Protests erupt as Tunisia's fading tourism threatens economic collapse

Protests erupt as Tunisia's fading tourism threatens economic collapse
In-depth: Austerity plans aimed at boosting foreign investment while driving down public spending have led to street protests in the capital, reports Massinissa Benlakehal.
6 min read
17 October, 2016
Protesters gather for a rally against the government's 2017 austerity budget [Getty]

Tunisia is the only country where the Arab Spring hasn't resulted in counter-revolutions, brutal crackdowns on dissent or otherwise total disaster.

But experts present grim forecasts for the near and distant future of the country's economy. In fact, the country continues to experience political strife and divisions.

And an "austerity" economic agenda imposed by the government has led to street protests from opposition groups.

World-leading tour operators cancelled all bookings in the wake of armed attacks in early 2015, and the industry has yet to recover.

Thomas Cook, a leading British tour operator, will not run a holiday service to Tunisia for the summer of next year.

The tourism industry is the country's principal driver of GDP and employment. Today's unemployment rate in the North African country stands at 15.6 percent.

"We have 650,000 unemployed," Mohamed Fadhel Abdelkefi, the new minister of development, investment and international cooperation, stated in London during a visit last week.

"Half of them are highly qualified," said the 43-year-old.

"How can we explain to these guys that we have gone through this democratisation process and they have been unemployed for three or four years - and as a government we have no solution for them?"

Ensuring security across the country, and particularly, in tourist cities such as Hammamet, Sousse and Jerba, has been a major issue for successive governments since the outbreak of the 2011 revolution, considered by many to be the sole success story of the Arab Spring.

The country also suffers from many of the problems most associated with fuelling insecurity, including widespread smuggling along the country's borders shared with Algeria and Libya.

The government also has difficulty fighting against the black market and corruption. Old regime practices are hard to die.

We know this will be frustrating for our customers who have been looking forward to their holiday

The continuing concerns over the safety of British as well as other European tourists visiting the country fed the Thomas Cook decision. It was a huge blow for the Tunisian tourism industry, experts say. The British operator used to bring two million tourists each year, representing around $170 million in business.

"We know this will be frustrating for our customers who have been looking forward to their holiday. All customers whose bookings have been affected by this decision are being contacted to arrange an alternative holiday, or a refund if necessary," a Thomas Cook spokesperson said.

Masood Ahmed is the director of the IMF's Middle East and Central Asia Department. He believes that restructuring public expenditure and gearing it towards investment is be crucial for the country.

Tunisia's tourism industry accounted for seven percent of the national economy before the the attacks on major tourist destinations - the Bardo Museum in the country's capital, then another attack in Sousse a couple of months later. It has since sharply declined.

Authorities have declared a national state of emergency, a condition most recently renewed on September 19.

In return for assurances of significant economic reforms, the International Monetary Fund approved a four-year $2.9 billion loan for the country.

By next year, Tunisia faces a debt service payment amounting to $3 billion.

The North African country needs $20 billion in financial aid over the next five years in order for the domestic economy to grow at anything resembling "normal" levels, say analysts.

"Tunisia should control the [public sector] wage bill, representing 14 percent of GDP, in a fair way," the IMF's Ahmed told a Tunisian news agency.

According to Masood, there is a need to build social consensus around the reforms to be undertaken by the government.

"It's necessary to consider a change in the structure of public spending," he said. "[The public sector wage bill is] too high, compared with other countries in the MENA region - where the payroll is already significant."

Installed in his new office a month ago, Prime Minister Youssef Chahed has said that such reforms must be handled delicately.

The French-educated agriculture specialist told Reuters: "All reform are sensitive but we are going to resolve everything through dialogue and consensus."

The economic component, he said, needs to be managed "because the political component remains fragile".

The last thing Tunisia needs is another revolution, is the underlying, unspoken message.

"We're going to demand exceptional efforts," the prime minister concluded.

As a first step, Chahed says his new national unity government would work to bring average growth up to 2.5 percent a year. Last year's growth was 0.8 percent.

Chahed's major challenge remains the negotiation process with the two powerful labour unions, UGTT and UTICA. In order to satisfy the conditions of the IMF, which are also taken as key indicators for other major international investors, the prime minister has to agree a deal to freeze wage increases and public sector recruitment.

But this first step in a national "austerity" economic programme has not proven popular, and has led to opposition leaders hosting street protests in central Tunis.

IMF loan conditions have previously been compared to the international community letting a government borrow its credit card - on condition that it privatise resources, weaken trade unions and empower the private sector to drive productivity - and profits - while reining in government investment and public spending.

An IMF loan therefore has the effect of encouraging international corporations to invest in a country, for example, in mining or building train lines, which often brings with it the chance of short-term jobs and infrastructure development, while letting those transnational companies profit from state resources- and the government still has to to pay off the loan.

The new law will attract more foreign investors as it gives them more flexibility in terms of funds transfers and profits - and, crucially, removes taxation of major projects for a period of ten years

Investment law approved

Late in September, the Tunisian parliament approved a long-delayed law aimed at attracting foreign investors. The law was first floated in 2012, but the country's turbulent transition to democracy held back its adoption.

According to explanations provided by the government, the new law will attract more foreign investors as it gives them more flexibility in terms of funds transfers and profits - and, crucially, removes taxation of major projects for a period of ten years.

In addition, the law institutes a fund for investment aimed at helping finance infrastructure projects by providing incentives to international investors.

In early October, the Tunisian parliament agreed to decrease its administrative expenses, reducing its expenditure significantly as part of this ideological drive.

Chahed's new cabinet, composed of around 40 ministers and secretaries of state, agreed salary cuts of more than 30 percent.

In 2010, Tunisia attracted some $1.58 billion in foreign investment, but this had fallen to $904 million by the end of 2015, reports Reuters.

An international conference on foreign investment in Tunisia is set to take place on November 29-30. The conference is to be defined as the country's final push to mobilise both national and international economic operators to invest in Tunisia.

Officials hope to bring both local and international companies to compete for investment across the entire span of the country's areas of economic activity.

But as the balance shifts between public and private investment - and profits - Tunisia's government will be delicately walking a tightrope to rescue the economy without provoking the wrath of a volatile opposition.

Follow Massinissa Benlakehal on Twitter: @mbenlakehal