Tunisia: Expanding Economy |
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The economy received a boost in July, with official figures showing strong growth, alongside a slowing inflation rate and an increase in foreign reserves.
According to information from the governmental National Statistics Institute (NSI), Tunisia's Gross Domestic Product (GDP) in the first quarter of 2008 rose to approximately TD 6.2bn - up from TD 5.86bn the previous year - thanks largely to robust activity in the transport, telecom and industrial sectors. While this is slower than the 6.5% growth rate in the first quarter of 2007 - one of the highest in a decade - it still underlines the country's healthy performance against potential slowdowns in the US and European economies.
The transport and telecom services sectors grew by 13% year-on-year, while mechanical industry activity expanded by 13.5%. The textile industry, which accounts for a large proportion of Tunisia's industrial output, showed more modest growth at 3.9%, while food processing, another staple of the country's industrial economy, grew by only 6.1%.
Tunisia's foreign currency reserves also rose by 16.5% year-on-year, to TD 10.4bn, largely as a result of increased tourism receipts and a jump in remittances. According to Central Bank, tourism revenues increased by 7.5%, whilst remittances from Tunisians working abroad grew by 10.6%.
In June, the International Monetary Fund (IMF) announced that it expected Tunisia's growth to average 5.5% for 2008. This is somewhat lower than the 6.3% growth of last year, largely resulting from the rising cost of commodities such as foodstuffs and energy, as well as a slowdown in Europe, Tunisia's biggest export market.
The rise in imported commodity prices has put a strain on other areas of Tunisia's economy, particularly by increasing inflation. Nevertheless, the Central Bank recently said that inflation had eased in June to 4.9% from 5.3% a month earlier.
The government expects inflation for 2008 to average around 5%. While two points higher than the 3.1% for 2007, it is lower than many other countries in the region. The dramatic increase in oil prices over the past year has caused inflation rates around the region to jump noticeably, with non-producer countries in the Middle East and North Africa (MENA) region visibly feeling the effects. Jordan, for example, posted an inflation rate of 12.7% for the first five months of 2008. Although Tunisia has a modest reserve of 700m barrels, giving it some flexibility in managing its current account deficit, it has faced a demand-side deficit of 1m tonnes of oil equivalent (TOE) in years past, leaving it vulnerable to price rises.
The benchmark interest rate, which is often used to combat inflation, has been left untouched at 5.25%. The Central Bank had raised its Minimum Reserve Requirement (MRR) earlier this year to 7.5% in an attempt to slow inflation, the second such increase in less than a year, following a rise in late 2007 from 3.5% to 5%.
Using MMR rates as an anti-inflationary tool has a limited impact in situations where inflation is spurred by other causes. The current strategy seeks to mop up excess liquidity in the market by increasing the amount of money banks must hold in reserve, including commodity imports. However, the desire to maintain a competitive currency, particularly against its Eurozone trading partners, means that the Central Bank is looking for alternative measures to limit rises in the CPI index.
Tunisia, ranked as the most competitive economy in Africa and the Middle East by the World Economic Forum's Global Competitiveness Report 2006-2007, has benefited heavily from its close ties with the EU, with exports making up to 45% of the country's GDP. Making the most of its recent free trade agreement with the EU, the country is looking to position itself as an industrial production base for the Mediterranean and North African region. Although Tunisia faced added competition from Chinese producers following the end of import quotas, export-oriented textile firms in Tunisia have grown by 12% year-on-year, with many European manufacturers drawn by cheap labour and close proximity.
Nevertheless, Tunisia is still battling with its trade deficit. Over the first six months of 2008, the deficit increased by 37%, led by energy and foodstuff imports, which reached TD 2.5bn from 1.87bn TD in 2008. Exports, conversely, grew over the same period by only 25%. While Tunisia is successfully boosting its export-oriented industries - encouraging investment in its manufacturing and textile sectors in particular - its reliance on foreign oil to satisfy domestic demand means that continuing high barrel prices are likely to further push up import costs.
© Oxford Business Group 2008
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