High unemployment forces Tunisians into smuggling

High unemployment forces Tunisians into smuggling
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With a new constitution hailed as the most liberal in the Arab world, Tunisia seems to be on a path to democracy. Staggering unemployment and economic woes, however, have led to the rise of a billion dollar smuggling network, providing stable income for millions.

Tunisia’s National Constituent Assembly (NCA), the legislative body tasked with devising a new constitution, is close to passing a charter that legislators, constitutional experts and human rights organizations are praising as a triumph of consensus politics. Although protests and violence continue to flare up across the country, the new constitution has won the support of both Ennahda, the Islamist party that leads the interim government, and the secular opposition.

While the new constitution is a positive sign for interim Prime Minister Mehdi Jomaa, who has made political transparency his top priority, economic hardships continue to plague the nation and fuel social unrest. Unemployment currently hovers at 17 percent, and although economic growth returned to Tunisia after two years of contraction, the rebound was far below the level needed to create jobs. Riots broke out just last week in the nation’s capital, Tunis, as crowds protested new taxes described as necessary to fill gaping holes in the country’s budget.

Tunisian officials have struggled to trim the government’s large budget deficit, which currently is at $46 billion, the highest ever according to statistics published by the Central Bank of Tunisia. To make matters worse, foreign investors and financial institutions have continued to cancel loans and investments, citing concerns over security and bad governance. The African Development Bank recently canceled a loan close to $300 million due to an “unclear political-economic climate.”

Tunisians find other avenues for income

As Tunisians become increasingly dissatisfied with high unemployment and continued inflation, many have found a stable source of income from working in the “informal trade” industry. Informal trade, also known as smuggling, is defined by the World Bank as “the flow of goods that are unreported or incorrectly reported by the country’s customs authorities.” It is estimated that the smuggling of illicit goods now accounts for 30 percent of Tunisian jobs, and involves goods ranging from cigarettes and fuel to eggs and vegetables.

“There are very few job opportunities, and only a few people from my region finish university. This is our only way of providing a sustainable life,” says Riyadh, a Tunisian in his mid-thirties who works in informal trade. The smuggling mostly takes place between Tunisia and its two neighbors, Libya and Algeria, but the reach and scope of the players involved are sometimes as far away as China.

Research by the World Bank finds that, while informal trade accounts for only 5 percent of total Tunisian imports, it comprises more than half of all trade with Algeria and Libya. With prices for fuel and goods varying widely between the two countries, the economic incentive is enough to lure Tunisians into informal jobs as wholesalers and transporters. Diesel fuel costs are at $0.82 per liter in Tunisia, but only $0.19 in Algeria. It should come at no surprise that, as a result, roughly one quarter of all fuel consumed in Tunisia is informally imported from Algeria.

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Tunisians smuggle goods outside the main border crossings trying to secure an income (Source: The World Bank)

The Tunisian government also charges large duties on various articles in transit across the border. The duty on apples, for example, is 27 percent. For roughly $30 paid to a border guard, however, large vehicles filled with goods can pass through unreported.

Tunisia loses revenues and confidence

The illegal transport of goods amounts to around $1 billion in lost annual public revenue that the government desperately needs to fund its budget, secure its borders and create legitimate jobs for its 10.7 million citizens. While the government has already implemented penalties for those found to be smuggling goods, the consequences of a further crackdown on informal trade are two-fold.

First, while it could be financially beneficial for the state to crack down on those avoiding trade duties and tariffs, it could also lead to further public and civil unrest. The informal trade industry provides citizens with a stable income, and as Tunisian purchasing power continues to erode with inflation on the rise, informal trade keeps prices on some goods lower than if they were properly taxed at the border.

Second, and more positively, enforcing trade rules would reinforce investor confidence in Tunisia’s leadership and political stability, and secure aid from foreign financial institutions. Smuggling is symptomatic of a government system that is not performing well and is often equated with lawlessness. In limiting the incentives for smuggling by harmonizing trade and tax policies with its neighbors, Tunisia will be well on its way to restoring confidence in the strength and stability of its economy.

With a new constitution and what seems to be greater political consensus, the Tunisian government must make containing informal trade a top priority, while focusing on creating legitimate jobs to tackle unemployment and drive its economy. If these goals are pursued, investors will not be too far behind.

About Author

Rami Ayyub

Rami is an analyst with a US Defense and Space firm, where he works in strategic planning and finance for Civil and Defense programs. He holds Bachelor degrees in Finance and Classical Music from the University of Maryland, College Park.