The northernmost country in Africa has been appreciated for its remarkable economic progress. But, clearly, it isn’t working for all Tunisians, as unemployment has become a major concern
In 1997, the so-called Asian Tiger countries experienced a cataclysmic meltdown known as the Asian financial crisis. What is interesting about the crisis is that it was such a surprise. Most of the countries, including Korea, Taiwan, Hong Kong, Thailand and Indonesia, had during the early part of the 1990s, been growing at an exceptionally rapid rate. Everything in their economies seemed poised for unending growth. But it did not turn out that way. The same might be said for Tunisia.
Tunisia like the Asian Tigers, has been seen as a relatively stable country with a rapidly developing economy. According to the World Bank's country report, "Tunisia has made remarkable progress on equitable growth, fighting poverty and achieving social indicators". The now-deposed leader, Zine el-Abidine Ben Ali, has been praised by numerous world leaders including Ban Ki-Moon, the United Nations secretary-general, the president of France, Nicholas Sarkozy, and the former president of France, Jacques Chirac, who called Tunisia an economic miracle.
It wasn't just world leaders. Many among the ever-expanding universe of international indexes gave Tunisia high marks. For example, in entrepreneur Mo Ibrahim's African Governance Index, Tunisia ranked 8th along with South Africa, Ghana and Botswana. According to the World Economic Forum's Global Competitive Index, which measures the level of a country's burdensome regulations and weak institutions, which inhibit job-creation and private-sector activity, Tunisia was one of the few countries in the region to come close to the average. Although according to The Economist, Tunisia ranked only 144th in its Democracy Index, below China at 136, it was at least ostensibly less corrupt. It ranked at 59th in Transparency International Corruption Index, above Italy at 67 and China and 78.
It was not just the indexes that believed in Tunisia. Tunisia's stock exchange, though very small, has been one of the Middle East's best-performing markets over the past decade. Like many other emerging markets, Tunisia recovered rapidly from the financial crisis and reached a new high just a few months ago, in October. Its investments were considered so attractive that it became a destination for a 'Frontier Fund' run by Morgan Stanley, with money from pension funds, including the Royal County of Berkshire in the United Kingdom.
A study by the Boston Consulting Group concluded that Tunisia was one of a new group of fast-growing economies with the catchy title, "African Lions". These countries, which also included Algeria, Botswana, Egypt, Libya, Mauritius, Morocco and South Africa, were supposed to be the new BRICs, because their growth rates were equal to China, Russia and India, and their per capita GDP at $10,000 was already higher than the BRIC average.
Tunisia also has a fairly high rate of literacy at over 74% and it ranks 18th in the world for expenditure on education. It is also computer literate. Nearly 4 million of its 10.5 million people use the internet with 1.8 million accounts on Facebook alone.
So where did Tunisia go wrong? Was it its oppressive dictatorship? Not exactly. There are other oppressive dictatorships in the world that do quite well. But there is one problem with non-representative forms of government: corruption.
All authoritarian governments everywhere, by definition, are not limited by any legal restraints. This allows elites to become rent seekers often through state-owned companies and monopolies. Without legal limits, the percentage of the GDP that they take for themselves will constantly increase. This was certainly true of Tunisia where president Ben Ali's wife's family dominated the economy. Tunisia's first lady, Leila Trabelsi, and her relatives, seem to have a finger in every pie. Her brother, Belhassen Trabelsi, had interests in banking, car dealerships, telecom and publishing.
Like most developing countries, Tunisia is a relationship-based system. So it is hardly surprising, according to the United States envoy, that "seemingly half" of the Tunisian business community could claim a connection with Ben Ali through marriage. Even a traditionally wealthy family like the Mabrouks, felt it wise to have the scion marry one of Ben Ali's daughters.
The main impact of an economy of corruption is on investment, the investments necessary to create jobs. For Tunisia and many other emerging and frontier markets, this is a major if not the issue. The unemployment rate in Tunisia is officially 13%, but it is probably twice this for younger people. Even university graduates face an unemployment rate of over 15%. This is not unusual for these markets where unemployment rates among younger workers can rise as high as 40%. According to the IMF, the Middle East needs to grow 2% faster every year to avoid its present chronic and high unemployment.
The Asian Crises gave birth to a new phrase in economics,' Crony Capitalism'. This is really a term for a relationship-based system, a system where capital is allocated according to relationships and not efficiently through the market. For investors, the best analysis is the one most ignored, and that is whether the market in any given country actually works.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected])
New Delhi: After offering a lifeline to the controversial Lavasa hill city, environment minister Jairam Ramesh today said efforts are being made to find a "negotiated solution" on the stalled Rs3,000-crore project in Pune, reports PTI.
"We are trying to find a negotiated solution...trying to find a compromise," Mr Ramesh told reporters when asked about his meeting with officials from the Hindustan Construction Company HCC), which is undertaking the township project.
According to sources close to the development, company's chairman and managing director Ajit Gulabchand and other officials met the minister at his office today.
Providing a ray of hope for Lavasa, which allegedly violated green norms, the environment ministry had said last week that it was prepared to consider the project being constructed near Pune on "merits" subject to fulfilment of certain conditions.
The ministry, however, had ordered that no further construction should be undertaken for now.
Mr Ramesh, who said that the government's meetings with HCC officials were still on, maintained that "we don't want to minimise the integrity of the environmental process."
"The environmental integrity has to be maintained," the Minister said.
He said that the company officials have "mentioned to me that the project needs to go forward."
"Now we are trying to see that how best the conditions can be fulfilled," Mr Ramesh said.
The minister said the court will consider the case on 27th January. "Let us see what will happen," he added.
The ministry's recent order had held that the construction is "unauthorised" involving "environmental degradation" and hence status quo should be maintained on construction on the project in accordance with the ministry's 25 November 2010 order prohibiting any work at the site.
New Delhi: The oil ministry is ready to give an "in-principle" approval for Vedanta Resources' $9.6 billion acquisition of Cairn India, provided the mining firm led by billionaire Anil Agarwal agrees to a set of 11 preconditions, reports PTI.
Earlier this month, the oil ministry had sought the law ministry's opinion on the legality of imposing certain preconditions on the stake sale, including Vedanta agreeing to withdraw pending lawsuits filed by Cairn with respect to payment of oil cess and accepting partner ONGC's pre-emption rights.
Sources said the ministry also wants Vedanta to agree to consider the royalty paid on crude oil produced from Cairn's mainstay Rajasthan block in the project cost and its profits calculated thereafter.
As per the production sharing contract (PSC), the operator is permitted to recover all project costs from the sale of oil or gas produced from a field before a mechanism for profit-sharing with the government comes into play.
State-owned Oil and Natural Gas Corporation (ONGC) holds a 30% stake in the Rajasthan block RJ-ON-90/1, but pays the royalty on the entire quantum of production, as it is the licencee of the block.
If the royalty paid by ONGC on behalf of Cairn is taken into consideration while calculating the project cost, this would lower the profits of the Scottish Energy firm, which does not pay royalty on its 70% share of the projected 12 million tonnes per annum output from the block.
Sources said the preconditions also include Vedanta guaranteeing that Cairn's technical capability will be undisturbed by the share transfer and the London-listed firm providing a fresh financial and performance guarantee.
The ministry also wants Vedanta to accept the government's decision on future exploration activities and expenditures as "final and binding", as well as unconditionally accept the government's position on issues that have been challenged by Cairn in courts.
Like royalty, Cairn believes the liability to pay cess of Rs2,500 per tonne on all crude oil produced from the Rajasthan block also rests on ONGC.
This position has been disputed by ONGC and the ministry, which say that cess is to be paid by the project partners in proportion to their shareholding and the matter is under arbitration, sources said.
The ministry said its "in-principle approval shall be further subject to ONGC's decision on the right of first refusal" on the Rajasthan block, as the solicitor general of India's view was that the transfer triggered ONGC's pre-emption rights.
The new oil minister, S Jaipal Reddy, had last week stated he will "not lose time" in deciding on giving consent to Vedanta buying Edinburgh-based Cairn Energy's majority stake in Cairn India.
"The issues relating to Cairn-Vedanta have legal implications. So some of them have been referred to the law ministry for clarification," Mr Reddy had stated.
Earlier this month, the Prime Minister's Office (PMO) had asked the oil ministry to decide whether to give consent to the deal by January-end, at least a month earlier than the deadline the ministry had set for itself when Murli Deora was at its helm.
"All fairness will be pressed into seriously (in deciding on the case). We will go by the rule book," Mr Reddy had said.
The PMO had to press for an early decision as the approval accorded to the deal by shareholders of Cairn and Vedanta was valid up to 15th April.
After acquiring Cairn Energy's stake, the London-listed firm's Indian unit, Sesa Goa, will make an open offer for an additional 20% stake to minority shareholders of Cairn India.
Sources said going by the February-end deadline set by oil secretary S Sundareshan for a decision on the acquisition, Vedanta would have been unable to close the deal by 15th April.
This is because the open offer, which can be made only after government consent to the deal, will have to remain open for subscription for at least 60 days.
If the government decision on the deal was to come by February-end (or in March, as was indicated by Mr Deora), the open offer could not have begun before the first week of March and it would have closed in end-April or early May, missing the 15th April deadline, they said.
After the PMO directive, Mr Sundareshan had on 10th January stated that his ministry will decide on giving approval to the deal by January-end or early February.
Cairn made formal applications for transfer of control in all 10 properties it has in India on 23rd November.
Mr Sundareshan had subsequently stated that his ministry "will need at two to two-and-half months to decide' on the application and indicated that the government would take a stance on the proposal by February-end.
ONGC, which holds interest in all three producing properties of Cairn and five out of its seven exploration acreages, claims that it has pre-emption, or the right of first refusal, on the deal.