2014-2015-tunisia interim country strategy paper

8/9/2019 2014-2015-Tunisia Interim Country Strategy Paper

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Tunisia

Interim Country Strategy Paper

2014 - 2015


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This strategy interim was prepared between June and September 2013. The interim strategy was approved by theBoard of the African Development Bank Group on March 5, 2014.


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T u n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5 3

A f r i c a n D e v e l o p m e n t B a n k

Country Strategy Paper Drafting Team

Design Team:

V. CASTEL, C)*&' C6/59 E$/*5, ORNA

K. ABDERRAHIM-BEN SALAH, E$/*5, ORNA

P. TRAPE, P*/$*" C6/59 E$/*5, ORNA

M. CHAUVIN, E$/*5, ORNA

Team Members:

A. B. DIALLO, C)*&' E/&(9 E/(*/&&, ONEC1

A. KESSAB, G7&/"/$& E8&5, OSGE1

A. AHIAOUI, C)*&' ICT E8&5, ICT4D

A. CHOUCHANE, C)*&' R&&"$) E$/*5, EDRE1

B. BEN SASSI, P*/$*" W"5& "/% S"/*5"5*/ O''*$&,

OWAS

C. AMBERT, S&/* S5"5&(9 O''*$&, OPSM.0

C. MOLLINEDO-TRUJILLO, C)*&' S5"5&(*5, STRG

F. BOUGAIRE, P*/$*" W"5& "/% S"/*5"5*/ E/(*/&&,

AWF

H. CHAHBANI, P*/$*" I/'"56$56& E8&5, ONRI1

I. HAFSA, A*5"/5 S5"5*5*$*"/, ESTA

J. BANDIAK, S&/* M"$-&$/*5, OSGE1

J. MURARA, C)*&' S$*-&$/*5, OSHD1

K. HASSAMAL, S5"5&(9 A/"95, STRG

K. LUMBILA, S&/* E$/*5, OSGE1

L. BOURKANE, E$/*5, OSHD.2

L. DADE, R&(*/" F*/"/$*" M"/"(&&/5 C%*/"5,

ORPF.2

L. LANNES, P*/$*" H&"5) E$/*5, OSHD3

M.DAMAK, P*/$*" C&%*5 R* O''*$&, FFMA2

M. GUEE, P*/$*" E%6$"5*/ E$/*5, OSHD.2

M. OULD TOLBA, C)*&' A(/*5, OSAN1

S. DAH, P$6&&/5 E8&5, ORPF1

S. OMAR ELMI, ICT E8&5, ICT4D

T. MOURGUES, C/65"/5, OPSM0

W. DAKPO, R&(*/" P$6&&/5 C%*/"5, ORPF1

Regional Director:

J"$# KOLSTER, D*&$5, ORNA

Peer Review:K. MHIRSI, C)*&' I/7&5&/5 O''*$&, M"6*5*6 C6/59

O''*$&

M. NDONG NTAH, C)*&' C6/59 E$/*5, ORNB

H. SAMER, D*7**/ M"/"(&, OPEV2

S. LARBI, S&/* I/7&5&/5 O''*$&, OPSM3


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T u n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 54


Table of Contents

11 I Introduction

13 II Country Context and Prospects

13 2.1 Context

A. Political Situation

B. Economic Context

C. Social Situation

D. Environment and Climate Change

25 2.2 Strategic Options

A. Country Strategic Framework

B. Challenges and Weaknesses

C. Strengths and Opportunities

31 2.3 AID Coordination/Harmonization and AfDB Positioning in the

Country

34 III Bank Group Strategy

34 3.1 Rationale for Bank Group’s Involvement40 3.2 Expected Outcomes and Targets41 3.3 Risks and Mitigative Measures43 3.4 Implementation Arrangements44 3.5 Country Dialogue Issues

45 IV Conclusions and Recommendation

45 4.1 Conclusions45 4.2 Recommendation


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List of Annexes

1. Endnotes

2. Results-Based Logical Framework – Tunisia’s CSP 2014-2015

3. I-CSP 2012-2013 Completion Report and Portfolio Performance Review (2013)

4. Tunisia’s Portfolio (UA) (September 2013)

5. Trends in Tunisia’s Sovereign Ratings

6. IMF: USD 1.74 Billion Standby Arrangement

7. Simulation in Terms of Loans

8. Poverty and Unemployment in the Regions

9. List of Economic and Sector Studies on Tunisia Carried out Since 2011

10. Status of Implementation of AfDB Budget Support Measures in 2011 and 2012

11. Civil Society Involvement in Strategy Preparation

12. Public Finance and Procurement Management Systems: Bank’s Risks and Fiduciary Strategy

12. Medium- and Long-Term Debt Sustainability Analysis

List of Figures

1. Contribution to the Growth of Key Sectors of the Economy

2. Macro-Economic Indicators

3. Distribution of FDI Flows by Sector (2012)

4. Governance Index 2012 – Tunisia’s Scores Compared to Africa

5. Freedom of Expression and Accountability and Corruption Perceptions Indices

6. Business Environment: Comparative Ranking with 183 Countries

7. Business Climate: Competitiveness Survey 2012 Results

8. Overall Factor Productivity Growth

9. GCI 2011-2012 Ranking

10. Tunisia’s Main Trading Partners

11. Main Destinations of Tunisian Exports and Complementarities




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List of Tables

1. key Partners’ Active Portfolios by Sector (2013 - in USD Million)

2. Alignment with CSP-1 Analysis, Intervention Pillars and the Strategic Framework

3. Loan Scenarios

List of Boxes

1. Innovations in the Approach Adopted

2. Choice of the I-CSP Tool

Currency Equivalents - January 2014

CURRENCY UNIT = DINAR (TND)

UA 1 = TND 2.55

UA 1 = USD 1.54

UA 1 = EUR 1.12

FISCAL YEAR

1 JANUARY - 31 DECEMBER

12. Poverty, Inequality and Polarization in 2005 and 201013. Trends in the Overall Unemployment Rate Among University Graduates and Women

14. Trends in the Sophistication Index of Exports of Tunisia and Some ASIAN Countries

15. Indices of Regional Disparities in Terms of Wealth, Health and Education

16. Per Capita Investment in TND for the 1987-2010 Period

17. Rate of Youth Unemployment (Aged 18-30 years) by Type of Certificate (2010)

18. Share of Textile, Mechanical and Electronic Products in the Export Basket


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Acronyms and Abbreviations



AFD F&/$) D&7&&/5 A(&/$9

AfDB A'*$"/ D&7&&/5 B"/

AMU A"# M"() U/*/

ANC N"5*/" C/5*56&/5 A&#9

AWF A'*$"/ W"5& F"$**59

B B**/

BCT C&/5" B"/ ' T6/**"

CEDAW C/7&/5*/ / 5)& E**/"5*/ ' A F ' D*$**/"5*/ A("*/5

W&/

CPR C/(& ' 5)& R&6#*$

CSP C6/59 S5"5&(9 P"&

I-CSP I/5&* C6/59 S5"5&(9 P"&

DAC D&7&&/5 A*5"/$& C*55&&

EBRD E6&"/ B"/ ' R&$/56$5*/ "/% D&7&&/5

EIB E6&"/ I/7&5&/5 B"/

EU E6&"/ U/*/

EUD E6&"/ U/*/ D&&("5*/FDI F&*(/ D*&$5 I/7&5&/5

FIPA F&*(/ I/7&5&/5 P5*/ A(&/$9

GAFTZ G&"5& A"# F&& T"%& !/&

GDP G D&5*$ P%6$5

HDI H6"/ D&7&&/5 I/%&8

ICTs I/'"5*/ "/% C6/*$"5*/ T&$)/(*&

IFI I/5&/"5*/" F*/"/$*" I/5*565*/

IMF I/5&/"5*/" M/&5"9 F6/%

INS N"5*/" I/5*565& ' S5"5*5*$

ITCEQ T6/**"/ I/5*565& ' C&5*5*7&/& "/% Q6"/5*5"5*7& S56%*&

JBIC J""/ B"/ ' I/5&/"5*/" C&"5*/


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KfW K&%*5"/5"5';W*&%&"6'#"6KTOE K*5/ O* E6*7"&/5

MDCI M*/*59 ' D&7&&/5 "/% I/5&/"5*/" C&"5*/

MENA M*%%& E"5 "/% N5) A'*$"

MIC M*%%&-I/$& C6/59

MIC-TAF M*%%& I/$& C6/5*& T&$)/*$" A*5"/$& F6/%

NPLs N/-P&'*/( L"/

OECD O("/*:"5*/ ' E$/*$ C&"5*/ "/% D&7&&/5

OFID OPEC F6/% ' I/5&/"5*/" D&7&&/5

OPSCOM O&"5*/ C*55&&

PDAI I/5&("5&% A(*$656" D&7&&/5 P("&

PISA P("& ' I/5&/"5*/" S56%&/5 A&&/5

PISEAU W"5& S&$5 I/7&5&/5 P+&$5

PPP P6#*$-P*7"5& P"5/&)*

SME S"- "/% M&%*6-*:& E/5&*&

TND T6/**"/ D*/"

TNDB B**/ T6/**"/ D*/"

TNDM M**/ T6/**"/ D*/"

UA B"/ G6 U/*5 ' A$$6/5

UAB B**/ U/*5 ' A$$6/5

UAM M**/ U/*5 ' A$$6/5

UNCTAD U/*5&% N"5*/ C/'&&/$& / T"%& "/% D&7&&/5

USD U/*5&% S5"5& D"WAEMU W&5 A'*$"/ E$/*$ "/% M/&5"9 U/*/

WB W% B"/

WEF W% E$/*$ F6

WGI W% G7&/"/$& I/%*$"5




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Executive Summary

1. The previous Interim Country Strategy

Paper (I-CSP) was approved by the Bank’s

Board of Directors on 27 February 2012.

In view of political, economic and social

uncertainties in the wake of the Revolution,

the Bank opted for a two-year (2012-2013)

I-CSP. Two priority focus areas for the Bank

were adopted in agreement with Tunisian

authorities after broad consultations with civil

society and the private sector, namely: (i)

Growth and Economic Transformation and

(ii) Inclusion and Reduction of Regional

Disparities.

2. Political Context: In January 2014 the

adoption of the new constitution ended the

Tunisian political crisis that lasted more than6 months. Indeed the national consensus

signed by the main political parties in October

2013 to end the political crisis resulted in

the appointment of new Prime Minister in

December, and the announcement of his

government in January 2014, following the

adoption of the new Constitution. These two

major political events have ended the lack of

political visibility affecting donors’ intervention

and impeding economic recovery. The transition

process in Tunisia remains one of the most

stable in the sub-region and the forthcoming

elections scheduled for end of 2014 could

establish a renewed virtuous circle.

3. Economic Context: After the Revolution,

the Tunisian economy has been affected by

social movements, political developments

and the fragile global economic context.

However, the relative resilience of the economy

to the two shocks of the 2011 Revolution and

the Euro zone crisis tends to prove that despite

economic uncertainties, Tunisia’s economic

fundamentals are still good. After a GDP

contraction of 1.9% in 2011, the Tunisian

economy recorded a 3.3% growth rate in

2012. This rate is estimated to 2.6% in 2013

(BCT estimate).

4. Government’s Objectives: In a context

of transition, the authorities have opted for a

flexible strategy aimed at appeasing social

and economic demands while preparing

necessary structural reforms. The I-CSP is

based on Government’s guidelines which

were presented in March 2013. This vision

provides for a series of medium- and long-

term structural reforms and investments

aimed at creating conditions for accelerated




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growth and job creation to ensure regionalbalance and inclusive development.

5. Identification of Bank Group Operations:

the operations were identified on the basis

of the recommendations contained in the

I-CSP 2012-2013 completion report and the

discussions held with the Government and

development partners during missions fielded

in June and September 2013. Besides bilateral

meetings, a workshop was organized with

civil society in September 2013 to examine

the Government’s strategy. The document was

discussed with the new authorities in 2014.

6. Intervention Pillars: the I-CSP prioritizes

the principles of alignment with Government’s

priorities, particularly the creation of (higher

value added) jobs and the reduction of regional

disparities and to that end, it seeks to support

actions to develop an inclusive private sector.

The CSP is a continuation of the previous

I-CSP 2012-2013; however, it seeks to refocusthe Bank’s operation for the 2014-2015

period on two pillars, namely “governance”and “infrastructure” - in line with the Bank’s

Ten-Year Strategy. Furthermore, in a context

of transition, support within the framework of

the pillars will be provided with a dual temporal

objective of carrying out (i) short-term actions

to ensure rapid achievements and (ii) medium-

/long-term actions to lay the foundations for a

new more inclusive and higher value-added

development model.

7. Instruments and Risks: in view of

challenges on the Bank’s financing, special

emphasis will be laid on technical assistance.

Trends in risk assessment at the regional

and national levels will influence the level

and type of Bank operation (technical

assistance, investment projects or budget

support). In this respect, three scenarios

have been developed to introduce various

possible levels of commitment. Furthermore,

in terms of loans, priority will be given to

the “infrastructure” pillar in the “low” and“average” scenarios.




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I. Introduction

1.1 Tunisia is a founding member of the

Bank and its second historic beneficiary.

The Bank’s portfolio in Tunisia, which is the

institution’s second largest portfolio, comprises

16 operations and 24 technical assistance

operations amounting to UA 1.3 billion.

Furthermore, the Bank contributed UA 659

million to the State budget in 2011 and 2012.

1.2 The previous Interim Country Strategy

Paper (I-CSP) was approved by the

Bank’s Board of Directors on 27 February

2012. In view of political, economic and

social uncertainties following the Revolution,

the Bank opted for a two-year (2012-2013)

I-CSP. Two priority areas for Bank intervention

were adopted in agreement with Tunisianauthorities after broad consultations with civil

society and the private sector, namely: (i)

Growth and Economic Transformation and (ii)

Inclusion and Reduction of Regional Disparities.

1.3 Since the approval of the 2012-2013

I-CSP, Tunisia’s transition has been cha-

racterized by a decline in political visibility

and growing economic uncertainty.

1.4 Social movements, particularly in

disadvantaged regions, have continued,

bringing to the fore issues related to (qualitative

and quantitative) employment, the situation

of youths, regional disparities and poverty.

In addition, the crises in Europe and Libya

profoundly affected economic recovery,

already weakened by the Revolution.

1.5 The lack of political visibility during

the period 2012-2013 also contributed to

slowing down economic recovery. Besides

the unrest that took place between February

and July 2013, political uncertainty stemmed

from delays in drafting the new Constitution

and holding new elections.

1.6 Nevertheless, the authorities have

maintained, at the same time, a dialogue

with key development partners on reforms

and investments, even without a 5 years

development plan.

1.7 The authorities are striving to remove

such uncertainties and the adoption of the

Constitution in January 2014 is a major




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step in this regard. In fact, all partners andobservers think that the transition in Tunisia

remains one of the most advanced and most

promising in the region.

1.8 In this context, the authorities

requested the Bank to formulate a new

interim strategy for the 2014-2015 period.

The aspects of this strategy were identified

through consultation with the authorities,

development partners, civil society and the

private sector.

1.9 The period covered by this I-CSP will

be aligned with the national agenda.

During this period, political events will be

organized and a new development plan

designed.

1.10 Though the I-CSP is a continuation

of the previous interim strategy, it takes

into account lessons learned by the Bank

regarding its commitment during the transitionperiod initiated in 2011 and the findings of

many studies carried out.



Box 1: Innovations in the Approach Adopted

1. A commitment level that can be adjustedin the light of risks in order to mobilizemaximum resources.

2. Strong portfolio implementation supportthrough the establishment of an internalcoordination entity (Baobab) and theprovision of technical support to accelerate

procurement.

3. Strong mobilization of technical assis-tance resources and advisory capacities tosupport transition and develop the futureportfolio.

4. Refocusing activities on (i) supportto enhance the business climate and (ii)improvement of public service delivery and

access to employment in disadvantagedregions.

5. Strong mobilization of partners and theprivate sector in all operations for leverageeffect.

6. Support in designing the new developmentplan, where appropriate.

7. The logical framework of designedprojects should include indicators formonitoring the achievement of the Bank’s2013-2022 Strategy objectives.


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II. Country Context and Prospects

2.1 Political, economic and socialcontext

A. Political Situation

2.1.1 After exercising power for over 23

years, President Ben Ali went into exile on

14 January 2011 following one month of

protests. Pressure exerted by demonstrators

and civil society led to the setting up of three

successive transitional governments (from

January to December 2011) to manage the

country’s economy and prepare free and

transparent Constituent Assembly elections.

2.1.2 The October 2011 Constituent

Assembly elections, though delayed, wereconducted in accordance with the electoral

process in place. To form a stable majority,

the Islamic Party, Ennahdha, which obtained

41.7% of the vote, formed a coalition with

the centre-left Party, CPR, and the Social

Democratic Party, Ettakatol. The initial aim

was to draft a new Constitution in one year.

2.1.3 The Troika, which won 63.6% of

seats in the National Constituent Assembly,

formed a government in December 2011

headed by the Secretary-General of Ennahda.

The office of President of the Republic is held

by the CPR Chairman and the Chairman of

Ettakatol is the ANC President.

2.1.4 However, the unrest that occurred

between end-2012 and November 20131

influenced the political process in 2012-

2013. In March 2013, tensions led to the

formation of a new government. Independent

personalities were appointed at the helm of

four key ministries2 to meet the expectations

of opposition parties. Security has become a

central issue and many actions have been

carried out to restore confidence.

2.1.5 In January 2014, the adoption of the

new constitution and the announcement

of a new government ended the Tunisian

political crisis that lasted more than 6 months.

Indeed, the national consensus signed by the

main political parties in October 2013 resulted

in the appointment of a new Prime Minister

in December, and the announcement of his

government in January 2014, the day following

the adoption of the new Constitution.




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2.1.6 These two political events haveconsiderably lessened uncertainty and

lack of political visibility which had affected

donors’ intervention, and impeded economic

recovery. Following the vote of confidence

for the new government, the Tunisian Stock

Exchange closed on a positive note, the dinar

appreciated against the Euro and the U.S.

Dollar, and the IMF announced a disbursement

of $ 500 million of its support program.

2.1.7 In addition, the transition process in

Tunisia remains one of the most stable in

the region. The announcement of a new

government of technocrats and independents

as well as the holding of the forthcoming

elections scheduled for October 2014 could

husher a new positive impetus.

B. Economic Context3

2.1.8 Tunisia has for long been considered

as an economic success story in the region.Since independence, the Tunisian economy

has undergone profound restructuring.

Its domestic production, which was initially

dominated by agriculture and raw materials

(phosphate, oil and gas), is directed towards

services and, to a lesser extent, the manu-

facturing industry.

2.1.9 The decade preceding the Revolution

was a period of transition for the Tunisian

economy plagued by many challenges. The

objectives of the reforms included in the9th (1997-2001), 10th (2002-2006) and 11th

(2007-2011) Plans were to increase growth

from 4.8% to 6.1% and to reduce the unem-

ployment rate from 14.2% to 13.4% by 2011.

During this period, the country experienced

moderate, but steady, growth of 4.9% annually,

raising GDP (PPA) per capita to a little over

USD 4 200, despite the shock of the 2008

financial crisis. This growth contributed to

reducing poverty in rural and urban areas4

and improving health and education indicators.

Despite the global economic crisis, downswing

effects and the Recovery Plan helped to

implement a counter-cyclical policy without

worsening the budget deficit (less than 3% in

2009). However, despite the good perfor-

mance recorded, the set objectives in terms

of employment, social equality and regional

development were not achieved.

u Macro-economic Developments

2.1.10 After the Revolution, the Tunisian

economy has been affected by social

movements, political developments and

the fragile global economic context.

However, the economy was resilient to the

two shocks of the 2011 Revolution and the

Euro zone crisis, indicating that Tunisia’s

economic fundamentals are still good, despite

economic uncertainties. The impact of

the European crisis on the key sectors of

manufacturing and textile industries (-8%) and




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mechanical and electrical industries (-2%)was offset by a strong rebound in refining

(+142.8%), chemical (+15.9%), agricultural

(+5.7%) and hotel and catering (12%) activities

(Fig. 1). FDIs which increased by almost 80%

compared to 2011 (thanks particularly to the

privatization of two seized assets), the vitality

of domestic demand and tradable (transport

and hotel and catering) services were the main

drivers of growth in 2012.

2.1.11 In fact, after recording a negative

growth (-1.9%) in 2011, the Tunisian economy

experienced an upswing in 2012 with a

3.3%5 growth rate which is expected to be

between 2.6% 3% in 2013 (Fig.2).

2.1.12 The budget deficit rose from 3.4%

of GDP in 2011 to 4.9% in 2012 and is

expected to stand at 6.5% in 2013. Tax and

non-tax revenues increased moderately in

2012.

2.1.13 The increase in public consumption

expenditure was relatively significant,

thus accelerating the deterioration of the

budget deficit. In particular, grants expenditure

increased sharply due to rising food and

oil prices, coupled with the depreciation of

the dinar6. Furthermore, the increase in civil

servants’ salaries and the recruitment of new

workers raised the public wage bill significantly

in 2013 (+40% compared to 2010). However,

this expenditure which has stimulated overall

demand partly explains the rapid cushioningof the shock caused by the January 2011

Revolution. It should be noted that interest on

debt rose by 6.9% in 2012 and 4.9% in 2013.

2.2.1.14 Regarding investments, budget

execution in 2012 and 2013 was less

expansionary than envisaged. Development

expenditure included in the Supplementary

Finance Law increased by 18.7% in 2012.

However, constraints on implementation

capacity at the regional level and on procu-



-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

2008 2009 2010 2011 2012

Chemical

Hotel and catering

Transportation

Textile, clothing and leather

Mechanical and electrical

Figure 1: Contribution to the Growth of Key

Sectors of the Economy (MDCI)

Figure 2: Macro economics (AfDB)


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rement led to a budget execution rate of 74.4% in 2012.

2.1.15 In 2014, debt will remain sustainable7,

provided the budget deficit is reduced and

growth is revived (Annex 13). According to

the standards of rating agencies and interna-

tional institutions, the debt/GDP ratio of mid-

dle-income countries like Tunisia must not

exceed 50%. The country’s public debt/GDP

ratio dropped from 44.6% in 2011 to 43.8%

in 2012 and is expected to stand at 46.8% in

2013. Sixty-three percent of public debt is

held abroad for a seven-year average repayment

period and a low average annual cost of

about 3.5%, excluding the repayment of the

principal before 2017. The budget deficit is

expected to fall to 4.3% in 2015.

2.1.16 However, the State’s financing

needs are huge and estimated at USD

3.9 billion in 2013 (8.5% of GDP) and USD

4.3 billion in 2014. Following developmentpartners’ interventions of, Tunisia has mana-

ged to bridge the financing gap in 2013.

Negotiations with the IMF on a precautionary

standby arrangement led to the approval –

on 7 June 2013 - by the IMF Executive Board

of a USD 1.7 billion programme for the 2013-

2015 period at a 1.07% interest rate (Annex

6) which is subject to the implementation

of reforms to restore macro-economic

stability.

2.1.17 The Central Bank of Tunisia (BCT) has continued to implement a flexible

monetary policy to support the revival

policy. The structural liquidity deficit which

characterized the cash position of banks in

2011 continued in 2012, necessitating greater

BCT intervention on the money market

through the injection of about TND 5 billion

during the first 10 months of 2012. Total

deposits decrease by 7.8 in 2013 compared

to 10.7% in 2012 (5.1% in 2011), while

lending to the economy increased by only

8.7%, as against 13.4% in 2011.

2.1.18 Increasing inflationary pressures

prompted the BCT to gradually tighten its

monetary policy and implement a neutral

intervention strategy in line with changes in

autonomous bank liquidity factors. In fact, on

average, inflation stood at 6.4% in 2013 as

against 5.4% in 2012 and 3.5 % in 2011 due

mainly to8 : (a) rising world market prices of

some imported products; (b) the depreciationof the dinar (from 0.52 dinars for TDN

1.90/EUR 1 on 1/12/10) to TDN 2.22/EUR 1

on 10/10/13); (c) increase in the wage bill; (d)

weakening price control, dysfunction of

distribution networks and the smuggling of

some products into neighbouring countries

(Libya).

2.1.19 The current account deficit rose

from 7.3% of GDP in 2011 to about 8.2%




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in 2012 and 8.3% in 2013, despite anincrease in revenue accruing from tourism

and remittances from Tunisian workers

abroad (34% and 22%) and the depreciation

of the exchange rate (12% against the Euro

in 20139 and 16% since 2010).

2.1.20 Hence, foreign exchange reserves,

though substantial, declined in 2013. The

agreement for the deposit of USD 500

million into the BCT by the National Bank

of Qatar at end-December 2013 helped to

stabilize the reserves at USD 7.1 billion,

representing 107 import days. Likewise,

foreign exchange reserves attained their

2010 level in 2012 (USD 8.5 billion) following

an increase in FDIs10 (Fig. 3) sustained parti-

cularly by the sale of ill-gotten property,

bilateral and multilateral loans and access to

financial markets (with the U.S. Treasury and

JBIC guarantee).

2.1.21 Tunisia’s sovereign rating was revised downwards in this context marked by the

relative deterioration of macro-economic

balances. Since 2011, Standard & Poor’s

has progressively reduced Tunisia’s sovereign

rating by six notches from BBB to B in August

2013 (Annex 5). This has reduced Tunisia’s

sources of financing and increased their cost

at a time of growing needs. However, Tunisia

has never defaulted on its financial commitments

to the Bank or other donors and such scenario

is unlikely in the short- and medium-term

(Annex 13).

u Gouvernance

2.1.22 Before the Revolution, poor public

and private sector governance impeded

civil society participation in the running of

the country and also hampered private

sector development 11. It is said that poor

governance cost the Tunisian economy two

growth points. In 2012, however, governance

indicators continued to portray Tunisia as the

most advanced country in Africa in terms of HDI and sustainable economic development.

In contrasts, regarding the rule of law, Tunisia’s

score remained very close to the average of

African countries in 2012 (Fig. 4). Supplementary

and sustained efforts should be made to restore

the confidence of entrepreneurs and investors,

particularly in the judicial system.

2.1.23 During the post-Revolution period,

the authorities implemented several

initiatives to improve transparency and

good governance. This resulted in the



1% 1% 5%

8%

4%

2%

36%

3%

40%

Miscellaneous industries

Agro-food

Building materials

Mechanical-Electrical-Electronic Chemical, Rubber and Plastic

Textile, Clothing, Leather and

Footwear

Energy

Tourism and Real Estate

Services and others

Figure 3: Distribution of FDI Flows by

Sector, 2012 (IFAP)


19/78

creation of a Ministry in charge of Gover-nance in 2012. An action plan was prepared

following the conduct of a governance

evaluation and a diagnosis of the extent of

corruption in Tunisia. This led to (i) the lifting

of reservations allowing the entry into force of

the United Nations Convention against

Corruption, 2003 and (ii) the revitalization of

the Independent National Anti-corruption

Authority in April 2012. In 2013, the Government

also carried out the OECD integrity scan

which constitutes an important milestone.

2.1.24 Tunisia has also made substantial

progress12 in establishing a legal and

institutional framework for public trans-

parency. The analysis of the Tunisian control

and audit system in 2013 underscored the

need to reform auditing as the basis for

corruption control. The reform of the financial

system is underway with the application of

objectives-based budget management which

ensures greater efficiency in resource mana-gement. These achievements, whose impact

is still to be assessed, should be strengthened

by putting in place a robust legal framework.

2.1.25 Measures have also been taken to

improve Government’s accountability to

control institutions13. The Audit Office also

plans to reform its internal structures in order

to adapt the organization of its services,

particularly the pole centred around the

General Secretariat, and its operation to good

governance requirements. This structural reform

will therefore include the modernization of

tools placed at the disposal of magistrates

through the development of computerized

auditing and the use of computerized audit

techniques on the one hand, and the esta-

blishment of an information system adapted to

the needs of the Audit Office on the otherhand.

2.1.26 Corruption remains the centre of

attention. According to Transparency Inter-national, Tunisia’s corruption perceptions

index declined in 2011 and 2012 compared

to 2010 and 2011 (Fig. 5). However, despite

the establishment of the National Corruption

and Embezzlement Investigation Commission

and the National Committee on the Recovery

of Ill-gotten Property Abroad, anti-corruption

measures are inadequate. Furthermore, the

report on the self-assessment of the national

procurement system conducted in 2012

highlighted a major weakness in the integrity



62.7

81.7

54.1

68.6

51.2

56.7

53.3

47.3

0 10 20 30 40 50 60 70 80 90

Governance Index (Mo Ibrahim Index)

Human Development Index (HDI)

Security and Rule of Law

Sustainable economic development

Africa Tunisia

Figure 4: Governance Index 2012: Tunisia’s

Score, Compared to Africa (AfDB)


20/78

and transparency of the Tunisian publicprocurement system.

2.1.27 Since Revolution, major efforts

have been made to promote access to

information, civil society development and

greater citizen control 14 (Fig. 5). These

include, for example, the enactment of the

2011 law on associations. The Tunisian

Government enacted a law on access to

information in May 2011 and also starteddisseminating key statistical and financial

data such as budget implementation reports,

complete Audit Office reports, as well as

household and labour force surveys. This

is facilitated by the Bank’s support to

e-Government.

u Business Environment andCompetitiveness

2.1.28 Tunisia has become less attractive

to investors since the Revolution. It has

thus slipped 5 places in the Doing Business

2013 ranking (from 45th to 50th ), declining in

all indicator rankings (Fig. 6). According to

the latest Global Competitiveness Report,

bureaucracy is the most problematic business

climate factor. Tunisia fell from the 23rd rank

in 2010 to 41st rank in 2011 in terms of the

quality of public institutions. According to

foreign investors, there are major disparities

among sectors, whether these sectors are

open or not to foreign investment, and

requests for prior authorization, particularly

in the service sector, are limiting factors.

Tunisia has become less attractive to investors

since the Revolution. It has thus slipped 5

places in the Doing Business 2013 ranking

(from 45th to 50th ), declining in all indicator

rankings (Fig. 6). According to the latest GlobalCompetitiveness Report, bureaucracy is the

most problematic business climate factor.

Tunisia fell from the 23rd rank in 2010 to

41st rank in 2011 in terms of the quality of

public institutions. According to foreign

investors, there are major disparities among



9.95

35.68

42.65

4.3 3.8 4.1

2010 2011 2012

Freedom of Expression and

Accountability

Corruption Perceptions Index

Figure 5: Trends in Freedom of Expression

and Accountability and Corruption Perception

Indices (IMG and Transparency International)


21/78

sectors, whether these sectors are open ornot to foreign investment, and requests for

prior authorization, particularly in the service

sector, are limiting factors.

2.1.29 ITCEQ’s Competitiveness Survey

2012 revealed that the business envi-

ronment is one of the main challenges

for corporate development, particularly

regarding corruption and insecurity

(Fig. 7).

2.1.30 Total factor productivity remains low compared to those recorded in other

middle-income countries such as Morocco

and Romania, Tunisia’s main competitors

(Fig. 8). Although the country’s annual growth

rate rose from 1.2% (2000-2005) to 1.5%

(2006-2010), this performance is said to be

due only to a drop in the real effective exchange

rate owing to greater trade openness and

worsening terms of trade15.

2.1.31 A more knotty issue is that Tunisia

lost 43 places and was ranked 83rd in the

World Economic Forum’s Global Competi-

tiveness Report in August 201316 (Fig. 9).

Nevertheless, it has continued to honour its

commitment regarding the implementation of

reforms to improve the business environment

(new investment code, simplification of

administrative formalities and implementation

of administrative reforms). According to its

main partners, however, there is need to

accelerate the implementation of reforms.



10497

3130

39

8793

5466

4550

6470

7778

6062

4649

38

0 50 100 150

Ease of doing business

Starting a business

Obtaining building permit

Obtaining credit Acquisition of property

Investor protection

Taxation

International trade

Contact compliance

Closing a business

2012 2013

Figure 6: Business Environment:

Comparative Ranking with 183 Countries

(Doing Business)

0.733

0.719

0.713

0.657

0.61

0.587

0.568

0.547

0.493

Infrastructure

Human resources

Macro-economic uncertainties

Administrative procedures and system…Contracting parties

Bank financing

Social security contributions

Corruption

Insecurity

0 0.2 0.4 0.6 0.8

Figure 7: Business Climate:

Competitiveness Survey 2012 Results

(ITCEQ)

1.2%1.5%1.4%

1.1%

2.7%

0.4%

5.5%

1.4%

2000-2005- 2006-2010-

Tun isi a Mor oc co Tu rk ey R oma ni a

Figure 8: Overall Factor Productivity

Growth for the 2000-2005 and 2006-2010

Periods (AfDB)


22/78

u Financial Sector

2.1.32 The already fragile financial sector

has been affected by the transition17 . Before

the Revolution, it was already plagued by

structural vulnerabilities such as undercapita-

lization, poor asset quality, fragmentation,

poor banking supervision or underdeveloped

stock markets. The banking sector has been

affected by the Revolution owing to its

exposure to risks related to sensitive sectorssuch as tourism as well as companies owned

by the former President’s family. Bad debts

have been maintained artificially at their

pre-Revolution levels and profits do not

reflect the low level of banks’ provisions and

equity. State banks are the most vulnerable

because they were used as economic policy

instruments. According to the BCT, the rate

of non-performing loans of State banks was

17.8% at end-2012 and would be more than

20% if rescheduled debts (in line with theJune 2011 BCT circular) are taken into

account18. Furthermore, the banking system

does not support SME and micro-enterprise

development.

2.1.33 The banking sector is at the core

of the reforms included in the IMF programme.

According to the recent assessment of financial

system soundness, the cost of restructuring

the public banking sector could reach 2.6%

of GDP over the next two years. The reforms

supported by the IMF include the improvement

of banking information, bank recapitalization,

the management of non- performing loans

(especially those related to tourism), improved

management of public banks, better banking

supervision and the establishment of a crisis

management system.

u Trade and Regional Integration

2.1.34 The Partnership Agreement betweenthe EU and Tunisia has enabled the country

to reach important milestones regarding

liberalization and integration. However, this

has been achieved at the expense of heavy

dependence on the European economy

which was the destination of 73% of Tunisian

exports in 2012. The top ten destinations

include Libya, Algeria, Morocco and the United

States which absorb 16.4% of Tunisian

exports (Fig. 10).



0 50 100 150

Global Competitiveness Index 2011-…

Institutions

Infrastructure

Macro-economic environment

Health and primary education

Higher education and training

Contracting effectiveness

Technological maturity

Innovation

Turkey Brazil Tunisia

Figure 9: GCI 2012-2013 Ranking (WEF)


23/78

2.1.35 However, integration in the sub-

region and with sub-Saharan Africa is a

source of significant, but untapped,

potential growth. Tunisia exports much more

to France (26.3%) than to Cameroon (0.14%)

(Figure 11). Nevertheless, the merchandise

trade complementarity index shows that its

exports are more complementary with Came-

roonian (0.457) than French (0.433) exports

(Fig. 13). Thus, the Tunisian Government has

designed a roadmap in conjunction with theprivate sector and market research consulting

firms to ease access to African markets. Tunisia

is also negotiating free trade agreements with

WAEMU and the establishment of free trade

zones with Libya and Algeria.

C. Social Situation

2.1.36 Transition is taking place in a social

environment marked by labour unrest. In

the first quarter of 2013 alone, the country

witnessed 23 strikes, of which only 11 were

legal (affecting 21 enterprises, 4 of them

public) that caused the loss of 4 000 working

days. Labour unrest has sometimes led to

acts of violence.

u Poverty, Inequality and Polarization

2.1.37 Wide socio-economic disparities

remain one of the main social challenges

faced by Tunisia, despite the alleviation of poverty over the last decade (from 32.4% in

2000 to 15.5% in 2010)19. Global inequalities

have reduced, with a decline in the Gini Index

from 0.37 in 2000 to 0.35 in 2010 (Figure 12

– Annex 8). Despite the decrease in inequalities

at the national level, regional disparities have

continued to increase, further polarizing the

society.

2.1.38 The authorities are concerned

about the poor performance of social



26%

16%

9%8%

4%

37%France

Italy

Germany

Libya

Spain

Rest of the World

Figure 10: Tunisia’s Main Trading Partners

(% share of total exports) (INS)

0.14

26.28

0.15

9.39

0.06

2.99

0.11

0.457

0.433 0.430

0.4190,410

0.405 0.401

0.380

0.370

0.390

0.400

0.410

0.420

0.430

0.440

0.450

0.460

0.470

0.00

5.00

10.00

15.00

20.00

25.00

30.00 % Share of Total Export

Complementarity

Figure 11: Main Destinations of Tunisian

Exports and Complementarities

(UNCTAD)


24/78

transfers 20

. In fact, to alleviate poverty andpreserve food security, Tunisia has implemented

social policies based on direct and indirect

transfers (food and energy subsidies) since

independence so as to promote inclusive

growth-driven development. However, analyses

of the efficacy of food subsidies have shown

that despite their significant redistributional

effects (without subsidies, the poverty rate

would have reached 19.1% in 2010), the uni-

versal nature of these subsidies undermines

the efficacy of this tool as a mechanism

for reducing inequalities and poverty. Poor

households which represented 15.5% of the

total population in 2010 receive only 12% of

food subsidies.

u Unemployment and Education

2.1.39 Despite the growth rebound in

2012, employment remains the major

preoccupation of Tunisian policy-makers.

During the third quarter of 2013, the average

unemployment rate and the unemploymentrate of graduates rose to 15.7% and 33.5%

respectively (Fig. 13). The effect of the recession

coupled with the massive influx of Tunisians

repatriated from Libya21 explain these rates

which remain high despite a slight decrease

compared with the previous year (particularly,

following recruitments in the public sector).

This structural unemployment, is a result

of a quantitative (between higher education

and private sector needs) and qualitative

(graduates lacking the required skills to enter

the labour market) mismatch. The distribution

of unemployment is also an important indicator

of regional and social disparities. The authorities

are also concerned about the informal sector

(36.8% of employment in 2007).

u Gender Issues

2.1.40 The Bank conducted a gender

diagnosis in 2012-2013. As regards gender

equity, the 1956 Personal Status Code



23.3

34.8

61.9

15.5

32.7

62.5

Poverty rate Global inequality

Polarization

2005 2010

Figure 12: Poverty, Inequality and

Polarization in 2005 and 2010 (INS)

.

.

.

. .

.

. .

.

.

.

.

.

.

.

.

.

.

..

..

.

.

Figure 13: Trends in the Overall

Unemployment Rate among University

Graduates and Women 2006-2012, in % (INS)


25/78

places Tunisia at the vanguard of the Arabworld with respect to the status of women in

society. Nevertheless, there are still reservations

at the CEDAW concerning the law of succession,

the Nationality Code and the concept of

patriarchy. During the transition period, there

were a lot of tensions during which achieve-

ments were sometimes threatened.

2.1.41 Concerning human capital,

Governments’ efforts have borne fruit,

although some disparities remain. There

is a higher female enrolment in universities

with a 62.3% rate in 2013. However, in basic

education, the illiteracy rate in 2010 was

26.4% for girls as against 11.5% for boys. In

rural areas, women sometimes lack access

to specific health (gynaecological) care.

2.1.42 Regarding economic inclusion,

women’s labour market participation is

irregular and declines from the age of 30

years. Women represent less than a quarterof an active population of 3.2 million and their

unemployment rate is higher than that of

men. Sectors characterized by job insecurity,

underemployment and major differences in

remuneration are dominated by women. A

better women labour market positioning

would increase GDP by 0.7 percentage

points.

2.1.43 Women’s participation in the three

branches of government has improved

significantly. Women hold 22.6% of

positions in decision-making bodies. Theadoption of the gender equality principle

during the first ANC elections resulted in the

election of 49 women out of 217 seats and

the Vice-President of the ANC is a woman.

Although this representation seems is low in

absolute terms, it is remarkable in the sub-

region.

D. Environment and Climate Change

2.1.44 During the post-revolutionary

period, the management of environmental

issues has deteriorated. This degradation

is related to the difficulties encountered

by the government in applying the law 22.

2.1.45 However, the renewed involvement

of civil society, which is clamouring for

better natural resource and environmental

management, is visible. The demands concern

improvement of the quality of life and natural

resource management, reduction of publichealth disparities between regions and also

within towns through equitable access to

drinking water and sanitation and improved

waste management.

2.1.46 Like in most North African countries,

water is a precious commodity in Tunisia.

More than half of available water is surface

water and about 44% is derived from water

tables. Although all available water reserves

have not been harnessed, the excessive

consumption of groundwater is increasingly




26/78

disquieting. On average, water reserves areextracted at 146% of their recharge rate23.

2.1.47 Tunisia is implementing an aggressive

policy in the area of energy conservation

and new and renewable energy (wind,

solar, sludge from sewage treatment plants)

which should be encouraged. Energy intensity,

which is 0.08 ktoe per USD 1 000 of GDP,

is less than the world average of 0.13 as

well as the average of 0.18 in the MENA

region.

2.1.48 In addition, climate change may

have a significant impact in Tunisia. Tunisia

is expected to experience a warmer and

more variable climate by 2030. These expected

changes will have considerable impacts on

water resources, agriculture and natural

resources. In 2050, the impact is expected to

represent about 0.3% of GDP.

2.2 Strategic Options

A. Country Strategic Framework

2.2.1 Soon after the Revolution, Tunisia

stopped the preparation of five-year

development plans implemented since the

sixties. In a context of transition, the authorities

have opted for a flexible strategy aimed at

appeasing social and economic demands

while preparing necessary structural reforms. The I-CSP is based on Government’s

guidelines which were presented in March

2013 and on (i) the September 2011 Jasmin

Plan and (ii) the October 2012 Letter of

Development Policy. These guidelines provide

for a series of structural reforms and investments

aimed at creating conditions for accelerated

growth and job creation to ensure regional

balance and inclusive development. They

build on five pillars, namely: (i) economic

reforms; (ii) infrastructure modernization; (iii)

strengthening of the social sectors of education

and employment; (iv) regional balance; and

(v) promotion of sustainable development.

There is, however, no detailed plan for its

operationalization.

2.2.2 The authorities intend to formulate

a development plan in 2014. In this

connection, the I-CSP proposed by the Bank

would cover the period of the formulation of

this new plan.

B. Challenges and Weaknesses

u Delays in the political agenda

and the sub-regional context

2.2.3 The relative slow pace of the political

transition process impedes the return to

a sustainable growth model. Economic




27/78

actors are awaiting the implementation of aclear political agenda, far-reaching structural

reforms and a coherent public investment

programme.

2.2.4 Geopolitical uncertainties in the sub-

region also weigh heavily on stability. The

Libyan crisis has had a direct impact on the

Tunisian economy resulting, inter alia, in the

return of workers, and heightened insecurity,

particularly in border regions24. The crisis in

Europe, Tunisia’s main trading partner, has

also affected the Tunisian economy.

u Need for more resources

2.2.5 The implementation of a recovery

policy and creation of conditions conducive

to democratic transition entail more financing

which calls for the mobilization of more

resources. However, the use of these

resources should not jeopardize macro-

economic stability. Besides the internationalcommunity’s role in providing such financing,

technical support should be intensified to

carry on the structural reforms presented

below.

u Accelerating the structural

transformation of the economy

2.2.6 The persistent dependence of the

economy on low-cost production and

export sectors with low value added make

it uncompetitive and vulnerable 25

. Thesophistication of Tunisian exports has not

improved since 1960 (Fig. 14). The structural

transformation of the economy should build

on: (i) the substantial contribution of exports

to growth; (ii) the greater contribution of

the service sector to growth26 (health27, air

transport or telecommunication28 ) and (iii )

the orientation of production towards

sectors with higher value added by moving

from a subcontracting to a co-contracting

economy29.

2.2.7 Furthermore and as indicated above

(2.1.30), the business climate should be

significantly improved. Micro-economic

policies and inefficient institutions hinder

investment, particularly foreign investment,

which offers a huge potential for bridging the

technological gap as well as enabling Tunisian

businesses to become competitive by supplying

export enterprises or exporting directly. Thus,



Figure 14: Evolution Index

sophistication of exports (EXP) for Tunisia

and some Asian countries


28/78

additional efforts should be made to improvethe business climate and strengthen the

competitiveness of businesses by simplifying

procedures. In this regard, regional consultations

on the Investment Code, which were initiated

on 25 May 2013, will be conducted before it

is tabled before the ANC for approval.

2.2.8 It is also necessary to continue

to develop infrastructure for economic

transformation 30. The level of infrastructure

is relatively satisfactory. Good economic

performance was achieved over the last

decade thanks to investments in, and regular

upgrading of, new infrastructure. However,

Tunisia faces the challenge of maintaining,

during the transition period, an ambitious

public investment level to support economic

transformation (developing and improving the

management of trade infrastructure, particularly

ports31- or developing green energy).

2.2.9 It is necessary to redefine relation- ships between the public and private

sectors. Although the outlines of public-

private partnerships (PPPs) are being defined,

it is obvious that the structural transformation

of the economy can only be achieved by

increasingly using them32.

u Reducing Regional Disparities

2.2.10 Regional disparities in Tunisia

primarily affect the quality of public

services 33,34

. As regards primary education,tests conducted worldwide have shown that

schools in small towns are unable to give

their pupils the same level of skills acquired

by pupils of schools in big towns. In the same

vein, the knowledge index developed by the

authorities shows that the level of knowledge

is 30 times higher in Tunis than in Kasserine,

thus limiting the region’s participation in the

country’s economic transformation. Likewise,

the quality of health services is six times better

in Tunis than in Kairouan and eleven times

better than in Sidi Bouzid35. Citizens’ access

to water and sanitation, roads and energy in

disadvantaged regions is sometimes difficult

(Fig. 15).

2.2.11 These disparities are also reflected

in economic attractiveness 36 . Low levels

of private investment reflect imbalanced

development in terms of employment oppor-

tunities, underscoring the need to improve



0.70

0.33

0.68

0.41

0.20

0.39

Wealth and employment Health and population Knowledge

Coastal Governorates Inland Governorates

Figure 15: Indices of Regional Disparities in

Terms of Wealth, Health and Education

(MDCI)


29/78



the business climate in regions with regard tothe quality of public services provided to

enterprises (Fig. 16).

2.2.12 There is need to continue to build

infrastructure to support regional integration.

Ambitious public investment will help to

reduce regional disparities by linking under-

served regions, thereby inducing a ripple

effect on the private sector so as to stimulate

growth while enhancing its inclusiveness. Thus, besides providing support to techno-

logical hubs, special attention should be paid

to all basic infrastructure assets, be they

transport (including rural roads), logistics,

telecommunications, education or social

services.

2.2.13 However, these two components

can be achieved only by carrying on with

the reorganization of the State 37 . There is

need for Tunisia to implement urgent reformsto make centralized State procedures more

flexible and upgrade institutions pending the

implementation of the necessary structural

reforms. In this regard, it is necessary to

strengthen the decentralization of the State

in regions and improve the implementation

of investment budgets in the short term.

Secondly, it is essential to formulate regional

development plans rapidly and to transfer

powers to councils, divisions and regions.

u Improving training-employment

dynamics in an inclusive manner

2.2.14 The reduction of unemployment

entails more efficient training-employment

dynamics 38. Tunisia is suffering from major

structural unemployment, hence the need to

initiate the structural reform of the educational

and training system. Concerning basic

education, the aim should not only be to

undertake pedagogical reforms, but also toensure that these reforms have an impact on

learning. With regard to vocational training,

there is a threefold objective: (i) to build the

capacity of the vocational training system; (ii)

to improve its quality and adaptation to

the economic fabric; and (iii) to improve its

governance through increased private sector

involvement. Concerning higher education,

there is need to give a boost to the sub-

sector’s reform by focusing the reform

3323

7396

10619

4194 4358

8552

0

2000

4000

6000

8000

10000

12000

Public Private Total

Coastal Governorates Inland Governorates

Figure 16: Per Capita Investment in TND

for the 1987 – 2010 Period (MDCI)


30/78

strategy on excellence, quality assurance andmanagerial accountability of schools through

partnership with the private sector in terms of

research and innovation to meet economic

needs.

2.2.15 Lastly, it is necessary to ensure

coordination between training actors and

sectors so as to adopt a common human

capital development vision. New entrants

are trained and encouraged to join the public

sector, which is the main source of employment.

Thus, there is a mismatch between the skills

available on the labour market and corporate

needs (Fig. 17). Nevertheless, the quality of

training is put into question (OECD PISA

tests).

2.2.16 Furthermore, the growth diagnosic 39

highlights the rigidities of the Labour

Code which do not facilitate transition from

training to formal employment and job creation.

These may be overcome only through the –ongoing–renegotiation of the social contract40.

C. Strengths and Opportunities

u Strong central administration

2.2.17 Thanks to its strong central admi-

nistration, Tunisia still has the capacity

to formulate economic policies in the

context of transition. The authorities are

carrying on dialogue with key development

partners. Similarly, the central administration

continues to design investment projects in all

sectors.

2.2.18 However, the transition has slightly

affected the capacity of the central adminis-

tration. There are some slippages in the

implementation of projects. The effective

implementation of reforms, particularly within

the framework of multi-donor budget support

operations, is sometimes considered to betimid (Annex 10)41. Delays are due to relative

political instability, occasional conflicting

visions of policy-makers (belonging to different

political parties) and schooling in participatory

decision-making.

u Diversified economy

2.2.19 Tunisia has a relatively diversified

economy. In 2011, agriculture accounted

for 8.8% of GDP, manufacturing industries



9.6

12.4

32.4

26

26.1

25.4

27.4

10.5

5.7

13.9

6.3

15.9

Certificate before the Baccalauréat

Senior TechnicianBaccalauréat

Master’s degree in Letters and Social Sces

Master’s degree in hard sciences

Master’s degree in hard sciences

Other certificate

Medicine or Pharmacy

Certificate in Engineering

Master’s Degree or equivalent certificate

Doctorate

Other certificate

Figure 17: Rate of Youth Unemployment

(Aged 18 – 30 Years)by Type of Certificate

(2010) (INS)


31/78



17.6%, non-manufacturing industries 12.9%,tradable services 42.5% (tourism 6.3%) and

non-tradable services 18.2% (public adminis-

trative services 17.8%). Though Tunisia was

mainly an agricultural and mineral product

exporting country in the 1970s, textiles, elec-

tronics and chemicals now occupy the

largest share of its export basket. Since the

dismantling of the Multifibre Agreement, the

share of textiles in total exports has declined

over the past five years, while that of mecha-

nical and electronic products rose from

23.1% in 2005 to 36.6% in 2012 ( Fig. 18).

2.2.20 Tunisia has a number of sector

with huge potential (tourism, agriculture42 ,

manufacturing industries and services)

to support growth and employment. In this

regard, the current structure of the economy

provides a solid base for initiating economic

transformation.

u Sound international integration

2.2.21 Tunisia strengthened its integration

in the international economy in the late

1990s. Its openness to the external world has

made foreign trade and foreign investment the

engines of its growth. Its proximity to and

agreements concluded with the European

market are an asset for sustainable growth,

despite the tumultuous European economic

situation.

2.2.22 At the same time, Tunisia has

succeeded in exploiting export opportunities

in North Africa – although the Maghreb is

one of the world’s least economically integrated

regions43. Tunisia also benefits from numerous

bilateral trade agreements signed in 1999

and agreements concluded with GAFTZ

and AMU countries. It collaborates with sub-

Saharan African countries and developsinvestments projects in the industrial and

service sectors (see 2.1.26).

2.2.23 However, Tunisia must find new

markets to reduce its heavy trade dependence

on a limited number of countries (France -

26.6% and Italy - 16.1% of total exports).

Greater integration with Africa and Asia could

create new sources of growth.

46.6

37.7

22.3

16.5

23.1

36.6

2000 2005

2012

Textiles, clothing and leather Mechanical and electronic industries

Figure 18: Share of Textile, Mechanical and

Electronic Products in the export

Basket % (INS)


32/78

2.3. Aid Coordination/Harmonizationand AfDB Positioning in the Country

2.3.1 Tunisia signed up to the Paris

Declaration on Aid Effectiveness which

advocates, in particular, the conduct of a

survey on the monitoring of related indi-

cators. It did not participate in the global

surveys carried out by the OECD, but the

internal survey conducted by the Bank in

2012 shows that the aid provided is aligned

with national priorities. Concerning the har-

monization of procedures, projects financed

by the Bank and key partners in Tunisia are

implemented mainly by ministries and public

institutions, thus helping to limit the establish-

ment of parallel entities.

2.3.2 In 2012, the Government initiated,

with Bank and World Bank support, an

auto-evaluation of its national procurement

system by a national committee (open to

all public procurement stakeholders). Thisauto-evaluation gave rise to an evaluation

report and an action plan which were validated

by the Government in August 2012. This

is the first step towards the use of country

systems by the Bank (Annex 12).

2.3.3 Given its adequate management

capacity, the Tunisian Government takes

responsibility for planning and coordinating

donor operations. Some attempts to formalize

the coordination framework have been made

without much success to date. These includein particular an “employment and regional

development” group steered initially by the

Swiss Cooperation. However, coordination is

rather carried out on an ad-hoc basis, in the

form of information sharing and consultations

among the partners involved in similar

areas/operations. In this respect, the Bank

has prepared a series of distribution lists to

facilitate discussions among actors and

improve its dialogue with civil society.

2.3.4 Collaboration and coordination

with other donors are well-developed for

programmes co-financed in accordance

with the Paris Declaration. The partners: (i)

conducted joint budget support missions

giving rise to joint matrices of measures and

aide-memoires negotiated in a coordinated

manner; (ii) shared analytical works before

their publication; (iii) co-finance technical

assistance and investment programmes44.

2.3.5 Tunisia’s traditional donors’ speciali-

zation is based on their comparative

advantages and possible synergies and

complementarities. The IMF is supporting a

series of structural reforms helping particularly

to strengthen the financial sector and is coor-

dinating international support to stabilize the

macro-economic framework. The support of

AFD, JICA and KfW is focused on the private

sector, sanitation, local and agricultural develop-

ment and transport. For their part, multilateral




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donors provide multi-sector budget support45

. The WB and EIB give priority to the private and

transport sectors, while the EU is interested in

education and justice. Methods of intervention

have evolved and increased recourse to

technical cooperation is discernible. In this

respect, the Bank has continued to position

itself in sectors where its comparative advan-tage is recognized in Tunisia (improvement of

basic infrastructure in the regions or vectors

of innovation and sophistication, the education

sector, governance support for private

sector development) or in sectors where it is

developing expertise such as PPP (Table 1).



Table 1: Key Partners’ Active Portfolio by Sector (2013 - in USD million)46

Agr. Human

Dev.

Transp. Ener.

/Env.

Reg.

Int.

Private Water &

San.

Loc.

Dev.

Re-

forms

Fin. Total %

AfDB 84 84 815 214 176 1013 138 2524 26,3

EIB 696 905 332 4 72 100 2109 22,0

WB 47 44 20 44 197 1059 54 1492 15,6

AFD 117 45 53 11 140 185 197 246 993 10,4

EU 115 63 40 73 75 79 545 990 10,3

AFESD 11 151 216 277 54 709 7,4

KfW 86 565 651 6,8

USAID 1 97 18 2 118 1,2

Total 286 440 1799 1600 40 696 1201 366 2865 292 9585 100,0

% 3 5 19 17 0 7 13 4 30 3 100

2.3.6 In addition, the Bank is coordinating

its activities together with other IFIs within

the framework of the Deauville Partnership.

In this connection, it hosted its secretariat in

2012. This partnership has helped to mobilize

additional resources in the form of grants,

share knowledge and coordinate operations.

2.3.7 The Bank has for long been a

preferred development partner of Tunisia.

The Bank’s portfolio (the institution’s second

largest) comprises 16 projects (of which four

non-sovereign) and 24 technical assistance

operations financed with grants to the tune

of UA 1.36 billion. Furthermore, in 2011 and

2012 UA 659.9 million was allocated for two

budget support operations. The road sector

represents 36% of the portfolio (in value),

followed by the multi-sector (26%) and the

private sector (16%) (Annex 4).


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2.3.8 The 2013 portfolio review showed that the portfolio in Tunisia remains

efficient with a score of 2.6 (out of 3) and

a public portfolio financial performance of

71.8% in 2013. However, delays in loan

implementation have increased since the

Revolution and the good performance is

attributable to the presence of two aged projects

and the disbursement in a single tranche of

the budget support approved in November

2012. The level of grant disbursement, in

particular, remains modest with a rate of

40.1% (Annex 4).

2.3.9 The main recommendations of the 2013 portfolio review concerned audits,

disbursement timeframes and public

procurement procedures (Annex 3). The Bank

is continuing dialogue to enable the Audit Office

to implement projects with external financing. To

strengthen portfolio-related services, the Bank

has transferred three procurement experts to

the MDIC for an 18-month period to help speed

up disbursement for operations. Furthermore,

the Bank is supporting the public procurement

system reform which is a prerequisite for the use

of the country system47 (Annex 12).


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3.1 Rationale for Bank GroupInvolvement

3.3.1 The Tunisian authorities have

requested the preparation of a two-year

(2014-2015) I-CSP which is flexible and

adaptable to the changing political, eco-

nomic and social situation. This approach

will enable the organization of major political

events on the one hand and the preparation

of the new development plan on the other.

3.1.2 The operations will be a continuation

of previous operations, but will be well-

targeted to enhance their effectiveness

(Annexes 2 and 7). A flexible approach

based on a permanent dialogue with theauthorities and on the regular review of strategic

thrusts will be given priority.

3.1.3 The operations were identified

following discussions with the Government

and development partners during the

June and September 2013 missions. Since

2011, the Bank has organized monthly

meetings to exchange ideas with civil society,

private operators and the administration on

challenges of the country and the region. In

addition to bilateral meetings with the private

sector, a workshop was organized with civil

society in September 2013 to discuss the

strategy (Annex 11). External peer reviewers

(including development partners) were also

involved. The document was also discussed

with the new authorities in 2014.

3.1.4 Furthermore, the Bank’s strategic

positioning has been enhanced by the

growth diagnosis conducted with Tunisian

III. Bank Group Strategy

Box 2: Choice of the I-CSP Tool

1. The existence of sustained dialogue with

the authorities promotes the formulation of

a new strategy whereas the lack of visibility

underpins its interim nature.

2. The lessons learned from achievements

in 2012-2013 encourage the refocusing of

activities, necessitating the reformulation of

the content of the two pillars.

3. Existing constraints on the level and

type of AfDB operation necessitated the

establishment of sustained dialogue during

conduct of the I-CSP preparation mission.

4. The authorities requested the design of

a I-CSP that gives a clearer signal to other

partners and eases resource mobilization.


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(iv) result indicators should be reviewed; and(v) reform support and investment operations

should be combined.

u Approach and instruments

3.1.9 The I-CSP prioritizes the principles

of alignment with Government’s priorities,

complementarity with other partners and

consolidation of the achievements of

previous operations. The I-CSP focuses on

the Bank’s 2013-2022 Strategy, particularly

“governance” and “infrastructure” operational

priorities and incorporates the green dimen-

sion in their implementation. In accordance

with the Bank’s private sector development

strategy, the I-CSP will ensure permanent

dialogue between the Tunisian Government

and the private sector and promote PPPs.

3.1.10 In particular, the CSP recognizes

the key role played by the IMF in stabilizing

the macro-economic framework and thefinancial system. Additionally, the I-CSP

focuses on two major challenges: (i) the

business climate and the competitiveness of

the economy and (ii) regional disparities.

3.1.11 In view of the transitional situation,

planned activities under the I-CSP will be

carried out within two time horizons: (i) a

short-term horizon for activities carried out to

meet urgent needs or to enable rapid economic

and social improvements (“quick wins”) and(ii) a medium-/long-term horizon for activities

aimed at laying the foundations for a new

economic and social development model.

3.1.12 To support the transition process,

in particular and given financing challenges,

the Bank will lay special emphasis on tech-

nical assistance operations. The objectives

of such operations will be to conduct strategic

or pre-investment studies in order to enable the

authorities to focus on medium- and long-term

objectives during the transition period. The

technical assistance operations may also help

to identify reforms to support inclusive private

sector development in the short-term.

3.1.13 Depending on the development

of its commitment capacity, the Bank will

consider financing (public and/or private)

investment and budget support operations

(see section 3.2). In this connection, priority

will be given to investment operations thatpromote public-private partnerships and

where the leverage effect of Bank resources

will be established. In this respect and in

order to facilitate progressive commitment

(in parallel with the development of its commit-

ment capacity), an approach based on the

financing of several small- and medium-size

operations (rather than a very small number

of large-scale operations) will be given

priority.


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u 2014-2015 Intervention Component

3.1.14 To promote the creation of high

value added jobs for young graduates and

the economic attractiveness of regions,

emphasis will be laid on support for inclu-

sive private sector development within the

framework of this strategy. This support

entails the improvement of (i) private sector

output (by improving governance) and (ii) the

provision of production factors (by improving

infrastructure). Based on these factors and in

line with the I-CSP 2012-2013, the I-CSP

2014-2015 will focus on two pillars in keeping

with the Ten-year Strategy to obtain a blend

of governance and infrastructure domains.

3.1.15 Governance and infrastructure

improvement support helps to address

Tunisia’s major challenges (Table 2 – Annex 2) while remaining consistent with

the Government’s policy framework. In

particular, Government’s thrusts: (i) Economic

Reforms and (ii) Infrastructure Modernization

are backed by actions carried out under the

I-CSP governance and infrastructure pillars

to: (a) improve the business climate and

competitiveness and (b) increase value

added. On the other hand, Government’s

thrusts: (iii) Regional Rebalancing and

(iv) Strengthening of the Social Sectors of

Education and Employment are supported

under the I-CSP governance and infra-

structure pillars through actions to (c) improve

public service delivery in the regions and

(d) ensure access to employment by

developing skills and opportunities in the

regions.


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u “Governance” Pillar

3.1.16 Governance improvement will

entail the provision of support for reforms

and capacity building to improve the

business climate at the national level and in

the regions. This support will focus on the

“governance” operational priority of the Bank’s

2013-2022 Strategy. In this respect, the Bank

will continue to support the priority thrusts of

the reform programme at the national level,

namely: (i) the establishment of a transparent

process of reviewing regulations and adminis-

trative procedures for businesses so as to

simplify procedures and limit discretion in the

application of regulations; (ii) the improvement

of the performance of private sector support

entities by defining strategic studies; (iii) the

development of PPPs; and (iv) the improvement

of governance in institutions responsible for

education and vocational training to provide

skills necessary for the development of an

innovative private sector. At the local level, theBank will, in particular, support efforts to

upgrade and decentralize the administration in

order to improve public service performance

and, thus, attract investments to the regions

and promote more inclusive growth in Tunisia.

3.1.17 Regarding technical assistance,

“quick wins” may be carried out to improve

the business climate by supporting adminis-

trative reforms and implementing the Public

Procurement Reform Action Plan. Technical

assistance activities could also be carried outto prepare the implementation of medium-term

actions by supporting the decentralization

strategy (including training), implementation

of the industrial strategy

2014-2015-tunisia interim country strategy paper

Documents