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Publication(Washington, DC, 2014-05-24) World BankUntil 2010 Tunisia appeared to be doing well and was heralded by the World Bank and the IMF as a role model for other developing countries, and the World Economic Forum repeatedly ranked Tunisia as the most competitive economy in Africa. Yet, the Tunisian model had serious flaws. Inadequate creation of jobs, notably for university graduates, and deep regional disparities were a source of increasing frustration across the country in the run up to the January 2011 Revolution. This development policy review shows that, in contrast to the façade often presented by the former regime, Tunisia's economic environment was and remains deeply deficient. The review highlights an economy that has remained frozen in low-value added activities and where firms are stagnating in terms of productivity and jobs creation. The review argues that Tunisian prosperity has been held back by policies that have reduced the country s overall economic performance. This poor performance results from extensive barriers to entry and market restrictions coupled with a heavy business regulations and a poorly functioning financial system, have resulted in economic stagnation. Economic policies have exacerbated cronyism and rent-seeking, allowing under-performing firms to survive, regardless of their productivity. in order to fulfill its economic potential, Tunisia needs to create a level playing field by opening up the economy and removing Tunisia's three dualisms, namely the onshore-offshore division, the dichotomy between the coast and the interior, and the segmentation of the labor market. A strong social policy is also necessary, of course, and should be designed to accompany private sector-led growth. Tunisia can capitalize on a strong competitive advantage to export wage-intensive goods, expand its export of services, and unleash the potential of agriculture, to the benefit of small businesses, young graduates, and farmers in Tunisia's long-neglected interior regions. Realizing these benefits will require improving the investment climate, rationalizing regulations, and developing more equitable development policies that benefit all of Tunisia's regions. The Unfinished Revolution is a challenge for policymakers to rethink Tunisia's economic development model, to question existing assumptions, and to dare to think big about policy reforms which can accelerate growth and shared prosperity, create quality jobs and promote regional development.
Publication(World Bank, 2010-01-01) World BankTunisia must move from a low value-added and low cost economy to a higher value-added, knowledge intensive economy in order to significantly reduce unemployment, its overriding challenge. This Development Policy Review (DPR) provides a discussion of the key issues and challenges that are involved in achieving this goal. Towards this end, it discusses trade integration, innovation policies and enabling environment reforms (macro stability, economic regulation and governance, financial sector and labor market reforms and capital account opening) that could facilitate the structural transformation of the economy. The DPR is organized as follows: chapter one reviews growth and employment outcomes and challenges; chapter two discusses the rationale for increasing the pace of structural transformation of the economy in order to boost growth and reduce unemployment; chapter three examines the strengths and weaknesses of Tunisia's innovation system and strategies and proposes reform options in light of the international experience; chapter four discusses key aspects of Tunisia's global integration that could further contribute to innovation and productivity growth; chapters five discusses the key improvement in the enabling environment needed to support innovation and productivity growth (economic regulation, education sector reforms, financial sector reforms and labor market); finally, chapter six discusses structural transformation issues in natural resource-intensive sectors and examine the specific sectoral reforms needed to address the trade-offs between several objectives, including growth and natural resources preservation.