Improved business climate would breathe new life into Tunisia

Transcript of video - Dr Emmanuel Martin talking on Tunisia's future.

Dr Martin:

The challenge here for Tunisia today is very much the challenge of economic freedom and improving its business climate.

Remember that the Arab Spring started in Tunisia with the self immolation of a street vendor who was prevented from doing business.

He was in an informal sector. But he was in an informal sector because of all the regulations he had to face. And to a certain respect, this hasn’t changed much. You still have, in Tunisia, a lot of regulations, heavy regulations, complex regulations that prevent people from actually doing business.

The country inherited a dual system. You have both on the labour market - a very highly protected labour contracts with a lot of regulations behind them, and very flexible, ultra flexible, labour contracts which are generating very bad incentives for people which means that overall the productivity of the country is very low.

The model of development which was chosen some decades ago is not working. The model is the following: you have basically an offshore sector which is supposed to export, and an onshore sector which is the domestic national industrial base which is supposed to feed the offshore sector.

The offshore sector receives subsidies for exports and the onshore sector is very much protected in terms of labour contracts. And this is not working. So this needs to be changed.

Another issue in Tunisia today is the question of unions and the way wages are negotiated. There are many, many strikes in Tunisia today. This is very, very bad for companies so these sort of labour market relationships have to be improved and trade unions made more responsible, business more responsible in order to have some sort of trust between both workers and companies and finally generate a business climate which is conducive to negotiation and cooperation and with less strikes which are absolutely toxic for the economy.

Another thing is that the country needs to get rid of all its price controls.

Because of such a bad business climate, business environment, obviously you don’t have the supply that you could get with a good, with a sound business climate which means that many prices are very high. And because of this, obviously the government has to step in and then control prices. And this in turn generates more imbalances, generates fewer incentives for businesses to enter the market and so on.

It is like a snowball effect of bad policies. Well, this also needs to be dealt with.

(Photo credit: dpa)

  • Tunisia was a French protectorate until 1956 and has a 10.7 million population.
  • Exports include agricultural products, oil and textiles. Tourism was a key part of the economy until the 'Arab Spring' uprising of 2011.
  • Tunisia has been in transition since President Zine al-Abidine Ben Ali was ousted in January 2011. The Islamist Ennahda party had to hand over power to an interim government ahead of elections in late 2014, at which secular parties triumphed.
  • The diverse economy has grown steadily and the slum population has halved, but the world recession has pushed unemployment up in recent years.
  • Tunisia is more prosperous than its neighbours and has strong trade links with Europe.