OPTIMISTIC: Tunisian Economic Recovery Is Reason For Optimism

OPTIMISTIC: Tunisian Economic Recovery Is Reason For Optimism

The IIF reckons that Tunisia could grow by at least 4 percent next year. That's equivalent to its pre-unrest rate -- but this time the benefits should be more widely felt.

October 24, 2011 2:08 by Reuters

Tunisians are set to hand the largest share of the vote from the country’s first democratic elections to the Islamist Ennahda party, though the group is not expected to win an outright majority. A fragmented coalition might not be typical cause for cheer. But the expected result, following a peaceful vote, will ratchet up optimism for the Arab Spring economy.

Barring a violent backlash against Ennahda’s victory in the historically secular state, Tunisia can now hope for a strong rebound. Tourism and foreign direct investment fell by around 40 percent following the ousting of Ben Ali. The $45 billion economy will contract by as much as 2 percent in this calendar year, according to forecasts by the Institute of International Finance (IIF).

The smooth elections should help unlock pledged external aid needed to boost the Tunisian economy. Libya’s liberation will also be a gain — the oil-rich country accounted for one fifth of Tunisia’s tourism earnings and buoyed worker remittances. All in, the IIF reckons that Tunisia could grow by at least 4 percent next year. That’s equivalent to its pre-unrest rate — but this time the benefits should be more widely felt.

If things remain peaceful, the biggest threat to the Tunisian economy may actually come from the euro zone. The euro area absorbs over 65 percent of Tunisia’s exports while another 20 percent goes to the rest of Europe, according to Nomura. And exports amount to about 52 percent of the country’s gross domestic product. The continent also supplies almost 50 percent of Tunisia’s tourists.

In the long run, Tunisia needs growth of around six percent a year to create enough jobs just to absorb new entrants into the labour market. That’s before it can even begin to tackle its double digit unemployment problem. Encouraging private-sector growth and cracking down on corruption will be crucial — these are goals Tunisia’s many political parties appear to share.

Islamists in Egypt and Libya are likely to win a larger share of the vote, and religious or tribal splits are a greater cause for concern. But Tunisia’s elections, and its expected economic recovery, could still set an impressive tone.

By Una Galani

(Editing by Pierre Briançon and David Evans)