Background on Tunisian Economy & Unemployment Sources: - Mohamed Abdelbasset Chemingui AndChokri Thabet Internal and External Reforms in Agricultural Policy in Tunisia and Poverty in Rural Area, December 2001, Paper Written for the GDN Research Medal Competition - Recent oil price shock and Tunisian economy Rafik Jbir, Sonia Zouari-Ghorbel MO.DEV.I 99/UR/0624, Department of Economics, University of Management and Economic Sciences of Sfax, Street of Airport km 4.5, LP 1088, 3018 Sfax, Tunisia - Restructuring and Economic Performance: The Experience of the Tunisian Economy Sofiane Ghali, Pierre Mohnen - The Political Economy of Development Policy in Tunisia By Mohamed Z. Bechri and Sonia Naccache The University of Tunisia E-mail: Sonia.Naccache@fsegt.rnu.tn (May 2003) - How Bad Is Unemployment in Tunisia? Assessing Labor Market Efficiency in a Developing Country, Martin Rama, The 'World Bank Research Observer, voL 13, no. 1 (February 1998), pp. 59-77 From: Recent oil price shock and Tunisian economy 2. The oil sector in Tunisia 2.1. Oil production in Tunisia It was stated that after having been a large producer, Tunisia became today a net oilimporting country. From the beginning of the nineties, the production of oil has begun to decline as it is illustrated in Fig. 1. The oil production in Tunisia started in 1966 by the oil field of El Borma at a level of production of about 6,00,000 tons. Few years later (in 1969), Tunisia has become an exporting country when the production reached 2 MTOE (million ton oil equivalent). The discovery of other oil fields let the production reach its maximum in the middle of the eighties with 5.9 MTOE. However, although the deduction of approximately 20% of the production by the international oil companies, a clear decrease in production appeared up in 1991. Then, this production increased in 1992 and 1993 and it reached 5.2 MTOE against an oil consumption of about 7 MTOE in 1993.3 Since this date, the production has not stopped decreasing until today. Today, with the inflection of the production curve of two principal oil fields: El Borma and Ashtart, on the one hand and, the rise of the demand on the other hand, Tunisia imports a share of the crude of Libya. Moreover, given the low capacity of the refining of the single refinery (Tunisian Society of Industry of Refining (S.T.I.R)) of Bizerte, Tunisia, through the E.T.A.P and S.T.I.R, also imports some of petroleum products from Italy, France, and Russia. 2.2. Consumption of oil in Tunisia As we indicated, Tunisia today is an oil-importing country. This is mainly because of a decrease in production and an increase in consumption at the same time. In 2006, the Tunisian consumption of petroleum products reached 2.780 MTOE against 2.677 MTOE in 2005, and respectively 1.144MTOE against 1.207 MTOE for production. So, the gap will be bridged by importation which reached 2.780 MTOE in 2006 against 2.677 MTOE in 2005. The greatest part of this consumption was consumed by the industrial sector followed-up by the transport sector as indicated in Fig. 2. Fig. 34 indicates that the petroleum products consumption by sector in Tunisia will still be strong in the next years. Despite this situation, Tunisia practices a subsidy policy on their petroleum products. The proportion of financial resources that are being consumed in subsidy payment is about 1% of tunisian GDP (IMF, 2008). Due to this policy, the Tunisian petroleum products prices are still lower than the international oil prices. Fig. 4 shows the deconnection between Tunisian petroleum products prices and international crude oil price. -From: Restructuring and Economic Performance: The Experience of the Tunisian Economy In mid-1995 Tunisia made the strategic choice of becoming the first country in the Middle East and North African region to sign a Free Trade Agreement (FTA) with the European Union (EU). In 1996, the authorities launched a vast industrial restructuring program ("programme de mise-à-niveau") aimed at helping Tunisian firms bridge the gap between their current performance and the benchmark performance of their trading partners by upgrading productive capacity and human capital. The program targeted to restructure 2000 enterprises by the end of 2001 out of 4000 potential candidates. This program followed the structural adjustment program that was put into place in 1986 and was designed to progressively dismantle the many controls on resource allocation, to privatize state-controlled enterprises, and to moderate the growth in aggregate demand. In the 1980s Tunisia was a country plagued with unemployment as high as 15%, a budgetary deficit of 5.2 %, a continuously deteriorating current account deficit, and a large and inefficient public sector, in other words, dim prospects for future development. We have examined the structural evolution of the Tunisian economy from 1983 to 1996. By solving for each year an optimal resource allocation problem, we have located the sources of strength and the bottlenecks apparent in the Tunisian economy and we have assessed the possible effects of the structural adjustment program introduced in 1986. Hotel and tourism and other services (regrouping among others trade and financial services) are identified as the main sectors of comparative advantage in Tunisia, and to a lesser extent transport and communication, construction material and glass, and the food conglomerate (agriculture, fishing, and food processing). Our analysis reveals that Tunisia reached a higher degree of efficiency in resource allocations during the 7th fiveyear plan of development but that the efficiency took somewhat of a reverse turn after that. Labor demand shifted slightly from lower to higher levels of qualification, raising their shadow wage rates. The highest qualified workers remained in excess supply throughout the period. The rate of return on qualified labor was actually negative but increasing substantially in the second half of our sample period. The main aim of the structural adjustment program was to make the Tunisian economy more competitive. Indeed, we notice an increase in competitiveness, that would even be more evident if we allowed for more factor mobility. However, competitiveness also operates through learning, reorganization, adoption of new technologies, and innovation so that firms can improve their management, decrease their production costs and come up 21with new products. Statistics reveal a high level of unemployment for highly qualified workers, and our analysis confirms the relative abundance of these types of workers in the Tunisian economy, and hence their low productivity, that is reflected by negative rates of return on qualified labor. The tremendous investments in education and jobtraining, with a budget share amounting to about 6% of GDP and 17% of government expenditures, do not come to full fruition if these high-skilled workers remain jobless. The Tunisian government has to put additional efforts in reducing the unemployment of its best workers. Only then can education lead to greater growth contributions. We notice that the strongest potential earners of foreign exchange are hotel and tourism and other services (including trade and financial services), and to a lesser extent transport and communication, construction material and glass, and what we could call the food conglomerate (agriculture, fishing, and food processing). As table 1 shows, the unemployment rate has always been much higher for the qualified workers (levels 4 and 5) than for the low qualified workers (levels 1 to 3). For instance, in 1990, 28.7% of the qualified workers were out of work compared to 13.9 % of the lessqualified workers. From 1987 onwards, about the time when Tunisia adopted the structural adjustment program, we notice first an increase in the overall rate of capacity utilization, and second a decrease in the unemployment rate for the qualified workers and an increase for the less-qualified workers. We notice a persistent shift from manual workers (level 1) towards machine operators (level 2) over the whole period. Low qualified workers make up almost 90% of the total work force. There was no major shift of employment composition among the qualified workers (levels 4 and 5). This high level of unemployment for qualified workers might seem unreasonable for a country that devotes a significant proportion of its national resources to human capital accumulation. It can be explained by the structure of the Tunisian economy. According to a World Bank study (2000, Vol II, table 2.3, p.6), in 1996, 82.4% of the Tunisian enterprises employed less than 6 workers while only 1.6% employed more than 100 workers and only a dozen firms more than 500 workers. From: - The Political Economy of Development Policy in Tunisia The development policy episodes in Tunisia (1956- 2000) The main episodes of Tunisia’s development policy since 1956 are summarized in Table 1. The first five years (1956-60) were generally considered a period of liberal policies. But the most important measures that were adopted, were all in favor of State intervention. Protection was prevalent, taking the form of prohibitive tariffs as well as quantitative restrictions. Monopolies in the main public utilities, inherited from the colonial rule, were consolidated. And credit policy was very selective, in favor of the public sector. At the social level, a distinguishing feature of this period was the adoption of radical reforms of women status outlawing polygamy, fixing a minimum age for girls’ marriage and providing them with schooling opportunities. Population control was integrated as part of the development strategy of the country. A modern educational system, based on the French curricula, was adopted; and the Zeitouna Mosque university was first marginalized then abolished altogether in 1962. 6The second episode (1961-69) was inaugurated by the official adoption of central planning of the economy in 1962. This was followed by a collectivization drive of economic activity, starting in 1965. The public sector was also strengthened with the creation of 160 new State-owned companies during the decade. And, the predominantly government-owned banking sector continued to be regulated with tight control of credit allocation, interest rates and foreign exchange. With the abandonment of collectivization in 1969, following a severe economic crisis and popular discontent, a ‘two-track’ strategy was inaugurated with the creation of an offshore industrial sector. But despite a new emphasis on private entrepreneurship and export promotion, public investment remained dominant, during this period, with the creation of one hundred new public enterprises. Moreover, the import-substitution bias increased. The financial sector remained dominated by State-owned banks. And a mild appreciation of the dinar occurred, which led to a black market premium in the order of 10% (Table 1). Starting 1981, a newly appointed government had to deal with street unrest, a demanding trade union and Palace intrigue. The populist policies that were adopted ended up in a severe balance of payments crisis in 1986. Finally, the country had no choice but to sign a Stand-by Agreement with the International Monetary Fund and to adopt a stabilizationcum-structural adjustment program. As a result, macroeconomic stability was immediately achieved, but institutional reforms remained hesitant and private investment failed to recover. Under these circumstances, the authorities decided to take a bold decision by signing an association agreement with the European Union in 1995, being the first country in the South-Mediterranean region to do so. Benefiting of a financial support from the EU, a program to upgrade domestic industries with a competitive potential was launched, starting 1996. The program succeeded to modernize local industries, and it may have helped investors’ confidence. Some other reforms also followed suit, in particular in privatization. But reforms of the civil service, the labor code, and banking and telecommunications remained limited.