Tunisia must show ‘audacity’ in reforms, World bank says

The World Bank said it wrongly praised Tunisia’s economic model, which dates back to the 1970s

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Bureaucracy, a lack of competition and a banking system in ruins have ossified the Tunisian economic model, the World Bank said Wednesday, calling for sweeping reforms.

Poverty and soaring unemployment were behind the 2011 uprising when Tunisians overthrew longtime dictator Zine El Abidine Ben Ali.

The World Bank said Tunisians had "surprised the world with the audacity of the revolution," adding that "similar audacity is now required in the economic reforms".

"Our analysis highlights an economy that has remained frozen in low value-added activities and where firms are stagnating in terms of productivity and jobs creation," it said in a report published Wednesday.

The World Bank said it had wrongly praised Tunisia's economic model, which dates back to the 1970s, during the rule of Ben Ali and urged the government to make sweeping reforms.

It called for an end to the separation of the economy into offshore and onshore sectors, a policy that was at the heart of the Tunisian model.

In the former, dedicated to exports, Tunisia is confined to low value-added assembly activities, while in the onshore sector, which covers activities dedicated to the domestic market, protectionism and monopolies stifled competition and hampered innovation and productivity, the Bank said.

This also led to businesses clustering along Tunisia's coast, deepening the divide with the interior.

Just 50 percent of the economy is open to competition, the World Bank said, while various administrative issues cost businesses about 13 percent of their revenues.

Jobs created are few and unskilled and fail to meet the needs of Tunisia's hundreds of thousands of unemployed graduates.

The rigidity of the country's employment law also led businesses to limit the number of people they hire, or to use indirect ways of recruitment using insecure contracts, the report said.

"The inflow into unemployment has mostly fallen on the young and educated individuals, reflecting a structural mismatch between the demand for labor tilted toward the unskilled and a growing supply of skilled labor," it said.

Businesses in Tunisia also struggle to gain the loans they need for their investments, with state-owned banks on the brink of bankruptcy.

The report said that Tunisia's economic model of manufacturing for exports and protecting the domestic market was valid in the 1970s but since then had hindered progress.

"Tunisia's inability to profoundly reform its economic system was at the root of the revolution in January 2011. There is now a real risk for Tunisia to settle back to the pre-revolution economic status quo with just marginal modifications to its development model," it said.