Government Role in the Economy

The government of Tunisia is gradually reducing its role in the domestic economy, but its share still exceeds that of other countries at comparable levels of development. To date, the majority of the state companies fully privatized were among the smallest of the over 200 public enterprises identified for privatization, and were selected so as to minimize disruption within the labor force. However, with the privatization of two cement plants in 1998 and two more in the first half of 2000, the government is now turning its attention to larger public assets, including those in the energy, construction materials, and transport sectors. Unfortunately, 1999 marked a significant slowdown in this area, after the much anticipated privatization of three cement plants was postponed until 2000. Fortunately, these delays and other pending projects give 2000 a strong chance to be the most successful year for privatization yet. In addition, several semi-public firms have been fully privatized via the stock exchange and direct sales of government shares to private entities.

Although the program is supported by the national labor federation, the government has moved carefully to avoid mass firings in unprofitable and overstaffed public companies. The government's attempt to balance its restructuring of the public sector with its policy of maximizing employment has also led to results that fall short of full privatization.

The financial sector is restructuring in preparation for the opening of the services sector to foreign competition in 2001 under WTO and EU FTA agreements. Tunisia's private banks are rapidly gaining recognition for their improving fiscal performance and are capturing market share through expanding products and services, such as bank-financed consumer credit. The central bank continues its shift from direct management of the financial sector toward a more traditional supervisory and regulatory role, while still intervening against inflationary pressures. The central bank is exercising stricter enforcement of guidelines on commercial bank capital reserves and loans. Interest rates have been officially deregulated and commercial banks are permitted to participate in the forward foreign exchange market. The Dinar is convertible for current account transactions; but convertible Dinar / foreign exchange accounts still require central bank authorization. Currency trading on the spot foreign exchange market has been privatized.

The financial markets, consisting of a semi-privatized stock exchange and a number of bond and mixed bond/ stock funds, experienced impressive growth in 1999 and the first half of 2000. Tunisia's two stock indices reported 74 and 28 percent growth in 1999 and 48 and 14 percent growth through the first half of 2000. Unfortunately, much of this growth was concentrated in a relatively few stocks with spectacular appreciation. The exchange, which has completed its shift to fully electronic trading among the authorized brokerage houses, remains under the supervision of the state-run financial market council and lists 46 companies, 14 of them banks. However, the absence of secondary markets still limits the exchange's potential. To encourage Tunisian firms to list on the exchange, the government instituted tax incentives in early 1999 which reduce the corporate tax rate from 35 to 20 percent for companies with at least 30 percent of their shares traded on the exchange.

The Tunisian government and the European Union in 1995 negotiated an association agreement. The agreement, which entered into effect in 1998 once all European parliaments ratified the accord, will gradually eliminate all duties and trade barriers between the signatories over the next decade on most non-agricultural goods, services, and capital. As a welcome sign, Tunisia effectively began reducing tariffs in 1996, two years before the agreement took effect. The ministry of industry is responsible for improving the international competitiveness of Tunisian industry in preparation for the era of free trade with the European Union. This effort, launched on a pilot scale in 1996 as the "mise a niveau" program and supported in part by EU grants incorporated in the EU association agreement, is a combination of government technical assistance, training, subsidies, and infrastructure upgrades aimed at encouraging and assisting Tunisian private sector industrial restructuring. The ministry of commerce manages trade, consumer subsidy, and price control policies. Finally, the ministry of economic development, a scaled-down version of the former ministry of planning, is responsible for long-term budget and policy coordination. The ministry for international cooperation and foreign investment is the government's lead ministry for all multilateral economic activities and for encouraging foreign investment, the latter primarily through its Foreign Investment Promotion Agency (FIPA).