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Tunisia: Increase in Exports, Signs of improvement

Global Arab Network - - Talal Abdullah

Tuesday, 14 June 2011 12:01

Tunisia Increase in Exports, Signs of improvement

Global Arab Network - Following GDP growth of around 3% in 2010, the consensus view on Tunisia is that 2011 is likely to see a slight decline, to just over 1%, as a result of domestic and regional political upheaval. However, recent developments provide grounds for optimism, including credit outlook rating improvements and the strong performance of exports in the first four months of the year, Global Arab Network reports according to OBG.

GDP growth in the last quarter of 2010 stood at 3.1%, according to the National Institute of Statistics (NIS), bringing the total for the year as a whole to 3%. By sector, manufacturing grew by 8.5% in 2010, driven partly by a 6% rise in textiles, its largest segment, while services increased by 5.4%, including 4.3% growth in tourism (hotels and restaurants), an expansion of 5% in the financial services, and 13.5% growth in postal and telecoms. Agriculture and fisheries fared less well, contracting by 8.7%, according to NIS data.

However, 2011 is shaping up in far different fashion. In addition to problems caused by the political unrest earlier in the year, such as a downturn in tourist arrivals, Tunisia’s economy has also been hit by the conflict in neighbouring Libya, which is a trading partner and major tourism source market. In March the African Development Bank (ADB) published a briefing on the situation in Tunisia that provided three scenarios for economic growth in the year ahead.

According to its middle scenario GDP will grow 1.1% – roughly in line with government’s own forecasts of 1% and the IMF’s forecast of 1.25%. The prediction is based on a 20% year-on-year (y-o-y) fall in tourism receipts as a result of January’s upheaval. Under this scenario the current account deficit will expand to 7.6% of GDP, from an estimated 4.7% in 2010, as a result of factors such as lower tourism receipts. Recent spikes in international wheat prices are also likely to put pressure on the trade and current account deficits, given Tunisia’s high per capita wheat consumption, as well as on the fiscal deficit (the government subsidises bread production), which the ADB’s middle scenario forecasts to reach 5.2%, from an estimated 2.6% in 2010.

However, the economy may perform better than the consensus outlook. The most optimistic of the three scenarios sees growth in 2011 reaching 3.6%, followed by 4.2% in 2012. This is is dependent on a sustained return to normality, the rapid recovery of the tourism sector (to 95% of tourism receipts taken in 2010), strong foreign direct investment (FDI) and a targeted stimulus package.

In the worst scenario, however, the ADB forecasts a contraction of 2.5% in 2011, in the event of prolonged political and social instability. In the bank’s view, this situation could result in sharp declines in both public and private investment and a substantial hike in public sector hiring, leading to a growing fiscal deficit, an increasing current account imbalance and a rise in inflationary pressure.

While noting serious challenges including political and security issues, pressure on the economy and the underlying problem of widespread youth unemployment, the ADB briefing points out that the return of general calm to most of the country and popular support for the interim government’s actions during the first two months of its political transition are grounds for “cautious optimism”. It also notes that improvements in transparency and the business environment, as well as a potentially more liberal economic regime, could support a significant improvement in growth in the longer term.

Other observers appear to share such optimism. For example, following several credit rating downgrades at the height of the political unrest in January, in mid-March Standard & Poor’s removed Tunisia from its negative credit watch list, upgrading its outlook to stable.

In addition, some recently released data support increasing positivity about Tunisia’s prospects. Exports rose by 11.1% y-o-y in the first four months of 2011 to TD8.12bn (€4.09bn). Consumer goods exports increased by 14%. Exports outpaced import growth of 5.1% – to TD10.51bn (€5.29bn) – thus reducing the trade deficit by 11.3%. FDI fell by 24.5% y-o-y from TD594m (€299m) in the first four months of 2010 to TD449m (€226m), according to the Foreign Investment Promotion Agency. However, some sectors have bucked the trend. For example, FDI in the services sector shot up 15% y-o-y in the first quarter of 2011, to TD62.1m (€31.3m), thanks in part to significant investment in telecoms.

To assure the stability of the economy going forward, the current transitional government is seeking $25bn of investment, loans and aid over the coming five years. Under the so-called Jasmine Plan, the government will also establish a state-run fund to invest in major infrastructure projects, as well as another aimed at supporting local businesses.

There appears to be strong international willingness to provide aid to ensure the country’s democratic transition proceeds smoothly, with a group of influential international economists calling on the G8 to provide similar sums to those requested by the government and US President Barack Obama in late May, and asking the IMF and the World Bank to present a plan to stabilise Tunisia’s economy. (OBG)

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Last Updated on Tuesday, 14 June 2011 12:02

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