Tunisia: Year in Review 2012
The year 2012 was marked by a slow return to growth for Tunisia as the country emerged from recession, posting a largely mixed economic performance ahead of presidential and parliamentary elections due to be held later in 2013.
While lagging political transition, together with external pressures led by the recession in Europe and high global oil prices, presented obstacles to sustainable growth, Tunisia saw an uptick in foreign direct investment (FDI) and industrial exports in 2012, which bode well for medium-term recovery.
GDP, which fell 1.8% in 2011, is expected to have grown by 2.8% in 2012, rising further to 3.5% in 2013 on the back of growth in industry, tourism and domestic consumption, according to the IMF. However, Tunisia’s economy felt the strain of the time it took for growth to return, prompting the government to raise current spending in a bid to address social demands.
Measures introduced, which included public sector wage hikes, food and energy subsidies and programmes to address youth unemployment, have led to forecasts of a widening in the fiscal deficit to 7.2% of GDP in 2012, up from 3.5% of GDP in 2011. Rising global oil prices, a drop in demand for exports and a slow return to 2010 investment levels have also weighed on the external finances, with the current account deficit expected to have widened to 7.5% of GDP by 2012 year-end.
Domestic demand for credit, meanwhile, has grown rapidly. Growing consumer lending has strained bank liquidity levels and contributed to a rise in inflation, which reached 5.5% in November 2012. In October, Tunisia’s central bank issued new restrictions for consumer credit that require banks to hold reserves equal to the volume of new consumer loans. The measures, aimed at rebalancing consumer and investment spending, should help reinforce the financial sector base and rein in inflation.
Investor confidence will be strengthened if Tunisia manages to navigate the country smoothly through the election process this year. However, elections have already been postponed from March until June and risk being pushed back further depending on whether issues relating to the constitutional drafting process can be resolved.
While Tunisia’s debt is growing, the country benefits from considerable support from foreign partners and financing institutions that are expected to cover much of its borrowing needs in the near-term. Tunisia received external budget support of around $3.2bn over the course of 2012 from several sources, including the Saudi Development Fund, the Arab Monetary Fund and the European Investment Bank.
The Ministry of Finance estimates it will require a further TD7bn (€3.42bn) in 2013. Tunisia expects roughly $500m of its borrowing needs to be financed by the US, which will allow it to tap international debt markets at more favourable rates.
Despite global economic uncertainty, FDI inflow rallied in 2012 after dropping by 26% in 2011. In the first 11 months of 2012, FDI increased by 29.2% to reach TD1.81bn (€883.8m), rising to within 10% of levels witnessed in 2010 before the political transition, according to the Agence de Promotion de l’Investissement Extérieur (Foreign Investment Promotion Agency, APIE).
The energy segment received the lion’s share of investment, with sector FDI increasing 25% year-on-year (y-o-y) and edging towards 2010 levels. Investment in tourism saw significant growth, rising by a factor of six to reach TD77m (€37.6m) by November. This came in part due to the Qatari group Mejda Lel Estithmar’s purchase of a Tunisian hotel, according to data from APIE, which helped to make Qatar the second-largest foreign investor in the country behind France.
An uptick in industrial activity should also help to boost exports and create employment in the near term. In the first nine months of 2012, investment in new industrial projects rose 14.8% y-o-y to reach TD2.75bn (€1.34bn), buoyed by new projects in agro-industry, leather goods manufacturing, and rubber processing. Mechanical and electrical products continue to dominate industrial exports, growing 4.9% to reach TD19.4bn (€9.47bn) by end-November 2012.
Growth in manufacturing industries in 2012 was primarily supported by foreign funds and, in keeping with tradition, remains geared toward exports. While new sector investment was down overall compared to 2011, foreign investment in industry increased by 48.4% through end-November, helping to boost investor confidence.
Tourism, a mainstay of the Tunisian economy, also rallied in 2012. Sector revenue rebounded to reach TD1.8bn (€878.9m) by August 2012, marking a 35.3% increase on the same period in 2011. Revenue was cut by roughly 40% in 2011 with political uncertainty in Tunisia and the economic downturn in Europe combining to keep tourists away. However, tourism receipts in the first eight months of 2012 came within 15% of those registered in the same period of 2010 prior to the revolution. The government has announced it will launch a tourism development programme in February 2013 aimed at stimulating sector recovery.
While Tunisia’s economic progress faces challenges this year, solid gains in tourism and industrial production should help boost overall performance in the short-term. In particular, growth in overall FDI during the transitional period of 2012 bodes well for returning investor confidence, although the level of economic recovery will also depend on the country’s ability to navigate timely and successful elections this year.