As the COVID-19 pandemic began to spread in Tunisia, the government imposed several strict measures to minimize infections in the country. Initially the Tunisian National Security Council issued measures such as bans on public gatherings, but by March 18 President Kais Saied declared a nationwide curfew and on March 20 announced he extended the closure of Tunisia’s borders to prohibit all non-emergency domestic movement as well. This ban on transportation and travel between Tunisia’s regions, combined with the concurrent shutdown of densely populated industrial zones, will have a far-reaching economic impact on the country’s long-marginalized interior regions.
The lockdown is already affecting the economy, particularly the informal sector, tourism, and the industrial sector. Informal activity, which represents nearly 40 percent of the GDP and 32.2 percent of total employment, registered a 60 percent drop due to the travel restrictions and the ban on local markets. Monthly tourist revenue flows fell 30 percent from 93 million Euros in 2019 to 65 million in March 2020. As of April 6, 95 percent of Tunisia’s hotels, restaurants, cafes, and other businesses that cater to tourists have closed. The UN World Tourism Organization estimates that tourist activity will decrease by 30 to 40 percent in 2020 and that normal tourism activity will not resume until 2022 at the earliest.
The industrial sector, which includes roughly 5300 companies and accounts for approximately 527,000 employees, is also under severe stress. Tunisia’s exports fell 26.4 percent between February and March 2020, primarily due to the sharp drop in European and international demand as well as the closure of industrial zones in response to the COVID-19 outbreak. The disruption in operations at most of these companies will cause short-term layoffs. 80 percent of private sector employees in industrial jobs are already out of work because of COVID-19. Furthermore, since the onset of the pandemic, Tunisians have filed a record number of unemployment claims. The Tunisian Center for Economic and Social Research estimates there are 1.092 million informal workers, primarily residing in rural western and southern regions with high poverty rates, who are vulnerable to job loss. The tourism and industrial sectors are mainly concentrated in the coastal regions of Tunisia where hundreds of thousands of workers are vulnerable to short-term layoffs.
These blows are worsening the economic woes Tunisia has faced since the Arab Spring. Tunisia’s GDP has dropped by 20 percent since 2011 and forecasts predict it will decline an additional 13 percent in 2020. According to the International Monetary Fund (IMF), growth will decrease from 1.0 percent in 2019 to –4.3 percent in 2020. The sharp drops in output have also led to an increase in the inflation rate, which rose from 5.8 percent in February to 6.2 percent in March. This increase in price levels is closely associated to the recent disruption of food supply chains and market shortages caused by the coronavirus pandemic. Food prices increased 6.7 percent in March compared to 4.5 percent in February. In order to protect purchasing power, the Delegation for Trade and Competition has imposed strict measures against any illegal practice aimed at increasing the price of products, including a prison sentence of up to three years.
In order to help disadvantaged regions and populations overcome the economic impact of COVID-19, international organizations such as the IMF, the World Bank and the European Union have granted approximately 1.4 billion dollars of aid for Tunisia. Additionally, the Tunisian government has provided social assistance of 200 dinars (70 USD) to 700,000 people who are severely affected by the coronavirus.
Employment and investment levels in Tunisia are afflicted by regional disparities, especially between the well-developed coast and the poorer, marginalized interior. The economic strain caused by the coronavirus will disproportionately affect these marginalized regions that have faced significant economic challenges over the years despite the government’s development efforts. One explanation for this protracted phenomenon is rooted in the external effects of local competition, specialization and diversity of industrial activity in a region or locality.
An examination of Tunisian industries between 2000 and 2009 demonstrates that Tunisia’s industrial sector lacks diversification, both geographically and in stages of production. The coastal regions account for 90 percent of overall employment and 85 percent of the businesses operating in all sectors, about half of which specialize in producing goods for export. Most of these jobs are concentrated in the textile and clothing industry (35.6 percent) and the mechanical and electronic industry (13.3 percent). The clusters of small companies along the coast have fueled growth that has not extended to the interior.
Despite its relatively low economic diversification, Tunisia achieved around 5 percent average annual growth between 2003 and 2010 due to improved efficiency of production factors, an increase in external demand, and steady domestic demand. Investment in Tunisia, which was nearly 22 percent of GDP in 2013, could not create regional economic dynamics. In addition, despite the economic reforms of the 1980s aimed at improving regional attractiveness for businesses, local private investment and foreign direct investment remain low and has not exceeded 14 percent of GDP over the past two decades.
These specialized “offshore” companies depend on access to imported raw materials and foreign capital. They simultaneously account for nearly 70 percent of the total exports of manufacturing companies divided between the mechanical and electrical industry (MEI 47 percent) and the textile and clothing industry (TCI 22 percent).
These companies focus on low-cost assembly for foreign companies outsourcing labor and are consequently weakly integrated into the local economy. Raw materials and half-finished products are imported, assembled in Tunisia, and exported without involving local businesses in the supply chain. While various initiatives—such as the Regional Development Program, the Integrated Rural Development Program, and the Municipal Investment Plan—have tried to boost integrated development in Tunisia’s interior, they have failed to foster the necessary public investment to grow industries in rural regions that would trigger a regional dynamic and provide more job creation.
There remains a strong disparity between Tunisia’s regions regarding public investment. 77 percent of Tunisia’s public investment is concentrated in coastal regions (44 percent in the northeast, 18 percent in the center east and 18 percent in the south) which increased incentives for private investment in the coast. Notably, more than 80 percent of Tunisia’s urban areas are on the coast, and 90 percent of the workforce resides in coastal regions. Furthermore, these regions hold the largest share of private investment which grows existing industries. Meanwhile, the low share of public investment in rural regions does not favor private investment, with 7 percent in the northwest and 5 percent in the south. This lack of investment in rural regions negatively impacts regional employment growth which has led to a massive exodus toward the coast, further hampering economic development in the country’s interior where many communities remain tied to traditional economic vocations.
Thus, the expected positive impact of industrial economic structure on the local growth dynamics have only widened the gap between the coast and the interior. In addition, the economic fallout from the COVID-19 pandemic and the rise of unemployment claims further increase social and regional inequalities.
As the economic consequences of the coronavirus spread, it is important to take into account the longstanding structural factors behind Tunisia’s uneven economic development, especially between its interior and coastal regions. The industrial structure shows that regional employment growth is mainly driven by the external effects from the specialization of industrial production rather than diversification. Indeed, the industrial sector is mostly comprised of small and medium-sized businesses concentrated on the coastal regions that primarily specialize in low value-added activities with low cost outsourcing and a focus on exporting to Europe. In addition to the initial productive specialization, local competition has also helped foster industrial development through wage cuts.
However, in Tunisia, the local industrial economic structure reflects a duality between offshore, exporting companies that are highly concentrated in the coastal urban regions and a weak onshore system located in the county’s interior rural regions. The offshore system is integrated in the international market through exports mainly in the electrical, mechanical and the textile industries. Comparatively, the onshore system remains disconnected from the national and international economic dynamics that characterize most of the companies operating in interior areas. In addition, foreign direct investment has accelerated the development of urban regions through job creation, while the lack of private investment in the west and south has only widened regional disparities. Moreover, the positioning of the offshore sector in low cost outsourcing does not offer a path towards integration into the local economy and therefore does not promote regional development.
Manel Dridi is an assistant professor in the Institute of Higher Management at the Universtiy of Tunis. She is a member of the Faculty of Economics and Management, as well as the Research Laboratory on Prospects and Strategies of Sustainable Development (PS2D).