Following the attacks of previous months, Tunisia’s central bank revised its growth estimates for the country; this is not likely to exceed 1 per cent in 2015. This slowdown is due partly to the security situation, but at a more structural level also to the slump in external demand for goods from Tunisia, which conduct 64 per cent of its trade with the European Union.
Since the 1980s, Tunisia has sought integration in the European market and value chains, with a view to attracting textile, mechanical, automotive, aeronautical and plastic manufacturing industries. This strategy was underpinned by the sustained growth in Europe and by Tunisia’s competitiveness, based on its proximity to the Old World, the low cost of its labour, and tax incentives. This orientation towards Europe rather than Africa was justifiable at that time when the African continent was not seen as a market with great potential: it had low growth (just over 2 per cent) and persistent problems in its macroeconomic framework.
This decision to turn towards Europe has been doubly disadvantageous for Tunisia, since the country is now not only suffering from the economic downturn of its main economic partner, but also still cut off from the African market.
One of the most significant changes over the last two decades in the way global production and trade are organized is the growing importance of global value chains in the management and coordination of manufacturing and trade links between countries. This has brought about a trend for production to be more fragmented and for trade between countries to increase. Developing countries have started to change their governance of production.
One way to cope with these changes is to develop regional value chains in a cooperative manner, both in North Africa and in the rest of the continent, thereby creating new and dynamic comparative advantages and speeding up the strategic diversification and increased sophistication of its economies.
Today African growth is strong. It relies on private consumption and investment is supported by a growing middle class. By 2020, more than 30 million Africans will have joined the middle class and be spending more than half their income on outlays other than housing and food. This growth in consumption represents a powerful tool for the structural transformation of economies in the region, as demand grows for manufactured goods and a wide range of services. It is clear that, for Tunisia, the levers of structural transformation Tunisia are to be found in Africa.
Opening up to intra-African trade
Unfortunately, Tunisia is not particularly well integrated with the rest of the continent. In terms of its share of African exports in relation to GDP, it ranks 29th in the continent. In terms of investment, while it has one of the best regulatory environments in Africa (4th in terms of starting and operating a local business), Tunisia ranks only 28th in terms of attractiveness for foreign investment. Accordingly, when we look at regional value chains, Tunisia ranks 21st in terms of its share of the total exports of intermediate goods within Africa.
A study that ECA has just conducted with UNIDO assesses the impact of various strategic trade agreements on exports for Tunisia and North Africa.
Thus, the Continental Free Trade Agreement, on which negotiations were launched in June 2015 in Cairo and which is to enter into force in 2017, will promote the export of Tunisian manufactured goods. These products, which currently account for nearly half of its exports (48 per cent), are expected to increase to $2.3 billion (an increase of 6.8 per cent) by 2020. This figure would be doubled (to $4.4 billion) if trade facilitation measures were enacted, boosting by 25 per cent the effectiveness of trade-related administrative procedures. With these reforms, the share of manufactured goods in Tunisia’s exports to the rest of the continent would further increase and would constitute the bulk of its exports.
A similar agreement with the other countries of the Arab League would encourage exports of mining products, while the strengthening of its Association Agreement with the European Union would be more likely to stimulate exports of agricultural products.
These findings clearly indicate that Tunisia, like other countries in the region, must ensure that its trade agreements are implemented in a sequence which is strategically advantageous to those companies exporting increasingly sophisticated manufactured industrial products, and creating modern jobs in urban centres. This will also entail trade facilitation reforms and investment in hard and soft infrastructure, primarily oriented towards intra-African trade.
Tourism remains an asset
Tunisia will not be able to take full advantage of the WTO Bali agreement (focusing on trade facilitation) unless it first implements the recommended reforms, to strengthen its regional integration in the Maghreb and the rest of the continent.
Lastly, where services are concerned, Tunisia has an important part to play at the continental level, first and foremost in tourism. In terms of tourism volumes, the impact of the attacks has been mitigated by regional tourist arrivals, including from Algeria. Over a longer period, the same trends can be observed. Between 2010 and 2015, visits by Europeans declined by 45.2 per cent, while over the same period those from Algeria went up by 35.6 per cent. This perfectly illustrates the need for Tunisia to reorient its strategy towards the African tourist market, with numbers and purchasing power experiencing unprecedented growth. For purposes of comparison, 72.5 per cent of tourist arrivals in South Africa, one of the main African destinations, originate from other African countries.
Tourism development is based primarily on an efficient air transport sector and marketing strategy, and requires a presence in key emerging markets. Tunisair, the Tunisian airline, has barely more than a dozen destinations in Africa, only five of which are in sub-Saharan Africa. By contrast, Royal Air Maroc serves more than 30 locations, including 27 countries outside North Africa.
Tunisia also has assets in many service sectors with high added value, such as medical tourism, higher education, engineering and consulting, which would enable it to capture a significant share of these rapidly growing markets. The examples are legion, but the message remains the same: the economic future of Tunisia is unquestionably in Africa.
* This article was featured in the November / December special edition of African Business magazine