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Tunisia diversifying trade markets to avoid eurozone crisis

Wednesday, 30 June 2010 22:21

Tunisia is increasing the diversification of its trade markets in a bid to avoid the worst effects of the deepening debt crisis in the eurozone, with the contagion in southern Europe having the potential to spread to the other side of the Mediterranean.

In a recent report, compiled before the alarm bells over the massive debts of Greece, Portugal and Spain reached full volume, the IMF warned that Tunisia's economy is highly dependent on EU countries. The report, issued in mid-May, said that up to 90% of Tunisia's earnings from exports, tourism, remittances and FDI came from member states of the EU.

"This makes Tunisia potentially vulnerable to fluctuations in EU growth, and in particular to the current unprecedented recession experienced by EU economies," the report said.

While the close links between Tunisia and the EU have generally been to the benefit of the African nation, with the association agreement that came into force in 1998 and the dropping of trade barriers for industrial goods and other free-trade measures serving Tunisia well, the IMF did say this increased openness did leave it subject to the effects of European spillovers.

With many of Tunisia's main EU trade partners, such as Spain, the UK, France and Germany, either again teetering on the verge of a renewed recession or committed to bailing out heavily indebted bloc members, there is the potential for this spillover to slow Tunisia's export rate.

Tunisia's high level of exposure to Europe's economy is also set to affect the country's balance of trade figures, according to the trade and handicrafts minister, Ridha Ben Mosbah.

The fall in the value of the European currency will negatively impact the revenues of exports to the eurozone and on the competitiveness of the exporting companies, the minister told a press conference on May 25, while the increase in the dollar rate – spurred in part by the EU debt crisis – will see the cost of importing grain, vegetable oils and raw materials such as oil and steel rise.

Some of this impact can be offset by lower costs for euro-denominated imports and higher earnings for exports paid for in dollars, Ben Mosbah said, adding that there could be an increase in imports from the EU if the euro continues to weaken.

Though there are some benefits to be had from a weaker euro, more benefits could be had from widening Tunisia's overseas trade base. One of the findings of the IMF study was that Tunisia could become more resilient to the uncertain and changing external environment by strengthening regional ties, citing an increase in tourist arrivals from Algeria and Libya as helping to offset the drop in European visitors. This regional integration can play a key role in Tunisia overcoming the global economic crisis, the IMF said.

"Overall, Tunisia has prospered and will continue to gain from deepening trade integration, which should also allow its economy to more fully benefit from the projected rebound in the activity of its partner countries over the medium term," the study said.

However, despite being increasingly popular with tourists from nearby countries, Tunisia has a long way to go before it can fully benefit from any integration with its neighbours, a fact highlighted by Prime Minister Mohamed Ghannouchi on May 10.

Though the government was working to remove hurdles facing entrepreneurs, facilitate bureaucratic procedures and axe Customs duties, trade among countries in the region remained at low levels, he told delegates attending a Maghreb business forum.

"Trade volume among Maghreb countries doesn't exceed 3% of their volume of international trade, which is negligible compared to 70% for the EU and 21% for East Asian countries," Ghannouchi said.

For Tunisia's part, bilateral trade with other members of the Arab Maghreb Union (AMU) was a mere €1.7bn. With some €1.1bn of Tunis's trade with AMU members being with Libya alone, there is much leeway to be made up before Tunisia's commercial ties with its neighbours comes anywhere close to the €16.6bn worth of bilateral business done with the EU in 2009.

Though Tunisia has been keen on removing trade barriers with fellow Maghreb countries, this enthusiasm has only met with partial success, and then only at a bilateral level, rather than across the AMU bloc. Until such time as it can broker higher-level agreements to facilitate trade in the region, it will be difficult for the Tunisian economy to reduce its dependence on the EU, a dependence that brings both benefits and risks.

Global Arab Network

This article is published in partnership with Oxford Business Group

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Last Updated on Wednesday, 30 June 2010 22:45

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