E CONOMIC E NVIRONMENT

The second part of this analysis is focused on the economic environment of the Republic of Tunisia. When entering a foreign market, firms usually take into account a region’s economic influences. Main macroeconomic indicators will be analyzed in this subchapter, including GDP and its growth rates, inflation rates and unemployment rates. Moreover, a detailed interpretation of the three major economic sectors is discussed in the first chapter to give any investors and entrepreneurs a better idea of the overall economic environment in the country.

GDP short for Gross Domestic Product is the most important measure of expressing economic activities and market value of all produced goods and services during a certain period

of time (usually yearly) (OECD 2020). Graph 1 below shows the evolution of Tunisia’s GDP from years 2009 to 2019. The country’s GDP peaked in 2014 reaching what equates to 47.63 billion US Dollars, recovering from the 2011 Arab Spring Revolution. However, the following year, it had dropped to a shocking 43.17 billion US Dollars. This huge drop was caused by several external factors such as, two terrorist attacks that hit the country, a fall in the commercial services section and a further decline in the non-manufacturing sector (Oxford Business Group 2017). From there on the country has been trying to get back to where it was, but unfortunately, its GDP has only been going down as the years went by reaching 38.80 billion US Dollars in the year 2019.

Graph 1: Tunisia’s GDP in US billion Dollars through the years

Source: The World Bank. (n.d.). GDP (current US$) - Tunisia. Available at:

https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2019

Due to the ongoing pandemic of the COVID-19 virus, the projected forecast of Tunisia’s GDP for the year 2020 and 2021 would send the Republic into a steep recession. GDP growth reduction is estimated to be between -3.4 and -4.0 percent in the worst-case scenario in 2020, along with -0.5 and -0.7 percent in the upcoming year. This decline in GDP growth would only further advance the country’s fiscal deficit, while also raising the 2020 borrowing requirement.

Already evaluating at 11.4 billion Tunisian Dinars, the finance bill would have to go up by 30 to 50 percent. Notwithstanding the decrease in the oil bill caused by a drop in overall oil prices, the current account deficit is forecasted to go up to 2.3 percent. These predictions were made even before the COVID-19 crisis, due to the diminishment of the tourism division and a decrease in exports (African Development Bank Group 2020).

Inflation

Inflation reflects a general rise in the prices of all goods and services during a certain period of time. As stated by the International Monetary Fund, in graph 2 below, between the years 2010 and 2017 inflation in the Republic of Tunisia has been constantly in the range of about 3 to 5 percent. In the years 2018 and 2019, it sparked up to a high 7.31 percent followed by a 6.72 due to various reasons including, the depreciation of the Tunisia Dinar, a rise in energy and food imports, an increase in salaries, trade deficits, and a value-added tax along with a further rise in custom duties (The World Bank 2018) (Ghanmi 2018).

Graph 2: Tunisia’s inflation rates through the years

Source: Writer’s Illustration, IMF. (2020). Tunisia: Inflation rate from 1984 to 2021 (compared to the previous year) [Graph]. In Statista. Available at: https://www.statista.com/statistics/524512/inflation-rate-in-tunisia/

Despite the inflation rate being recorded at 6.16 percent in the first half of 2020, it has dropped down to below 6 percent, stated the National Statistics Institute. This decline is caused by a fall in the prices of food, clothing, and transport facilities. Other economists have declared that the decrease in local demand of several goods due to the weakening of the Tunisia Dinar’s buying power, has also been directly linked to the inflation dropping (Saidani 2020).

The labour market

Unemployment can be defined as individuals or people who are employable seeking out job opportunities but cannot find any appropriate work. Unemployment rates are usually

calculated by dividing the number of all unemployed individuals by the total amount of individuals in the workforce (CFI 2019).

Graph 3: Tunisia’s Unemployment rates through the years

Source: Writer’s Illustration. The World Bank. (2020, June 21). Unemployment, total (% of total labor force) (modeled ILO estimate). Available at:

https://data.worldbank.org/indicator/SL.UEM.TOTL.ZS?end=2020

As shown above, in graph 3, unemployment rates hit the highest at 18.3 percent and17.6 in the years 2011 and 2012. This has been largely due to the Arab Spring Revolution, as the

economy has had a hard time gaining any growth since. Another factor would be the instability in its neighbouring country, Libya, had only added more worries over Tunisia’s overall security.

Affecting it severely as tourism is one of the Republic’s core industries. Along with the country’s exports declining to its most predominant trading partner, the European Union (CIPE 2013). In the year 2013, the unemployment rate has lowered to 15.9 percent and stayed in the 15 percent range until the year 2018. However, in 2019 and 2020, it only rose again to reach the 16 percent mark. The World Bank has stated that the unemployment issue in the Republic of Tunisia is not only restricted to a number of job opportunities created annually but to the country’s yearly growth rate. As for the employment rates to rise, the Republic has to reach 5-6 percent of growth per annum to provide for its citizens (Bouazza 2020).

Furthermore, the Tunisian government has set in motion an economic rescue programme for the year 2021. This plan includes the restructure and aid of five strategic organizations in the public sector to uplift the economy by furthering public investment. First being, the Gafsa Phosphate Company, Tunisian Company of Electricity and Gas, Tunisian Chemical Group, National Company of Water Exploitation and Distribution and finally, Tunisair. The rescue programme also declared that additional capital, amounting to 100 million Tunisian Dinars would be issued to fight the unemployment crisis (Saidani 2020).

Tunisia’s Trade Structure

The value of Tunisia’s commodity exports amounted to about 41.46 billion Tunisian Dinars in the year 2019, decreasing by 3.7 percent (1.6 billion Tunisian Dinars) in comparison to the previous year. The Republic’s most important export destinations include firstly, France with an overall share of 29 percent, Italy coming second with a 16.1 percent share, Germany with a 12.8 percent share, Spain at 3.77 percent share, and Libya with a share amounting to 3.6 percent.

Moreover, the country’s top export merchandise groups mainly consist of electronic machinery, equipment and their parts, which make up 24 percent. Clothing and accessories (not knitted) stood at 11.3 percent while mineral fuels, oils, and waxes at 5.52 percent. Surgical, optical, medical and photographic apparatus and tools comprised 4.25 percent. And finally, mechanical

machinery and its parts, boilers and nuclear reactors made up 3.74 percent of all commodities (TrendEconomy 2020).

Moreover, the value of Tunisia’s imported commodities amounted to be 58.3 billion Tunisian Dinars in the year 2019, decreasing by 4.9 percent (3.11 billion Tunsiain dinars) in comparison to 2018. The country’s most essential import sources (partners) include Italy

holding a share worth 15.3 percent, France with a share of 14.2 percent, China holding a share of 9.46 percent, Germany with a share of 6.76 percent and finally, Algeria having a share of 6.63 percent. The Republic’s top five import merchandise groups primarily include mineral fuels, oils and their products worth 16.7 percent. Then, electrical machinery along with its parts and

components at 14.1 percent. This is followed by mechanical equipment, boilers and nuclear reactors at 8.9 percent. Plastics and their articles worth 6.1 percent and lastly, motor vehicles (with the exception of trams and railways) in addition to their components make up 5.5 percent of commodities (TrendEconomy 2020).

Over the years, the Tunisian Republic has been a part of numerous trade agreements, including the Association Agreement, as part of the Euro-Mediterranean Partnership, often referred to as Euromed. Signed in 1995, its main aim was to build a free trade area between the regions of the EU and the Southern Mediterranean countries. It grants Tunisia the right to duty-free access for its manufactured goods to the European Union, together with a preferential treatment for marine and agricultural goods. The two parties have also agreed upon regulations on the usage of quotas and product standards, the right to create establishments and give out services in other regions, authorize current payments along with the movement of capital, and lastly, having universal competition and intellectual property regulations (European Commission 2020).

The European Union and Tunisia have also signed a bilateral agreement on the basis of a dispute settlement mechanism that came into force in the year 2011. Moreover, the Deep and Comprehensive Free Trade Area negotiations (DCFTA) were launched in the year 2015. Some of these agreements’ objectives was to establish new investment and trade possibilities that would secure Tunisia’s assimilation into the European Union’s single market and to back the

Republic’s preceding economic reforms. The most recent negotiation round was held in Tunisia’s capital city the year 2019 (European Commission 2020).

Furthermore, Tunisia had signed The Agadir Agreement with Morocco, Jordan and Egypt in the year 2004, granting free trade to all its signatory territories. However, the Republic also has bilateral free trade agreements with Libya and Algeria separately. The 2011 Arab Spring had caused trade volumes to drop between these countries though, as they both achieved a low 5 percent combined of the country’s total trade in the year 2018. Adding on, the Republic is a part of a smaller union known as the Arab Maghreb Union (AMU), which includes a total of five countries being Tunisia, Morocco, Mauritania, Libya and Algeria. Although the Union is mostly dealing with political issues it has also permitted duty-free trade among its members (Export.gov 2019).