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ISSN 1474-5615
Vol 16 Issue 6 June 2011

North Africa
Business Monitor International’s monthly regional report on political risk and macroeconomic prospects

Tunisia THIS MONTH’S TOP STORIES

Morocco: Subsidies To Deepen The

Political Transition To Set Budget Deficit
BMI View: The recent spike in social unrest over unemployment

Growth Trajectory and rising prices witnessed in North Africa, combined with the
Moroccan government’s announcement of increasing subsidies,
has led us to reassess our view on the country’s fiscal position.
BMI View: Tunisia’s growth prospects will depend heavily on its ability to
We now foresee an even wider deficit through 2011 and expect
make progress in its democratic transition. We have outlined several potential
capital spending growth to remain subdued, with focus increasingly
scenarios, noting that the possibility of a best-case scenario outweighs that of
shifting to current expenditure, at least in 2011.
a worst-case scenario. Our core view is that the country will see real growth page 2
rates of 1.3% and 2.3% in 2011 and 2012 respectively.
Tunisia’s growth trajectory will be several potential scenarios that take
Algeria: Lower Gas Production
determined by the smoothness and into account possible outcomes to the Dragging On Growth
success of its political transition and political situation. BMI View: Despite having experienced an uptick in public unrest
we note that there is still considerable since the start of the year, we believe Algeria will weather this
uncertainty surrounding the country’s Best-Case Scenario political crisis relatively well, with economic growth remaining
efforts to establish a democratic state. Rapid completion of the consti- steady in 2011 and beyond. However, technical difficulties in the
Elections are planned for July 24 this tution-writing process and an or- hydrocarbon sector have led our Oil & Gas team to revise down
year, when citizens will vote for an derly, free and fair election would its production forecasts, which led to a downward revision to
assembly of 200 temporary members likely provide a stable base and our real GDP growth projections to 2.9% from 4.2% previously.
who will write a constitution, while par- boost economic activity relatively page 4
liamentary elections will be held once quickly in our view. On a positive Tunisia: Inflation To Rise, Producer Prices To
the process is complete. We note that note, it appears that local media
there are still many potential obstacles are already awash with discussions
Stabilise
page 7
to restoring stability and jump-starting on democratic institutions, which
the economy, even after a parliament will help to educate Tunisians and
OIL MARKET OUTLOOK
is elected, and below we have outlined ...continued on page 6

Libya

Growth Scenarios Amid

The Crisis
BMI View: Libya’s growth outlook beyond 2011 will depend to a large extent
on how the current political crisis unfolds. Here, we outline three different Source: BMI
potential outcomes and how each would affect the growth forecast. In every
Brent crude has remained above US$120/bbl in recent trading,
case, we see a marked contraction in economic activity this year.
suggesting potential for additional upside, particularly if there is
As Libya’s descent into chaos con- Given the volatility of the political further unrest in the Middle East and North Africa. We believe
tinues, all of our short- to long-term situation, there is a significant degree prices now have a risk premium embedded in them and note
economic assumptions have been put of uncertainty surrounding what upside risks to our 2011 average price forecast of US$94.00/bbl.
on hold. At the time of writing, NATO impact the crisis will have on the However, we are wary of the impact high prices could have on
was continuing its aerial bombardment, economy. While our growth forecasts other assets through the negative effect of higher energy costs on
while government and rebel forces are differ markedly under these scenarios, economic activity. We will be watching progress of the US driving
settling in for a protracted conflict. ...continued on page 8 season to gauge the degree of demand destruction taking place.

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  MOROCCO
RISK SUMMARY
POLITICAL RISK
Some Tension Will Persist
We maintain our view that Morocco’s politi-
cal situation is more stable than most of its
North African counterparts, with the king
popular among the population and the gov-
ernment open to reforms. Indeed, a youth-
led protest movement has been invited to
put forth its ideas as part of a consultation
process on democratic reform initiated by a
panel formed by King Mohammed. However,
youth leaders declined the offer, stating that
they will not be able to formulate a draft
proposal within the given time-frame. Politi-
cal parties and trade unions have also been
asked by the panel to present their ideas for
constitutional reform.
Our short-term political risk rating is 65.4.
ECONOMIC RISK
Steady Growth Ahead
We maintain our broadly optimistic outlook
on Morocco’s growth prospects in 2011,
with further expansion in gross fixed capital
formation and a recovery in household
expenditure underpinning our forecast for
real GDP growth of 4.3%. Supporting our
view, Economic Affairs Minister Nizar Baraka
announced in March that the economy is
still on track to achieve 5% growth in 2011
despite widespread unrest in North Africa,
which is expected to have a negative impact
on foreign investment and tourism.
Our short-term economic risk rating is 51.0.
BUSINESS ENVIRONMENT
Private Healthcare Hurting
The government has announced a set of con-
cessions for public sector workers that are
thought to be worth MAD43bn (US$5.4bn)
to help cool off protests. While this measure
will certainly help mitigate tensions between
the population and the government, the busi-
ness environment in this particular sector
could actually suffer. Indeed, the improve-
ment of public sector working conditions
may help the sector hold onto quality staff,
slowing the brain drain to the private sector
and abroad. This will make the public sector
more competitive and better able to provide
healthcare at the expense of the private
sector. Furthermore, it will increase public
sector healthcare spending as a percentage
of total healthcare spending.
Our business environment rating is 43.1.
2 2 north AFRICA – JUNE 2011
Economic outlook
Subsidies To Deepen The
Budget Deficit
BMI View: The recent spike in social unrest over unemployment and rising prices
witnessed in North Africa, combined with the Moroccan government’s announcement
of increasing subsidies, has led us to reassess our view on the country’s fiscal posi-
tion. We now foresee an even wider deficit through 2011 and expect capital spending
growth to remain subdued, with focus increasingly shifting to current expenditure,
at least in 2011.
With Morocco’s budget deficit having hit its population.
4.0% of GDP in November 2010, which
is the target set by the government for the Rising Prices Prompt Increase In Spending
whole year, Morocco’s fiscal position is With protests erupting in most North
coming under more threat from slower African countries (see our online service,
revenue growth and a boost in current February 10, ‘Regime Stability Increas-
expenditure. We have therefore revised ingly In Doubt’), Morocco’s government
our forecast and now project the budget announced on January 31 that it would
deficit to widen to a record high in 2011 of increase subsidies to the same extent as the
7.4% of GDP (compared with our previous rise in commodity prices in order to ease
forecast of 3.1%), up from an estimated domestic political pressure. Consequently,
4.2% in 2010. While social tensions over we have revised up our 2011 expenditure
rising prices and poor living standards are growth forecast to 18.2% year-on-year (y-
unlikely to persist beyond 2011, at least o-y) from 8.6% previously.
not at the same magnitude as seen recently, With 78% of economic output in urban
Morocco’s fiscal position will improve, but areas and 97% in rural areas produced by
not enough to pull the budget out of deficit private entities, according to data released
for the foreseeable future. by Bank Al Maghrib, public wages will not
represent as much of a drag on Morocco’s
Government To Support Higher Prices fiscal account as increased subsidies.
Morocco – Fiscal Expenditure
140 We do not expect public sector wages to
Current Expenditure, y-o-y- %
Subsidisation, y-o-y % 120 record any major upswing in 2011 in any
Capital Expenditure, y-o-y %
100 event and forecast a 7.0% y-o-y increase
80
(similar to the 6.7% rise in 2010). On the
60
other hand, however, subsidies are forecast
40
to increase 90% in 2011, following an es-
timated 125% expansion in 2010, bringing
20
the share of subsidies to total expenditure
0
-20
to 22% from only 7% in 2009. Indeed, the
-40
government announcement on February
2003
2004
2005
2006
2007
2008
2009e
2010e
2011f
2012f
2013f
2014f
2015f
15 that it will almost double the amount of
Source: HCP & BMI
funds allocated to state subsidies to counter
Being one of the pioneers of economic the increase in global commodity prices
reforms among North African countries, supports our view.
the Moroccan government began its Given an expansionary outlook for
five-year development plan in mid-2010, current expenditure, combined with the
allowing it to respond to regional ten- government’s limited resources (keeping
sions from a relatively better position. in mind that Morocco ran deficits in nine
However, the rise in food commodity of the past 10 years), we have revised down
prices (Morocco is one of the biggest our capital spending forecasts. Contrary to
grain importers in the world) led Rabat to its spending drive aimed at boosting private
slow down its capital expenditure drive, sector growth in general and particularly in
which has been aimed at improving the non-agriculture sectors, we forecast capital
non-agriculture sector, and instead shifted spending growth to come in at only 5.0%
its focus to current expenditure in order to in 2011 (compared to the 13.0% projection
mitigate the higher cost burden affecting prior to the revision).
www.meamonitor.com
Taxes Still Crucial For Revenues levels (budget revenue growth averaged Such a scenario would certainly disrupt the
With the economy forecast to grow 4.3% 17.6% between 2005 and 2008). country’s economic activity and thereby
in real terms in 2011, fiscal revenues will cut into fiscal revenues, while public dis-
also increase at a slightly faster pace than Long-Term Fiscal Consolidation sent would require increased spending
the previous year, chiefly supported by the Beyond 2011, we foresee Morocco return- from the government’s side to cool off the
increase in tax revenues. Tax revenues ac- ing to its policy of fiscal consolidation tension and ultimately satisfy demands.
count for more than 90% of the total and are and project the budget deficit to narrow
forecast to expand by 4.0% in 2011 from substantially, coming in at 1.1% of GDP Solid Growth Ahead, But Boom Years
Are Over
an estimated 1.7% in 2010, driving 5.0% by 2015. With the rise in global commodity Morocco – GDP & GDP Per Capita
growth in total revenues. Given the slow prices expected to moderate over the longer 4.0 15

term, government expenditure on subsidies 3.5

GDP Per Capita, 1000 US$ LHS

Fiscal Consolidation To Resume In 2012 Real GDP Growth, y-o-y % RHS

Morocco – Fiscal Balance

will decrease and buoy the overall fiscal 3.0
10

30 balance. Furthermore, capital spending will 2.5

5
Fiscal Balance as % GDP
Revenue, y-o-y %
25 pick up slightly and average 13.8% through 2.0
Expenditure, y-o-y %
20 2015, in turn boosting economic activity and 1.5
0

15 ultimately generating more tax revenues. 1.0

10 Consequently, expansion in total revenues 0.5

-5

5
is projected to average 8.0% throughout the 0.0 -10
remainder of our forecast period, taking the

2010f
2011f
2012f
2013f
2014f
2015f
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
0

-5
headline figure to MAD292bn – almost 50% Source: BAM & BMI

-10
greater than that recorded in 2009.
Furthermore, the extreme scenario of a
2003

2004

2005

2006

2007

2008

2009e

2010e

2011f

2012f

2013f

2014f

2015f

Source: HCP & BMI

Risks To Outlook
That said, although it appears unlikely that
economic recovery in the eurozone and a social unrest will spill over into Morocco
reduction in capital expenditure, however, from the rest of the region, the nature of
we do not expect revenue growth to return the regime and still-poor living standards
anywhere near pre-2009 global downturn entail the possibility of popular revolt.
civil war would generate great costs to
Morocco’s government, weighing signifi-
cantly on the fiscal deficit, which in turn
would undermine our long-term forecasts.
Thus, we see risks to our budget outlook
firmly to the downside.

DATA & FORECASTS

BMI View: Given escalating unrest across manage to combat the surge in global com- age and end-year consumer price inflation
the Middle East and North Africa region, modity prices by increasing subsidies for at 2.0% for this year, up from an average
we believe the Moroccan government will food and fuel. We thus forecast both aver- 2010 inflation rate of 1.0%.

2009 2010e Latest Period 2011f 2012f

Nominal GDP, US$bn [4] 93.9 92.5 - - 92.5 98.8
Real GDP growth, % change y-o-y [4] 8.3 -5.2 - - 4.3 4.3
GDP per capita, US$ [4] 2,939 2,862 - - 2,830 2,989
Population, mn [5] 32.0 32.4 - - 32.8 33.2

Unemployment, % of labour force, eop [6] 9.9 9.9 - - 8.8 8.5

Consumer prices, % y-o-y, ave [1,4] 2.2 1.0 - - 2.0 2.0

Consumer prices, % y-o-y, eop [1,4] 1.5 -0.9 2.0 Feb 2.0 2.0

Lending rate, %, eop [7] 11.5 11.5 - - 11.5 11.5

Real lending rate, %, eop [2,8] 10.0 12.4 - - 9.5 9.5
Exchange rate MAD/US$, ave [9] 7.80 8.30 7.84 Apr 8.80 8.80
Broad money growth, % y-o-y [3,10] 4.6 6.0 - - 6.0 6.0

Budget balance, MADbn [11] -5.9 -32.6 - - -60.3 -44.2

Budget balance, % of GDP [11] -0.8 -4.2 - - -7.4 -5.1
Goods imports, US$bn [12] 31.6 30.8 3.1 Jul 30.4 32.1
Goods imports, % change y-o-y [12] -20.5 -2.5 - - -1.1 5.6
Goods exports, US$bn [12] 14.4 14.9 1.6 Jul 15.0 16.1
Goods exports, % change y-o-y [12] -28.6 3.1 - - 0.8 7.6
Balance of trade in goods, US$bn [12] -17.2 -15.9 - - -15.5 -16.0
Balance of trade in goods, US$, % change y-o-y [12] -12.2 -7.2 - - -2.9 3.7

Current account, US$bn [12] -4.7 -3.9 - - -3.7 -3.3

Current account, % of GDP [12] -5.0 -4.2 - - -4.0 -3.4
Foreign reserves ex gold, US$bn [13] 20.7 20.1 19.9 Oct 19.5 19.3
Notes: e/f = BMI estimates/forecasts. 1 Pre-2010, indice de cout de vie. From 2010 indice de prix de consommation; 2 Real rate strips out the effects of inflation; 3 M3; Sources: 4 Haut-
Commissariat Au Plan, BMI; 5 World Bank/BMI calculation/BMI; 6 Haut-Commissariat Au Plan; 7 IMF; 8 IMF/BMI; 9 BMI; 10 Bank al-Maghrib/BMI; 11 Ministry of Finance/BMI; 12 Office des
Changes, BMI; 13 IMF, BMI.

www.meamonitor.com JUNE 2011 – north AFRICA 3

  ALGERIA
RISK SUMMARY
POLITICAL RISK
Risks Remain
Although mass protests occurred in Algiers
and elsewhere across the country at the start
of 2011, we believe the likelihood that these
riots escalate to the same extent as in Libya
is rather low. Indeed, Prime Minister Ahmed
Ouyahia stated in March that Algeria is not
facing a political crisis. However, he admit-
ted there is widespread anger among the
population over issues such as unemployment
and the lack of housing. The country has
witnessed several strikes and protests over
the past few months, but they have yet to
reach the scale of uprisings that overthrew
the Egyptian and Tunisian leaders. The gov-
ernment is facing rising pressure from the
opposition and within the establishment itself
to implement political reforms.
Our short-term political risk rating is 60.4.
ECONOMIC RISK
Steady Appreciation Expected
The Algerian dinar strengthened to around
DZD71.50/US$ at the start of March and,
given the persistent elevation in oil prices, we
expect it to remain in that area for the coming
weeks. As a result, we have set our near-term
target to DZD71.00/US$. Nevertheless,
given the rising volatility in oil prices of late
as a result of production disruptions from
the Middle East and North Africa on the one
hand and temporary weaker demand from
tsunami-hit Japan on the other, a short-term
sell-off cannot be ruled out.
Algeria’s short-term economic rating is 62.3.
BUSINESS ENVIRONMENT
Gas Appeal
The main attraction in Algeria’s business en-
vironment remains the gas sector. State-run
Sonatrach and its partners, BP and Statoil,
have signed a contract worth US$1.19bn
with Petrofac for the development of phase
two of the In Salah natural gas field. The
contract involves establishing a facility with
a processing capacity of 17mn cubic metres
of natural gas per day and conducting drilling
operations for 33 wells in In Salah region.
The project is scheduled to come online in
Q413. The development aims to keep annual
output at 9bn cubic metres in the coming
years, according to Mohamed Kedam, gen-
eral manager of BP Algeria.
Our business environment rating is 30.1.
4 4 north AFRICA – JUNE 2011
Economic outlook
Lower Gas Production
Dragging On Growth
BMI View: Despite having experienced an uptick in public unrest since the start of
the year, we believe Algeria will weather this political crisis relatively well, with eco-
nomic growth remaining steady in 2011 and beyond. However, technical difficulties
in the hydrocarbon sector have led our Oil & Gas team to revise down its production
forecasts, which led to a downward revision to our real GDP growth projections to
2.7% from 4.2% previously.
With hydrocarbon exports accounting for intervention in the hydrocarbon sector
almost half of Algeria’s GDP, the recent (including its desire to remain the major-
downward revision in our oil and gas pro- ity shareholder in all industrial activities)
duction forecasts has lowered our real GDP continues to deter much-needed investment
growth forecast as well. We project Alge- into the sector. Indeed, on March 17, En-
ria’s economy to expand by 2.7% in real ergy Minister Youcef Yousfi announced
terms in 2011 (compared with our previous that only two of 10 licences for gas produc-
forecast of 4.2%). Meanwhile, private con- tion projects that were put up for auction
sumption and gross fixed capital formation in September of last year as part of the
(GFCF) growth will remain strong, lending ninth international licensing round were
support to the economy’s broader outlook. awarded. While similar failures previously
were blamed on the global financial crisis,
When Hydrocarbon Dependence Does it is now clear that the financial terms im-
Harm posed by the government are simply not
The economy’s dependence on the hydro- attractive enough for investors to spur new
carbon sector is once again clear, given the exploration efforts and are in turn harming
impact that the downward revision in our productive capacity.
oil and gas production forecasts have had Secondly, we highlight that further
on our headline growth projection. Indeed, disruptions to Algeria’s gas production
our Oil & Gas research team forecasts processes are slowly becoming a more
gas production to expand by 3.7% and pertinent risk this year, primarily as a result
oil production by 0.3% (from 8.4% and of the elevated threat of large-scale unrest.
2.7% previously), which translates into Indeed, thousands of workers threatened
our export forecasts dropping from 4.1% to halt production at Algeria’s largest oil
to 1.1% in 2011. and natural-gas facilities in March if their
demands for better pay were not met. While
Growth Remains Robust, Despite Revision
the management of the company agreed to
Algeria – Real GDP & Hydrocarbon Production, % y-o-y
6 increase salaries by 80% retroactively from
Real GDP Growth, y-o-y %
oil and gas production growth 4 July 1 2008, which eventually led to the
2 cancellation of the strike, low wages and
0
generally poor living standards mean that
-2
the threat of large-scale unrest in Algeria
-4
will remain present for the foreseable future.
real GDP revised down from 4.2%;
O&G production revised down from -6
5.0%
Strengthening Business Environment
-8
Despite a relatively weak investment
climate given the government’s inward-
-10
2007
2008
2011f
2009e
2010f
2012f
2013f
2014f
2015f
oriented and protectionist policies, further
Source: ONS & BMI
construction projects will continue to
Although the positive outlook for underpin strong GFCF growth in 2011.
energy prices in the coming years will Indeed, the Algerian Council of Ministers
contribute to strengthening Algeria’s fis- approved a national policy for renewable
cal and current account position, a host energy early this year, which will require
of less encouraging factors will weigh on between US$60bn and US$120bn worth of
the country’s production prospects. In the investment in infrastructure.
first instance, the government’s ongoing One of the main beneficiaries of this
www.meamonitor.com
investment will be transport infrastructure, ing ahead with long-awaited reforms to
with the government having planned several the business environment. Indeed, the
developments in the field. Indeed, in March, key challenge will be to ensure that the
Spain-based Fometo de Construcciones government creates a sufficient amount
y Contratas (FCC), in conjunction with of jobs in the non-hydrocarbon private
Algerian Groupe ETRHB HADDAD, se- sector to absorb all of the new entrants
cured a US$1.7bn contract to build a 66km expected into the labour force over the
railway line. This is already the second coming years. Apart from infrastructure,
railway contract awarded to FCC in Algeria, the other sectors that could benefit from
following the US$1.3bn contract awarded potentially more open policies will be
in May 2010. the pharmaceuticals and the telecom-
munications industries. Although their
Significant Contribution Of Investment
contribution to overall economic growth
Algeria – GDP Growth Contribution, pp
8 will be relatively small (compared with the
ing quarters. A large youth population,
combined with the relatively unequal dis-
tribution of oil and gas wealth, means the
socio-economic conditions that have bred
discontent and manifested themselves into
large-scale protests in recent months will
remain present in Algeria long beyond
2011. Should Algiers fail to push ahead
Strong Outlook For Non-Hydrocarbon
Private Sector
Algeria – Private Consumption & GFCF, % y-o-y
10
Private Consmuption, y-o-y %
9
GFCF, y-o-y %
8

7
6 energy sector), a credible commitment on 6
4 the part of Algiers to welcome additional 5
2 investment into these sectors could signal 4

0
a more open stance to foreign investment, 3

-2
which will bode well for the country’s 2

longer-term economic growth outlook.

-4 1

0
-6
Consequently, beyond 2011, we forecast

2007

2008

2010f

2011f

2012f

2013f

2014f

2015f
2009e
2007

2008

2010f

2011f

2012f

2013f

2014f

2015f
2009e

Exports, contribution to GDP growth (pp) real GDP growth to remain steady and
Source: ONS & BMI
GFCF, contribution to GDP growth (pp)
Government Consumption, contribution to GDP growth (pp) average 2.6% through 2015.
Private Consumption, Contribution to GDP growth (pp)
with necessary reforms aimed at creating
Source: ONS & BMI
Risks To Outlook a sufficient amount of jobs in the non-
On top of that, we believe significant Despite the aforementioned positive factors hydrocarbon private sector of the economy,
improvements to Algeria’s business set to underpin private non-hydrocarbon the country’s large youth demographic will
environment lie ahead over the coming sector growth, we stress that the political remain a key risk to social stability over the
years, particularly should current popular situation remains volatile and could hold long term and would likely hinder foreign
protests force the government into push- back investment appetite over the com- investment inflows as a result.
DATA & FORECASTS

BMI View: Although strong revenue Middle East and North Africa will prompt than fiscal consolidation. We forecast the
growth on the back of higher oil prices will Algiers to ramp up spending, offsetting the budget deficit to come in at 6.7% of GDP
bode well for the government’s expansion- acceleration of revenues, with the govern- in 2011, slightly wider than our 2010 esti-
ary spending drive, unrest unfolding in the ment more worried about mitigating unrest mate of 6.5%.

  2009 2010e Latest Period 2011f 2012f

Nominal GDP, US$bn [3] 138.1 152.5 - - 204.8 227.5
Real GDP growth, % change y-o-y [1,3] 2.4 2.5 - - 2.7 3.7
GDP per capita, US$ [3] 3,959 4,305 - - 5,695 6,235
Population, mn [4] 34.9 35.4 - - 36.0 36.5
Unemployment, % of labour force, eop [3] 10.2 10.0 - - 9.8 9.7

Consumer prices, % y-o-y, ave [5] 6.0 4.0 3.5 Feb 4.0 3.0
Consumer prices, % y-o-y, eop [5] 5.7 4.0 - - 4.0 3.0
Lending rate, %, eop [3] 8.0 8.0 - - 8.0 8.0
Real lending rate, %, eop [2,3] 2.3 4.0 - - 4.0 5.0
OPEC Basket price, US$/bbl, ave [6] 60.10 83.00 - - 85.00 90.00
Exchange rate DZD/US$, ave [6] 72.51 72.41 71.14 Apr 71.45 69.50
Budget balance, DZDbn [3] -927.9 -722.6 - - -977.3 -1,007.1
Budget balance, % of GDP [3] -9.3 -6.5 - - -6.7 -6.4
Goods imports, US$bn [7] 38.8 42.6 - - 46.9 52.5
Goods imports, % change y-o-y [7] 2.0 10.0 - - 10.0 12.0
Goods exports, US$bn [7] 60.5 76.9 - - 90.1 100.4
Goods exports, % change y-o-y [7] -23.0 27.0 - - 17.2 11.5
Balance of trade in goods, US$bn [7] 21.8 34.2 - - 43.2 47.9
Balance of trade in goods, US$, % change y-o-y [7] -46.4 57.4 - - 26.2 10.9

Current account, US$bn [7] 15.4 27.3 - - 35.4 39.2

Current account, % of GDP [7] 11.1 17.9 - - 17.3 17.2
Foreign reserves ex gold, US$bn [3] 150.4 157.9 157.6 Sep 165.8 174.1
Notes: e/f = BMI estimates/forecasts. 1 From 2006 to 2009 we use real GDP growth rates from IMF, for forecasting, we use our own calculation based on O&G forecasts and our view on
non-hydrocarbon growth, real GDP by expenditure components are worked out using nominal data from IFS; 2 Real rate strips out the effects of inflation; Sources: 3 IMF/BMI; 4 World Bank/
BMI calculation/BMI; 5 ONS/BMI; 6 BMI; 7 Ministry of Finance/BMI.

www.meamonitor.com JUNE 2011 – north AFRICA 5

  TUNISIA
RISK SUMMARY
POLITICAL RISK
Seeking Extradition For
Ousted President
Officials from Tunisia’s interim government
have prepared 18 legal cases against ex-
president Zine El Abidine Ben Ali, according
to Justice Minister Lazhar Karoui Chebbi.
The authorities prepared the claims on
charges including homicide, drug usage as
well as trafficking and conspiracy against the
country. The justice ministry has prepared
a total of 44 legal claims against Ali, his as-
sociates and family members and is seeking
to extradite Ali from Saudi Arabia to face
trial in Tunisia.
Our short-term political risk rating is 53.8.
ECONOMIC RISK
EU Easing Trade Rules For
MENA States
EU member states eased trade restrictions
regarding rules of origin for exporters in
North Africa, the Middle East and Bal-
kan states, which will allow their goods
to enjoy lower tariffs more easily. The
agreement, approved on April 14, allows
exporting countries to obtain raw materials
from outside the region and still qualify for
low duties when shipping goods to Europe.
The accord covers 16 countries including
Tunisia and replaces a series of existing
bilateral protocols on rules of origin.
Our short-term economic risk rating is 51.7.
BUSINESS ENVIRONMENT
Ben Ali Telecoms Assets
Seized By Government
The new government in Tunisia has report-
edly taken the over 51% stake in Orange
Tunisia owned by the son-in-law of former
president Zine el-Abidine Ben Ali. The move
forms part of the drive initiated by the gov-
ernment to seize the assets held by Ben Ali
and his family members. The government
would likely sell the stake or float it on the
stock market. French telecoms group France
Télécom, which owns the other 49% stake,
is barred from acquiring the stake according
to its licence terms.
Our business environment rating is 49.6.
6 6 north AFRICA – JUNE 2011
...continued from top of front page
provide insight into the various types of
political structures ahead of the elections.
Furthermore, politicians, legal experts and
civil society representatives have also been
discussing the design of political institu-
tions. That said, we believe that even a
smooth transition, from the election of the
constitution-writing assembly through to
the election of parliament and the estab-
lishment of a cabinet, would take at least
three months under a best-case scenario
(implying that a government would most
likely be formed by the end of October at
the very earliest).
A smooth and timely political transition
in the country would provide a boost to
growth, but given our view that a govern-
ment will most likely not be formed until
well into Q411, we believe most of the
benefits will not be realised until 2012. Gov-
ernment formation would greatly improve
the country’s risk profile, thereby restoring
confidence among foreign investors and
tourists, as a stable security environment
and an attractive business environment are
likely to be prioritised in the new regime.
Under this optimistic scenario, we foresee
growth of 1.9% and 3.8% in 2011 and 2012
respectively.
Likelihood: medium
Core Scenario
Due to the lack of political parties, dialogue
and debate during the old regime, along
with potential sabotage efforts by members
of the old guard as elections near, we do
not expect such an orderly transition. As
of March 22, at least 44 political parties
had been officially registered and a further
15 had made requests to become official.
Tunisians’ lack of familiarity with most of
the parties and their policy platforms will
likely lead to a postponement of elections,
and even after parties are elected, we expect
a high degree of political wrangling within
parliament as the disparate groups jostle for
power both within the cabinet and across
the broader legislative body. Moreover,
since the overthrow of president Zine
el-Abidine Ben Ali, members of the old
guard have sought to disrupt the democratic
transition by creating greater disorder, and
future efforts that seek to disrupt this proc-
ess would weigh on our growth outlook.
A delay in government formation would
reduce Tunisia’s growth prospects, in our
view. The security situation would likely
remain unstable for a longer period of time,
thereby reducing foreign direct investment
inflows and harming the all-important tour-
ism industry. Furthermore, the longer it takes
to enact legislation that improves the busi-
ness environment, the less willing foreign
investors will be to consider Tunisia as a
destination for foreign direct investment.
As a result, we have pencilled in real growth
rates of 1.3% and 2.3% in 2011 and 2012
respectively.
Likelihood: high
Worst-Case Scenario
As discussed above, there is strong potential
for disagreement both during the electoral
process and negotiations to form a govern-
ment, which could result in a prolonged
period of political stalemate. This was the
case in Iraq, as parliamentary elections were
held in March 2010 but a government was
not formed until December owing to several
failed efforts to forge a coalition (see our
online service, December 22 2010, ‘Cabinet
Approval Marks Political Milestone’). The
inability to form a government, or a failure
of the government to pass legislation owing
to political gridlock, could have severe con-
sequences for the country’s medium-term
growth potential.
Tourism Industry Dependent on Stability
Tunisia – Non-Resident Entries, ’000
1,200
1,000
800
600
400
200
0
Jan-09
Feb-09
Jun-09
Aug-09
Sep-09
Nov-09
Dec-09
Jan-10
Feb-10
Jun-10
Aug-10
Sep-10
Mar-09
Apr-09
May-09
Jul-09
Oct-09
Mar-10
Apr-10
May-10
Jul-10
Source: BMI, Institut National de la Statistique
Under such a scenario, we would ex-
pect growth rates of 0.5% and 1.1% in
2011 and 2012 respectively. Key legisla-
tion – including the 2012 budget – would
not be passed, cutting off a key source of
spending. Furthermore, an unstable security
situation would likely remain, which could
lead to higher risk aversion among foreign
investors, who may decide that the risk-
reward trade-off of operating in Tunisia
is no longer in their favour. As a result, a
prolonged period of political gridlock could
see a dearth of tourism activity as well as
the possibility of capital flight, and would
likely weigh very heavily on the country’s
growth trajectory.
Likelihood: low
www.meamonitor.com
Economic outlook

Inflation To Rise, Producer rise going forward, as the government

faces budgetary pressures from lower tax
revenues in 2011 in the midst of high com-

Prices To Stabilise modity prices. Tunis has stated that it may

need external financing if economic activ-
ity fails to pick up in 2011, indicating that
BMI View: Consumer prices in Tunisia will rise over the medium term, as high com-
the state of the country’s public finances is
modity prices put additional pressure on the public budget and limit the amount of
causing concern and elevated prices in glo-
subsidies the government can afford. We forecast consumer price inflation in 2011 to
bal markets for food and fuel products will
average 4.6%. Producer prices will stabilise and eventually fall, and we project producer
keep pressure on the budget. BMI expects
price inflation to average 5.3% in 2011.
food and fuel prices to remain high over the
In line with our view, consumer price infla- the principal drivers of price growth, coming coming months (see ‘Relative Performance:
tion in Tunisia has stabilised, while producer in at 5.8% and 3.9% y-o-y respectively. Al- Industrials To Make Up Ground’, March 22
prices have risen (see our online service, though food price inflation came in at 2.9% and ‘Wheat Crop Still At Risk Due To Poor
October 22 2010, ‘Consumer Prices Stable, y-o-y in February, the component witnessed Soil In Main Areas’, March 23), which have
Producer Prices To Rise’). While we expect consecutive month-on-month declines in the potential to cause the government to limit
consumer prices to rise marginally over the the last three months, most likely due to the the amount of subsidies it can afford and
coming months, we believe producer prices continuation of food subsidies. thereby cause higher prices for consumers.
will stabilise and eventually fall. We see On the other hand, producer price We see producer prices stabilising and
average consumer and producer price infla- inflation has been rising since December eventually falling. While we expect fuel
tion in 2011 coming in at 4.6% and 5.3% 2009. The producer price index (PPI) costs to remain high, our core scenario does
respectively. rose to 6.3% y-o-y in January, up from not see further rises in benchmark oil prices,
Despite elevated food and fuel prices 6.1% in December, driven by the ‘mining’ which will keep domestic energy prices from
in global markets recently, consumer price component at 24.5%. Other components rising much further. The ‘mining’ compo-
inflation in Tunisia has fallen. The con- experiencing rapid price growth are the nent will continue to pull up the PPI for the
sumer price index (CPI) fell to 2.9% y-o-y ‘construction materials, ceramics and next several months, owing to low base ef-
in February, from 4.0% throughout Q410. glass’ and ‘energy’ components, at 8.4% fects (which will inflate y-o-y figures), but
The ‘restaurants and hotels’ and ‘housing, and 7.6% y-o-y respectively. we expect the component to contribute much
water, gas and electricity’ components were We expect consumer price growth to less to the PPI by May.

DATA & FORECASTS

BMI View: While social unrest is sure to weigh stability. The relatively favourable business vate consumption. Exports are not expected
on Tunisia’s growth prospects, we expect the environment, along with high human capital to contribute significantly to growth until 2014
economy to bounce back over the medium- development, will attract significant levels of and beyond. We forecast annual real growth
to-long term as the country returns to political foreign investment, which will help drive pri- rates of over 5.0% between 2016 and 2020.

2009 2010e Latest Period 2011f 2012f

Nominal GDP, US$bn [1] 39.0 39.2 - - 43.2 47.3
Real GDP growth, % change y-o-y [1] 3.1 3.2 - - 1.3 2.3
GDP per capita, US$ [1] 3,742 3,720 - - 4,049 4,390
Population, mn [2] 10.4 10.5 - - 10.7 10.8

Unemployment, % of labour force, eop [3] 13.3 15.1 14.7 2009 15.2 15.2

Consumer prices, % y-o-y, ave [4] 3.5 4.4 - - 4.6 3.7

Consumer prices, % y-o-y, eop [4] 4.1 4.0 2.9 Mar 5.0 2.5

Exchange rate TND/US$, ave [5] 1.31 1.38 - - 1.40 1.35

Budget balance, TNDbn [3] -2.6 -2.9 - - -4.7 -4.6
Budget balance, % of GDP [3] -5.0 -5.2 - - -7.9 -7.3

Goods imports, US$bn [6] 19.7 20.0 - - 21.0 22.9

Goods imports, % change y-o-y [6] -19.6 1.6 - - 5.0 9.3
Goods exports, US$bn [6] 14.9 15.0 - - 15.6 17.2
Goods exports, % change y-o-y [6] -22.1 0.6 - - 3.9 10.3
Balance of trade in goods, US$bn [6] -4.8 -5.0 - - -5.4 -5.8
Balance of trade in goods, US$, % change y-o-y [6] -10.9 4.9 - - 8.2 6.5

Current account, US$bn [6] -1.8 -2.0 - - -2.2 -2.4

Current account, % of GDP [6] -4.6 -5.0 - - -5.1 -5.0
Foreign reserves ex gold, US$bn [6] 10.2 11.3 8.9 Sep 12.4 13.7
Notes: e/f = BMI estimates/forecasts. Sources: 1 INS, BMI; 2 World Bank/BMI calculation/BMI; 3 INS/BMI; 4 INS; 5 BMI; 6 IMF/BMI.

www.meamonitor.com JUNE 2011 – north AFRICA 7

 LIBYA
RISK SUMMARY
POLITICAL RISK
Security Vacuum
While Libya’s ongoing conflict has had
minimal religious undertones so far, there is a
growing risk that a potential security vacuum
could provide Islamic radicals a supportive
environment with which to launch a broader
terrorist campaign. Tentative reports have
indicated that some elements of al-Qaeda
have been supporting the rebels’ efforts in
overthrowing the Qadhafi regime, which the
transitional government in Benghazi currently
denies. Should the stalemate result in a lack of
centralised authority, the long-term outlook
for Libya would deteriorate dramatically.
Our short-term political risk rating is 41.7.
ECONOMIC RISK
Dire Humanitarian Situation
According to reports, the risks of a humani-
tarian crisis in Libya as a result of the conflict
are steadily rising. Hospitals in the Beng-
hazi region have faced difficulties in treating
war-wounded patients during the past two
months, with shortages of medical equip-
ment and staff hampering efforts. There
have also been reports of shortages of basic
necessities such as food and fuel throughout
the country. Should the conflict between
pro-Qadhafi and rebel forces drag on, we
would expect Libya to require significant
assistance in preventing a more pronounced
humanitarian crisis from emerging.
Libya’s short-term economic risk rating fell to 60.8
from 72.1 on account of downward revisions to
our growth forecasts.
...continued from bottom of front page be seen how long many of the low-paid
African workers who have fled the coun-
there are several constants that we believe try out of fear of violent attacks (many
will characterise the economy no matter how have been mistaken for Qadhafi-funded
the political situation unfolds, including: militants) will stay away.
• As a result of the intensity of the mili- Resource Wars
Libya – Territory Under Control Of Qadhafi & Rebel Forces
tary campaign, a significant degree of
productive capacity (both physical and
human) in the economy has been lost.
Road, housing and utility infrastructure
has suffered considerable damage and
will take years to repair under even the
most stable of political environments.
Moreover, given the importance of the
hydrocarbon industry, damage to oil pro-
duction and refining infrastructure will
pose significant long-term challenges.
• A lack of institutional capacity will
hamper reconstruction efforts. Even
should we see significant multilateral
aid over the coming years, Libya lacks
the institutions to carry out much- Source: BMI/IEA
needed investment projects (compared
with Iraq, for example, which possessed • The economy’s growth potential will
underlying structures to help with its depend on three key variables, in our
post-war recovery). As a result, techni- view: the speed and scale to which oil
cal assistance from multilateral devel- production can be brought back online;
opment banks will prove crucial to the the state of the underlying security en-
economy’s long-term growth potential. vironment; and the state of the utilities
• The loss of human capital is a growing sector, and in particular, the provision
concern. Not only do we expect a short- of a stable supply of electricity.
term brain drain to have occurred as the • Libya’s combination of oil wealth, tribal
country’s most educated nationals and cleavages, weak-to-non-existent institu-
foreign workers fled the violence, there tions and security vacuum portend to
are also reports of a growing shortage of significant instability and potential for
unskilled labour. Indeed, it remains to violent conflict over the coming years.
DATA & FORECASTS

BMI View: Under our core scenario, Libya’s budget will flip into deficit in 2011 to 3.9% of GDP,
BUSINESS ENVIRONMENT compared with a surplus of 13.7% in 2010. We caution that, given the scope of damage to the
Shipping To Suffer country’s underlying infrastructure network and the potential for looting of government offices,
Libya’s shipping sector is likely to suffer even official data will be minimal for now and are unlikely to accurately reflect conditions on the ground.
once conflict comes to an end, as shippers
begin to use other ports in the Mediter-   2009 2010e 2011f 2012f
ranean. Should Qadhafi remain in power Nominal GDP, US$bn [1] 71.5 73.3 70.9 87.4
Real GDP growth, % change y-o-y [1] -0.9 3.2 -23.2 2.7
and UN-backed sanctions remain in place,
Consumer prices, % y-o-y, eop [2] 0.4 3.0 26.0 20.0
prohibiting the export of goods to or the Lending rate, %, eop [1] 6.0 6.5 6.5 6.5
import of oil from Libya, throughput at the Exchange rate LYD/US$, ave [3] 1.25 1.23 1.25 1.25
Budget balance, LYDbn [1] 1.8 12.5 -3.5 -1.5
ports will decline. Many ships have cancelled
Budget balance, % of GDP [1] 2.1 13.7 -3.9 -1.4
their Libyan services entirely, while those Goods imports, US$bn [1] 23.8 17.9 19.3 20.6
that have not – UASC and Hapag-Lloyd, Goods exports, US$bn [1] 35.4 44.2 26.5 30.5
for instance – have announced a war-risk Balance of trade in goods, US$bn [1] 11.6 26.4 7.2 9.9
Current account, US$bn [1] 6.3 20.1 -1.7 0.0
surcharge on all cargo moving to the country. Current account, % of GDP [1] 8.8 27.4 -2.4 0.0
Our business environment rating is 37.4. Foreign reserves ex gold, US$bn [1] 104.0 105.1 115.6 127.1
Notes: e/f = BMI estimates/forecasts. Sources: 1 IMF/BMI; 2 Central Bank of Libya/BMI; 3 BMI.

© 2011 Business Monitor International. All rights reserved. www.meamonitor.com

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