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Industrial Output and Economic Growth in Tunisia

One year after the Arab Spring, what is the impact of this event on the macroeconomics of Tunisia?

 - A look at industrial output data as a model for measuring economic growth.

Anders K. Møller, 2/17/2012

 Tunisia was the first country during the Arab Spring to experience huge protests against the incumbent government, under the 23-year long rule of President Zine El Abidine Ben Ali. The revolution began in December 2010 following the self-immolation of Mohamed Bouazizi on December 17th in protest against the corruption of the local administration.  Demonstrations in solidarity with Bouazizi and against the corrupt regime of Ben Ali from years of poverty and political suppression ensued, culminating in the departure of Ben Ali on January 14th. In this blog entry I will seek to establish a model for evaluating the economic effects of the Arab Spring in Tunisia (also known as the Jasmine Revolution of that country), and test it against a general economic indicator.

The National Bureau of Economic Research (NBER) in the United States measures the activity of the economy according to four factors, namely industrial production, employment levels, real income levels, and sales in both wholesale and retail. I will attempt to measure the economic pulse of Tunisia during and after the Jasmine Revolution by looking at industrial production levels within the economy, presuming that violent political upheaval will have a detrimental effect to the economy. I will then seek to confirm my results by comparing to the traditional economic indicator, namely Real GDP.

According to data obtained from the Tunisia National Institute of Statistics, the industrial monthly index (using year 2000 as base 100) shows a growth in annual industrial production from 1352.4 million to 1411.3 million dinars  (TND: Tunisian Dinar) from 2009 to 2010. However, at the height of revolution in January 2011 we see a sudden decrease in monthly output compared to the previous year, from TND 130.4 million to TND 116.1 million. This is strong evidence of a general halt in production among a large swathe of firms within the economy as a result of the violent demonstrations by the populace. Both January and February saw huge demonstrations until Prime Minister Ghannouchi resigned on 2/27/2011, and our presumption is further backed by the fall in February production from a year prior from TND 124.6 million to TND 111.1 million. Come March, we see not only a stabilizing political environment but also a return towards normal production levels. By April, monthly production had exceeded the level of the same month in 2009 indicating that the economy had returned to normal. Although average monthly industrial output for 2010 ended up lower than 2009 (pending statistics for the month of December), the total output was still higher in 2010 at TND 1539.6 million compared to TND 1411.3 million. A table summarizing the data is shown below:

 

January February March April May June July

2009

122.9

116.0

118.9

123.1

123.1

127.8

133.9

2010

130.4

124.6

133.5

132.1

136.8

139.4

145.4

2011

116.1

111.1

127.8

133.0

136.7

138.7

138.9

 

August September October November December

Avg

Total

120.2

118.6

127.0

120.9

127.5

123.3

1352.4

125.8

126.1

137.1

126.6

136.2

132.8

1411.3

121.0

130.2

136.8

121.0

-

128.3

1539.6

As can be seen from our model developed above, there’s a close correlation between political instability and economic output. Our data have shown us a sharp decrease for the months of January and February in 2011, the period with the most violent demonstrations and worst political instability. Although the economy managed to pick up from March and onwards, the year 2011 could still have seen much higher industrial output. To confirm whether the economy as a whole was truly affected as indicated from the drop in production output, we will not take a look at Tunisia’s Real GDP for the Period.In 2010, the Real GDP growth rate in Tunisia was 3.7% according to the World Bank. The last quarter in the year saw a steady growth of 1.6%, but this number plunged in early 2011. In the first quarter from January through March, Tunisia’s GDP growth plummeted to -7.8%. Although the economy is seen to pick up in the next two quarters, the annual Real GDP growth rate is estimated to be only 2.4% for 2011. This is illustrated on the graph below, taken from tradingeconomics.com:Although accurate numbers for 2011 have not been published yet, the Real GDP growth confirms our findings based on industrial output: At the height of the Arab Spring in Tunisia, economic growth as a whole was severely hindered. The strong correlation between Real GDP and Industrial Output therefore confirms out modeling of the economy based on industry production.In spite of the quick recovery in the second quarter of 2011, Real GDP could have grown significantly more if the revolution had not taken place. In spite of this one, one could surmise that the Jasmine Revolution will have a positive effect on the economy in the long-run as the new government raises both political and economic freedom.

Economic Impact of the Arab Spring in Tunisia

Tunisia was the first country where the Arab Spring “fire” started. The country was facing times of political and economic instability dealing with high level of corruption, high prices, unemployment, political oppression and poverty. The government censored access to information by placing restrictions on the Internet and on the Media. Tunisia found itself in a period of great oppression under the presidency of Zine el Abidine Ben Ali, who, after manipulating the country for twenty-four years, ultimately got overthrown as a result of massive protests that started in December 2010, later on turning into massive, violent riots which resulted in socio-economic chaos, death and instability. In October 2011, The National Constituent Assembly was formed. Its primary task is to regulate the political system and to resuscitate the economy.

The Arab Spring left Tunisia in a deplorable economic situation. According to the report “Re-thinking the Arab Spring”, published by Geopolicity in October 2011, the cost of the uprisings in Tunisia are estimated at $2.03 billion, which counts for 5.22% of the GDP. (http://www.geopolicity.com/upload/content/pub_1318911442_regular.pdf)

The experts who put together the report classified the countries affected by the “Arab Spring” as economies projected to be either net economic losers or net economic winners. Expanding on this theory, Tunisia, Yemen, Egypt, Libya and Syria are in the category of countries losing most with few winners.

In the following paragraphs, we will examine the impact of the riots on several economic indicators such as unemployment, inflation rate, government spending, general debt and investment. In addition, a team of experts of the International Monetary Fund posted estimates of a set of economic indicators for 2011-2016.  This information will give us a rough estimate of the future picture of Tunisia’s economy.  We will begin our analysis by examining the impact of the “Arab Spring” on the economic indicators mentioned above.

1. Impact on unemployment and on inflation rate. In Tunisia, 13% of people who are in the labor force are currently unemployed, youth unemployment exceeds 26% and the unemployment among recent graduates keeps growing day by day. The Economist posted an article which states that people are also frustrated because the distribution of wealth is uneven between the rich cities and the poor rural areas, also making the distribution of job opportunities unbalanced(http://www.economist.com/node/17862305). Inflation rate in 2009 was 3.7%, reaching 5% in 2011. The increases in unemployment and inflation rate are factors that aggravate the economic situation.

2. Government spending and general debt.  As a consequence of the protests, the government expenditures increased (US$746 million), altering the fiscal balance by US$489 million. Other indicators such as the gross national savings decreased by 2 % in just one year; external debt also grew by $4 billion, the budget deficit reached 8.5% of the GDP, and industrial production for 2011 registered a 0% growth. (https://www.cia.gov/library/publications/the-world-factbook/geos/ts.html)

3. Investment.  The newly elected National Constituent Assembly has a set of challenging tasks to accomplish: apart from lowering the unemployment rate, reducing the budget deficit and regulate the fiscal system, the Assembly must increase investment and business development. International Monetary Fund (IMF) data presents that investment percentage share to GDP decreased from 26.4 to 25.3. Christine Lagarde, the managing director of the IMF expresses her opinion on this matter: “Fiscal deficits have widened, which raises concerns about sustainability. It pushes up interest rates, which makes it harder for the private sector to get credit to set up or expand businesses and start hiring people”(Lagarde, http://www.imf.org/external/np/speeches/2011/120611.htm).

According to Lagarde, the government should change its fiscal policies so it would generate funds for business development, infrastructure, education and health. It is of primary importance for the private sector to collaborate with the government to promote investment and competitiveness and to reduce the level of corruption that grew from 4.3 in 2012 to 3.8 in 2011(the ten scale indicates the following: 10-very clean, 0-highly corrupt, http://cpi.transparency.org/cpi2011/results/#CountryResults). According to Lagarde, the IMF is currently helping Tunisia to strengthen the financial sector, one of Tunisia’s economic strategic initiatives.

Data shows that other factors such as GDP and GDP per capita seem not to be affected by the riots. GDP rose from 2010 by approximately $2.3 billion. GDP per capita shows a slight increase as well. (http://data.worldbank.org/indicator/NY.GDP.MKTP.CD)

Lastly, we will discuss the future economic situation in Tunisia by analyzing the estimated indicators provided by the IMF. The situation looks promising if we look at the data: GDP per capita will double by 2016; the share of total investment to GDP is expected to increase by 3%. Government expenditure is expected to fall by 2016, while government revenues will not present major fluctuations. Unemployment rate is expected to drop by at least 1% and gross national savings are expected to grow by 5%. It is important to note that these economic milestones can be reached only through democratization and economic liberalization.

http://www.imf.org/external/pubs/ft/weo/2011/02/weodata/weorept.aspx?sy=2009&ey=2016&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=64&pr1.y=6&c=744&s=NGDPD%2CNGDPDPC%2CNID_NGDP%2CNGSD_NGDP%2CPCPI%2CPCPIPCH%2CTMG_RPCH%2CTXGO%2CTMGO%2CLUR%2CLP%2CGGR_NGDP%2CGGX_NGDP%2CGGXWDG_NGDP%2CBCA%2CBCA_NGDPD&grp=0&a

 

 

 

 

Impact of the Arab Spring on Tunisia’s Economy

Tunisia’s Economy : After the Arab Spring

Naman Jain

 

Tunisia is a country located in Africa, and also constitutes the Arab League. It was one of the countries where protests had taken place last year; the protests that had led to the coinage of the term – Arab Spring. According to Amara, the aftermath of the Arab Spring in Tunisia has seen a decline in the speed of “investment”, an increase in “unemployment”, and the fall of tourism ; and it is claimed by “businessmen and government officials” that this condition in Tunisia is due to the “strikes” and “sit-ins” carried out by Tunisians. Yet, it seems unfair to stem the blame on the sit ins, as the Tunisians did so for a better future. Unfortunately, the economy suffered because of that. Amara also says that the people in Tunisia, whose GDP is similar to that of the Dominican Republic, are causing the very “problems” that they are “protesting” against, and these problems involve “poverty and unemployment”. Amara says that Tunisia saw “shrinking of the economy”, increase in the “unemployment rate”, and its tourism sector, “Tunisia’s biggest source of foreign currency”, being hit; all by pretty significant numbers. Amara says “It [“the new government”] has secured billions of dollars in loans and aid from foreign governments and international institutions to get it through the slump. The prime minister . . . travelled to the past week’s World Economic Forum in Davos, Switzerland to tout for investment.” He says that the “unrest” is serving as a barrier to the government’s idea of “public investment targeting the poorest and most restive parts of the country” which according to “Employment Minister Abdel-Wahab Maatar” would lead to the “creation” of jobs – around 250,000 in “public and private sectors”.  The evidence shows that unfortunately, the unrest is the main obstacle to a strong economy in Tunisia in the post – Arab Spring world.

An article in The Economist titled “Arab spring economies : Unfinished business” says “Tunisia saw its GDP growth in 2011 go from 3% to 0%, according to the IMF – the Tunisian government says the economy actually contracted by 1.8%”(49). Such a steep downfall in the growth of GDP certainly indicates the poor condition of the economy that post – Arab Spring Tunisia has. The article says “There are four main reasons for the economic downturn in the post-revolution countries”(49). The article says that these reasons are “instability” because it “has driven away customers and undermined business confidence” ; “strikes” ; “poor state of the government machinery” ; and “the chill that has descended over all businesses connected to the previous rulers, especially privatised ones” (49-50).  An article on the United Arab Emirates based The National written by Farah Halime says “Unemployment is a huge problem in Tunisia, with about 700,000 jobless in a population of approximately 10.6 million.” Halime also says “Tourism, a vital driver of employment and foreign currency earnings, was down by as much as 50 per cent after the revolution, government statistics showed”. This can be described as another impact of the Arab Spring on Tunisia’s economy.
The one factor that one can look at is the GDP of Tunisia. Mankiw says “Gross domestic product, or GDP, is often considered the best measure of how well the economy is performing”(18). If Tunisia’s GDP has fallen so drastically, it obviously indicates that the economy is not doing well after the Arab Spring struck Tunisia. However, one must also consider unemployment in Tunisia as an economic impact of the Arab Spring.
A nuqudy.com article says “Tunisia’s budget deficit should rise to 6% of GDP in 2012 from an estimated 4.5% in 2011 as the government plans to increase spending in an attempt to reinvigorate the economy which was severely hurt by the effects of the revolution”. It says “The budget also forecasts a GDP growth of 4.5% in 2012, well above the 0.2% which was estimated for 2011. Furthermore, the government expects the economy to create 75,000 thousand jobs.” The article from The Economist says “Tunisia’s government has vowed to raise growth to 8% and reduce unemployment from 19% to 8.5% by 2016”.  The difference from 19% to 8.5% seems extremely impressive, and it would be great for the Tunisian economy if the government can achieve the lowering of the unemployment rate.
We can hence say that Tunisia’s economy was impacted severely by the Arab Spring. Tunisians must work hard in helping their economy recover after the revolution, in achieving what they as citizens want for their country.

Works Cited

Amara, Tarek. “FEATURE – Tunisia’s economy still awaits post-revolt bounce.” Reuters 1 February, 2012. Web. 17 February, 2012. http://www.reuters.com/article/2012/02/01/tunisia-economy-idUSL5E8CO1XC20120201.

“Arab spring economies: Unfinished business.” The Economist 4 February, 2012: 49-50.

Halime, Farah. “Tunisia’s new goal – show how to build economy after revolution.” The National 23 October , 2011. Web. 17 February, 2012. http://www.thenational.ae/thenationalconversation/industry-insights/economics/tunisias-new-goal-show-how-to-build-economy-after-revolution.

Mankiw, N. Gregory. Macroeconomics: Seventh Edition. New York: Worth Publishers, 2010. Print.

“Tunisia’s budget deficit to rise to 6% of GDP.” nuqudy.com 4 January, 2012. Web. 17 February, 2012. http://english.nuqudy.com/General_Overview/North_Africa/Tunisias_budget_def-477.