H ISTORICAL AND E CONOMIC D EVELOPMENT OF T UNISIA

In the year 1956, after Tunisia gained its independence, nearly all the French civil servants working for the Tunisian administration (almost all 12,000) were obligated to repatriate and leave the country, thus causing a void that needed to be filled in the civil service sector. The new government’s primary focus was then to restore the civil service and institutions.

Nonetheless, the significance and emphasis were put more on education, women’s rights, family planning and major elements of human development as a whole (Ayadi & Mattoussi, 2014).

Following the next few years, in 1960, an agreement was signed by the French government to give back the annexed lands to Tunisia. Still adapting to these changes, the country had a terribly low standard of living, as there was hardly any tourism or industry, and agriculture was the main activity. In addition to this, illiteracy rates were only growing higher.

The 1960s were also referred to as the years of policy experimentation, hence the “collectivism”

experiment, agricultural cooperatives and state-led import substitution. These industries indeed decreased Tunisia’s reliance on imported goods, but unfortunately, it did not generate any new jobs or employment. The leading source of growth during these years (around 60 per cent) was

capital accumulation. Although most of the investment resources went into largely funded projects such as oil refinery, steel mills, automobile assembly plant and textile factories. They barely contributed to new job opportunities. Eventually, in the year 1969, the failure of collectivism led Tunisia to change its approach and strategy to combine import substitution, export promotion and private sector development (Ayadi & Mattoussi, 2014).

In the 1970s, the country embraced a quasi-liberal policy known as “The Infitah” that promoted the harmony and coexistence of the private and public sectors. The state helped regulate heavy industries that surpassed the private sector’s interest and proficiency, while the private sector handled the quick return manufacturing projects that are less costly (Bellin 1994).

The Infitah strategy inspired the private sector to take up a more active role by opening up foreign trade and granting several incentives. These consisted of technical and governmental support, as new state bodies such as the Export Promotion Centre (CEPEX) and the Industrial Promotion Agency (API) were established in 1973. The Industry Promotion Agency’s task was to aid promoters and investors with the legal, contractual and administrative procedures that are necessary for business incorporation in the country. In comparison, the Export Promotion Centre’s task was to provide foreign importers with all the business knowledge and information required (WTO, 1994).

Moreover, the policy packages executed in the 1970s have majorly assisted in the

uprising of labour productivity, as tourism and light manufacturing expanded at rates larger than 13 percent annually on average. The private sector also grew swiftly under the protection and preservation of import restrictions. Between the years of 1972 and 1977, private investment had been thriving and even exceeded the public investments. As a result, 85000 new jobs were generated (King, 1988). In the year 1977, 87 percent of employment along with 54 percent of new investments were centralized in the leather, clothing and textile sectors. Nearly all the new corporations were based in the North-Eastern district, therefore encouraging individuals to relocate to that region (UNIDO, 2001).

At the end of the decade, the foreign debt in Tunisia had expanded as the economy was not able to export a competitive range of products nor absorb the excess labour force. Moreover, in the years of 1981 to 1986, the country’s economy suffered a further stagnation reaching its

worst growth performance of 2.8 percent annually along with the productivity decline coming to 1.5 percent annually. Economic inefficiency and mismanagement together with political

instability were the basis and the main cause of this poor performance. Regardless of that, Tunisia's government still put a public sector wage raise in motion, which in turn inflated the wage bill. The current account deficit rose over 10 percent of GDP. Meanwhile, inflation had grown over 8 percent, resulting in Tunisia documenting a negative growth amidst ongoing labour and social strikes in the year 1986 (Ayadi & Mattoussi, 2014). Faced with these difficulties, the government ended up negotiating its first Economic Recovery and Structural Adjustment Programme (ERSAP). This program concentrated on several things such as tariff reduction, the establishment of a value-added tax, the devaluation of Tunisia’s currency (the Tunisian Dinar), the lowering of personal income taxes and lastly, extending the maturity of Tunisia’s foreign debt worth US$10 billion (The African Development Bank, The Government of Tunisia & The Government of the United States, 2013.)

Following the change in political regime in the year 1987, along with a decrease in political instability, there was a noticeable encouragement in the private sector, specifically export-oriented projects. Additionally, the programme of privatization resulted in the partial or even full privatization of 160 government-owned businesses. In the year 1996, Tunisia’s

macroeconomic strength and stability were rebuilt as the burden of the foreign debt had ended. In addition to this, inflation declined to under 5 percent in less than 10 years and even a decrease in the current account deficit from 7.8 percent of GDP in 1986 to 2.4 percent of GDP in 1996 (Ayadi & Mattoussi, 2014).

Throughout the 1990s, the authorities of Tunisia were further encouraging foreign

investments, privatization and a growing integration towards the European market by liberalizing measures throughout a legislative body (UNIDO 2001).

The Republic of Tunisia is a member of various trade agreements. This includes joining the General Agreement on Tariffs and Trade (GATT) in the year 1990 and the World Trade Organization five years later in the year 1995 (WTO, n.d). Furthermore, Tunisia became a signatory in the 1997 convention intended for the formation of an Arab free trade zone over the

interval of ten years. The country has also signed bilateral agreements with Jordan, Egypt and Morocco expediting the dismantling of tariffs (Péridy & Abedini, 2008).

The state had also been keen on supporting and promoting the innovation of the industrial sector by introducing the industrial modernization programme (PMI) and the “Programme de mise à niveau” which was initiated in the year 1996 (signed 1995). These programmes were launched to give companies and firms technical aid, subsidies, managerial training and

infrastructural advancements so as to help them compete internationally and persist in an open market economy (IMF, 2000).

In the 2000s, the economic policies implemented made it possible to enhance the economy’s performance, improve competitiveness, and progress its structure. This approach modernized companies in the service sector by expediting access to the latest technology, remodeling hotel units and overall skills advancement. Special plans were conducted for the purpose of the development of the touristic and industrial sectors, developing the

communications infrastructure and upgrading the roads’ quality. Furthermore, efforts have been made to assist entrepreneurs too, by making the latest business creation regulations simpler and establishing a network of business hubs (Ayadi & Mattoussi, 2014).

Throughout the years of 2002 to 2006, there was a prominent rise in Tunisia’s

investments, exports of products and services, the overall gross domestic product (GDP), and its foreign direct investment (FDI) which grew extensively on account of the investment policies that motivated foreign companies and firms to engage and take place (almost 884 joint ventures were established). Even though the agricultural field declined due to rough climate and

environmental conditions, the country’s real GDP still managed to rise at an average rate reaching 4.5 percent (Ayadi & Mattoussi, 2014).

These years were distinguished by not only the importance of several industrial projects in both the electrical and mechanical fields (wherein growth rates reached an average of 8.9 percent) but also by the ongoing evolution of the service sector. Tourism and textile exports alongside automotive components and many other products in the service industry helped the export rate of goods and services to grow up to 8.5 percent. Additionally, the technology-concentrated sectors have even further contributed to the GDP growth. In the year 2001, its

percentage of GDP had only reached 16.8 per cent, while in the year 2006, just five years later, it increased to 20.4 percent. Tunisia’s private sector had also become the leading power in the country’s economy, making up about 57 percent of total investment, 91 percent of new job opportunities and 85 percent of exports (Ayadi & Mattoussi, 2014).

In the year of 2011, different elements had led to the start of the Tunisian revolution.

These factors include a lack of political freedom, corrupt regimes and high unemployment rates.

Consequently, the uprising, also known as the Arab Spring, also had huge consequences on the country’s economy (Sofi, 2019). Investments diminished in every sector with an exception to electronics, which had remained stable. The shrinkage in FDI affected the energy and

manufacturing sectors and also experienced a loss equating to 61 percent combined (Ayadi &

Mattoussi, 2014). However, Tunisia’s tourism sector experienced the worst decline, as the revolution caused the loss of 3000 jobs, a drop of 3 million tourists and a 33% sink in revenues (Makhlouf, 2017). Moreover, the Tunisian stock market (which is one of the two main Arab stock markets alongside Egypt) experienced a considerable loss due to the uprising. It had lost 50% of its total value, thus furthering economic instability (Abumustafa, 2016).

The Tunisian government had set some measures to limit and minimize the losses affected companies and businesses suffered due to the uprising, including a reduction of fifty percent contribution to social security, reduction or even removal of taxes dues in the year 2011, and reducing two points in the credit fees. The government had also embraced a social and economic enhancement plan stating that less developed areas would be entitled to more

investments (Ayadi & Mattoussi, 2014). It had also introduced several short-term economic and social policies aimed at helping the most affected groups. Which mainly addressed

unemployment amongst youth, migrants returning, job security and the overall growth of the private sector (Corley-Coulibaly, Khatiwada, Prasad & Richiardi, 2011).

Finally, in 2012, the Tunisian economy was able to start healing and recovering. Foreign Direct Investment flows were recuperated by 44.9 percent, from 775 million Tunisian Dinars in the first six months of 2011 to 1121 million Tunisian Dinars in just the first six months of 2012.

It is also worth noting that about 71 overseas companies were built in the same year, creating almost 6700 new jobs (Khawaja, 2012).