Tunisia

							TUNISIA
Rank: 69 Regional Rank: 6 of 17

T

unisia’s economy is 61 percent free, according to our 2007 assessment, which makes it the world’s 69th freest economy. Its overall score is 1.8 percentage points higher than last year, partially reflecting new methodological detail. Tunisia is ranked 6th out of 17 countries in the Middle East/North Africa region, and its overall score is slightly higher than the regional average. Tunisia enjoys high levels of business freedom, monetary freedom, fiscal freedom, freedom from government, and labor freedom, especially for a Middle Eastern country. Inflation is low, although the state retains the right to set prices in some circumstances. Tunisia maintains moderately high tax rates, but overall tax revenue is not particularly large as a percentage of GDP. There are regulatory obstacles, but businesses can be opened and closed without undue difficulty. The labor market is fairly flexible, and redundant workers can be fired without significant cost. Tunisia faces challenges in trade freedom, investment freedom, and financial freedom. The government maintains complex trade regulations and opaque bureaucratic practices. Protectionist economic policies have limited the opportunities for foreign investment. The financial sector is subject to heavy political influence, and much of its regulation and oversight falls short of international standards. BACKGROUND: Tunisia gained its independence from France in 1956 and developed a socialist economy. President Zine al-Abidine Ben Ali has undertaken gradual freemarket economic reforms since the early 1990s, including privatization of state-owned firms, simplification of the tax code, and more prudent fiscal restraint. The country’s diverse economy includes significant agricultural, mining, energy, tourism, and manufacturing sectors. Tunisia’s 1998 association agreement with the European Union, which has helped to create jobs and modernize the economy, was the first such agreement between the EU and a Maghreb country. The economy has also benefited from expanded trade and tourism. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

The economy is 61% free
100

80
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Mideast/North Africa Average = 57.2 World Average = 60.6
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60

40

20

0

1995

2007

QUICK FACTS
Population: 9.9 million GDP (PPP): $77.2 billion 6.0% growth in 2004 4.6% 5-yr. comp. ann. growth $7,768 per capita Unemployment: 14.2% Inflation (CPI): 3.6% FDI (net inflow): $634.7 million Official Development Assistance: Multilateral: $116 million Bilateral: $423 million (0.1% from the U.S.) External Debt: $18.7 billion Exports: $13.3 billion Primarily textiles, mechanical goods, phosphates, chemicals, agricultural products, hydrocarbons Imports: $14.1 billion Primarily textiles, machinery, equipment, hydrocarbons, chemicals, food

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TUNISIA’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 78.3 61.8 80.8 82.1 80 30 30 50 49 67.9
0

sectors of economic activity except mining, energy, the financial sector, and domestic trade. Foreign ownership of agricultural land is prohibited. Onshore companies outside the tourism sector with a capital share larger than 49 percent require government authorization. Residents and non-residents may hold foreign exchange accounts, subject to restrictions and approval. There are some controls, quantitative limits, and other restrictions on payments and transfers. There are many restrictions and controls on capital transactions.
100

L L L L L L L L L L
50

100 = most free,

= world average

FINANCIAL FREEDOM — 30%
Tunisia’s financial system is subject to heavy government involvement. Supervision and regulation are slowly being brought up to international standards, but they remain insufficient. The banking sector includes 14 commercial banks. The government sold its stake in two banks in 2002 and late in 2005 but remains the controlling shareholder in at least four banks that together account for about 42 percent of bank assets. In 2005, the government established a state-owned financial institution to improve access to capital by small and medium-size enterprises. The small insurance sector had 20 insurance companies in 2005 (15 Tunisian and five foreign), four of which were wholly or partly state-owned, including the largest, which controlled one-third of the market. Capital markets are nominal, although the stock market is active, and the number of investment funds is growing.

BUSINESS FREEDOM — 78.3%
Starting a business takes an average of 11 days, compared to the world average of 48 days. Obtaining a business license can be difficult, but closing a business can be easy. Bureaucratic obstacles and delays can be problems. The overall freedom to start, close, and operate a business is relatively well protected by the national regulatory environment.

TRADE FREEDOM — 61.8%
Tunisia’s weighted average tariff rate was 9.1 percent in 2005. A complex tariff structure, significant and complex import taxes and fees, export subsidies and other export promotion programs, and delays in customs all add to the cost of trade. Consequently, an additional 20 percent is deducted from Tunisia’s trade freedom score to account for these non-tariff barriers.

PROPERTY RIGHTS — 50% FISCAL FREEDOM — 80.8%
Tunisia has burdensome tax rates. Both the top income tax rate and the top corporate tax rate are 35 percent. Other taxes include a value-added tax (VAT) and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 20.7 percent. The executive branch is the supreme arbiter of events in the cabinet, government, judiciary, and military. Commercial cases take long to resolve and face complex legal procedures.

FREEDOM FROM CORRUPTION — 49%
Corruption is perceived as significant. Tunisia ranks 43rd out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.

FREEDOM FROM GOVERNMENT — 82.1%
Total government expenditures in Tunisia, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 26.8 percent of GDP, and the government received 3.4 percent of its revenues from state-owned enterprises and government ownership of property.

LABOR FREEDOM — 67.9%
The labor market operates under somewhat flexible employment regulations that could be improved to enhance overall productivity growth. The non-salary cost of employing a worker is high, but dismissing a redundant employee is not costly.

MONETARY FREEDOM — 80%
Inflation in Tunisia is low, averaging 2.5 percent between 2003 and 2005. Relatively low and stable prices explain most of the monetary freedom score. The government retains authority to set prices for subsidized goods and influences prices through regulation, subsidies, and stateowned utilities and enterprises. Consequently, an additional 10 percent is deducted from Tunisia’s monetary freedom score to account for these policies.

INVESTMENT FREEDOM — 30%
Tunisia is open to foreign investment generally but does restrict it in some sectors to minimize the impact on domestic competitors. The Investment Code Law covers all major

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2007 Index of Economic Freedom