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Tunisia looks to boost trade with African neighbours

Tunisia Reuters/Jihed Abidellaoui
Vegetable prices rose 21.6 percent month on month in August 2023
  • Tunisia exports include clothing, car components and IT
  • War in Ukraine disrupted economic recovery in North Africa 

Tunisia is looking to increase trade with its African neighbours, particularly sub-Saharan countries, amid an expected slowdown in business with Europe.

Geopolitical tensions arising from the Russian invasion of Ukraine have fuelled international inflation levels, which could impact levels of trade between Tunisia and its European partners, according to Mélanie Laloum, lead economist, global policy, at the International Chamber of Commerce (ICC).

“Rapid rises in interest rates introduced by European central banks could result in currency depreciations, mainly in Tunisia, Morocco and Egypt,” said Laloum at the second edition of the Africa Business Talks, held by the Banking and Financial Council in Tunis in partnership with the ICC.

As a result, panellists at the event called for the African Continental Free Trade Area agreement to be implemented. Figures released by the UN Conference on Trade and Development have previously revealed that the this agreement would boost intra-African trade by up to 33 percent and slash the trade deficit by 51 percent.

Fakhri Bouzaien, representative of Tunisia’s Ministry of Trade and Exports Promotion, said intra-African trade is the lowest across the globe, ranging from between 15 to 18 percent.

Trade with other African countries currently accounts for less than 3 percent Tunisian exports, and the country is aiming to boost this to 5 percent by 2025.

Five priority export sectors were identified as part of the agreement: textile and clothing, car components, pharmaceuticals and IT, said Bouzaien.

Laloum explained that monetary tightening by European countries, vulnerable as they are to gas shortage and war-induced energy price hikes, will further exacerbate inflation and indebtedness in North Africa.

A quite “quick” and “violent” flight of capital would ensue, she added. Monetary depreciations are expected for the region’s countries which remain “very dependent” of their European partners.

“The war in Ukraine disrupted economic recovery in North Africa, particularly in Tunisia and Libya which have failed so far to recover their pre-Covid GDP level,” Laloum was quoted as saying.

The war has taken its toll on the import capacity and foreign exchange reserves of countries like Tunisia, which has over 40 percent of its grain supplied by Ukraine and Russia.

It comes as the International Monetary Fund (IMF) postponed its board meeting on a loan programme for Tunisia that was scheduled for December 19 to give the authorities more time to finalise the terms, a government official told Reuters this week.

He added that Tunisia intends to re-present the file of the reform programme when IMF meetings resume in January.

The global lender on Wednesday removed a discussion of the Tunisia programme from its agenda, a step likely linked to the fact that the 2023 budget, which includes reforms, is not yet ready.

An IMF spokeswoman said the delay would give Tunisia time to complete work needed before the IMF programme could be approved.

Tunisia has reached a staff-level agreement with the IMF for a $1.9 billion rescue package in exchange for unpopular reforms, including cutting food and energy subsidies, and reforming public companies.

The country has been in urgent need of international help for months as it grapples with a crisis in public finances that has raised fears it may default on debt and has contributed to shortages of food and fuel, according to government critics.

The staff-level agreement is for a 48-month package through the IMF’s extended fund facility to restore macroeconomic stability, strengthen social safety nets and tax equity, and bring reforms that would foster growth and create jobs.

Tunisia’s economy had been badly buffeted for years as political uncertainty and militant attacks hit its crucial tourism sector even before fresh challenges from the pandemic and the global commodities squeeze from the Ukraine war.

Business and financial sources said that next year’s budget is widely expected to include austerity measures, tax hikes for professions such as lawyers and accountants, wealth taxes, and spending cuts.

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