Tunisia's Coming Islamist Economy

As Tunisia prepares for democratic elections, foremost in the minds of many Tunisians is the potential rise of Islamist political parties, and the fear that religious politicians will engineer a merger between mosque and state.
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As Tunisia prepares for democratic elections, foremost in the minds of many Tunisians is the potential rise of Islamist political parties, and the fear that religious politicians and their supporters will engineer a merger between mosque and state, creating a society and government potentially hostile to individual freedoms. The treatment of religious and ethnic minorities, women's rights, and harsh punishment of criminals are among the most common concerns of citizens resulting from such a government. Yet the economic policies that often go hand-in-hand with an Islamist political orientation have been a less common focus of foreign policy analysts, but equally important.

In this case, the Islamists' economic policies are relevant because religious politicians will undoubtedly lead whatever coalition results from the elections in October. The Islamist party Al Nahda (Renaissance) -- founded in the early 1980s by Rached Al Ghannouchi -- currently garners the most electoral support, polling almost ten percentage points ahead of its closest rival. Although Al Nahda is unlikely to win outright and will be forced to share power with non-religious parties, it should wield the greatest influence in a new government. How may this impact the Tunisian economy, which has faltered badly since January?

The party has not outlined detailed economic plans but has provided an idea of what to expect. Not surprisingly, Al Nahda should continue to seek to strengthen trade ties with Europe. Given the EU's size and proximity, commerce with Tunisia's northern neighbors is crucial for any future government that hopes to deliver greater prosperity to the country's population. However, Ghannouchi has mixed feelings about the EU and has expressed frustration with European leaders for applauding former president Ben Ali's "economic miracle" while well documented human rights violations were at their peak in Tunisia. In addition, while some European states sheltered Al Nahda leaders as political refugees during the Ben Ali era (Ghannouchi actually lived in London for more than two decades), Europe as a whole supported Ben Ali until the very end. European countries also supported policies that generated disproportionally low-paying jobs for Tunisians, providing Al Nahda leaders with additional incentive to question the sanctity of existing European trade deals.

Despite his frustration with the EU, Ghannouchi has spoken of the long history of good relations between Tunisia and Europe, and has said that their strong historical relationship will not end with a change of leadership. He has added that a greater level of balance will be required going forward, noting that relations must be built on mutual respect and based on equality. This positive though vague framework could manifest itself through a variety of outcomes, but Ghannouchi of course recognizes that in reality, Tunisia has few choices at the present time. Tunisia must engage Europe while at the same time being seen to be more forceful in negotiating with its neighbors to the north. Extensive trade ties with the EU will therefore continue under an Islamist led coalition, however, it is questionable whether European investors will wish to make new investments under an untested Islamist-led government for some time to come.

The effects of the upheaval in North Africa have taken a toll on all of the region's economies. As of late July, the conflict in Libya has cost Tunisia up to $2 billion in lost trade and tourism revenues, according to Tunisia's central bank governor. Libyan trade and tourism accounted for an estimated 5.5% of GDP in 2009. Since January, Tunisia's overall tourism business has plummeted by more than 40%. The lingering uncertainty in Libya and Egypt will surely continue to negatively impact the Tunisian economy.

Al Nahda's ascension to power should also have some negative effects on the economy. Ghannouchi has indicated that Al Nahda supports a more left-leaning approach to economic development, emphasizing equality over absolute growth. While the policies that logically stem from such an orientation may garner popular support, a more left-leaning approach will probably discourage foreign direct investment (FDI), which is an equally important component of economic revitalization. According to Tunisia's Foreign Investment Promotion Agency, FDI fell 26% in the first seven months of 2011 -- an ominous sign. FDI levels will continue to decline without a definitive vote of confidence from the new government that it will promote market liberalization and enforce the rule of international law.

Al Nadha has a choice to make -- it can either make equality the pillar of its future economic policies at the expense of engaging international trade and investment, or in conjunction with it. For a country in such dire economic straits, the choice would appear to be obvious, yet it will take considerable compromise and focus among coalition leaders to make such joint priorities a reality. Ultimately, the task will be to meet the aspirations of the Tunisian people, the political objectives of the coalition partners, and the economic requirements of Tunisia's international partners to make it all work. The jury will be out -- probably for years -- until foreign investors have the confidence they need to make significant long-term investments in Tunisia. Until that time, the Tunisian economy will continue to suffer.

Daniel Wagner is CEO of Country Risk Solutions, a political risk consulting firm based in Connecticut (USA), and author of the forthcoming book "Managing Country Risk" (CRC Press, 2012: www.managingcountryrisk.com). Ben Campbell is a research analyst with CRS based in Chicago.

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