Growth, Private Investment, and the Cost of Doing Business in Tunisia: A Comparative Perspective
Middle East and North Africa Working Paper No. 34
39 Pages Posted: 18 Oct 2006
Date Written: February 2004
In Tunisia's emerging, more competitive environment, the key precondition for accelerated growth and faster job creation is greater private investment, compared to other high-growth countries, Tunisia's growth was driven more by public and less by private investment.
Comparisons with fast-growing countries also suggest that consolidating and further improving Tunisia's human capital assets, and further strengthening the macroeconomic fundamentals are additional conditions for sustained growth. But despite Tunisia's solid macroeconomic fundamentals and generous investment incentives, private investment remains compressed at levels below potential compared to other fast-growing countries. Moreover, empirical evidence suggests a loss of momentum of private investment since the mid-1990s.
Possible reasons include the limited openness of key services to competition, heightened business uncertainty stemming from commercial risks, and weaknesses in economic governance in particular regarding the predictability and transparency of the regulatory framework that weaken the investment climate. The analysis examines the quality of the regulatory framework for doing business, a key underpinning of the investment climate. Tunisia ranks well in a number of regulatory areas that affect a firm's operations during its life cycle. But in other key areas regulations are not conducive for doing business: employment termination; credit information sharing; creditor's rights in bankruptcy; and business exit. Well-sequenced reform in these areas would help bridge Tunisia's "private investment gap".
Keywords: growth, macroeconomics, private investment, Tunisia
Suggested Citation: Suggested Citation