Identifier
Created
Classification
Origin
06TUNIS1622
2006-06-29 10:57:00
CONFIDENTIAL
Embassy Tunis
Cable title:  

CORRUPTION IN TUNISIA PART I: AN ECONOMIC SUCCESS?

Tags:  PREL ECON PGOV EFIN ETRD EINV TS 
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P 291057Z JUN 06
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 1130
INFO RUEHAS/AMEMBASSY ALGIERS PRIORITY 7236
RUEHRB/AMEMBASSY RABAT PRIORITY 8167
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
C O N F I D E N T I A L TUNIS 001622 

SIPDIS

SIPDIS

STATE FOR NEA/MAG - HARRIS
STATE PLEASE PASS USTR - BELL
USDOC FOR CLDP - TEJTEL AND ITA/MAC/ONE (NMASON)

E.O. 12958: DECL: 06/27/2016
TAGS: PREL, ECON, PGOV, EFIN, ETRD, EINV, TS
SUBJECT: CORRUPTION IN TUNISIA PART I: AN ECONOMIC SUCCESS?

REF: TUNIS 357

Classified By: AMBASSADOR WILLIAM HUDSON FOR REASONS 1.4 (b) AND (d)

C O N F I D E N T I A L TUNIS 001622

SIPDIS

SIPDIS

STATE FOR NEA/MAG - HARRIS
STATE PLEASE PASS USTR - BELL
USDOC FOR CLDP - TEJTEL AND ITA/MAC/ONE (NMASON)

E.O. 12958: DECL: 06/27/2016
TAGS: PREL, ECON, PGOV, EFIN, ETRD, EINV, TS
SUBJECT: CORRUPTION IN TUNISIA PART I: AN ECONOMIC SUCCESS?

REF: TUNIS 357

Classified By: AMBASSADOR WILLIAM HUDSON FOR REASONS 1.4 (b) AND (d)

1. (C) SUMMARY: This is the first of a four cable series on
corruption's impact on Tunisia's economic and political
future. The Tunisian economy is a model for the region in
many respects, applauded by international financial
institutions for GOT efforts to reform, modernize and
liberalize the economy. But puzzling contradictions exist:
perceptions are that rates of investment are erratic or are
slowing; average Tunisians talk openly and angrily about the
lack of jobs, concerns over rising prices, and a generally
poor economy, and there is little entrepreneurial activity
despite a stated public policy of supporting small business
development. External factors (regional unrest, terrorism,
rising oil prices) may contribute to this dichotomy, but
Tunisians are increasingly focused on corruption -- and
specifically, the disproportionate power and influence
wielded by a few elites, chief among them Tunisia's First
Family. Part one of this series discusses Tunisia's historic
economic success and future challenges. END SUMMARY.

A Country that Works
--------------

2. (SBU) A small country of about ten million with minimal
oil and gas resources, Tunisia has faced economic challenges
in its 50 years of independence, but has always found a way
to overcome them and develop its economy. Through sound
public and social policy, it avoided many of the calamities
that hit other developing states and continues to be cited as
a model in that respect. The numbers support this: Tunisia
has the highest per capita income (USD 2,770 in 2005) in
North Africa and is second only to South Africa on the
continent. Official GDP growth over the last 10-15 years has
exceeded five percent per year, thanks to good
infrastructure, an educated population, and a stable
macroeconomic environment.

3. (SBU) In the early part of this decade, regional unrest,
terrorism, and recovery after a 4-year drought hit Tunisia's
economy hard, though many of these concerns
have abated over
the last three years. Tourism returned to pre-2001 levels
and had its best year ever in 2005 with more than 6 million
visitors. Unemployment, however, is a growing concern and is
one on which every GOT official is focused. Official
unemployment figures leveled off at 14 percent in 2005, after
a steady declines dating from 1999s 15.8 percent. Even at 14
percent, however, this figure is consistently challenged as
too optimistic by first hand accounts of university graduates
unable to find jobs and reports of increasing numbers of
ever-more qualified applicants seeking Embassy jobs.
President Zine el Abidine Ben Ali and his ministers
repeatedly announce that increasing investment and services
as a component of GDP is the most essential development
concern behind Tunisia's job and enterprise creations efforts.

But does it?
--------------

4. (SBU) According to World Bank and IMF estimates, Tunisia's
GDP growth will dip to mid-4 percent levels in 2006 (breaking
its decade-long 5-plus percent streak),which will raise
risks of higher unemployment levels. Tunisia's five percent
GDP growth rate has historically created approximately 70,000
new jobs annually, but experts note that over six percent
growth is required to create the extra jobs that university
graduates will demand by 2010 when approximately 80,000 job
seekers enter the economy annually.

5. (SBU) Foreign investment and trade are considered the two
best drivers of growth in the near term. Tunisia's Foreign
Investment Promotion Agency (FIPA) reports positive and
growing U.S. investment (from USD 54 million in 2003 to
nearly USD 90 million in 2005),but such investment is
typically concentrated in narrow sectors, such as
manufacturing and industries aimed at export-led job
creation. Overall foreign investment has been erratic over
the past five years, with significant gyrations difficult to
assess given the heavy monetary infusions by international
institutions such as the African Development Bank and the
European Bank for Investment that are public-sector
investment, and which help conceal declining private
investment that economists view as more accurate in measuring
economic health. The Tunisian government's steady
privatization of its state-owned enterprises also distorts
the true level of investment by injecting additional monetary
infusions into the economy, without creating new economic
wealth.

6. (SBU) According to local polls, business confidence is
also declining, and business leaders stress that foreign and
domestic investment is insufficient for continued growth. In
early 2006, Tunisia's Arab Institute of Business Leaders and
the Young Entrepreneurs Center released separate investment
climate surveys that pointedly criticize Tunisia's declining
levels of business confidence, suggesting the "good
connections required for business success" is a chief culprit
(reftel). A "cumbersome administration" and difficulty
accessing capital are also notable obstacles for businesses
here. Fostering entrepreneurship and bolstering creativity
and innovation are recognized "areas for improvement,"
essential if Tunisia is to tap its only plentiful resource:
its people.

7. (C) The importance of "connections" is a common phrase
used to express the growing disgruntlement over influence and
corruption by the country's elite. Tunisia's small
population and intimate business environment produce a
multiplier-effect for this dissatisfaction, and news travels
fast among those with business and financial interests. The
result is a growing chorus of complaints from the local
business community who feel their ambition stifled in an
increasingly frustrated business milieu. As a result, a new
element is clearly emerging - younger and desiring more rapid
progress, impatient to carve out their own livelihoods,
reactive to restrictions on the spirit and energy of the most
talented and educated citizens, and disdainful of the
persistent government pronounced directives of a planned
economy.

8. (C) Corruption, perception of lack of opportunity and
weakness in the rule of law work to exacerbate other problems
(such as lack of financing opportunities) that limit
entrepreneurship and local investment. The small local
entrepreneur has to weed through complicated tax and other
regulations that s/he believes the connected few circumvent.
Increasingly, Tunisian contacts report that those with family
connections to President Ben Ali are exploiting the market to
line their own pockets (see part two of this series).
Economic regulations and legal procedures do not apply to
them, which creates confusion and discourages domestic
entrepreneurship and investment. Tunisians now view real
estate or offshore accounts as the only safe options for
investment, yet neither effectively contributes to sustained
economic growth. The lack of transparency also harms
Tunisia's international profile and discourages the foreign
investment that is essential to continued growth. (NOTE:
Transparency International's 2005 Corruption Index ranked
Tunisia 43 of 159 countries with a score of 4.9, or slightly
below the 5.0 borderline score which distinguishes countries
that do and do not have a serious corruption problem. END
NOTE.)

9. (C) COMMENT: Tunisia's economy remains a positive -- if
paradoxical -- model for the region and there is no sign that
the system is headed for a near-term collapse. Clearly, the
GOT recognizes that Tunisia needs real growth and real job
creation. Various protected sectors will gradually be
opened, which will assist the GOT in attracting the
investment needed to support job and enterprise creation.
Improving the rule of law and rooting out corruption will
remain key if Tunisia is to realize its positive potential.
The extent of corruption and its manifestation in Tunisia
will be reported in part two of this series. END COMMENT.
HUDSON