North African nation Tunisia is more pro-Western and affluent when compared to the majority of other Arab nations. Tunisia is a Mediterranean economy that is a highly popular European tourism destination, relatively modern secular state that is opening up with greater rights now for women, liberal social issues when compared to other similar countries in terms of demographics and religion. Tunis is the capital city composing of a European flair and considered to be a very cosmopolitan city.
POLITICS: independence in 1956 from France. President Ben Ali of the Constitutional Democratic Party (RCD), a former Army General has been in power since 1987 from a bloodless coup where former President Bourguiba was declared mentally unfit to continue leading Tunisia. Current President Ali essentially has an authoritarian rule where democratic rights are minimized similar to China. The Tunisian government is focused on maintaining economic development & stability, keeping prosperity to the masses with a progressive economic platform to counter political destabilizing forces from various Islamic groups. The key to governing for President Ali is to find that delicate balance of authoritarian rule, stability and repressing those destabilizing opposition Islamic forces such as the al-Nahda party that President Ali clamped down in the early 1990’s. Dissent is quashed, in ways resembles a police state, but then, some may argue so does Monaco. Demographics reveal that 98 percent of Tunisia is Muslim. Today, political forces have an increase of Islamic groups and other religious movements within Tunisia. In 2002, a terrorist bombing against tourists within Tunisia was alleged to have been connected to the al Qaeda network. It is these terror strikes and radical groups that Tunisia wishes to defeat. Political parties do exist in Tunisia although President Ali implemented restrictions on the opposition and limited the press.
Many Tunisians themselves are upset with the entrenched political leadership, restrictions on democracy and the use of force to keep stability. Former founding Tunisian leader President Bourguiba who many consider the architect for Tunisia’s liberal ideology and economic success implemented several forward thinking policies. Some of these include making abortion legal, legalizing divorce, allowing for women to vote, social programs in areas of education and health, etc. These Western style programs allowed for stability of the secular state which enhanced domestic prosperity thus attracting foreign investment. President Bourguiba who led Tunisia for 31 years primarily under a one-party rule was successful in establishing this modern Western style nationhood for Tunisia while repressing Islamic fundamentalism which is in quite opposite to the majority of the Arab Muslim world.
ECONOMY: economic success story in development, advancement. Tunisia during the 1990’s moved towards a free market economy with an increase in privatizations and a simplification of the tax code compared to the previous model of much state control. As of August 1995, foreigners can now buy up to 10 percent of a company on the Tunis stock exchange without central bank approval. The Tunisian economy is quite diverse considering its relative small population base. The government is serious about maintaining Tunisia’s unique economic success within the Arab world, Tunisia today spends over 50 percent of its budget on social programs while 85 percent of the population own a home. Major economic components include banking, mining, energy, tourism, agriculture, chemicals and manufacturing. Tunisia with its great beaches attracts large number of tourists each year complimenting its national capital inflows & foreign exchange earnings. It is projected that in year 2004 Tunisia will welcome 5 million tourists of which 1 million are from Germany alone. Year 2003 was sluggish for tourism visits although 2004 year to date has shown a rebound.
In 1995, Tunisia and the European Union (EU) signed ‘Agreement of Association’ which gives Tunisia access to EU for most of its products while eliminating tariffs for EU imports to be implemented up to 2007. Global integration and trade will result in greater GDP/Capita growth for Tunisia going forward. Currently, 70 percent of Tunisia’s trade is with the European Union. From 1995-2000, Tunisia realized terrific annual real GDP growth averaging 5 percent which can be greatly attributed to this trade agreement. Tunisia is realizing greater demand for its electronics manufacturing components for exports to EU member countries.
GDP as measured by purchasing power parity is at 69 billion USD (2003) with corresponding GDP/Capita at 6,900 USD. Market GDP stands at 28.2 billion USD. GDP growth for 2004 estimated at 5.6 percent, 2003 rebounded to 6 percent after 2002 at 1.9 percent. Inflation quotes have year 2004 running at 3.5 percent, year 2003 came in at 2.7 percent, year 2000 at 3 percent. Year 2000 fiscal deficit was 3.7 percent while year 2004 is projected at a 2.8 percent shortfall. During the 1990’s, the fiscal deficit ranged from 2.5 to 5 percnet of GDP. Current account deficit is range bound at 2 to 3.5 percent of GDP with year 2004 estimated at 2.5 percent shortfall. Difficulties lie in the trade deficit showing a figure of 8.5 percent of GDP. Figures for 2003 show exports at 8 billion USD and imports at 10.3 billion USD reflecting a trade deficit of 2.3 billion USD. Public debt to GDP is measured at 59 percent of GDP.
Oil & Gas Industry
Currently minor oil producer, energy output has minimal impact on the Tunisian economy. Oil and gas exploration development does include foreign companies such as Canadian energy explorer Centurion Energy actively seeking for economic hydrocarbon resources. At present, domestic oil production is basically equal to consumption. Tunisia recorded no oil exports for year 2001. As of January 2002, oil reserves were relatively small at only 417 million barrels. Natural gas reserves are also small for Tunisia at 77 billion cu m (2001), again no natural gas exports for 2001.
POSITIVE: government allowing for increased privatization and commerce, only 7.5 percent of the Tunisian population of 10 million living below the poverty line. CONCERN: low tax recovery, lack of democractic & political rights, repression with lack of media/human rights - freedom of speech.
BANKING SYSTEM: vulnerable, weakness in areas with lower capital adequacy ratios with some Tunisian banks in trouble. The state owns a large percentage of the banking system. Overall, the banking system is moving towards greater freedom after reforms were implemented in 1994 resulting in the beginning of bank privatizations, reduced susidies with a goal of modernizing. As of August 2004, official reserve assets were measured at $3.7 billion USD or equivalent to 3.5 months of imports. Low to moderate M3 money aggregate growth suggests monetary stability for Tunisia.
REGIONAL ANALYSIS: Libya, Algeria
Immediate neighbors to Tunisia of Libya and Algeria are volatile and prone to instability where political risk is deemed to be high. Since Libya and Algeria are both hydrocarbon- based economies for the most part, oil output forms a significant part of their economy. Does similar geology for Tunisia exist? Will Tunisia be able to capitalize on higher world energy prices with future potential energy production? Time will tell from the success of exploration programs underway within Tunisia. Today, Libya represents only 5 percent of Tunisia’s exports while Algeria has minimal trade with Tunisia.
KNOWLEDGE: European Union ‘EU’ Economic Connection
With barriers to trade to be removed, more free trade is projected over the next 10 years between Tunisia and the EU. This strong economic trade alliance will help Tunisia to achieve its goals of increased foreign direct investment, plans to reduce the trade defict coupled with greater government efficiency. As Tunisia integrates globally with various trading blocs, the dinar in due course should be floated as Tunisia futher opens its current account thus allowing foreigners to invest fully in Tunisia (ie. Tunisian debt market).
CURRENCY: ISO Symbol ‘TND’, Tunisian dinars. At time of review on September 22, 2004, the Tunisian dinar had an exchange valuation of 1.271 TND to the USD and/or 1.555 TND to the EUR (Euroland euro). The currency regime in place is that of a managed float as the dinar departed from the fixed real exchange rate with the euro as the anchor currency for the Tunisian dinar in year 2000. Tunisia’s central bank will interfere by enforcing the surrendering of foreign exchange receipts from individual banks within Tunisia with upwards of 30 percent confiscated under the manage float regime. The Tunisian dinar is not fully convertible to foreign currencies with some some currency controls remaining although being relaxed. For example, the dinar is not allowed to be exported or imported. Within Tunisia, credit cards are accepted at some establishments with currency conversion allowed at authorized banks and/or currency dealers.
CURRENCY HISTORY: dinar liberalization began in 1987. By 1992, convertibility of the dinar came about for both commercial & investment transactions. Historical exchange valuations for the dinar include: year 1993 at 1.0037 TND to the USD, 1994 at 1.0116, 1995 at 0.9458, 1996 at 0.9734, year 1997 at 1.1059, December 1998 at 1.094, July 1999 at 1.218, October 2000 at 1.464, June 2001 at 1.494, March 2002 at 1.484, June 2003 at 1.261, January 2004 at 1.21 and August 2004 at 1.258. The recent increase in the EUR has resulted in the depreciation of the dinar in real terms.
CURRENCY FORECAST: currency stability to remain. A continuation of positive developments for Tunisia including its robust telecommunications sector, improvements within its manufacturing sector and a very strong rebound in tourism year over year bodes well for the dinar in the short term. Long term currency stability will be achieved with further liberalization of the dinar to full convertibility. Tunisia will reap the rewards of its trade agreements with the European Union ‘EU’ as the Euroland euro continues its global appreciation against many currencies including the dinar thus making Tunisia products and services that more attractive to its largest trading partner, the EU.
UPDATED: September 22, 2004