins enclines à investir et à goulots d’étranglement structurels qui compliquent innover : la proportion d’entreprises investissant dans l’accès des entreprises au financement, de faire face des immobilisations est passée de 44% en 2013 à à la détérioration des services douaniers et d’élaborer 30% en 2019 et le repli est caractéristique de tous les une vision claire de la politique d’innovation, en secteurs. De manière similaire, la part des entreprises soutien aux secteurs où les exigences en matière tunisiennes introduisant un nouveau produit ou d’innovation et d’avantages comparatifs commencent service a diminué de moitié, passant de 28% en à prendre de l’importance.
Résumé Exécutif xv xvi TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS
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xviii TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS 1
RECENT ECONOMIC DEVELOPMENTS
Growth and Employment FIGURE 1·Growth is Expected to Contract by 9.2 Percent in 2020 Tunisia is experiencing a sharper growth deceleration than its peers, having met 100 5 the COVID-19 crisis on weak footing Growth (%) by Sector (YoY)80 0 The pandemic is having a heavier impact on GDP Growth (%) YoY growth than previously anticipated, further 60 compounding a decade of low growth and increasing poverty. The year 2020 started on a 40 5 weak footing prior to the pandemic, with a 2.2 percent contraction in the first quarter and several preceding 20 years of sluggish growth.2 The pandemic deepened this economic stagnation. A strict lockdown between 0 10 March and June suppressed the pandemic but simultaneously stifled domestic supply and demand, 20 15 contributing to a 9.6 percent contraction in GDP in the first nine months of the year. The ongoing second 40 wave of the pandemic weighs further on economic activity.3 Growth is expected to contract by 9.2 60 20 percent overall in 2020, down from an expansion of 1 percent in 2019 (Figure 1).4 80
Declines in tourism and transport services 100 25 contributed heavily to the downturn. The Tunisian economy is largely service oriented, with 43 percent 2015 2016 2017 2018 2019 2020
Agriculture Manufacturing industries Non-manufacturing industries Tradable services Non-tradable services
Source: National Institute of Statistics.
2 GDP growth averaged 1.5 percent annually in 20112019 compared to 4.5 percent in 20062010.
3 At the start of the Covid-19 pandemic, Tunisia enforced a relatively strict lockdown from March 22nd to May 4th, followed by a gradual re-opening. A second wave has now far exceeded the first with an average daily infection rate in the range of 1,0001,500 in October (compared to <50 between March and May).
4 The pre-COVID World Bank forecasts for GDP growth in 2020 was 1.5 percent. It was revised downwards to 4.0 percent in April.
1 BOX 1: HOW IS COVID-19 AFFECTING THE POOR?
Recent analysis carried out by the World Bank (Kokas et al; 2020) addresses this question by estimating the pandemic’s impact on Tunisia’s poor households. It shows that the pandemic is likely to reverse recent gains in poverty reduction. The analysis explored four broad channels through which the pandemic could affect households: labor income, non-labor income, direct effects on consumption, and the disruption of services. The findings suggest that, under the baseline scenario of a 9.2 percent contraction in GDP growth in 2020, poverty is estimated to increase from 14 percent of the population pre-Covid to 21 percent in 2020.a Additionally, inequality (measured using the Gini coefficient) is estimated to increase from 37 to 39.5.
Households with per capita consumption in the poorest 20 percent of the population, which are concentrated in Tunisia’s Center West and South East regions, would be hardest hit. As for the most vulnerable individuals, they are likely to be women, living in large households, without access to health care and employed without contracts. Just over half (53 percent) of individuals who projected to have fallen into poverty as a result of the pandemic are likely to be employed without a contract.
The analysis also simulated the impact of the authorities’ compensatory measures and found that they would mitigate the impact on poverty. Specifically, the increase in poverty would slow to 6.9 percent with the mitigation measures as opposed to 7.4 percent without, underlining the importance of developing well-targeted social protection programs that can quickly be used to reach the poor at times of crisis.
Source: Kokas, Deeksha; Lopez-Acevedo, Gladys; El Lahga, Abdel Rahman & Mendiratta, Vibhuti. “Impacts of COVID-19 on household welfare in Tunisia”. 2020 (forthcoming). a These estimates are based on the national poverty line using the 2015 household survey, which is updated to arrive at the pre-pandemic poverty rate.
of GDP in 2019 coming from the market services.5 first half of the year. Since the end of May 2020, The pandemic’s dual impact on the supply and social protests disrupted production in energy and demand for services (both domestic and external) mining sites such as the phosphate mines in Gafsa, have contributed to a 12 percent decline in services the oil wells in Tataouine, and the Nawara gas field.8 by the third quarter of the year. Tourism is one of Phosphate production has been significantly affected Tunisia’s main service industries. Key activities for this by these repeated crises. This year, phosphate sector—transport and hotels and restaurants6—were exports, produced in remote parts of the country, particularly affected with 30 and 43 percent declines were down by 21 percent by October compared to respectively over this period. the same period last year. These remote areas have some of the highest unemployment rates in Tunisia Manufacturing, a mainstay of the Tunisian and worsening social conditions in the wake of the economy, has also been deeply impacted as pandemic could further aggravate social tensions. A European demand stalled.7 Manufactured output change in political power added further uncertainty contracted by 10 percent in the first nine months as an unexpected change in government took of 2020 compared to 2019. The decline was driven place between July and September, bringing a new mainly by textiles and the mechanical and electrical government led by Prime Minister Hichem Mechichi sector, which contracted by 19 percent and 17 to power. percent respectively. These key industries employ around a fifth of the working population and had been 5 All services (market and non-market) accounted for 61 growing in recent years. They are also highly sensitive percent of GDP in 2019. to global economic shocks. In contrast, agriculture contributed positively to growth, providing a small 6 Transport and hotels and restaurants account for 27 boost to food processing industries, due to favorable percent of market services and 11 percent of GDP. harvest conditions. 7 Europe is the destination for more than 75 percent of Non COVID-19 related factors also affected Tunisia’s exports. growth this year, such as worker disruption in the mining sector and political uncertainty in the 8 The phosphate sector has been subject to repeated sit- ins in past years and production in the mining area has been slowed down for a decade.
2 TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS FIGURE 2·Economies that are More Dependent FIGURE 3·…Contributing to Tunisia’s on Tourism have Tended to Performance, which is Considerably Experience a Sharper Downturn… Below Peers and Trading Partners
10 10 Annual GDP Growth (%) 5 5 GDP Growth %, YoY 20200 0 20 40 60 80 100
5
10 0
15
20 Tunisia 5
25
30 10 Tourism % of Total Exports 2016 2017 2018 2019 2020
Source: World Bank World Development Indicators. Developing Countries Europe & Central Asia Middle East & North Africa Tunisia
Source: National Institute of Statistics, World Bank staff estimates.
Unemployment increased equally for services and construction sectors, making the women and men, but informal sector crisis particularly taxing for this group. Dwindling workers are likely to be most affected opportunities for this vulnerable group may have aggravated the flow of illegal migration to Europe. As After having spiked to 18 percent in the second of end-September, it is estimated that close to 10,000 quarter of 2020, the rate of unemployment Tunisians attempted illegal Mediterranean crossing declined to 16 percent in the third quarter. Although in 2020, making them the largest nationality group it remains above the pre-COVID unemployment rate of crossing the Mediterranean.10 15 percent, the recovery in the unemployment rate in the third quarter of 2020 suggests that a large share The External Sector of job losses in the early stage of the pandemic and the lockdown were on a temporary basis. This seems Tunisia’s external position improved to be corroborated by data from the national statistics slightly in 2020, but in a context of institute’s second COVID-19 socio-economic impact weakened export performance and even phone survey9, which reports that only 5 percent of weaker demand for imports respondents permanently lost their jobs. Women’s unemployment rates, including for graduates, have Weak global demand led to a severe reduction in historically been higher than men’s, but fluctuations industrial exports and tourism.11 Exports contracted in the unemployment rate were of a similar magnitude for both men and women. 9 http://www.ins.tn/sites/default/files/publication/pdf/ Enq%20covid%20menages%20-%20octobre%202020.pdf. The impact on informal workers, who account for 46 percent of the workforce, is 10 https://data2.unhcr.org/en/situations/mediterranean; likely to be significant. Informal workers, such https://data2.unhcr.org/en/situations/mediterranean/ as day workers and self-employed informal micro- location/5205. businesses, are generally from lower-income households and, by definition, do not have access 11 Mechanical and electric products, and textiles together to formal employment benefits and protections. account of 68 percent of product exports. They are also concentrated in the heavily impacted
Recent Economic Developments 3 FIGURE 4·The Current Account Deficit and FIGURE 5·… as Imports Decline Faster than Reserves Improve in 2020… Export
12 12 % change 20192020 (Jan to Sep) 0 10 10
% of GDP8 8 10 2009 20106 6 2011 4 2012 4 20 2013 20142 2 30 Exports 2015 20160 0 2017 2018 40 2019 2020 Imports 50 US$ billions % of GDP General regime Off-shore regime
(est.) (proj.)
Current account deficit (in % of GDP) (left axis) Gross official reserves (US$ billion) (right axis)
Source: Central Bank of Tunisia.
Source: Central Bank of Tunisia; World Bank staff estimates.
by 15 percent in the first nine months of 2020 compared Bolstered by a lower current account to the same period in 2019. Leading the fall in exports deficit, the external position remains were the mechanic and electric industries, key sector adequate, yet fragile, despite the in the economy, which fell by 20 percent, reflecting economic shock a reduction in demand from Europe, including in auto industries. Textiles similarly experienced an 18 Foreign direct investment continued to decline percent decline in exports so far this year. Tourism, in 2020. Net foreign direct investment (FDI) inflows which was struggling to recover from the terrorist had been weak prior to the pandemic as the economy attacks of 2015, was also severely affected, declining struggled to perform and attract investors, leaving by 60 percent in the first nine months of 2020. This debt and short-term inflows to dominate the financial comes at a time when the government is struggling to account. FDI took a further hit, declining by 25 percent revitalize the tourism economy, in the face of domestic in the first 9 months of the year. Debt and short-term security concerns and regional instability.12 inflows also declined, contracting by 39 over this period but remained the largest financial inflow. Despite this, the current account deficit is expected to shrink to 7 percent of GDP in 2020, External reserves remained resilient against 8.8 percent in 2019, following a large despite the economic shock, placing Tunisia’s drop in imports and higher remittances. Although reserves at an adequate level. At approximately exports declined, the reduction in imports was larger. USD 7.8 billion, gross foreign exchange reserves Overall, imports fell by 18 percent during the first nine increased by 18 percent as of end-October compared months of 2020 as weak consumer demand, lower oil to a year earlier, equivalent to 147 days of import prices and a drop in capital goods imports lowered against 103 days a year earlier, owing to a lower CAD the import bill. Industry is also importing less. For and the Central Bank’s limiting of foreign exchange example, a large share of imports in the textile and interventions to maintain exchange rate flexibility. The manufacturing industries are intermediate goods and decline in imports has also contributed to the higher are ultimately destined for exports, further reducing import cover ratio, which could drop as pent-up Tunisia’s imports as demand for exports plummets. demand for import recovers. Moreover, remittances, which stood at 5.3 percent of GDP in 2019 increased by 12 percent in the 12 months 12 Demand for tourism in Tunisia is led by Europeans and to September despite a worse economic situation in neighboring countries Algeria and Libya, which have all France and Italy, the source of 76 percent of Tunisian gradually increased in recent years, despite the terrorist remittances. attacks in 2016, signaling a growing regional tourism trend.
4 TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS FIGURE 6·The Fiscal Deficit and Debt Levels FIGURE 7·Tunisia is Experiencing a Larger Increased in 2020 Increase in the Fiscal Deficit than Some of its Regional Peers 12 100 Increase in overall fiscal deficit between 2019 and 2020 10 90 8 7 80 6 5 8 70 4 3 60 2 % GDP 1 20116 50 0 2012 20134 40 Tunisia MENA Lebanon Morocco Jordan Egypt 2014 2015 30 Source: Ministry of Economy, Finance & Investment; World Bank MFMOD database. 2016 20172 20 deficit from 6.1 percent of GDP in 2017 to 3.5 percent 2018 of GDP by 2019, Tunisia made progress in remedying 2019 10 its fiscal imbalances prior to the pandemic. The large 2020 impact of the pandemic, particularly on state revenues, 0 0 the costs of the response and continued growth in the % GDP wage bill are now pushing the primary14 and overall % of GDPdeficits to 6.7 and 10.5 percent of GDP, respectively, in the revised 2020 budget (Figure 6). This is a larger Public debt (RHS) (revised increase compared to most regional peers (Figure 7). budget) Although structural weaknesses continue Fiscal deficit (LHS) to weigh on the budget, most of the increase in financing needs is due to the costs of the Source: Ministry of Economy, Finance & Investment; World Bank staff estimates. pandemic. Revenues15 are estimated to decline to 28 percent of GDP in 2020, down from 33 percent in Fiscal Policy13 the pre-pandemic budget for the year as the downturn depresses economic activity and as tax deferral The costs of the pandemic response and measures adopted as part of the pandemic response structural budget weaknesses reversed take effect. In parallel, the supplementary 2020 recent, albeit uneven, progress in budget aims to increase spending to 38 percent of consolidating public finances GDP, up from 36 percent of GDP initially. Together, the costs of the COVID-19 response at TND 1100 million The fiscal deficit is expected to balloon to about (1 percent of GDP), and revenue losses account for 10.5 percent of GDP this year, reversing recent 82 percent of the increase in the deficit between the gains made in rebalancing the budget. With a original and the revised 2020 budget. Higher debt reduction in the overall central government fiscal service costs also added to the spending envelope (Figure 8). An untimely increase in the wage bill this FIGURE 8·Most of the Increase in 2020 Budget Financing Needs is Due to the Costs 13 This section draws on the approved supplementary of the Pandemic… budget law for 2020. The ratios are calculated based on World Bank GDP estimates for 2020. Sources of the increase in the fiscal deficit between the original and revised 2020 budgets 14 The primary balance is equivalent to the overall fiscal balance, less interest payments. Revenue loss 69 15 Revenues and grants. Covid-19 response 13
Wage bill 6
Debt service 5
Other 7
0 20 40 60 80
Source: World Bank staff calculations based on the 2020 proposed supplementary budget.
Recent Economic Developments 5 FIGURE 9·…but Structural Weaknesses, such into fiscal space, having increased from 3 to 4 percent as a Large and Growing Wage Bill, of GDP over the past year. Continue to be a Challenge Monetary Policy and Inflation % of GDP Tunisia’s wage bill compared with neighboring countries (2020) Monetary policy balanced economic Jordan stimulus with its core objective of 20 maintaining price stability, supporting moderate growth in credit to the economy Declining inflation set the stage for policy rate 10 cuts in 2020 to support the economy during the pandemic. The central bank had maintained a 5 monetary policy tightening cycle between 2017 and 2019 in response to a depreciating currency and 0 inflationary pressures over this period, which helped Tunisia Morocco Algeria* Lebanon* Egypt lower inflation from a peak of 7.7 percent in mid-2018 to 5.8 percent by early 2020. While inflation reached Source: World Bank staff estimates; IMF staff estimates. 6.3 percent in the early stage of the pandemic (April * Data for Algeria and Lebanon is for 2019. May) due to the initial shock, normalization of supply chains, lower oil prices and subdued domestic year, forecast to grow by 17 percent compared to demand helped decelerate inflation to 5.4 percent by 2019, is adding to the expansion. Taken together, October. In this context, the Central Bank reduced the these factors outweighed savings from lower energy policy rate twice, by 100 basis point in March 2020 and subsidies stemming primarily from lower international by 50 basis point to 6.25 percent at end-September. oil prices. Lower interest rates and COVID-19 re- Higher financing needs in 2020 keep debt sponse measures helped prop-up demand for levels on an upward trajectory, increasing credit. The central bank also implemented a num- debt service costs ber of other measures to mitigate the effects of the pandemic, including relaxation of loan-to-deposit ra- Financing has shifted to domestic debt to meet tio requirements, extending list of assets eligible as the budget’s swelling needs. As a result of the collateral for refinancing operations and a second- projected deficit, gross financing needs16 jumped ary market government bond purchase program to from 10 percent of GDP in the original 2020 budget improve liquidity and yield conditions for domestic to 18 percent of GDP in the revised budget. The authorities have increased recourse to domestic 16 Consisting of the amounts needed to finance the overall debt to help plug this gap, with a large increase in fiscal deficit as well as debt coming due (amortization) borrowing needs presented in the last quarter of the during the year. year.17 Domestic debt stands now at 35 percent of total debt, compared with 25 percent in 2019. 17 Domestic borrowing is expected to finance 62 percent of gross financing needs and external debt the remaining With this, public debt is estimated to reach in 2020, against 30 percent in 2019. 89.4 percent of GDP by end 2020, compared to 72.5 percent in 2019.18 The public debt burden had 18 The Tunisian dinar appreciated against the dollar by declined in 2019 as the authorities made progress in around 6 percent so far in 2020, mitigating some of the consolidating public finances. The fiscal impact of the increase in indebtedness. The large increase is domestic pandemic reverses the decline in debt registered in borrowing counteracts this effect. 2019 and raises the debt stock to concerning levels. Currency appreciation in 2020 helped mitigate some 19 The Tunisian Dinar appreciated by 4 percent in the 12 of the increase.19 The structure of Tunisia’s debt, months to September 2020 (YoY). which has a significant share of debt from donors (47 percent of central government debt in 2019), eases the debt service burden. Nevertheless, debt service costs have also been gradually increasing and cutting
6 TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS FIGURE 10·Declining Inflation Set the Stage forPercent FIGURE 11·…supporting Private Sector Credit12 month % change Policy Rate Cuts in 2020… Growth in the Second Half of the Year.
9 40 8 30 7 20 6 10 5 0 4 10 3 Jan15 2 May15 1 Sep15 0 Jan16 May16 Jan16 Sep16 May16 Jan17 Sep16 May17 Jan17 Sep17 May17 Jan18 Sep17 May18 Jan18 Sep18 May18 Jan19 Sep18 May-19 Jan19 Sep19 May19 Jan20 Sep19 May20 Jan20 Sep20 May20 Sep20
Inflation Money Market Rate Central Bank Policy Rate Credit to the government (real) Source: Central Bank of Tunisia; INE. Credit to the economy (real)
Source: Central Bank of Tunisia; World Bank staff estimates.
budget financing.20 This contributed to a 14 percent based on the 12 publicly traded banks22 shows increase in credit to the private sector in real terms in a liquid asset ratio at 4.5 percent with significant the 12 months to September 2020 (against 1.1 per- disparity between public and private banks.23 In cent in 2019). This is despite much faster growth in addition, exposure to the government, through credit to the public sector, which grew by 59 percent securities and direct lending has edged upwards as in real terms (up from 3.8 percent in 2019) as a con- credit to the government increased (Figure 11). In sequence of the increase in the budget’s financing this context, close supervisory scrutiny, adherence to needs, which, if continued, would crowd-out private robust classification standards and effective financial sector credit. safety nets are particularly important to increase transparency and maintain confidence in the system. Non-performing loans and exposure to the public sector are key risks to a vulnerable Despite efforts to provide relief and banking sector assistance during the pandemic, low financial inclusion limits the financial sector’s ability to Banking sector vulnerabilities have increased as reach those most impoverished. Limited access non-performing loans (NPLs) and the sector’s to finance is also constraining the magnitude of any exposure to the public sector grow. NPLs, already countercyclical role played by the financial sector. high at 13.9 percent of gross loans at end 2019 are Low penetration of digital financial services is slowing expected to increase further.21 The stock of NPLs is highly exposed to industrial and tourism sectors, two 20 See Box 2 for a summary of other monetary and financial of the most heavily affected sectors by the ongoing sector measures. crisis. In addition, support measures such as payment moratoria maybe delaying the onset of NPLs. Given 21 Data on the evolution of NPLs in 2020 has not been this, stress testing of the financial system and close published yet by the authorities. According to S&P monitoring loans payments past their dates are critical (2020), NPLs are expected to rise from 14 percent of to assess the build-up in vulnerabilities. Liquidity has gross loans at end 2019 to 15.4 percent in 2020 and 19 remained constrained. While no mid-year data is percent in 2021. communicated by the Central Bank on the liquid asset ratio, which stood at 4.7 at end 2019, a proxy estimate 22 Private banks (9): Amen Bank, ATB, Attijari Bank, BIAT, BT, BTE, UBCI, UIB and WIB) and Public banks (3): BH, BNA, and STB.
23 Source: Tunisie Valeurs;1.4 percent for public banks and 6.5 percent for private banks.
Recent Economic Developments 7 TABLE 1·Selected Macroeconomic Indicators, 20172022
2017 2018 2019 2020 2021 2022 (Prel.) (Proj.) (Proj.) (Proj.) National Accounts and Prices 2.7 7.5 1.0 9.2 5.9 2.0 GDP at constant prices 2.0 6.1 5.6 5.0 4.5 26.3 Consumer prices (average) 6.2 30.5 28.2 27.7 26.8 27.3 4.4 31.9 38.2 33.3 32.1 Government finance (% of GDP) 78.0 3.9 10.5 6.5 4.8 8.4 72.2 89.4 91.2 90.8 Total revenues & grants 24.5 6.75 3.5 13.8 7.75 — — Total expenditure and net lending 30.5 11.2 — — — 38.9 8.8 Overall balance 5.9 53.9 38.5 7.1 6.2 6.3 2.5 52.5 31.6 32.3 32.2 Public debt ratio 70.2 5.2 42.1 43.7 44.1 2.9 2.1 1.6 Credit to the economy 9.4 7.4 7.9 1.5 1.5 11.7 5.7 4.8 8.0 8.9 Policy interest rate (%, eop) 5.0 105,269 4.5 4.6 11.8 11.9 Balance of payments (percent of GDP, unless otherwise indicated) 39.8 113,845 109,244 12.0 12.1 3,411 123,149 133,055 Current account balance 10.2 2.65 38.8 — 15.4 3,294 3,335 — — Exports of goods 35.7 2.93 3,730 3,986 — Imports of goods 49.1 14.9 — — — Foreign direct investment 2.0
Gross reserves (US$ billion, eop) 5.6
in months of next year’s goods imports 3.0
Memorandum items
Population (million) 11.5
Nominal GDP (TND million) 96,298
Nominal GDP (US$ billion) 39.8
GDP per capita (current US$) 3,451
Exchange rate, average (TND/US$) 2.42
Unemployment rate (% of active population) 15.3
Tunisia’s deployment of rapid and agile measures, the most vulnerable segments (such as women which are particularly needed in an economic lockdown and smallholder farmers), has also come under and social distancing context, like social transfers pressure from declining portfolio quality as affected and financial inclusion. Microfinance, another vector households struggle to meet repayments with the of financial inclusion, supporting income-generating refinancing difficulties under the current governance activities of over 400,000 micro-entrepreneurs from and regulatory framework.
8 TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS BOX 2. GOVERNMENT AND CENTRAL BANK MEASURES TO SUPPORT HOUSEHOLDS AND FIRMS DURING THE COVID-19 CRISIS
Immediate social measures
- Cash transfer top-up of TND 50 for 260,000 poor households (7.9 percent of the population) reviving permanent cash transfer program
(PNAFN) to bring total transfer to at least TND 230 per beneficiary. Two payments to cover April and May.
- Temporary cash transfer of TND 200 for 770,000 households (28.1 percent of the population), including 470,000 households
(benefiting from subsidized health card program (eligible for two transfers in April and May) and 300,000 vulnerable households (eligible for one transfer in May).
- Pension top-up (TND 100) for 140,000 retirees (1.2 percent of the population) whose monthly pension is below TND 180 (one-off
mid-April).
- Temporary unemployment benefits (TND 200) for workers who will be affected by partial unemployment (one-off mid-May and a
second transfer under consideration).
- Temporary cash transfer (TND 200) to self-employed individuals who suffer from business income loss (one-off mid-May and a second
transfer under consideration).
Emergency measures to support firms
- Creation of a TND 300 million support fund for SMEs.
- Creation of a TND 100 million new partial guarantee scheme.
- Creation of a TND 700 million facility to restructure companies in difficulty.
- Postponement to the end of May 2020 of corporate tax returns (previous deadline March 25), except for companies subject to the
wealth tax at the rate of 35 percent.
- Suspend all tax audit operations and appeal deadlines until the end of May 2020.
- Reduction of deadlines for refunding tax credits to a maximum of one month.
- Exemption of customs penalties established before March 20, 2020, with payment of duties and taxes due and a fixed penalty of 10
percent.
Measures for fully exporting companies:
- Possibility for companies operating in the food industry and health sector to sell on the local market up to 100 percent of their
production during the year 2020.
- For the other exporting companies in the other activity sectors, increase of the quota from 30 to 50 percent during the year 2020.
Measures for most affected companies:
- Creation of a committee, within the Presidency of the government, dedicated to monitoring large companies most affected by the crisis
with the possibility of rescheduling the tax debts of these companies over a period of up to 7 years.
- Suspension for these companies of the application of late payment penalties for a period of 3 months from April 1, 2020.
Measures for banking and financial sector:
- Cut in the policy interest rate by 150bps, to 6.25 percent.
- Request from the Central Bank to suspend distribution of banks and financial institutions dividends for the 2019 financial year.
- Suspension of fee on withdrawal, electronic payment of below TND100, and establishment of banking card.
- Relaxation of the loan-to-deposit ratio requirements for the banking sector.
- Defer payments on bank credits and on non-professional loans.
- Extension of the list of assets eligible as collateral for refinancing operations.
- Creation of investment funds (TND 600 million) with a public guarantee (TND 100 million) mechanism to cover up to TND 500 million
of new credits.
- Subsidized interest rate (up to 3 percentage points above the average money market interest rate or Taux moyen du marché monétaire).
Recent Economic Developments 9 2
OUTLOOK AND RISKS
The growth outlook points to a FIGURE 12·Even though GDP Growth is gradual recovery, but downside risks Expected to Rebound in 2021, are significant in the absence of an Output is Forecast to Remain Below economic recovery plan Pre-Pandemic Levels
While a global recovery is envisioned for 2021, 76 8 it is likely to be subdued. Global GDP is forecast to expand by 4.2 percent in 2021. Euro area economies 74 6 are projected to grow by 4.5 percent, while MENA economies are projected to expand by 2.3 percent.24 72 4 This reflects that the pandemic will likely lead to a slow TND, Billion and incomplete return to activities that require face- 201270 2 to-face interaction, such as tourism, as some degree 2013 of social distancing continues. Firms, households 68 2014 0 and governments have relied on savings and debt to 2015 mitigate the effects of the recession thus far; hence, 201666 2 a period of deleveraging is likely to follow as they 2017 rebuild precautionary savings and strengthen their 2018644 balance sheets. 2019 2020626 In Tunisia, after an expected 9.2 percent 2021 contraction in 2020, growth is temporarily 60 8 expected to accelerate to 5.9 percent as the % Growth (YoY) pandemic’s effects on exports begin to abate and 58 10 domestic demand begins to recover. The extent of the projected recovery in 2021, for a most part, GDP Level GDP Growth Source: INS; WB staff forecast.
reflects the base effect of the sharp decline in 2020. The uptick is, however, not large enough to return output to pre-pandemic levels of 2019 (Figure 12).25
24 World Bank Global Economic Prospects June 2020. 25 GDP in 2021 is projected to remain 3.8 percent below
that of 2019.
11 After this short-term rise, growth is expected to return tourism arrivals are expected to pick-up gradually. But to a more subdued trajectory, expanding by around 2 risks to the external outlook remain high, including a percent, reflecting pre-existing structural weaknesses sluggish recovery in exports, given the heavy impact and a gradual global recovery from the pandemic. of the pandemic on firm capacity and a slower than expected recovery amongst Tunisia’s main trading These estimates are presented with partners. An increase in oil prices, although not significant downside risks in a highly uncertain currently foreseen in the near-term, could be a source environment. While Tunisia managed the first wave of risk for Tunisia if commodity market conditions of the pandemic relatively well, the depth of the shift. Consumer demand is also expected to begin second wave and its duration, both domestically and recovering, boosting the flow of imports and placing amongst the main trading partners, are significant additional pressure. unknowns. This baseline scenario assumes that there will be no prolonged and widespread lockdown, a The fiscal outlook points to a tight gradual abatement of the pandemic in 2021 and a budgetary setting and limited room slow recovery in Europe. A less forgiving scenario for fiscal stimulus would result in an even weaker growth outlook and a more delayed recovery. The budget for 2021 narrows the fiscal deficit to 5.8 percent of GDP, but is subject to significant The pace of the recovery will also depend downside risks.27 The budget aims to collect 27 on the effectiveness of measures to mitigate the percent of GDP in revenues and grants, down from pandemic’s impact on firms at a time of limited 28 percent of GDP in the revised 2020 budget. The buffers and significant scarring of the economic authorities seek to shore-up revenues through tax tissue. According to a business pulse survey carried policy and administrative measures, with one of the out in June by the World Bank, 54 percent of firms key measures being the unification of mid-band are concerned about their permanent closure, while corporate income tax rates under the main rate of 15 this figure reaches 74 percent in the tourism sector, percent. Yet, this target is exposed to risks given the indicating the heavy dent that this crisis leaves in economic impact of the pandemic on firms (Box 3). the coming years. Despite the government’s efforts to support the private sector, only 10 percent of Moreover, the fiscal impact of the pandemic firms reported receiving financial support from the will spill into 2021, suggesting continued state.26 This highlights the difficulty in supporting spending pressures. The proposed 2021 budget the economic recovery in a context of limited fiscal decreases spending to 33 percent of GDP, mainly and external buffers and underlines the importance by rolling back pandemic response spending and of the health response to manage the effects of the limiting wage bill growth. But these plans may be pandemic. It also underlines the need for an economic underplaying spending pressures. The rising rate of recovery plan as the basis to begin rebuilding the new infections and the new set of restrictions mean economy in the medium-term. that government finances will remain under pressure to fund health services, support the vulnerable and The external outlook is expected to shore-up the economy against the pandemic. Fiscal improve gradually, with downside risks are also materializing and may compromise risk from sluggish export growth recovery efforts if not managed proactively. Demand for public sector recruitment is also very high in the The current account deficit is expected to narrow gradually to 6.3 percent by 2022, but external 26 See Box 3 for more detail on the business pulse survey. pressures could persist in the medium-term if 27 Based on the 2021 budget approved by parliament in imports recover faster than exports as demand picks up. As the effects of the pandemic ease and December 2020. The ratios are calculated based on trade flows recover, manufactured exports and World Bank estimates for 2021.
12 TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS BOX 3. IMPACT OF THE COVID CRISIS ON THE TUNISIAN PRIVATE SECTOR
A business pulse survey carried out by the INS (in partnership with the IFC and others) in July 2020 showed that the pandemic’s impact on the private sector has been severe. Although 87 percent of businesses surveyed reopened in June after the national lockdown, just over a third (37 percent) reported a risk of permanent closure in the next 12 months. The pandemic negatively impacted the sales of the vast majority of firms: 82 percent of companies experienced a decrease in turnover and 80 percent of businesses saw a drop in demand. The impact of the pandemic on employment was more muted. Businesses reported a more limited impact on formal employment as most of the adjustments made were in the form of temporary leave and salary reductions. Consequently, by October 2020, a survey of households carried out by the INS (in partnership with the World Bank) reported that only 5 percent of individuals surveyed reported job losses. Most of the firms surveyed (in July 2020) had not received government aid as 16 percent of businesses reported benefiting from government measures. Even if this number increased subsequently, the business pulse survey indicates that the pandemic’s impact on business activity remains severe. With corporate taxes accounting for 13 percent of revenues (in 2019) and a severe shock to business incomes in 2020, which provide the basis for taxation in 2021, the knock-on effects on the budget are expected to be sizeable.
Source: World Bank Business Pulse Survey Tunisia, December 2020; INS Social Impact of COVID-19 survey, October 2020.
current economic context and SOEs continue to be setting, a rating downgrade in mid-2020 and in the sources of fiscal risk, which highlights the importance absence of an IMF program. of progress in controlling public sector pay and dealing with underperforming SOEs. Overall, the fiscal outlook underlines the importance of restoring the credibility of the Financing will also be a challenge at this macroeconomic framework to lay the foundations time of heightened needs. The 2021 shifts budget for a more durable recovery in growth. This financing heavily to external borrowing to plug the requires emphasis on financing the recovery more deficit and rollover maturing Eurobonds. Around 70 sustainably going forward, to manage debt levels. percent of financing needs in 2021 are expected to It also requires steady progress in restructuring be met through external sources, including through public finances to free up resources for financing access to international financial markets. This is a the recovery and for public investment. Limiting challenging plan given the deterioration of the fiscal wage bill growth, shifting social assistance from
TABLE 2·Outlook for Selected Macroeconomic Indicators, 20202022
2020 2021 2022 (Proj.) (Proj.) (Proj.)
Real GDP growth, at constant market prices 9.2 5.9 2.0 5.0 4.5 Inflation (Consumer Price Index) 5.6 6.2 6.3 5.8 4.8 Current account balance (% of GDP) 7.1 91.2 90.8 0.3 0.3 Fiscal Balance (% of GDP) 10.5 3.6 3.4 19.5 19.1 Debt (% of GDP) 89.4 Outlook and Risks 13 International poverty rate ($1.9 in 2011 PPP) 0.4
Lower middle-income poverty rate ($3.2 in 2011 PPP) 4.2
Upper middle-income poverty rate ($5.5 in 2011 PPP) 22.0
Source: Government of Tunisia; World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices; IMF. subsidies to more targeted transfers and addressing The outlook also highlights the need for continued fiscal risks from SOEs are priorities for this agenda. support from international development partners to Implementation of the reforms to widen the tax base provide affordable external financing as the country and rebalance the tax burden will also be important. navigates its way through this crisis.
14 TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS SPECIAL FOCUS: REBUILDING THE POTENTIAL OF TUNISIA’S FIRMS
F or much of the past decade, stunted growth refers to firms’ operation in the last financial year (2019). and a less dynamic private sector have The survey finds that Tunisian firms have lost much of contributed to persistently high levels of the spring in their step. Looking back over the seven unemployment. In parallel, a social and political year period between 2013 and 2019, the data shows expectation of the State as a provider of jobs, in the a number of areas where the context has improved shortage of private opportunities, has led to a ballooning and where Tunisia performs better than regional peers public sector wage bill and dwindling fiscal space to (Box 4). But more generally, the evidence shows a invest in the economy. The COVID-19 pandemic has weakened private sector landscape. Firms are investing compounded these structural difficulties, resulting less, they are less innovative, less export oriented and in job losses and increasing pressure on the wage therefore, less productive. And although some sectors bill. Consequently, unemployment today stands at 16 have been adding jobs to the economy, these jobs are percent and the wage bill, at around 18 percent of GDP not being created in the areas with the highest levels in 2020, is consuming over 60 percent of the revenue of unemployment. The report concludes by discussing envelope. In this context, reigniting the private sector some of the most urgent structural reform measures and its job creation potential is more urgent than needed to bring the outlook for firms back on track. before if Tunisia is to hasten the speed and quality of its recovery from the COVID-19 crisis. 28 The surveys are administered to a representative sample of firms in the non-agricultural, formal, private economy. This section of the report draws on the recently The topics covered by the survey include infrastructure, published Enterprise Survey for Tunisia to present trade, finance, regulations, taxes and business licensing, the latest evidence about firm performance and corruption, crime and informality, access to finance, the evolution of business environment. Enterprise innovation, labor, and perceptions about obstacles to doing surveys are conducted by the World Bank Group and business. The most recent survey for Tunisia collected data its partners to study the evolution of the business from 615 firms that were interviewed between September environment and how it affects the dynamics of the 2019 and July 2020. The data reported in this section of private sector.28 The most recent survey for Tunisia was the report is not influenced by COVID-19 since it refers to published in 2020, but the data presented in this report firms’ operations in the previous financial year (2019).
BOX 4. BRIGHT SPOTS IN TUNISIA’S FIRM LANDSCAPE AMID A GENERALLY GLOOMIER TREND
Although the context for firms has been challenging, there are FIGURE 13·Bureaucracy, Bribes and Banking some bright spots in Tunisia’s firm landscape that could support a better outlook, provided that key structural bottlenecks are 45 42 progressively unblocked. Comparing the enterprise surveys from 25.4 26.6 2013 and 2019 provide such insights. 40 % of firms Firstly, Tunisian firms spend less time dealing with government 35 with a loan requirements than peers (Figure 13). In addition, government or credit services are generally improving, with the exception of customs. 30 Firms reported a significant decrease in the time they spend dealing with government regulations, from 47 percent of management’s time 25 21.7 in 2013 to only 0.1 percent of management time in 2019. This trend 16.5 is confirmed by a drop in the proportion of firms visited or required 20 11.5 to meet with tax officials from 24 to 9 percent over the same period. Customs services are the exception to this trend since clearance 15 Bribery incidence procedures have become lengthier for both imports and exports. 10 7.7 Second, the annual employment growth rate increased from 0.5 percent in 2013 to 4.2 percent in 2019, above the average rate 5 0.1 4.2 for the region. Firms engaged in the manufacturing of textiles and garments contributed ¾ of the net jobs created, growing by about 0 Time spent dealing 9 percent. However, the pattern was regionally concentrated. Job growth was most concentrated in the Center-East region whereas with government (% of firms experiencing the rate of job creation in the highest unemployment regions (Center-West, Southeast and Southwest regions) were lower. requirements at least one bribe
Third, the data shows that Tunisian firms face less corruption than (days) payment request) regional peers. Bribery incidence (percent of firms experiencing at least one bribe payment request) stood at 11.5 percent, compared Tunisia 2019 MENA LMIC to 17 and 22 percent amongst MENA and lower middle income countries respectively. They also enjoy more reliable access to FIGURE 14·Annual Employment Growth Rate (%) infrastructure services and less exposure to crime. 9.00 8.4 Fourth, the use of financial services and credit is higher than that of 8.00 regional and income level peers. Tunisian firms draw on bank loans 7.00 4.23 3.8 more frequently and finance a larger share of their investment 6.00 through banks, giving them a more diversified financing mix. 5.00 0.46 Tunisia 1.1 4.00 2019 0.4 3.00 Tunisia 2.00 2013 Center- Northwest Northeast Southeast 1.00
0 1.00
east & &
Center-west Southwest
Lastly, Tunisian firms present a positive context in terms of female labor force participation. Tunisia has a higher share of women in top management positions compared to their regional peers and a higher share of permanent full-time workers that are female (in manufacturing).
These are positive attributes that contribute to the competitiveness of Tunisian firms but are not sufficient for placing the private sector on a strong footing. As described in more detail below, although Tunisia outperforms peers in a selected number of dimensions, it has been losing its lead in recent years. Tunisian firms are less productive and competitive today than in the past, and this calls for a sharper policy focus on rebuilding the potential of firms.
Source: Tunisia Enterprise Survey, 2013 and 2019.
Firms are investing less and are less as the country navigated its post-revolution path, and innovative than before slow progress in implementing structural reforms created a less than attractive context for investment. Tunisia has experienced a steady decline in invest- Private investment as a share of GDP has fallen from ment in the last decade, tilting the country towards an average 17.4 percent of GDP in 2000-2010 to 14.9 a consumption based economy. Significant levels percent of GDP in 2011-2019. As a result, GDP growth of uncertainty and frequent changes of government, has increasingly been consumption driven (Figure 15).
16 TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS FIGURE 15·A Steady Decline in Investment FIGURE 16·Tunisian Firms are Investing and is Tilting Tunisia towards a Innovating Less than Before Consumption Based Economy Investment and consumption trends (% GDP) 45 44
95 26 40 37
90 24 35 35 35 34 33 29 22 % of firms 30 31 19 85 20 28 Offering 18 25 formal training 80 16 20 18 13 14 15 14 7 75 12 Investing 10 in R&D
70 10 5 4
2008 2010 2012 2014 2016 2018 0 Investing Introduced Investing Total consumption (% of GDP) (LHS) in fixed new product/ in a new Gross fixed capital formation (% of GDP) (RHS) assets service process
Source: National Institute of Statistics. Tunisia 2013 Tunisia 2019 LMIC
FIGURE 17·Investment is Highest in the Center- FIGURE 18·… while R&D has been Most Stable East Regions… Amongst Large Firms
Percent of firms buying fixed assets in 2019 (%) Percent of firms spending on R&D by size (%) 30
South East & South West 25 25
North West & Centre West 25 15
North East 19 5
0 2013 2019
Centre East 46
Small (520) Medium (2099)
0 10 20 30 40 50 Large (100+)
This decline in investment can be observed innovation, large exporters in the manufacturing sector more closely at the firm level. The percentage of tended to lead innovation in Tunisia. But this picture firms investing in fixed assets fell from 44 in 2013 to is changing as the share of Tunisian firms introducing 30 percent in 2019, with the decline being registered a new product or service has halved from 28 percent across all sectors. Although this is slightly above the in 2013 to 14 percent in 2020. The share of firms that average for the region and income level peers, it introduced a new process innovation has declined even signals reduced dynamism at the firm level (Figure 16). more sharply from 35 percent in 2013 down to a little There are stark differences between localities. In the over 4 percent of firms whilst investment in research Centre-East region, 45 percent of firms are investing in and development halved from 18 to 6.7 percent. fixed assets. Other regions, notably the Northeast, lag This seems to be a widespread phenomenon. The far behind with less than a quarter of firms investing in exception is large firms, which have largely maintained physical capital (Figure 17). their rate of investment in new products and research (Figure 18), and some sectoral pockets of innovation Similarly, investment in innovation halved (Box 5). since 2013. While there is no clear dominant sector in
Special Focus: Rebuilding the Potential of Tunisia’s firms 17 BOX 5. IS THE DECLINE IN INNOVATION AMONGST TUNISIAN FIRMS UNIVERSAL?
A recent study (Ghali and Nabli, 2020) finds evidence of pockets of FIGURE 19·Exports According to Type of innovation that are increasing diversification and the technological Growth Dynamics (Values in Millions sophistication of Tunisia’s export basket. of USD in 2015 Prices)
Tunisia steadily built its manufacturing and export industries A: Low technology manufactures since the 1960s, with both horizontal and vertical industrial 5,000 policies having played an important role. Initially, the economy 4,500 developed industries that offered a low level of technological 4,000 sophistication. 3,500 3,000 Since the early 1990s, the share of more sophisticated products 2,500 in the export basket has been increasing. This has especially 2,000 been the case for products with a medium level of technological 1,500 intensity such as mechanical, electrical and pharmaceutical 1,000 production, amongst others (Figure 19). Underlying this was a “lively” rate of experimentation and product 0 diversification, both in terms of products and destination markets, 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 as firms presented new products to export markets. While some of these innovations persisted and grew into mature or emerging Mature Emerging Stalled Episodic products, a large share stalled or were episodic in nature. B: Medium technology manufactures 2011 This suggests that the decline in innovation, investment and 3,500 productivity is not universal. Innovation and product diversification 3,000 are occurring in some important sectors and are making the 2,500 export basket more sophisticated. It also suggests that, rather 2,000 than discovery, the challenge is survival of the new products. This 1,500 trend is detected in Tunisia’s economic complexity ranking, which 1,000 increased from 78 in 1998 to 64 in 2018.* These findings offer important insights for policy makers that are 0 seeking to build the sophistication and innovation of the Tunisian 1995 1997 1999 2001 2003 2005 2007 2009 2013 2015 2017 economy. Nurturing green shoots that are already visible and helping them grow could be an important pathway to future growth Mature Emerging Stalled Episodic and job creation. In addition to horizontal policies that establish a sound environment for the private sector, targeted vertical policies C: High technology manufactures 2009 to attract partnership and foreign direct investment, along with 1,400 policies that provide technological and technical support, are 1,200 suggested. 1,000
Source: Ghali, Sofiane and Nabli, Mustapha. Export Diversification and 800 Sophistication and Industrial Policy in Tunisia. ERF Working Paper 1415. 600 November 2020. 400 * The Economic Complexity Index measures the sophistication of an economy’s 200 export basket by considering the diversity and the level of specialization in exports. Countries with a more diverse range of export products, and higher concentration 0 in more sophisticated products have a higher complexity index. The Economic 1995 1997 1999 2001 2003 2005 2007 2011 2013 2015 2017 Complexity Index was developed by Cesar Hidalgo and Ricardo Hausmann. The data is available on the website of the Observatory of Economic Complexity: Mature Emerging Stalled Episodic https://atlas.media.mit.edu/en/.
Investment in the capacity of the workforce 2019, this share had dropped to 19 percent, bringing has also dropped. Whereas 29 percent of firms Tunisia well below the average for lower middle- were offering formal training to workers in 2013, by income countries (32.5 percent) on this indicator.
18 TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS FIGURE 20·The context for exporting firms has FIGURE 21·Reliance on domestic markets is deteriorated highest in the south east and south west 45 Reliance on domestic markets by region in 2019 (%) 40 35 100 79 79 90 88 30 80 75 25 63 20 60 55 15 49 5 40 0 Share of firms exporting 0 Centre East North East North West & South East & Centre West South West
Days to clear Days to clear Days to obtain Proportion of total sales that are domestic sales (%) exports imports import permit Proportion of total inputs that are of domestic origin (%)
Tunisia 2013 Tunisia 2019 LMIC
Source: World Bank 2013 and 2019 Enterprise Surveys. Source: World Bank 2013 and 2019 Enterprise Surveys.
Firms are also becoming less export The enterprise survey paints a less oriented favourable customs environment for trade than before. The majority of trade related indicators Exports are playing a much smaller role in the deteriorated between 2013 and 2019. The number post revolution period. Being small, the Tunisian of days to clear exports through customs more than economy has traditionally been export oriented, doubled from 3 days in 2013 to 7 days in 2019. The having built-up manufacturing and tourism industries situation is worse for imports, whereby the number through industrial policies in past decades. The of days to clear imports through customs jumped prominence of exports has declined in recent years from 7 in 2013 to 16 days in 2019. Another notable as the contribution of exports to national output change is that the number of days to obtain an declined. Consequently, trade’s net contribution importing licence went up from 13 days in 2013 to to GDP dipped from 49 percent in the 19912010 21 days in 2019. Moreover, a higher percentage of period to 7.1 percent in 201119, shifting the firms reports gifts are expected to get an import economy towards consumption driven growth since license. the revolution. Firms’ productivity growth has Firm level data confirm that Tunisian firms continued to decline are less export oriented than before. The share of exporting firms29 decreased from 38 percent in Tunisian firms today are less productive than 2013 to 32 percent in 2019, particularly in the food before. Productivity—the efficiency with which the manufacturing sector (Figure 20). The proportion of firm uses its resources to maximize production— total sales that are exported directly also fell slightly is critical for the long term growth prospects of the from 16.3 percent in 2013 to 15.8 percent in 2019. economy. Productivity growth supports growth in The same trend is observed for the proportion earnings, lowers consumer prices and promotes of total inputs that are of foreign origin which healthy structural transition. Hence, more productive decreased from 55 percent in 2013 to 43 percent firms are at the core of a healthy economy that is able in 2019. The areas with the highest level of reliance to provide opportunities to the population. on domestic markets are in the south eastern and south western parts of the country, which are also 29 Percent of firms exporting directly or indirectly at least 10 the regions with lowest share of exporting firms percent of sales. and longest time needed to clear exports through customs (Figure 21).
Special Focus: Rebuilding the Potential of Tunisia’s firms 19 FIGURE 22·Labor Productivity has Continued to FIGURE 23·Within Sector Productivity Decline Dispersions have Increased in All Sectors, with the Exception of 100,000 Sales and value added per worker Textiles 90,000 77128 80,000 Difference in labor productivity between firms 70,000 in the 10th and 90th productivty percentiles (%) 60,000 50,000 40897 40767 Wholesale & Retail 40,000 22013 Textiles & Garments 30,000 20,000 Sales per worker Value added per worker Other Services 10,000 (in USD 2009) (in USD 2009) Other Manufacturing
0 2013 2019
Source: World Bank 2013 and 2019 Enterprise Surveys. Food 500 1,000 1,500 2,000 2,500 * Value added per worker for manufacturing only. 0 2019 2013
One of the most concerning findings of the Conclusion enterprise survey is a long-term trend of declining level of labor productivity across all sectors.30 Real Tunisia’s firms have lost much of their lead over annual productivity growth, measured using sales the past decade, and it is from this weaker position per worker, was negative in 2013 at -4.5 percent and that Tunisia is now confronting the unprecedented deteriorated further to -5.1 percent in 2019.31 Productivity impacts of the COVID-19 pandemic. In some contracted most in food and textile manufacturing (-7.4 sectors, firms have been innovating and driving an and -10 percent respectively), and to a lesser extent increase in the sophistication of the export basket. in services (-4.3 percent). An alternative measure of Yet, the findings of the enterprise survey show that, on productivity, which estimates value added per worker average, Tunisian firms are investing less, innovating confirms this trend (Figure 22).32 less and are less productive than before. These trends are central to Tunisia’s declining growth trajectory. There were also signs that some sectors are This agenda is also central to any future plans to slowly becoming less competitive. One symptom of rebuild the economy and recover from the impact of efficient allocation of resources across sectors is that the pandemic productive firms drive the less productive ones out of business. As a result, productivity dispersions (the gap A recovery plan that tackles the structural between the most and least productive firms) tend to be factors constraining the performance of Tunisian smaller in more competitive sectors. When compared firms is increasingly urgent. Given the breadth and to 2020, within sector productivity dispersions have increased in most sectors, suggesting a tendency 30 Output per worker is one of the most basic measures of towards less efficient resource allocation (Figure 23). productivity. It is not a measure of labor’s contribution Within sector productivity dispersion has increased to productivity. Rather, it captures the joint effects of a the most in the food manufacturing industry and in number of factors such as capital, technology and skills the wholesale/ retail sectors. The exception to this on output. trend is the textiles sector, where lower dispersion indicates more dynamism in the sector. Indeed, textiles 31 Although this indicator deteriorated, it remains better is the sector with the youngest average age for firms, than the average in the MENA countries at 8.1 percent. suggesting more active firm entry/exit dynamics. It is also the most outward oriented sector in the sample 32 Value-added per worker is calculated for the (higher share of exports and foreign ownership) and manufacturing sector by subtracting the costs of raw has registered the fastest job growth. materials and intermediate inputs from sales, then divided by employment.
20 TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS intensity of the pandemic, limited fiscal and external of the loan amount (against 200 in MENA).36 buffers and a weak structural setting for the private Moreover, a stock of longstanding non-performing sector, a macroeconomic policy response alone loans, which is expected to be compounded with (fiscal stimulus and monetary policy easing) will not the ongoing crisis, is limiting lending potential. be enough. The recovery must be powered by the Enhancing firms’ access to finance is critical for implementation of a structural reform plan to make the their ability to invest and innovate. Easing the private sector more competitive and resilient. Some of interest cap, improving the regulatory framework the key policy areas include: for secured transactions (including the secured transactions bill submitted to parliament in 2018)
- Open the doors for market entry by rolling back along with the legal framework for NPL resolution
the authorization regime: The ability of new firms would be steps forward in this direction. to enter the market and to offer new products or · Improve trade services: A successful export services is an important ingredient for encouraging sector needs a well-functioning transport and investment, innovation and productivity. Tunisian logistics ecosystem and efficient customs firms are subject to a heavy administrative processes. The enterprise survey’s findings show authorizations regime that discourages investment a significant deterioration in this regard. Given and entrepreneurship. Aside from being the importance of trade to the Tunisian economy, numerous, authorizations to enter a new market improving trade infrastructure such as roads to or offer a new product/service are the subject connect inland areas, air freight logistics and the of lengthy and opaque procedures. The 2018 performance of customs services is an important regulatory reform33 to simplify the authorizations agenda for boosting firm performance. In regime was a step in the right direction but is addition, improving the performance of the Port falling short of expectations: 27 out of a total of of Rades, which handles more than 75 percent 127 authorizations were identified to be abolished, of port traffic, by upgrading its infrastructure, but less than ten had been removed by early 2020. streamlining procedures and attracting a private Eliminating prior authorizations for investment operator are important priorities. in key economic sectors34 while maintaining · Nurture innovation: Without innovation, Tunisia transparent ex-post controls to ensure compliance will face a steeper incline in climbing the tech- will boost entrepreneurship and in turn, strengthen nological ladder and upgrading its economy to competition, innovation and productivity. higher value added activities that are critical for productivity growth. Innovation seems to be oc-
- Address the structural weaknesses of the curring in pockets of the private sector, but more
financial sector: Even though more Tunisian often than not, these green shoots are struggling firms access banking services than regional peers to mature. There is an important role for policy in on average, access to finance remains a primary nurturing innovation in sectors such as electronics, challenge for firms.35 A number of structural pharmaceuticals, and precision equipment where bottlenecks complicate firms’ access to finance. a comparative advantage is beginning to emerge. Tunisia’s regulations place limits on lending rates This involves increasing the supply of special- by requiring them not to exceed an average lending ized skills, supporting accreditation, encouraging rate by more than around 2 percent. This impedes the banking sector from pricing portfolio risk and 33 Decree 417 of 2018. disincentivizes the provision of credit to smaller less 34 Such as agriculture, education, tourism and transport. established businesses. Collateral requirements 35 Access to finance was reported to be the primary are also taxing. Tunisian firms are more frequently required to offer collateral to borrow: 96 percent of challenge for Tunisian firms in the most recent enterprise Tunisian firms require collateral in 2019 compared survey. with 80 percent on average in MENA region, and 36 Regulatory requirement for collecting collateral the value of the collateral reached 319 percent contribute to the higher cost of collateral.
Special Focus: Rebuilding the Potential of Tunisia’s firms 21 infrastructure/equipment upgrading, and attracting 37 Diop, Ndiame; Ghali, Sofiane. 2012. Are Jordan and external investment to promote global value chain Tunisia’s Exports Becoming More Technologically linkages.37 To successfully implement such poli- Sophisticated? Analysis Using Highly Disaggregated cies, a clear vision around innovation policy and an Export Databases. Middle East and North Africa Working institutional set-up for coordination are critical. Paper Series;54. World Bank, Washington, DC.
22 TUNISIA ECONOMIC MONITOR REBUILDING THE POTENTIAL OF TUNISIAN FIRMS 1818 H Street, NW Washington, DC 20433
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