October 24, 2014 10:09AM

Fragility of Tunisia’s Transition

The upcoming parliamentary election in Tunisia comes at a critical time. For a while, Tunisia was seen as a poster child for a successful transition away from authoritarianism. In Egypt, a widespread disappointment with an Islamic government resulted in a military coup last year. In contrast, when Tunisia could not get through a political impasse, the Islamic Ennahda party negotiated a handover to a caretaker government earlier this year, which has led the country to an early election.

Regardless of whether Ennahda can repeat its electoral success from three years ago or whether secular forces take over, the new Tunisian government will be in an unenviable position: it will have to address a growing security crisis in the country. In the past two years, the country has seen the emergence of political violence and terrorism perpetrated mostly by radical Salafist groups. Those violent efforts include the killings of two opposition politicians, Chokri Belaid and Mohammed Brahmi, as well as a car bomb plot foiled just last week.

Tunisia has also become a fertile ground for the recruitment of fighters of the Islamic State (ISIS). Some estimate that over 2,400 ISIS fighters are from Tunisia, which would make Tunisians the most numerous nationality fighting for ISIS. Restoring basic security, order, and rule of law—and preventing the country from descending into a full-fledged internal conflict—will have to be a priority for the new government.

The political violence may have multiple roots, but Tunisia’s poor economic performance is clearly one of them. In recent years, many strikes and protests over economic conditions have taken a violent turn and led to attacks on local police stations, for example.

While the West is confronted with problems posed by aging populations, Tunisia, like other countries in the region, faces the challenge (and opportunity) of harnessing the economic potential of an extremely young workforce. Practically half of Tunisians are under the age of 30, and many of them are struggling. Although unemployment is slowly falling, the unemployment rate among university-educated young Tunisians is over 30 percent, making their situation precarious.

Because of a vibrant tourism sector and economic links with Europe, Tunisia has relied less on government ownership and industrial planning than other Arab countries and has long enjoyed the presence of many foreign investors. Still, its economy faces significant barriers to competition and market activity. Tunisia ranks 87th on the most recent World Economic Forum’s Global Competitiveness Report, compared to 32nd in the 2010–2011 edition. Its poor performance is driven mainly by its underdeveloped goods, financial, and labor markets, which are paralyzed by heavy-handed regulation.

Tunisia’s officials are aiming to bring the deficit down to 5 percent of GDP in 2015. The essential components of reining in deficit spending will include reforms to existing entitlement programs—the government has already increased retirement age to 62 years—and curbing the growth in public-sector salaries. Given the power of public sector unions, the latter effort is extremely contentious. While the country’s labor union, the Union Générale Tunisienne du Travail, is credited with playing an important role in the political settlement that led to this election, it has also opposed economic reforms, including reductions in the growth of salaries of civil servants.

However, structural reforms that would strengthen private markets and make them competitive are essential for accelerating the country's currently anemic economic growth. Regardless of who the Tunisians elect on Sunday, the country is overdue for a deep liberalization, improving its business environment and eliminating red tape and corruption. Compared to its neighbours, Tunisia performs relatively well on the World Bank’s Doing Business project, but its performance is glaringly inadequate in the domain of obtaining construction permits—obtaining a permit requires 19 official procedures, takes 94 days, and costs almost 256 percent of the country's per capita income—and in the area of accessing credit, where Tunisia is held back by poorly functioning financial markets.

What makes structural reforms imperative is not just that deficit reduction is unlikely to yield fruit in a prolonged absence of economic growth. More significantly, the Arab Spring, which started in Tunisia, was not only about deposing corrupt dictators—although the corruption of now-deposed Tunisian president Ben Ali was legendary. The Tunisian revolution was a response to a system of governance that was systematically failing young people and denied them access to economic opportunity. In order to deliver on the promise of the event of spring 2011, the government must give Tunisians the freedom to succeed without being subject to harassment of petty bureaucrats and union bosses.