From: <a href="http://www.aftenposten.no/spesial/wikileaksdokumenter/article3990364.ece">Aftenposten</a><br>
Date: 29.06.2006
<p>
<pre>

C O N F I D E N T I A L TUNIS 001622 
SIPDIS 
SIPDIS 
STATE FOR NEA/MAG - HARRIS STATE PLEASE PASS USTR - BELL USDOC
FOR CLDP - TEJTEL AND ITA/MAC/ONE (NMASON) E.O. 12958: DECL:
06/27/2016 TAGS: PREL, ECON, PGOV, EFIN, ETRD, EINV, TS
SUBJECT: CORRUPTION IN TUNISIA PART I: AN ECONOMIC SUCCESS?
REF: TUNIS 357
Classified By: AMBASSADOR WILLIAM HUDSON FOR REASONS 1.4 (b) AND (d)

1. (C) SUMMARY: This is the first of a four cable series on
corruptions impact on Tunisias economic and political future.
The Tunisian economy is a model for the region in many
respects, applauded by international financial institutions
for GOT efforts to reform, modernize and liberalize the
economy. But puzzling contradictions exist: perceptions are
that rates of investment are erratic or are slowing; average
Tunisians talk openly and angrily about the lack of jobs,
concerns over rising prices, and a generally poor economy, and
there is little entrepreneurial activity despite a stated
public policy of supporting small business development.
External factors (regional unrest, terrorism, rising oil
prices) may contribute to this dichotomy, but Tunisians are
increasingly focused on corruption -- and specifically, the
disproportionate power and influence wielded by a few elites,
chief among them Tunisias First Family. Part one of this
series discusses Tunisias historic economic success and future
challenges. END SUMMARY.

A Country that Works
--------------------

2. (SBU) A small country of about ten million with minimal oil
and gas resources, Tunisia has faced economic challenges in
its 50 years of independence, but has always found a way to
overcome them and develop its economy. Through sound public
and social policy, it avoided many of the calamities that hit
other developing states and continues to be cited as a model
in that respect. The numbers support this: Tunisia has the
highest per capita income (USD 2,770 in 2005) in North Africa
and is second only to South Africa on the continent. Official
GDP growth over the last 10-15 years has exceeded five percent
per year, thanks to good infrastructure, an educated
population, and a stable macroeconomic environment.

3. (SBU) In the early part of this decade, regional unrest,
terrorism, and recovery after a 4-year drought hit Tunisias
economy hard, though many of these concerns have abated over
the last three years. Tourism returned to pre-2001 levels and
had its best year ever in 2005 with more than 6 million
visitors. Unemployment, however, is a growing concern and is
one on which every GOT official is focused. Official
unemployment figures leveled off at 14 percent in 2005, after
a steady declines dating from 1999s 15.8 percent. Even at 14
percent, however, this figure is consistently challenged as
too optimistic by first hand accounts of university graduates
unable to find jobs and reports of increasing numbers of
ever-more qualified applicants seeking Embassy jobs. President
Zine el Abidine Ben Ali and his ministers repeatedly announce
that increasing investment and services as a component of GDP
is the most essential development concern behind Tunisias job
and enterprise creations efforts.

But does it?
------------

4. (SBU) According to World Bank and IMF estimates, Tunisias
GDP growth will dip to mid-4 percent levels in 2006 (breaking
its decade-long 5-plus percent streak), which will raise risks
of higher unemployment levels. Tunisias five percent GDP
growth rate has historically created approximately 70,000 new
jobs annually, but experts note that over six percent growth
is required to create the extra jobs that university graduates
will demand by 2010 when approximately 80,000 job seekers
enter the economy annually.

5. (SBU) Foreign investment and trade are considered the two
best drivers of growth in the near term. Tunisias Foreign
Investment Promotion Agency (FIPA) reports positive and
growing U.S. investment (from USD 54 million in 2003 to nearly
USD 90 million in 2005), but such investment is typically
concentrated in narrow sectors, such as manufacturing and
industries aimed at export-led job creation. Overall foreign
investment has been erratic over the past five years, with
significant gyrations difficult to assess given the heavy
monetary infusions by international institutions such as the
African Development Bank and the European Bank for Investment
that are public-sector investment, and which help conceal
declining private investment that economists view as more
accurate in measuring economic health. The Tunisian
governments steady privatization of its state-owned
enterprises also distorts the true level of investment by
injecting additional monetary infusions into the economy,
without creating new economic wealth.

6. (SBU) According to local polls, business confidence is also
declining, and business leaders stress that foreign and
domestic investment is insufficient for continued growth. In
early 2006, Tunisias Arab Institute of Business Leaders and
the Young Entrepreneurs Center released separate investment
climate surveys that pointedly criticize Tunisias declining
levels of business confidence, suggesting the "good
connections required for business success" is a chief culprit
(reftel). A "cumbersome administration" and difficulty
accessing capital are also notable obstacles for businesses
here. Fostering entrepreneurship and bolstering creativity and
innovation are recognized "areas for improvement," essential
if Tunisia is to tap its only plentiful resource: its people.

7. (C) The importance of "connections" is a common phrase used
to express the growing disgruntlement over influence and
corruption by the countrys elite. Tunisias small population
and intimate business environment produce a multiplier-effect
for this dissatisfaction, and news travels fast among those
with business and financial interests. The result is a growing
chorus of complaints from the local business community who
feel their ambition stifled in an increasingly frustrated
business milieu. As a result, a new element is clearly
emerging - younger and desiring more rapid progress, impatient
to carve out their own livelihoods, reactive to restrictions
on the spirit and energy of the most talented and educated
citizens, and disdainful of the persistent government
pronounced directives of a planned economy.

8. (C) Corruption, perception of lack of opportunity and
weakness in the rule of law work to exacerbate other problems
(such as lack of financing opportunities) that limit
entrepreneurship and local investment. The small local
entrepreneur has to weed through complicated tax and other
regulations that s/he believes the connected few circumvent.
Increasingly, Tunisian contacts report that those with family
connections to President Ben Ali are exploiting the market to
line their own pockets (see part two of this series). Economic
regulations and legal procedures do not apply to them, which
creates confusion and discourages domestic entrepreneurship
and investment. Tunisians now view real estate or offshore
accounts as the only safe options for investment, yet neither
effectively contributes to sustained economic growth. The lack
of transparency also harms Tunisias international profile and
discourages the foreign investment that is essential to
continued growth. (NOTE: Transparency Internationals 2005
Corruption Index ranked Tunisia 43 of 159 countries with a
score of 4.9, or slightly below the 5.0 borderline score which
distinguishes countries that do and do not have a serious
corruption problem. END NOTE.)

9. (C) COMMENT: Tunisias economy remains a positive -- if
paradoxical -- model for the region and there is no sign that
the system is headed for a near-term collapse. Clearly, the
GOT recognizes that Tunisia needs real growth and real job
creation. Various protected sectors will gradually be opened,
which will assist the GOT in attracting the investment needed
to support job and enterprise creation. Improving the rule of
law and rooting out corruption will remain key if Tunisia is
to realize its positive potential. The extent of corruption
and its manifestation in Tunisia will be reported in part two
of this series. END COMMENT.

HUDSON
</pre>