x Abu Dhabi, UAEThursday 27 July 2017

Euro woes lap on Tunisia's shores

Arab Spring economies: Tunisia's economy is having to bear the brunt of the financial crisis in Europe, its most important export market, just as the country looked like it was recovering from the effect of a revolution last year.

Shoppers in the Kasbah souk in Tunis. The Tunisian economy shrank by 1.8 per cent last year. Zoubeir Souissi / Reuters
Shoppers in the Kasbah souk in Tunis. The Tunisian economy shrank by 1.8 per cent last year. Zoubeir Souissi / Reuters

Tunisia's economy is having to bear the brunt of the financial crisis in Europe, its most important export market, just as the country looked like it was recovering from the effect of a revolution last year.

"The problem with Tunisia is that to a very large extent it is wholly dependent on the European Union," said Moustafa Bassiouny, an economist at the Signet Institute, a think tank in Cairo.

"Tunisia still fundamentally relies on money flowing from the euro zone through exports, and weak demand in Europe reflects as poor export figures, which is a serious threat to Tunisian industry," he said, citing statistics that show half of Tunisia's GDP comes from exports, much of it to Europe.

The moderate Islamist party, Ennahda, won elections held soon after the revolution and now leads a coalition government.

The government has taken some steps to reassure investors, but repeated protests and strikes organised by left-wing secular opponents have undermined efforts to revive the economy, which shrank 1.8 per cent last year.

The country, which lacks the energy reserves that its neighbours in Libya and Egypt have, has enjoyed only a gradual recovery in its economy from last year's political turmoil and is still below the government's growth target for this year.

Tunisia's growth rate amounted to 2.1 per cent in the second quarter versus the same period last year, with tourism revenues, the first source of foreign currency, climbing 35 per cent to US$723 million (Dh2.65 billion) in the first half of the year compared with the same period last year.

But inflation remains high at 5.6 per cent and the jobless rate is "potentially catastrophic" at 18 per cent, said Mr Bassiouny.

There have been pledges of help, and last month the European Bank for Reconstruction and Development (EBRD) said it was preparing to invest €200m (Dh952.7m) into the Arab region, including a €20m commitment to the Maghreb Private Equity Fund III, sponsored by a Tunisian-Moroccan private equity firm to help small businesses to access funding.

Close trade links with Libya are also being taken advantage of with cross-border deals in the making.

However, some Tunisian businessmen say the nation could have done more to take advantage of its links with Europe. "Tunisia should be able to take advantage of the euro-zone crisis, but the current government is not inspiring confidence," said Fathi Ben Grira, a Tunisian businessman who heads Menacorp investment company in Abu Dhabi.

"It should have more companies coming from Europe to look for good deals, particularly that Tunisia shares the French language and has been influenced by France and the region," Mr Ben Grira said.

The former regime of Zine El Abidine Ben Ali continues to cast its shadow on the economy. Hatem Kchouk, the founder and former chairman of Arab Tunisia Bank, the fourth-largest bank in the country, said the lack of political visibility is having a detrimental impact on investors' confidence.

"There is the risk of all the hidden problems that weren't revealed by the dictatorship that are now being exposed and there's the lack of visibility with no deep reforms since the new government was elected," Mr Kchouk said.

business@thenational.ae