Economic growth in Tunisia stems from government measures and improved exports


Tunisia’s economy has been buffeted in previous years by the fallout from factors such as domestic and regional political and security instability, and the slowdown in the eurozone. While a strong economic recovery has yet to materialise, the country’s growth prospects have been ticking upward over the past 12 months and, with a successful political transition now behind it, Tunisia has a strong base from which to boost output and revenues.

Equally importantly, the country is seeing improvements in export competitiveness and the trade deficit. To help encourage this trend further, the authorities are implementing a range of economic reforms and initiatives, such as a new investment law passed in September 2016 that should help to raise the pace of economic expansion in coming years.

GDP Composition & Growth

The past two years have seen the Tunisian economy follow a gentle upward trajectory – one that falls short of the pace of expansion needed to reduce poverty and improve the revenue base, but that nonetheless exhibits a marked improvement over previous years.

Tunisia’s GDP totalled TD84.3bn (€36.2bn) in 2015, the latest year for which full-year data was available. Commercial services, not including the government and non-profit service sectors, represented the largest sector of economic activity, accounting for 39.8% of GDP, followed by government services at 18.2%, manufacturing industries with 15.6%, other industries at 10.6% and agriculture with 9.7%.

In 2015 GDP expanded at a rate of 0.8%, down from growth of 2.3% the year before. The fall was due to a variety of external factors, including two terrorist incidents that negatively affected the tourism sector in particular and shook business confidence more generally. Growth dropped from 1.8% in the first quarter of the year and 1.1% in the second, to 0.4% and 0.3% in the third and fourth quarters, respectively. Value-added agriculture increased by 9.2%, but value-added manufacturing was flat and the non-manufacturing industry contracted by 4.1%, while the commercial services sector was down 0.5%.

However, growth picked up somewhat in 2016, standing at 1%, 1.4% and 1.3% in the first, second and third quarters of the year, respectively, according to government figures. The IMF projected growth for the year would reach 1.3%, slightly below the expectations of the central bank, the Banque Centrale de Tunisie (BCT), which in December predicted full-year growth of 1.4%. Manufacturing industries expanded by 1.7% and commercial services by 1.3%.

Still, there is certainly room for improving performance, particularly in key export sectors. Agriculture, for example, saw downward pressure on growth (in part due to unusually strong olive and date harvests in 2015), with value-added agriculture and fishing declining by 4.5% in 2016 compared to the previous year, according to the figures from the National Institute of Statistics. Non-manufacturing industries also contracted over the year by 3.4%.

The modest figures of 2016 are in line with growth trends over the past five years, averaging 2% per annum since the 2011 revolution. They are down from the 2000s, when real GDP growth averaged 4.5%. However, this period of growth also allowed for some of the factors contributing to slower expansion today, such as state capture, which brought productivity growth to a halt in major economic sectors such as banking and tourism.

Better Times Ahead

Martin Henkelmann, general manager of the German-Tunisian Chamber of Industry and Commerce, said that the economy was nonetheless in good shape overall, particularly in light of the country’s recent political history.

“Tunisia has successfully undergone a comprehensive political transition towards democracy, which is very difficult to achieve. While recent slow growth has given rise to a lot of negative sentiment, it is to be expected given what the country has recently gone through, and despite the slowdown there hasn’t been a recession or major divestment,” he told OBG, adding that the situation was also improving in many respects and that he was optimistic about future economic development. “There were fewer strikes in 2016, and the feedback from our members has been that productivity has increased, while political tensions have also fallen substantially compared to 2013 and 2014,” Henkelmann added.

Certainly the outlook for 2017 appears to validate that assertion. Growth looks set to rise during the year. The 2017 Finance Law, approved in mid-December 2016, expects the figure to increase to 2.5% for the year, with the IMF predicting 2.8% and the BCT projecting 2.3%. The rate of expansion should rise further in the years to follow.

For its part, the IMF has forecast that business environment and banking industry reforms could raise growth to an average of 4.3% per annum between 2015 and 2020 – similar to levels recorded prior to the revolution – and to 5% with even more wide-ranging reforms. Even without any reforms at all – an unlikely scenario given that the authorities have been working on a wide range of changes – the IMF suggests that growth over the period would average 3.1%, which is an improvement on recent years, albeit still well below the country’s potential.

To boost growth levels, the government launched a five-year economic vision for 2016-20 in 2015 aimed at tackling the economy’s major structural problems, with a particular focus on developing the private sector, and is working to develop detailed implementation plans. “Public-private partnerships will be essential to financing the infrastructure projects proposed in the 2016-20 Development Plan,” Radhi Meddeb, CEO of COMETE Engineering, told OBG. “Concrete actions are needed to ensure that these projects are realised in the most efficient way.”

The IMF cites difficulties accessing finance, which it attributes to credit rationing by banks, ineffective government institutions and a labour market the body says is among the most rigid in the MENA region, as being the main hindrances to faster growth.

International Support

In June 2016, following the conclusion of a previous standby agreement that included a $1.75bn loan, the IMF agreed to provide the government with a four-year $2.9bn loan, known as an extended fund facility, to be accompanied by various reforms aimed at improving governance, making growth more inclusive and boosting job creation. The following August US loan guarantees allowed the country to issue $500m worth of sovereign debt, maturing in 2021, on international markets at a rate of just 1.416%. This compares, for example, to a rate of well over 5% for a previous bond issue that had been made without such guarantees in 2015.

In addition, the country mobilised around TD34bn (€14.6bn) in investments,including TD15bn (€6.4bn) in signed agreements in addition to a further TD19bn (€8.1bn) in pledged investments during the course of the Tunisia 2020 investment conference, which was held by the government in late November 2016 and sponsored by France along with Qatar. With representatives from around 40 countries present, commitments signed at the event included $2.9bn of lending pledged by the European Investment Bank by 2020, $1.5bn of credit from the Arab Fund for Economic and Social Development, $1.25bn of support from Qatar – the single biggest pledge of its kind to the country since the 2011 revolution, $800m of aid from Saudi Arabia, a mixture of lending and aid worth $595m from Italy, a $500m loan from Kuwait and a $100m interest-free loan from Turkey. The government has previously said that not all previous such commitments have been met.

During the conference, the country also secured agreements from France and Qatar, respectively, to convert some existing debt into project financing and to reschedule payment of a $500m loan. According to statements from the Tunisian authorities, most of the funds committed over the course of the Tunisia 2020 conference focused on supporting specific projects rather than public finances generally.

Per Capita Wealth

On a household basis, Tunisia has seen far more stable performance, although inequality continues to be a problem. GDP per capita based on purchasing power parity in current international dollars stood at $11,467 in 2015, placing the country squarely between its Maghreb peers, Morocco ($7842) and Algeria ($14,688). As with its fellow Maghreb states, GNI per capita is much lower than GDP per capita, likely due to factors such as the repatriation of profits by foreign-owned companies in the country, at $3930, similar to levels prevalent in Kosovo and Guyana. This ranks Tunisia as a lower-middle-income country according to World Bank classifications; lower-middle-income and upper-middle-income economies were separated at a GNI per capita of $4125 as per figures from 2015.

However, in purchasing power parity-adjusted terms, the country’s GNI per capita of $11,100 international dollars in 2015 was significantly above the global lower-middle-income threshold of around $6409. This suggests that the average Tunisian is effectively wealthier than its World Bank classification would appear to indicate.


The lack of jobs, which sparked protests in December 2010, remains a problem, particularly in the interior of the country. The unemployment rate jumped sharply immediately following the revolution, from 13% in 2010 to 18.9% in 2011. However, it fell back in subsequent years to 15.3% in 2013, according to IMF figures, and has remained at similar levels since then. The BCT put the figure at 15.5% for 2016. The IMF expects the indicator to continue to drop in coming years, to 12% by 2018.

In common with other countries in the region, joblessness is particularly high among Tunisian women, standing at around 23.5% as of June 2016, despite a female labour force participation rate of just 25% in 2016 and a female university graduate participation rate of 30.5% as of 2015, according to latest available figures from the World Bank.

Inflation & Monetary Policy

Following an increase in the wake of the 2011 revolution that saw inflation peak at 5.8% in 2013, compared to 3.4% in 2010, inflation has been coming down again. It dropped to 4.9% in 2015, and is expected to have lowered further for 2016 as a whole. The figure stood at 3.6% for the first nine months of the year, and in December 2016 the BCT forecast an average figure of 3.8% for the year overall.

Along with the knock-on effect of lower energy prices, Mohammed Salah Souilem, director-general of monetary policy at the BCT, said that a proactive monetary policy was among the main factors that had helped to curb price rises in recent years.

The country’s policy rate has been adjusted a total of eight times in the years since the revolution, including three downward revisions and five hikes – most recently in April 2017 to 4.75%. Unlike in some emerging markets or countries suffering from excess banking system liquidity, however, Souilem said that such changes had a rapid tangible effect on bank lending rates and thus the wider economy. “We do a regular survey of bank interest rates that shows a rapid transmission effect,” he told OBG.

However, the risk of upward pressure is still present, and the BCT is expecting the figure to rise to 5% in 2017, pushed up by factors such as the fall in the value of the country’s currency, the Tunisian dinar, imported inflation and anticipated wage increases. Fausi Najjar, Tunisia expert at Germany Trade and Invest, noted that global energy prices left the country particularly exposed to potential increases in inflation. “Until 2011, imported inflation was less of a problem because the country was more energy self-sufficient. However, as oil and gas output has fallen, any rise in the international oil price would have an impact on production costs, wage demands and social tensions, particularly given the recent decline in the value of the dinar,” he told OBG.

Foreign Exchange

However, the decline in the dinar, while potentially pushing prices for some consumer items slightly higher, has had a beneficial impact on the broader real economy. The Tunisian dinar trades under a managed float regime in which it is pegged to a weighted basket of currencies dominated by the euro. However, it has been allowed to steadily lose value against the euro for at least the past 10 years, including a significant drop in early 2016, from around €1:TD2.20 at the start of the year to €1:TD2.44 by June. The currency hovered close to this level for the rest of 2016, standing at €1:TD2.42 in late December, but materially weakened again in April 2017 to reach €1:TD2.67 by early May 2017.

The depreciation of the dinar has had a positive overall impact on Tunisian exporters. Despite recent salary increases, production costs in the country remain attractive given the lower value of the dinar, while simultaneous rises in the value of some Asian currencies has further boosted Tunisia’s competitiveness as a Europe-facing export centre.

Trade Deficit

Tunisia is struggling with a persistently high trade deficit. The country has run a persistent trade deficit since at least the early 1990s, and the shortfall has been growing particularly rapidly over the past decade or so, almost doubling in size from TD3.5bn (€1.5bn) in 2005 to TD6.6bn (€2.8bn) in 2008, before increasing further to TD8.6bn (€3.7bn) by 2011 and TD13.6bn (€5.8bn) in 2014. This was driven by import growth outpacing that of exports, rather than actual falls in exports. As a result, the rate of import coverage by exports dropped from 79.8% in 2005 to 67.6% by 2014.

While the deficit improved slightly in 2015 to stand at TD12bn (€5.1bn), down from TD13.6bn (€5.8bn) in 2014, the trade deficit worsened again in 2016. Both imports and exports grew in 2016, by 5.3% and 5.6% respectively. This gave rise to a slight increase in the value of the trade deficit for the period to TD12.6bn (€5.4bn) with a coverage ratio of 69.8%.

The trade deficit with China specifically increased by 18% in 2016 to nearly TD4bn (€1.7bn), entrenching its lead as the largest contributor to Tunisia’s overall trade deficit. An 11% increase in the trade deficit with Turkey, together with a coincident 13% drop in the trade gap with Russia also saw Turkey surpass Russia as the second-largest contributor to the overall trade gap in 2016.

Trade Breakdown

Consumer goods were Tunisia’s largest export category over the course of 2016, with sales of TD10.3bn (€4.4bn), or 35% of total exports, followed by raw materials and semi-finished goods at TD8.75bn (€3.8bn). Exports of equipment were worth TD5.73bn (€2.5bn), food TD2.74bn (€1.2bn) and energy TD1.64bn (€703.3m).

Exports were formerly dominated by textiles and chemicals; however, these sectors’ relative contribution has been falling since around the year 2000 due to factors such as increased competition in the textiles sector from Asian exports. Imports, by contrast, were led by raw materials and semi-finished goods, purchases of which were worth around TD13.2bn (€5.7bn), or 32% of the total, followed by consumer goods at TD11bn (€4.7bn), equipment with TD9.3bn (€4bn), energy at TD4.3bn (€1.8bn) and foods with TD3.8bn (€1.6bn). The country’s largest customer was France, on exports of TD9.3bn (€4bn), up 15% from 2015, and worth 32% of total Tunisian sales of goods abroad. Italy followed in second place with a figure of TD5.07bn (€2.17bn), down from TD5.09bn (€2.18bn) the previous year, and Germany in third, at TD3.1bn (€1.3bn), up from TD2.9bn (€1.2bn).

France and Italy were also the country’s two largest sources of imports. France exported a total of TD6.5bn (€2.8bn) of goods to Tunisia in 2016, equivalent to 15.5% of the total and down from TD7.1bn (€3bn) in 2015. Meanwhile, imports from Italy were worth TD6.1bn (€2.6bn), up from TD5.9bn (€2.5bn) a year earlier. Germany was the third-largest exporter to the country with TD3.2bn (€1.4bn), ahead of the post-Soviet states at TD2.7bn (€1.2bn).

Strengthening European Ties

That Tunisia’s largest trade partner is Europe is hardly surprising – and not simply on the basis of geographic proximity or historical ties. In 1995 Tunisia signed an association with the EU, which set the stage for the gradual dismantling of tariffs on a range of mostly industrial goods between the two parties. A free trade zone for such goods has been fully in place since 2008. The two sides have since been looking at ways to further deepen their relationship, and progress towards this end moved forward in October 2015, which saw the launch of negotiations for a more comprehensive accord. If finalised, the so-called deep and comprehensive free trade agreement (DCFTA) would likely extend free trade provisions to agriculture and services, as well as harmonise regulatory standards and bolster investment protection measures.

Henkelmann said liberalisation of the services sector under such an accord could help boost investment in the country. “Tunisia has strong potential as a services centre, in particular in areas such as postsale services,” he said, citing a number of competitive advantages. “The country is close to Europe, the Middle East and Africa, offers a good quality of life and costs are low, all of which make it a good location for a services centre. Furthermore, if Tunisia wants to create sufficient jobs for youth and graduates and to become a gateway to Africa, it will need a liberalised services sector.” However, he said he was not very optimistic that the authorities would prioritise the finalisation of such an accord in the near term. “There is still strong union opposition to the DCFTA, and with all the other challenges the government is facing, the government could well decide to put it on the backburner for the time being,” he told OBG.

Foreign Investment

The value of total foreign direct investment (FDI) inflows into Tunisia stood at TD2.1bn (€900.6m) in 2016, according to the Foreign Investment Promotion Agency, down by 9.4% from TD2.4bn (€1bn) in the previous year, although the figure was an increase of 7.6% from TD1.99bn (€853.4m) in 2013. In 2016 performance was pulled down by a 33.2% year-on-year drop in the value of investment in the services sector to TD281.7m (€120.8m).

The energy sector remained the largest destination for foreign investment in 2016, with TD960.3m (€411.8m) of FDI, equivalent to 44.9% of the total. The next-largest sector was industry, on TD794.5m (€340.7m), followed by services on TD281.7m (€180.9m) and agriculture on TD20.8m (€8.9m).

France was the largest source of foreign investment in the country in 2015, the latest year for which detailed full-year country data was available, on TD278.7m (€119.5m), followed by the UAE on TD138.7m (€59.5m) and Qatar in third place on TD89.7m (€38.5m). Five of the seven other countries in the top 10 were Western European states. The UK and Austria were the largest investors in the energy sector on totals of TD368.2m (€157.9m) and TD367.4m (€157.6m), respectively.

New Investment Law

The authorities are keen to boost investment inflows, and September 2016 saw the passage of a long-awaited new investment law that simplifies the investment framework – the number of articles in the law stands at 25, compared to 75 in its predecessor. The law makes it easier for investors to transfer funds out of the country; creates a new investment authority intended to help investors better navigate the country’s administrative and bureaucratic requirements; and provides various incentives for investment, including, for some projects, exemptions from tax for up to 10 years, coverage of employment and social costs, and grants worth up to a third of the investment value. The law is also expected to open up more sectors to foreign investment – currently foreigners require permission from the government before they can invest in 51 different industries. However, the impact the legislation would have in this respect is not yet clear.

Given the lack of clarity surrounding some aspects of the law, it is questionable to what extent it will change the distinction between the so-called offshore and onshore sectors that existed under the prior investment regime. Under this, “offshore” companies producing primarily for export and with a foreign ownership stake of at least 66% were awarded various incentives and exempted from restrictions on activity in the domestic market, large swathes of which companies with a majority foreign shareholding were generally prevented from entering, and in which licensing and other requirements often limited competition to a handful of firms. The government is expected to issue a list of sectors that are open and closed to foreign investment within approximately a year of the law’s passage. Najjar told OBG the services sector, in which foreign investment is heavily restricted and largely closed to foreign companies, would likely be partially opened up under the new law, but that as with other changes, it remained unclear exactly which areas would be affected.


While 2016 saw a slight increase in activity, economic growth is expected to pick up further in 2017, supported by greater export competitiveness in particular. Moves to bolster the Tunisian economy through reforms such as the new investment law and plans to tackle wider structural issues should help to raise GDP growth to higher levels than those witnessed in recent years, as should the improvement in security since the 2015 attacks – though the extent of this will depend in part on whether or not the economy of the country’s main export destination and tourism source market, the eurozone, can emerge from its own recent economic slowdown.

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