walter russell mead peter berger lilia shevtsova adam garfinkle andrew a. michta
Published on: March 27, 2014
Tunisia's Angel Investor
Will Rome Bring Prosperity to North Africa?

Though the ancient Romans famously defeated the Carthaginians, today Tunisia, the modern-day location of Carthage, may depend on Italy for its survival as a newly democratic state. In fact, if Italy supports its ancient foe, the entire Maghreb region could actually benefit.

Tunisia is not a major geopolitical player in the Middle East and North Africa (MENA) compared to neighboring Algeria, Libya, Morocco, and Egypt. Yet it is crucial to the stability of the region. While visiting Tunisia in February of this year, United States Secretary of State John Kerry praised the new Tunisian constitution as “a model for others in the region and around the world.” The Mediterranean badly needs a democratic success story, and Tunisia, its faults notwithstanding, is the post-revolutionary country most likely to achieve successful reform.

Though nearby Libya and Egypt remain politically deadlocked, Tunisia has real hope of a peaceful transition to democracy and internal stability. Cooler heads prevailed in the political crisis of December 2013.  Prime Minister Mehdi Jomaa and his new technocratic government took over in January 2014, replacing the Ennahda-led Islamist administration that oversaw a period of increasing violence and turmoil. The new government pledges to restore security and improve the economy through a national dialogue, and to enable elections by the end of this year. The stakes, and the challenges, are high.

The first key challenge is the reformation of the security apparatus. Police reform efforts have produced limited results and the switch from regime to post-revolution security has left gaps in the infrastructure. Furthermore, regional instability (particularly in Libya and Mali) has exacerbated internal insecurity. Smuggling and Illegal migration are rife. The humanitarian crisis in Libya led to increased arms trafficking and immigration– two millions Libyans are reportedly living in Tunisia. Despite initiatives aimed at strengthening border control and suppressing organized crime, Tunisia still lacks a long-term, strategic vision for security reform.

To counter the growing frustration and tensions between the citizens and the political parties, the new government will work to reduce the level of mistrust in the country’s institutions. Like all countries in transition, post-revolutionary Tunisia has seen a sharp decline in GDP growth, rising unemployment, and fiscal imbalance. Issues such as subsidy reform, public spending reduction, jobs creation, and banking sector restructuring must be addressed. Tackling economic “informality” is also a priority, given the prevalence of informal workers in the Tunisian economy.  According to a member of the Tunisian American Young Professional Association (TAYP), previous transitional governments lacked the experience needed to manage economic reform. The current technocratic government is capable of implementing these reforms, though the process will be painful. In a country whose economy is composed mostly of small and medium-sized enterprises (SMEs), political and business élites must work together to achieve a democratic society.

It is no surprise, then, that Tunisia has launched a massive international campaign to seek economic support and new trade partners. The government has declared Tunisia open for business. Job creation and new business opportunities will help cement a new democratic order. International economic support, combined with reforms in targeted sectors, can produce a boom for Tunisia while will benefit the MENA region as a whole. Conversely, economic stagnation, combined with social unrest, could throw the country into chaos once more.

International institutions and bilateral donors reacted swiftly and favorably. Hours after the cabinet led by Mehdi Jomaa was sworn in, the International Monetary Fund released a tranche of $500 million in a loan to support Tunisia’s economic reform program. On March 1st the World Bank approved the biggest loan package Tunisia has received since the revolution, amounting to $1.2 billion ($750 million to support growth and job creation and $300 million for the decentralization mandated by the new constitution). The United States provided $40 million through the Tunisian-American Enterprise Fund in 2013, to spur private sector development.  In December of that year, the U.S. launched the Center for Entrepreneurial and Executive Development, which has so far allocating half a million dollars in grants to SMEs. France has pledged €500 million in loans and will write off €60 million of Tunisian debt.   The money will be ploughed into investment projects.

Tunisian coffers are far from full, however. The United States is not exerting its full diplomatic leverage in a region, having committed to a pivot to the east. European economies are still weak, and many EU member states are reluctant to send money overseas as long as they face rising domestic unemployment and social unrest. Tunisians élites know that the EU is not fertile ground for fund-raising these days: while visiting Paris on February 26, Tunisian Foreign Minister Mongi Hamdi urged the French (read Europe) to send more aid, adding that “Tunisia is not less important than Greece or Ukraine.” Tunisia has done its homework and learned its lessons, and Europe and America must lend a hand, even though those countries may have other concerns.

Neither France nor America has been especially receptive to Tunisia’s pleas. Not so Italy. Italy will not bail out Tunisia all by itself. But Prime Minister Matteo Renzi’s visit to Tunis in March, his first overseas trip as the head of the Italian government, signalled that Rome takes a special interest in Tunis these days. That interest is reciprocated.

For Rome, Tunis will be a partner in global politics and trade. Commercial ties, energy relations (with regards to the Transmed pipeline, jointly owned by Italian ENI and Algerian Sonatrach), and cooperation on immigration have been high on the agenda. Once allied with Tunis, Rome will be able to defend its trade interests in North Africa, and contend with other European nations looking to invest in the post-revolutionary Maghreb. Italian relations with France grew tense after the latter backed regime change in Libya; the new friendship between Paris and Tripoli alarmed Rome. In the cynically profitable business of reconstructing Libya, Italian companies face competition from France, but also from new players such as Qatar and Turkey. With so many vying for spoils in Libya, Tunisia is Italy’s second best option for an African alliance..

Economic ties between Tunis and Rome are already in place, though still relatively modest. Between 2006 and 2012, Italy has been Tunisia’s second-largest trade partner, behind only France. Foreign direct investments (FDI) amount to €1.2 billion, exceeding France’s FDI during the same period (€1.1 billion).1 Furthermore, the Arab Spring has not damaged trade relations between the two countries. The roughly 750 Tunisian companies that have attracted Italian capital generate revenues of around €3 billion. Italian companies in Tunisia employ over 60.000 workers.2 Italian businesses may significantly increase their role in the development of Tunisia’s private sector, especially if France continues to favor oil-rich Libya.

For Tunis, Rome may be the best partner available, given the shortage of other big donors. Tunisia has grown increasingly frustrated with France since 2011, due to French support for the old Ben Ali regime and lukewarm reaction to the new constitutional process. When mass demonstrations sprang up throughout Tunisia in December 2010, French Foreign Minister Michelle Alliot-Marie sided with President Ben Ali, who had ranked among Paris’ closest allies. Under Sarkozy, France further enraged Tunisia by disregarding Tunisian desires for jobs, justice, and dignity in favour of French business interests.  Francois Hollande has improved matters, however, since his visit to Tunisia in July 2013, the first by a French President since 2011. He has stated repeatedly that France will maintain its ties to Tunisia and will work with all elected parties to support Tunisia’s transition to democracy. However, France has taken no concrete action so far, and its economic difficulties may prevent the country from offering much in the way of economic aid.

Can Italy be Tunisia’s angel investor, and if so what might that mean for the stability of the Maghreb region? As Prime Minister Renzi declared during his visit in Tunis, Italy will make the Mediterranean region the focus of its agenda when it holds the Presidency of the European Union in the second semester of 2014. Rome has a good hand to play in the region. Its foreign policy has certainly been more carefully crafted than those of its European allies – France and the United Kingdom most of all. In Tunisia, Italy is considered a more neutral and complementary ally than France. Small and medium-sized businesses in Italy want access to markets outside of Europe. With Libya mired in tribal rivalries, and competed over by foreign powers hungry for role in the reconstruction process, the Italy is increasingly interested in Tunisia. A stronger partnership could benefit both countries: Tunisia will receive economic support, and Italy will gain an ally in an important region.

The so-called Arab Spring affected the Maghreb countries differently, but they are all enduring difficult economic times. The Eurozone crisis also harmed North African economies, which depend heavily on European support. The United States, too, is in dire fiscal straits, and is shifting its strategic interests to the Pacific region. On top of that, worldwide increases in oil and food prices have made a bad situation worse. The Maghreb is going through a difficult adjustment period, beset by increasing demands for domestic reform and limited by its scarce financial resources.

Foreign parties are understandably wary about investing in the Maghreb, given its recent upheaval and current painful recovery. As one authoritative report put it, foreign investors demand “more clarity on the economic policy direction of the new governments in the region.”3 As reported in a German Marshall Fund paper, the most regional and global players are likely to be risk-adverse, and opt for a “wait and see” approach, foregoing any new investments for the time being.4

In the ruthless game of international politics, leaps of faith are quite uncommon, and perhaps even foolhardy. Yet economic growth and democratic governance in the Maghreb will improve the lives of millions of young Arabs, marking perhaps a turning point in the region’s history. Italy’s diplomatic, cultural, and geographical proximity to Tunisia make it an ideal angel investor. Washington should welcome an Italian-Tunisian alliance, given its stated frustration with the EU’s passive attitude towards its “southern neighborhood.” With Rome and Tunis allied economically, the Strait of Sicily may be said to fill with hope, perhaps overflowing in waves of prosperity across the Mediterranean region.

1 Source: “Il business italiano in Tunisia,” SRM Mediterranean Observatory, December 2013.

2“Il business italiano in Tunisia.”

3“MENA: At the Threshold of Change, Uncertainties Mount,” IIF Regional Overview, December 10, 2012.

4“Regional Dynamics in the Mediterranean and Prospects for Transatlantic Cooperation,” July 2013.

Giovanni Faleg is associate research fellow at the Centre for European Policy Studies.
show comments
  • Pete

    I don’t get it. One economically weak country (Italy) bailing out a basket case (Tunisina). Can that work?

    This is like the recipe of the Democrat Party for prosperity — spend, spend, spend — when the U.S. is already in debt up to its eyeballs.

    As for Tunisian Foreign Minister Mongi Hamdi telling “the French (read Europe) to send more aid, adding that ‘Tunisia is not less important than Greece or Ukraine.” Earth to Hamdi. ‘ To Europe, Greece, a member of the EU, is definitely far more important than is Tunisia.

  • Andrew Allison

    Whistling in the dark!

  • Curious Mayhem

    Seems a bit far-fetched. OTOH, if any post-Arab Spring country is worth a bet, Tunisia is it.

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