Tunisia breaks with four decades of privatisation policy

The IMF and the privatisation clause

Privatisation was one of the issues that blocked a final agreement with the IMF about a $1.9bn loan. Saied made no secret of his categorical rejection of privatisation policies. In remarks earlier this month, he accused unnamed parties of working to bankrupt state-owned companies to have them sold at the lowest prices. 

The Tunisian president's pledges and commitments to reform state-owned companies coincided with discussions on the draft state budget and fiscal law for 2024.

The deficit of state-owned companies is estimated at $1bn (TD 2.9bn) during 2024, which is expected to be the most financially difficult in Tunisia's modern history, according to experts. Tunisia is currently facing the largest debt in its history with $9.4bn (TD 28.2bn), of which $5.3bn is in foreign loans.

In the 2024 draft budget and fiscal laws, authorities set their financial needs without noting where they would get the funds from, without any agreement with the IMF and EU support.

Some observers see Saied's move as just empty talk to win popular support ahead of the country's presidential elections. They believe he will scale back on his promises once the elections are concluded.

Vicious circle

Since 2011, Tunisian state-owned companies have collapsed one after the other, pushing most to the brink of bankruptcy. The total number of public sector companies in their various sectors is estimated at 213, half of which are of a social nature, and the rest are of an economic nature, active in strategic sectors such as transport, energy, banking, industry, and services.

The companies operate in banking, insurance, housing, contracting, telecommunications, post, extractive and manufacturing industries, healthcare, pharmaceutics (the state monopolises the import of medicines), transportation, agriculture, and water. Through its companies, the state dominates subsidised goods' production, import, and distribution.

These enterprises called "state companies," employ about 200,000 staffers and managers, with high wage rates compared to the wage scale in the public and private sectors. 

The average net monthly wage for the Régie Nationale des tabac et des allumettes' employees is estimated at $1,200 (TD 3,700), which is close to the salary of a secretary of state (a government role serving as a minister without portfolio) (TD 3,800), and ten times the guaranteed minimum wage (TD 390).

Over the past ten years, state-owned companies have hired more workers despite the sharp decline in the economic and financial returns of the companies themselves.

In just two years, operating support expenditures for state-owned companies rose from $800mn (TD 2.5mn) in 2010 to nearly $2bn (TD 6bn) in 2012 due to lower production, mounting costs, and rising wage bills.

For example, the number of workers in the Compagnie des phosphates de Gafsa has quadrupled in 12 years, from 4,890 workers in 2010 to 21,000 in 2022.

It's important to note that the Compagnie des phosphates de Gafsa, founded in 1905, is a reference model for assessing the conditions of state-owned companies. In 1985, it was the first company to be covered by the IMF-sponsored structural adjustment programme, which resulted in the layoff of 5,000 workers and a hiring freeze.

There's no doubt that the programme had painful social repercussions that turned the "mining basin" area into a focus of social tension, but no one denies that the company has known its golden age since that date.

It's important to note it has been at the forefront of global companies for two decades, before the 2011 revolution, generating significant foreign exchange revenues and serving as a "chicken that lays golden eggs," according to one of its former senior officials.

"State jewels" at the price of "pies"

The high cost of hiring and the swelling of the number of workers reflect poor governance and the encroachment of labour unions. In 2014, the first official report since 2007 on the status of state-owned sector companies and enterprises was issued.

It summarised the rapid fall of state-owned companies, especially the so-called "jewels of the state," such as the Société tunisienne de l'électricité et du gaz, Tunisair, the Société des transports de Tunis, the Société tunisienne de sidérurgie, the Société tunisienne de banque, the Compagnie des phosphates de Gafsa, and the Régie nationale des tabac et des allumettes.

These companies have turned from profitable to bankrupt, with no market value, and their stock prices have collapsed at alarming rates. For example, Tunis Air's stock price tumbled from $7.7 in 2010 to less than one US cent (600 millimes) today, or the price of a "pie," according to a sarcastic comment by an economist.

A report issued by the World Bank concluded that Tunisian state-owned companies are in a vicious circle due to inefficiency, poor governance, and lack of oversight and accountability mechanisms.

In contrast with Morocco, Tunisia hasn't implemented any reform policies for state-owned companies since the 1990s. It has maintained legislation, some of which date back more than half a century; the latest revisions approved by the Council of Ministers months ago to the so-called Law 89 (regulating state-owned companies) weren't signed into law by the republic's president.

The revisions, also called "the draft law regulating state-owned companies," are based on changing the formula of all state-owned companies and turning them into anonymous companies to facilitate the opening of their capital to private partners, whether domestic or foreign.

The Ministry of Finance published a report on the status of state-owned companies before approving the amendments, which constitute a significant step towards launching the privatisation programme.

Economist Moez Al-Joudi described this report, which highlighted the size of the losses incurred by these companies to the state, as "shocking".

The value of annual state subsidies to state-owned companies is estimated at $2.6bn (TD 8bn), and their yearly losses are about $3bn (TD 9bn). Notably, the volume of its debt to the state, banks, social funds, and suppliers amounted to $10bn (TD 30bn).

During a tumultuous discussion session on the conditions of the public sector, one businessman said that the solution to reforming state-owned companies is to search for a "Tunisian Elon Musk," who combines genius, boldness, and madness and lacks any political ambitions.

According to the speaker, this makes the saviour able to lead a rescue operation that looks almost like an impossible task.

Samir Majoul, head of the employers' association, Union tunisienne de l'industrie, du commerce et de l'artisanat, also called for the privatisation of state-owned companies.

Calls by employers are seen neither seriously nor positively. In the eyes of a broad spectrum of the population, they are skilled opportunists and the biggest beneficiaries of the philosophy of reform, which, according to the perspective of international donors, ends the function of the "partner state" or "sponsor state" in favour of the adoption of liberal policies that limit state intervention and boost market mechanisms.

Private initiatives would be liberalised by opening up the capital of state-owned companies to strategic partners, creating a public body to manage these companies, revising their operations, changing approaches to concluding deals, and introducing more flexibility to the work of their boards of directors.

Past privitisation failure

It's worth noting that the two most important privatisation schemes in Tunisia's history failed.

The first was halted by the revolution and would have ended with the allocation of 10 state-owned companies: the Société tunisienne de sidérurgie, the Société nationale de distribution des Pétroles, the Compagnie tunisienne de navigation, the Société tunisienne du sucre, three state-owned banks, the Régie nationale des tabac et des allumettes, the Société tunisienne des industries de pneumatique, and Tunisair.

The second was in 2016 and targeted five of the largest state-owned companies: the Société tunisienne de l'électricité et du gaz, the Société tunisienne des industries de raffinage, the Office des céréales, Tunisair, and the Régie nationale des tabac et des allumettes.

The first scheme fell as the country entered a new political phase in which "social justice and reducing unemployment" slogans were raised; state-owned companies became significant employers. The second scheme represented the most important manifestation of the resumption of cooperation with the Bretton Woods institutions.

Historically, privatisation was an inevitable solution during the economic collapse that marred the final years of Bourguiba's rule. It was among the harsh choices imposed by the agreement with the IMF, which was initiated in 1984 and was implemented in stages from 1986 until the beginning of the 1990s. Then the Ben Ali regime unleashed privatisation in an incremental and uninterrupted process for state-owned companies.

A study by the Forum Tunisien pour les droits economiques et sociaux (an NGO) – the most critical analysis of the privatisation process – showed that 81 companies were privatised from 2002 to 2017 (nine years of Ben Ali's rule and six years of rule dominated by Ennahda).

The study described that stage as the most neglectful of state-owned companies active in banking, insurance, telecommunications, car supply agencies, and other industrial activities, such as building materials and mechanical and electrical industries.

Right conditions for privatisation

Saied, unlike his predecessors, has all the right conditions to launch the privatisation process.

Saied has a clear path to approving privatisation for three main reasons: First, the absence of a counter-authority represented by the Union générale tunisienne du travail, which has lost its weight and turned into something resembling a vocal phenomenon. Second, the prevalence of objective factors, the total collapse of all state-owned companies and the losses they incur annually for the state. Third, there is a lack of resource mobilisation as external borrowing has stalled without an agreement with the IMF.

For example, selling the Régie Nationale des tabac et des could provide $2bn (equivalent to the stalled IMF loan). A senior source told Al Majalla that there are three offers to buy the tobacco manufacturer: a Korean offer, a Japanese offer, and an Algerian offer.

Saied didn't present an integrated vision for reforming state-owned companies, stressing that the rescue will be based on fighting corruption through a comprehensive audit of recruitment processes since 2011 and accompanying acts of favouritism and corruption. The economist Ezzedine Saidan estimates that up to 120,000 workers were hired with false degrees, costing the state $1.2bn (TD 4bn).

Saied says that the key to saving state-owned companies is to preserve the state's social role; this raises more than one question if we consider, for example, that the 2023 fiscal law approved, for the first time in the country's history, a record reduction in subsidy expenditures by nearly 30%, and the 2024 budgetary law, if approved, would continue to reduce subsidies while stopping public sector employment.