Two years after the mass uprising that ousted dictator Zine El Abidine Ben Ali and instituted a system of electoral representation, Tunisia is still struggling to rebuild its economy. Chronic unemployment plagues youth and university graduates, GDP growth is slow, the budget deficit is increasing, and the country faces a $20 billion-plus external debt. The government has undertaken several initiatives to foster local entpreneurship and attract more foreign direct investment, but it has done so through the implementation of enormous foreign aid packages. Unless the unemployment rate significantly decreases through private sector growth and continuing internal unrest ends, Tunisia will be forced to rely on foreign aid to function.
To get back on solid economic footing, Tunisia has enlisted the international community. The European Union has allocated 220 million euros in financial assistance for Tunisia this year alone, and the two entities signed an agreement in November that will increase Tunisia’s European export market. Since January 2011, the U.S. has committed more than $300 million to help Tunisia pay its debts, transition into democracy, and provide entrenpreneurship and employability training for its citizens. Libya committed $200 million in aid in November. But all this foreign aid is a mere bandaid for Tunisia, whose finance minister has said that the government will need about $4.4 billion in financial assistance next year. Meanwhile, unemployment in Tunisia remains a staggering 18 percent. Private sector growth creeps at a snail’s pace in part because the government’s own employment initiatives have focused on enlarging the bloated public sector, further increasing its deficit.
Even if the private sector recovers and unemployment is addressed, social unrest, threatens to undermine any gains made. First, the recent rise in hardline Islamist demonstrations against the government, mostly by Salafist groups, deters potential investors like Qatar and Turkey from establishing self-sustaining capital development projects in Tunisia, which they may deem unstable territory for such ventures. Second, union strikes have become regular occurrences, stagnating Tunisia’s capacity for production. The crown jewel in Tunisia’s narrow resource base—its phosphate industry—has been crippled by such activities. Several plants belonging to the state-owned Compagnie de Phosphates have been forced to cease operations completely, and annual phosphate output is one-third of its pre-revolution level. If the current level of internal unrest continues, further hindering production growth and dissuading foreign direct investment, Tunisia will become entirely dependent on foreign aid.
The only bright spot in Tunisia’s economy seems to be its entrepreneurial community. Both local and foreign entities have established seed funds for startup companies in Tunisia, and foreign aid and NGOs are providing necessary business skills. However, the success of Tunisia’s entrepreneurial sector alone will not solve the basic economic problems facing the country. Foreign aid can certainly help, but it must be accompanied by effective government policies. Unfortunately, Tunisia’s ruling coalition has neglected thoughtful economic policies in favor of short-term fixes. If this pattern continues, Tunisia will soon find itself completely dependent on foreign assistance, dimming its post-revolution hopes of becoming an important regional player.