The Tunisian rationale

In 2011, shortly after the Tunisian people threw out Zine el-Abidine Ben Ali and pressed the restart button on their government, I gave an interview in which I was asked what it was about events in Tunisia that led me to be such an early believer that something important was happening. At the time I said one word: enthusiasm. The enthusiasm of the Tunisian people for reform is what caught my attention. It was an enthusiasm for change that I had not seen before in the Arab world. A few weeks ago, as I completed a 10-day trip to the country, including meetings with the prime minister’s office, civil society, and private sector leadership, I concluded that while the enthusiasm is still there, it is at risk due to challenges facing the economy and lack of investment.

Tunisia is a small state, with a population of just over 10 million, and as such requires some unique natural or developed resources to compete with larger countries in the global market. Because Tunisia lacks natural resources, since its independence from France in 1956, it has attempted to develop its people, and has succeeded in establishing one of the best education systems in the Arab world, ranking second behind Jordan in the 2007 Human Development Index. Ironically, the 2011 revolution was fueled by the unmet expectations for jobs of those well-educated young people and their parents. The 2010 unemployment rate in Tunisia was approximately 14 percent and that almost certainly is an underestimate.

Emerging from the revolution, the new leadership of the country was left with the challenge of finding solutions to the cries for jobs in Tunisia. To a limited extent, they alleviated some pressure by opening up government jobs that had previously been reserved for the president’s family, friends, and allies. According to one young man, he never would have gotten a job as a teacher under Ben Ali, even though he is qualified. In fact, he had been waiting for two years while living with his parents. After the revolution, his fortune changed, as good jobs like public school teaching positions were no longer reserved for the family and friends of the ruling family and larger administration. Today he is married, has a young son, and is building a home for his wife, children, parents, and sister’s family. The revolution has changed his life.

To build on the momentum against corruption, the constitutional assembly has established an authority of national good government and anti-corruption in article 1.13.7 of the country’s draft constitution. This authority’s primary goal is to make sure that government actions are transparent.

However, dealing with corruption only addresses a small portion of the problem. According to the CIA World Factbook, Tunisia’s 2011 unemployment reached 18 percent. And this spike, in part, can be attributed to the drop-off in tourism and foreign direct investment (FDI) after the revolution.

Tourism, a primary driver of the economy, has taken a huge hit. In 2011, there was a 33.7 percent drop-off in profits from tourism. In an attempt to appeal to any tourists the ministry of tourism has begun marketing the country to less affluent prospective visitors from Eastern Europe and Russia. Tourists from these areas are known to have less disposable income than high-end travelers spending less money outside the all-inclusive resorts, which are already offering bargain basement packages to get people to come.

In 2011, FDI in Tunisia dropped by 20.5 percent and 153 ventures ceased activity in the country. The Libyan crisis that followed kept FDI in Tunisia at arms length. Overall, the economy declined by 1.1 percent in 2011 according to the African Economic Outlook and Real GDP growth has only recently matched the North African average, but still lags behind the continent as a whole.

If Tunisia is to pull itself out of this, it must do three things: attract more foreign investment; generate more internal investment in new large as well as small and medium enterprise (SME) businesses, and reinvigorate the tourist sector.

There are some reasons to look to FDI for Tunisia’s recovery. The Tunisian government announced in August that FDI was up 44.9 percent in 2012 from 2011. However, when compared to 2010 it is merely an 8.3 percent increase, indicating that the country is still very much in recovery mode. And it is not all good news. Recently, a French firm, Cotrix, announced it is shuttering Tunisian operations, putting more than 300 people out of work.

At the same time, there has been little to no effort by the Tunisian government to seek North American investment. Tunisia offers various advantages, from an educated workforce to its location and the bilingual, increasingly tri-lingual, population. It also offers a 10-year tax abatement and other sweeteners. Still, the lack of a marketing push and perceptions in the United States of general instability in the region have prevented money from flowing.

It is more difficult to get a handle on local investment in Tunisia. According to one private equity source, his firm will soon be launching its first private equity fund for Tunisia. Also, at least two new technology incubators have launched. An additional third has expressed interest and if successful, will import some best practices from a successful accelerator located outside the country.

Another reason for hope is the apparent commitment by the government and civil society to public transparency. In addition to measures taken in the draft constitution, the prime minister’s office has placed a high value on transparency. The link between transparency and accountability is well documented, creating a more stable foundation for investment and confidence. Additionally, the prime minister’s office is devoting human and financial resources to global open data discussions as one concrete example of its commitment.

Civil society organizations are making several contributions to open government, especially around election monitoring. The non-governmental organization (NGO) al Bawsala is monitoring all the actions of the elected constituent assembly. The online effort OpenGov.Tn is working to convince the Tunisian government to publish detailed budgets of ministries and other public institutions in a digital format. Another NGO, the Ta’azor Center, is launching an effort to aggregate much of the information the government has already released to make it easier for Tunisians to find and use, believing that greater access to information will lead to more engagement in public and private life.

Tunisia could be a bright star in North Africa and the Middle East. However, the economic stakes in the game are high. If the economy does not rebound — if democracy does not show results — Tunisia could see a whiplash effect resulting in a retreat to the safety of a strong government hand, which history tells us won’t produce greater economic opportunity for Tunisians.

David Nassar is the CEO of Hotspot Digital.