EDA: Trade diversification key to Tunisia’s development

EDA: Trade diversification key to Tunisia’s development
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EXTERNAL DEPENDENCIES ANALYSISDespite considerable progress with political transition, maintenance of heavy dependence on the EU won’t let Tunisia’s economy flourish.

Being the birthplace of the ‘Arab Spring’, Tunisia was the first country to encounter a series of large-scale political and social protests before the turmoil reached the other countries of the Arab world. Since the fall of President Ben Ali in January 2011, the country has entered a period of political transition.

Three turbulent years later, progress is unquestioned, marked by the adoption of a new, liberal constitution and the formation of a new, technocratic government inaugurating a period of governance.

During the years before the revolution that ousted President Ben Ali, Tunisia used to share close economic ties with France, maintaining extensive business and government connections. Throughout the Ben Ali regime, France became a stable partner in a region of crucial importance to a wide range of French interests.

Moreover, economic relations with other countries of the European Union were strong given that Tunisia had signed an association agreement with the EU in July 1995, which resulted in the construction of a Free Trade Area in 2008.

However, unlike the European Union, which maintained a steady, supportive position towards Tunisian people, France acted with inconsistency, rendering existing relations shifty. Yet, it was no later than February 2011 when French President N. Sarkozy highlighted that the country should retain its relations with its former North African colony.

Tunisia continues to be heavily dependent on its Northern neighbors for its trade given that approximately 58% of the country’s exports go to the EU. France remains Tunisia’s first partner, concerning both export and import flows, followed by Italy, Germany and Spain. Geographical proximity, reasons of historical legacy and a free trade agreement may well explain the resistance of strong ties between Tunisia and South European countries. However, the extent to which this reliance is beneficial for this economically weak African country is questionable.

The EU countries are not largely reliant on trade with Tunisia. Take the market of electronic equipment, for example: exports from Tunisia to France and Germany count for 64,8% of the country’s export flows, whereas in the cases of France and Germany this portion makes up for a merely 3.1% and 0.7% of their electronic imports respectively.

Furthermore, the countries of the European Union retain much more developed, albeit more stagnant economies compared with North African ones. According to academic literature, the existence of high heterogeneity in terms of economic performance among economically integrated countries may lead to the development of imperfect competition resulting in an uneven distribution of potential benefits from reciprocal trade transactions.

Hence, a question of whether Tunisia should shift its economic interest towards less developed but fast growing countries appears fairly relevant.

Among African countries, Tunisia imports oils and mineral fuels from Algeria, one of the major oil producing countries of Africa. Tunisia’s dependency on its western neighbor is quite heavy as well, given that approximately 27% of the country’s oil imports come from Algeria. Economic relations between the two countries are complementary and reinforcing.

The second trip of Tunisian Prime Minister Mehdi Jomaa to Algeria and the financial cooperation agreements that were signed between the two parties in May 2014 may perfectly reveal this tendency. Commercial ties with Libya also hold strong as the country is a major recipient of Tunisia’s dairy products and manufactured articles.

However, according to a recent report from the Economic and Social Commission For Western Asia, recent developments on the Libyan conflict will jeopardize Tunisia’s economic development.

Tunisia’s political transition process remains one of the most stable in the sub-region but economic performance is still lagging behind. The country’s key economic partners are low, dynamic or declining markets, such as France, Italy and Germany, while ties with rapidly developing ones are absent or restricted to import flows, as is the case with China.

Tunisia should instead focus on the diversification of its export markets so that it will be able to compensate for the decline of economic activity in Europe. The revival of a strong Arab Maghreb Union (AMU), also recommended by the EU, will promote regional integration and boost economic development in the Arab Region.

Furthermore, high development potentials in the countries of Sub–Saharan Africa may also prove beneficial for Tunisia in the case that a sustainable, multi-sector partnership is to be established.

The External Dependencies Analysis (EDA) project makes country vulnerabilities stemming from their main trading relations explicit, and shows to what extent these might impact their current and future behaviour. With the EDA, GRI provides a new comprehensive tool for businesses, analysts and investors to grasp dynamics that are key to political risk analysis.

Note: Trade Data comes from GRI’s External Dependency Analysis based on data derived from the International Trade Center.

About Author

Evita Souri

Evita previously worked with the European Commission, dealing with EU external relations as well as with other governmental institutions. Her expertise is in European Union affairs and the former Soviet Union countries. Evita graduated with an MSc European Political Economy from the London School of Economics (LSE). She also holds a 1st - class honours Master's degree in Economics from the Aristotle University of Thessaloniki where she also completed her undergraduate studies in Economic Science.