New AfDB report underscores barriers to competitiveness of Tunisian economy

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A new joint publication prepared by the Tunisian Institute of Competitiveness and Quantitative Studies (ITCEQ), the Centre for Research on Economic Development and International Finance (DEFI) and the African Development Bank (AfDB) analyzes the main barriers to improving the competitiveness of the Tunisian economy. The report entitled “Modeling and Analysis of Tunisia’s Productive System” identified several challenges to improving the country’s competitiveness to deliver the maximum benefits of its development strategy and position itself in the global economy.

According to the report, unskilled labour and graduate labour were found to be interchangeable in all sectors, which should not be the case. This reflects existing tensions on the country’s labour market with a job offer too low for qualified young people and salary expectations of young graduates too high given the current economic situation. In labour-intensive sectors such as textiles and tourism, in particular, the mismatch between training and the needs of the sector justifies a low demand for graduates at their desired salary.

The Tunisian industrial sector is not flexible enough to adapt to shocks, the study found. The simulations show that the Tunisian industrial sectors are characterized by a relatively high rigidity in the adjustment of production factors such as labour and capital. Following demand shocks or price shocks, it usually takes three to four years to see a significant adjustment to the value of labour and capital to match the new economic environment.

Despite this rigidity, the study also reveals that the aggregate labour productivity of Tunisian companies rose sharply, by 25% between 1997 and 2006. At the sectorial level, aggregate labour productivity increased in seven industries, namely food, leather and footwear, wood, paper and printing, non-metallic materials, metal materials, furniture and electrical equipment. However, aggregate productivity declined in the following five sectors: textiles, clothing, chemicals and pharmaceuticals, rubber and plastics, and automobiles. Finally, labour productivity increased more in medium-sized companies than in large companies, and more in Tunisian businesses than in foreign enterprises.

Finally, several exporting sectors were identified as very sensitive to foreign demand. In quantitative terms, the analysis identified the sectors most sensitive to changes in relative prices. From this point of view, the current trend toward producing more specialized, quality goods, rather than generic products should reduce the sensitivity of some exports, particularly in the textile sector, clothing and leather, and chemical industries, to relative prices. In the short term, these sectors are shown to be very sensitive to deterioration of price competitiveness. This should guide the current thinking on policies to improve the competitiveness of these sectors.