Tunisia has made progress towards its Millennium Development Goals but faces economic challenges like high unemployment. To maintain its development gains and achieve further growth, Tunisia needs to create an enabling environment for domestic and foreign investment by reforming its legacy economic framework which is dominated by the state. Key reforms include reducing subsidies and trade barriers, making the monetary and fiscal systems more flexible, improving the business climate, and stimulating private sector growth and job creation. With its educated workforce and strategic location, Tunisia has advantages for attracting investment if it establishes competitive policies and a new investment code that comply with international standards.

1. TUNISIA
Creating An Enabling Environment For
Domestic And Foreign Investments

2. Tunisia
REGION Middle East & North Africa
INCOME CATEGORY Upper middle income
POPULATION 10,996,600
GNI Per Capita (US$) 4,459
*Data from http://www.doingbusiness.org/data/exploreeconomies/tunisia (2016)
• Achievements towards the Millennium Development Goals (MDGs)*
* Data from http://www.aidflows.org/TN_Beneficiary_View.pdf
Millennium Development Goals Units 2009
Goal 1:Eradicate extreme poverty and hunger
Poverty headcount ratio at $1.25 a day PPP, % of population 0.00%
Goal2: Achieve universal primary education
Primary school enrollment % net 98.48%
Goal 3: Promote gender equality and empower women
Ratio of girls to boys in primary and secondary education (%) % 101.22%
Goal 4: Reduce child mortality
Under-5 mortality rate per 1,000 18.10
Goal 5: Improve maternal health
Maternal mortality ratio modeled estimate, per
100,000 live births
56.00
Goal 6: Combat HIV/AIDS, malaria, and other major diseases
Prevalence of HIV, total % of population ages 15-49 0.10%
Goals 7: Ensure environmental sustainability
Access to improved water source % of population 94.00%
Goal 8: Develop a global partnership for development
Mobile phone subscriptions per 100 people 94.52

3. Tunisia - Challenges
• Tunisian Revolution (January 2011) unveiled significant issues previously masked by years
of economic and political stability:
 Economic weaknesses
 Unemployment remains stubbornly high at 15 percent overall and 31 percent among
university graduates. * http://www.worldbank.org/en/country/tunisia/overview
 Governance concerns: democratization, corruption control, capacity-building, electoral
systems, judicial systems
• In order to maintain positive MDGs indicators and progress towards the Sustainable
Development Goals (SDGs) agreed upon in the 2015, Tunisia need to Create an enabling
environment to attract foreign investments and private sector investment

4. Current Economic Framework
• The current economic framework is a legacy from the development models of the 1960s and
1970s:
 Dominant role of the state government
 Large and inefficient public enterprises (Health care, education, sanitation, electricity,
etc.)
 High barriers to trade and monopolistic markets
 Isolation from the global economy
 Exchange rate policy has not been active in improving the international competitiveness
of exports
 Policies that protected capital-intensive activities from competition (high taxation of
imports and a complex system of non-tariff barriers)

5. Legacy Economic Frameworks Limits
• The legacy economic framework and the fiscal discipline helped Tunisia:
 Keep inflation under control and fight poverty through tight fiscal policies
But Economic Growth may likely have been higher without them
 Persistently overvalue the local currency TND (Tunisian Dinar)
But made it more difficult for producers to compete with other developing country exporters
(China for example)
 Control the public deficit and the external debt: Tunisia was mildly affected by the
Global Financial Crisis and maintained macroeconomic stability and avoided economic
crises during the Democratic Transition after the Arab Spring
But prevented the country from enjoying higher and sustained economic growth through a
bolder attempt of scaling up public spending, mainly to improve infrastructure.

6. Legacy Economic Frameworks Limits
• The Legacy Economic Framework represents a real obstacle towards improving domestic
competition that would be healthier for economic growth and led to:
 Isolation from the global economy and fragmentation
 Slow economic modernization
 Low competitiveness and productivity.
 Limited transfer of technology
• Tunisia needs Reforms to:
 Overcome substantial economic challenges
 Build an enabling favorable business environment
 Move from state-dominated to private investment
 Increase access to finance

7. The Economic Framework Reform
• Tunisia has enormous potential to reform: the rating agency Fitch points to “Tunisia's banking
sector representing a key structural weakness and ripe for an overhaul”.
• Although the country has ratified a democratic constitution in 2014 that reinforced SDGs
such as Gender Equality, Reduced Inequalities, Peace and Justice Strong Institutions, it
still need to reduce the unemployment rates by reforming the economic framework to create
an enabling environment for foreign investment
• Tunisia signed a two year deal with the International Monetary Fund in 2013, agreeing to follow
certain economic policies such as keeping its deficit under control, making the foreign
exchange market more flexible and structural reforms.

8. The Economic Framework Reform
Tunisia needs to:
• Intensify structural and governance reforms
 Reduce subsidies in favor of public spending in better-targeted social protection and
on growth-enhancing public investment
• Reform the monetary policy framework :
 Remove interest rate caps and making the central bank more independent.
 Remove gradually price controls to reduce distortions to economic activity and enhance
the transmission of monetary policy
 Enhance exchange rate flexibility further to boost competitiveness ,and build reserves
as a buffer
 Audit the general government fiscal position, and improve general government fiscal
statistics.
 Tackle the fiscal deficit and the contingent liabilities with structural fiscal reforms.
 Reduce trade barriers to integrate Tunisia into the world economy
• Implement labor market and education reforms to stimulate employment
• Improve collection of taxes on income and profits

9. Establishing an Enabling Environment
• Tunisia has undeniable advantages that can encourage foreign investments and attract
private sector investments:
 Geographic location: proximity to European, African and Middle Eastern Markets
 Skilled workforce: young and well educated population (65,000 graduates looking
for employment every year)
 Huge infrastructure growth: The government has pledged major investment to
improving roads, industrial areas and technology regions
• Tunisia has a rank of 74 (out of 189 economies) according to the World Bank Doing
Business Report 2016
• According to the ranks below, Tunisia have to improve policies to attract foreign
investments
* http://www.doingbusiness.org/data/exploreeconomies/tunisia#starting-a-business
Starting a
business
Dealing with
Construction
Permits
Getting
Electricity
Registering
Property
Getting
Credit
Protecting
Minority
Investors
Paying
Taxes
Trading
Across
Borders
Enforcing
Contracts
Resolving
Insolvency
103 57 38 86 126 105 81 91 81 57

10. Establishing an Enabling Environment
Tunisia needs to:
• Establish a new investment code that will comply with international standards
• Improve aspects of the business climate, such as competition, bankruptcy, and investment
regulations
• Strengthen tax policies and administration
• Stimulate job creation and reduce skills mismatches in the labor market
• Reduce dependence on the public sector and establish a new public-private partnership law
Tunisia Foreign Direct Investment, percent of GDP
(World Bank http://www.theglobaleconomy.com/Tunisia/Foreign_Direct_Investment/ )

11. Official Aids Role
• Tunisia still counts on the support of official aids, international lenders and bilateral aid o
effectively implement these reforms and leverage other resources of financing.
* http://www.aidflows.org/

12. Sources
• http://www.imf.org/external/pubs/ft/fandd/2015/06/mazarei.htm
•
• http://www.oecd.org/about/publishing/Tunisia-a-reform-agenda-to-support-competitiveness-and-
inclusive-growth.pdf
• http://www.doingbusiness.org/data/exploreeconomies/tunisia