Egypt and Tunisia: two economies in the same boat

Niveen Wahish, Friday 22 Jul 2011

Not far from each other on the post-revolution reform agenda, Egypt and Tunisia are suffering the same economic woes

Inflation, unemployment, budget deficit are just some of the economic problems shared by the two nations (Photo: Reuters)

Turn to Tunisian TV channels: if it were not for the different Arabic dialect, you might as well be watching Egyptian television, with talk shows and interviews discussing revolution related issues. Even footage of protests in Tunisia may very well be mistaken for those in Egypt. In short, the revolutions in the two countries are proceeding, more or less, along the same path.

The same goes for the economies; growth has slowed down considerably, revenues are strained, expenditures high, expectations for social reform are over the top, budget deficits are widening, foreign reserves are running low, pressure is high on the local currency, unemployment is high and so are inflationary pressures.

The difference in the actual figures emanates from the difference in the size of the two economies. Egypt's population is around eight times that of Tunisia and its economy is four-fold. Egypt's GDP at market prices was around $219 billion in 2009/10. Tunisia's was around $47 billion. Egypt's population is around 85 million and Tunisia's around 11 million.

Florence Eid, chief executive officer of Arabia Monitor, a London-based research and advisory firm specialised in the Middle East and North Africa (MENA) region, says she is not expecting a vibrant economy for neither country in 2011/12.

Economic Research Forum Senior Economist Nadia Belhaj agrees. Both countries are going through a lot of difficulties, she says. It is hard to make precise forecasts of how the economic performance will improve, as "a lot depends on future elections".

She sees similarities in how the revolution was carried out, how the army has been handling the situation, and the problems both are suffering. She also says economists are having difficulty assessing the gravity of the situation because they do not know to what extent the available information is reliable. For example, she said that the figures the former government had been releasing had said that unemployment among the youth was 14 per cent, while "now we are being told it is 30 per cent," she exclaimed.

According to Belhaj, in Tunisia, the political route may be clearer than Egypt. The constitution was done away with and elections of a constituent assembly to run the country for a year are scheduled for October. The constituent assembly will be in charge of writing the constitution. No political party will take up more than 10 per cent of this council. She also says that protests have subdued and security is coming back. 

The fact that the literacy rate in Tunisia is higher has helped in that more people understand what is going on and can make informed decisions, she added. 

While politically Tunisia may be starting off at a much lower level because it previously lacked any opposition parties or freedom of speech, the fact that it is smaller with a less diverse population makes it easier to get together. It does not suffer Egypt's sectarianism and the Muslim Brotherhood is not powerful, said Belhaj. 

But Eid of Arabia Monitor sees the fact that Tunisia is a small country may work against it on the economic front. She acknowledged that being a small country, the economy can be turned around rapidly but the problem, she says, is the lack of short-term funding. The Tunisian economy, she says, is not diverse which does not attract funding.

However, Belhaj believes that the fact that there was not a popular attitude against the International Monetary Fund and the World Bank, as is the case in Egypt, might help.

Eid is also worried that Tunisia faces higher geopolitical and demographic risks than Egypt due to the ongoing turmoil next door in Libya. 

But in fact, Belhaj says that although the situation in Libya was much feared in Tunisia, it eventually helped Tunisia because many of the Libyans moved there either for medical treatment, trade, or as tourism, thus helping support the economy. Nonetheless, she acknowledges that it remains "a very unstable situation".

According to Belhaj, in Egypt the political situation is more complex due to the sheer size and diversity of Egypt's population, the fact that the Muslim Brotherhood is more powerful, there is more poverty, and the indebtedness is higher. Over and above, with high illiteracy rates in Egypt, not everyone is aware of the challenges ahead.

But Egypt's size is an advantage, says Eid. She expects "Egypt will take off faster because its economy is larger and more diverse." She also believes that, "Egypt is a much better magnet for funding because it is larger and because of the fact that its economy is more diverse, and because Egypt's failure would have repercussions on the whole region." This, Eid says, has brought Egypt more attention. And there are several funding commitments already made to Egypt from Saudi Arabia and Qatar, she pointed out.

Nonetheless, Eid sees that in both countries, politics will take time t5o be sorted out and accordingly, investor confidence will take time to be restored. "In both countries, the political adjustment process is lagging behind what is necessary to get the economy going," she says.

What is in the interest of both countries, Eid points out, is that both have a fairly well educated technocratic class. Also, "while the Arabs do not want Egypt to fail, they and the EU do not want Tunisia to fail to avoid the migrants."

The way to go at this point, says Belhaj, is to work on reinstating security, reducing debt, increasing exports and creating employment for youth. In this regard, Eid adds that clear announcements of projects that will create jobs are lacking. 

Belhaj also wants more attention dedicated towards developing the less fortunate regions, not just the capital and big cities. Also, she says that in the past, agriculture was forgotten and rural areas still lacked appropriate infrastructure, and there was no matching between education and market needs. For example, she said that although Tunisia is a country that lives off tourism, there is only one specialised school.

"Economists must play a greater part in the decision making process," she said, adding that involving them in the national dialogue is not enough; a smaller advisory group is needed. She also wants to see former officials involved as "they are well informed of the situation and not all are necessarily corrupt."

She said that together with the government, these economists can come up with a strategy for development; something to be passed on to the new government after elections. "We should not start from scratch; Egypt and Tunisia were doing well before the revolutions," she concluded.

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