AF 8 VOL. 1 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION ECONOMIC DEVELOPMENT PLAN TUNISIA April 11, 1963 Department of Operations Africa CURRENCY EQUIVALENTS Tunisian Dinar 1 = $2. 38 U.S. $1.00 = Tunisian Dinar 0. 42 TABL OF CCFT.3NTS Feae No BASIC STATISTICS SIMARY AID CONCLUSIONS . .. . . . . . * * I. GENERAL BACKGROUN. . .. . . A. Geography . . . . . . . . . . . . . . . . . B. Population . . . . . . . 1 . . . . . . . . . 1 C. Government and Party . . . . . . 2 D. The Economy . . . . . . . . . . . . . . ** 3 E. Plans and Planning Mechanism . . . . . . . . I. TEE YEARh FERPECTIVES- 1962-1971 . . . . . 8 A. General Objectives . . . . . . . . .*.... 8 B. The Overall Model . . . . . . . . . . . . . 9 G. Sectors..... . . . . . . . . . . . . . 11 D. Conclusions... . . . . . . . . . . . . TII. THE TIFEE YEAR PLAN, 1962-196L ..-........ . 23 A. Purposes . . . . . . . . . . . . . . . . . . 13 B. The Plan Targets . . . . . . . . . . . . . . 13 C. Investmenta . . . . . . . . . . . . . . . . 14 D. Financing of Investment . . . . . . . . . . 17 IV. SECTOR PROGRAYS . . . . . . . . . . . . . . . . . 21 A. PLriculture . . . . . . . . . . . . . . . . 21 B. Industry and Handicrafts . . . . . . . . . 25 C. Building . . . . . . . . . . . . . . . . . . 30 D. Tourism . . . . . . . . . . . . . . . . . . 31 E. Transport and Communications . . . . . . . . 32 F. Energy . . . ................. 33 G. Education . . . . . . . . . . . . . . . . . 35 H. Commerce . . . . . . . . . . . . . . . . . 36 V. PPOSPECTS AND CONCLUSIONS..... . . . . . .. . . 38 Output . . . . . . . . . . . . . . . . . . . . . 38 Manpower . . . . . ........ . . . . . . . 39 Investment . . . . . . . . . . . . . . . . . . . 40 Money and Frices . . . . . . . . . . . . . . . . 41 Savings . . . . . ... . . . . . . . . . . . . 42 Foreign Aid . . . . . . . . . . . . . . . .. 43 Balance of Payments . . . . . . . . * * . . . L-6 External Debt . . . . . . . . . . . . . . . . . 47 Outlook . . . . . . . . . . . . . . . . . . * 48 STATISTICAL APPENDIX (Under separate cover) ANNEX - AGRICULTUP2 AND FISHERIES (Under separate cover) BASIC STATISTICS Area: 125,000 km2 (48,000 square miles) Population: Tunisians 4.1 million Foreign Moslems 0.1 " Europeans 0.1 " Total 4.3 " Population growth: 2.1% per annum Per Capita Income (1960/61): 62 dinars ((150) Gross Domestic Product (1961) Total: 279 million dinars Origin of GDP (Percent of Total GDP) Agriculture 23 Mining 3 Manufacturing 13 Construction 7 Public Utilities, Transport 9 Cormerce, Banking 21 Other Services 24 Use of Resources: Consurption (private and public) 87 Gross Investment 24 Net Foreign Investment 11 Government Finances: (1961) (In million dinars) Current Fevenue -+64 Current Expenditure Current Surplus +11 Surplus Other Public Accounts (excl. PTT) + 6 Use of Treasury Resources and Borrowing 4 9 Foreign Aid "Fight Against Underdevelopment" -12 Other Capital Outlays -23 Total -35 +35 (Basic S-atistics Cont'd) Balance of Payments: (1961) (In million dinars) Exports 48 Imports :S- Trade -42 Invisibles (excl. French forces) - 4 French Forces Expenditures M Current Account Balance -33 Private Capital + 5 Public Capital: Grants 419 Loans 4_2 Capital Account Balance +26 Use of Reserves + 7 External Reserves: (December 31, 1962):- 27.1 million dinars. MAP I BIZ 600mm. TU Nebeul 4OMM. eKef SOUSSE KAIROUAN 600mm.2 Altildes fl Pit AlitKdsen ee 40OMM.] leon hon 000 njes es30 GFSA . Omm. /OO 0030GABES 0-0mm. mmn. nen Gordne TUNISIA TOPOGRAPHY AND RAINFALL (Topographie et Precipitation) AltiWudes in Feet AWtitudes en M'etres less than 1000 moins de 300 1000-2000 .,300-600 2000-3000 600-900 over 3000 plus de 900 0 20 40 so eo k00Mit.s Annual roinfall Pluie cnoelle | | in millimeters en millim'efres Dry lokeS Chofs W~oIåRY M.1 J6RO-4106 MAP 3 MEDITERRANE AN SE A BIZERTE CAP BON Gulf of T*unis Tabro- BONE - Keibio Roodod sat A R eMenzel Temime Tboursouk Nabeul Ham,momnel SOUK--AHRAS Gu// of Hommomnel Moktor SOUSSE ... Monasfir KAIROUAN sk c Tebess Mohdio Kosserinefl lne grFes .r. 'AX ÷.ý . .SLND VeDjtae Ls Skhirra .~~~~~. . To e ......e.o..GB.sDjrb TUNISNDA Roaar dsRau Ro M RRiHway, standard g Rala,nrrwgueCemnJefrIvi tot Dry~L SakshirrCota Cattle-shep Bovins-oins Ironeb e-- Mneo d e Cerels Bé,ore,ovine ead lombBor Forests Forêt Olivegroe Oliveaspr etR so csNau le) Vegetabde Le'gume Vineyords Raisins Sourc form DotsNaturi rocs:Ga Tnia orks. EsARCH gr963 PhoBRD- 0 PhspotsO9Ry - 1 - SUMMARY AND CONCLUSIONS 1. The transition from a French Protectorate to an independent Tunisia has been remarkably smooth. Since independence in 1956, Tunisia has become politically stable with a dominant party led by the President, Habib Bourguiba. 2. Economic growth from World War II to Tunisian independence in 1956 has been only a little faster than the expansion in population; substantial public investment went into strengthening the country's infrastructure while private investment remained small. Since 1956, the economy has continued to expand sluggishly. Per capita income may, by now, be estimated at around (150 equiv- alent. To utilize under-employed and unemployed labor the government launched, in 1958, a large-scale relief program utilizing the workers to change the face of the country in afforestation and erosion-control works. By 1960, other public investment also was substantially stepped-up and confidence of private investors was reestablished. However, the gathering momentum of the economy came to an abrupt halt with the Bizerta incident in summer 1961; the excep- tionally poor crop of the same year accentuated the country's economic prob- lems. Against this background - and rising pressure from the labor side - the government decided to start with a determined effort to accelerate economic growth through a comprehensive public investment program and policies to utilize fully the country's social and economic resources. 3. Wheat, wine, olives and commerce have remained the mainstays of the Tunisian economy since Hannibal's Carthage. Agriculture still supports some three-fourths of the population of four million. A modern efficient agricul- ture implanted under the Protectorate and occupying the best-watered lands of the country is clearly distinct from the large traditional agriculture using archaic techniques of cultivation. Mineral resources, particularly low-grade phosphate rock and iron ore, are of some importance for exports. Manufacturing, which is still little-developed, is related essentially to the transformation of domestically extracted minerals and agricultural products. Exports consist mainly of some primary products, most of them sold in the French market where they obtain preferential treatment. 4. Despite poor natural resources, there are good potentials for Tunisia's economic growth. Tunisia has a good top layer of people in her public admin- istration. The infrastructure can well handle additional agricultural and industrial production. She has seasonal advantages over other Mediterranean producers in fruits and vegetables. A few large-scale industrial units may be feasible based on local raw materials and the oil and gas of the nearby Sahara fields. With European industries increasingly dependent on inexpensive labor from Mediterranean countries, Tunisia may have increasing attraction as a site for light industries producing for the European market. Tourism also offers good prospects for Tunisia. The cosmopolitan outlook of Tunisia's leaders and her stability and security are not inappreciable advantages. But a broad effort by the Tunisian population and its leaders is necessary for translating these potentials into a comprehensive program of action. 5. Economic planning in independent Tunisia started in the late 1950's with some long-term programs prepared by the Ministries of Agriculture and Education. In early 1961 a new Ministry of the Plan and Finance was created - ii - and a vigorous effort was subsequently made to integrate the previous work done by various ministries into a comprehensive development program. The work has resulted in "The Ten-Year Perspectives of Development, 1962-1971" and "The Three-Year Plan 1962-1964". Before both the "Perspectives" and "Plan" were adopted they were discussed within the government, the party, trade unions, professional groups, etc., involving much of the Tunisian population throughout the country. 6. The "Perspectives" is the prior document in time and logic: it lays down four main objectives for the country's social, political and economic development during the decade 1962-1971: (a) decolonization, (b) promotion of man, (c) reform of structures, and (d) independence of (net) foreign re- sources. These broad objectives are intended to be achieved by substantially increased investment and savings efforts. Although projected investments are discussed in some detail, the "Perspectives" are not a development plan. They are an instrument reflecting the intent of the government to try to change tye whole outlook of the people to facilitate economic development. Tunisians have seen immense changes since independence; in order to sustain and to accelerate the momentum of social and economic change, the public is offered a series of generally accepted long-term objectives. 7. The Three-Year Plan, 1962-1964 - or "Pre-Plan" - was prepared as an initial exercise in execution of planning. It is a working document for the decision-makers in economic policies, particularly in invesztment outlays. Its broad objectives correspond in essence to those of the "Perspectives", but the rate of progress exnected is considerably accelerated. The Plan presents in corsiderable detail production, investments and savings expected during the period 1962-1964. 8. According to the Plan, output over the years 1962-1964 is to expand by 38% (from the low level of 1961 due to drought). Investments are to rise from some 67 million dinars in 1961 (or 24% of GDP) to 125 million dinars in 1964 (or 32% of GDP) and savings are to increase from perhaps 28 million dinars in 1961 (10% of GDP) to 78 million dinars (20% of GDP). These are very ambitious targets by any past Tunisian and international standards. 9. The most crucial uncertainties for the attainment of the Plan targets are found in agriculture: the planned rapid take-over of the modern French farms by the Tunisian authorities creates extremely difficult administrative and technical problems and increases in agricultural output will be difficult to achieve. The targets set for industries appear, with a few exceptions, obtainable in view of the progress and preparations made so far. Shortfalls may be expected in construction; also in the port and power programs. The execution of the ambitious but, in general, well-conceived and well-prepared education program is almost in line with the Plan. The extensive program in tourism also is being executed in time. The mission estimates that in 1964 overall production - given a normal year as far as weather is concerned - may fall short by at least 10% from the ambitious target but will represent a most creditable achievement in real terms. 10. Investment had a slow start in agriculture and housing. As a result, capital outlays in 1962 were behind the Plan targets by around one-quarter. The mission estimates that gross investment during the three years, 1962-196/4. - iii - may be nearer to 220-260 million dinars (or about in line with the "Perspec- tives") than to the Plan's 330 million dinars. Looked at another way, it will probably take four years, rather than three, to reach the Plan targets. Public savings compared to many other comparable countries are high but total savings are below the requirements of the Plan. The shortfall in savings is of parti- cular concern because of the danger of inflationary pressure resulting from credit creation for the public sector. For the three-year period as a whole, savings may be nearer to 110-120 million dinars than to the projected 175 mil- lion dinars. The amount of foreign aid that can be absorbed may - in absolute terms - be somewhat smaller than projected, i.e., around 110-140 million dinars. The revised balance of payments projection of the Tunisian Planning Secretariat for the Plan period appears sound. 11. The Tunisian government has already been successful in getting foreign aid commitments for the greater part of the total of 155 million dinars pro- jected in the Plan for the period 1962-1964. Up to the end of 1962, some 150 million dinars of commitments were secured and there is a good probability that Tunisia will be able to arrive at a level of commitments consistent with her probable dependence on foreign resources, The absorption of this large amount of foreign aid will prove difficult, however. First, the bulk of foreign aid is tied to projects and to imports of equipment: even if all equipment to be imported could be tied to projects, there would still be need for some 45 mil- lion cinars on non-capital goods imports. Second, there are still great delays in the preparation of projects, particularly in agriculture. Third, the large size of the proposed U.S. aid contribution to Tunisia can be utilized only if Tunisia shifts her imports rapidly from traditional French suppliers to U.S. producers; a trade agreement negotiated with France in November 1962 giving Tunisia the right to set import controls also on imports from France is likely to help but cannot completely overcome this problem. 12. The great dependence on foreign aid will result in a rapid increase in Tunisia's external public debt service, unless aid is made available on "soft terms". Service on present debt is small and mainly owing to the French govern- ment, to the U.S. government, and to private banks abroad. The countries providing aid to Tunisia have understood the debt service problem of foreign aid and the bulk of aid is being made available on "soft terms". Even so, by 1967 debt service may absorb some 10-13% of export proceeds. Vhile this is not intolerably high, aid on non-conventional terms will have to continue after 1964 if' the debt service burden is not to get out of hand in the second half of the 1960's. 13. The Three-Year Plan is not a "paper plan": a systematic and basically pragmatic effort is being made throughout the country to implement it. Much of the Plan is on schedule; most delays are in the sectors where a main prob- lem is fundamental transformation of the economy. By the end of the Plan, in 1964, major changes will have been introduced in the Tunisian economy. Agriculture will be in a period of experimentation; industries will have been implanted. But most important, the training of people will be greatly advanced. On balance, Tunisia has started well in her developmental efforts. While the Three-Year Plan is over-ambitious for a period of three years and has some weaknesses - e.g. organization of agriculture, domestic trade policy, infla- tionary dangers - the goals of the "Ten Year Perspectives" may even prove to be too modest. I. CETNERAL BACKGPOUND A. Geography 1. Tunisia is the smallest of the North African countries with an area of some 125,000 km 2 - cnparable in size to Greece or Guatemala. In the north the climate is Mediterranean, rainfall is generally adequate with 400 mm or more a year, and consequently this is the best agricultural area of the country. The Atlas mountain range running from the Algerian border northeast to Cap Bon checks the hot winds from the south. Immediately south of these mountains and in the coastal area from cousse to the Gulf of Gabes and Djerba some agriculture is still suitable particularly in areas with pump irri7ation. In the remainder of the country, rainfall barely exceeds 100 mm a year and may all fall in a single day. South of Gafsa and Gabes the Sub-Sahara plains are broken only by occasional cases and soon change into the sands of the Sahara. 2. As Tunisia is where east and west Mediterranean basins meet, she has always been thoroughly involved in Mediterranean history. Pfrican influence has been largely incidental although the Maghreb has a considerable emotional and political appeal. B. Porulation 3. Mediterranean Europe and the Middle East have left their imprint on the originally Berber population and there has also been some infusion of Black Africa. Berber dialects have largely disappeared and the people are now Arabic speaking with a fairly general knowledge of French. 4. The population in mid-1962 is estimated at 4.2 million, almost all Moslem except for a small Jewish community. Around two-thirds of the total are concentrated in the coastal areas of the north and east, Metropolitan Tunis alone accounting for almost one-fifth. The Tunisian Jewish community dates back to the Roman era. During the last decade some 50,000 Jews emi- grated to France and Israel, and there remain perhaps 40,000 in Tunisia, mostly in the professions and trade. During the Algerian war, about 170,000 Algerians lived in Tunisia. All excent about 10,nOO returned home after Algerian independence. Since the mid-1950's, growth of the population, ex- cluding Europeans, is believed to have slowed down slightly to around 2.1% per annum from 2.2% in the early 1950's. A more substantial reduction in population growth is forecast for the coming decade (1.9% per annum between 1961-1966, and 1.7% per annum between 1966-1971). This is based on the assumption that with rising incomes a reduction in fertility rates will be brought about more than offsetting lower mortality rates. The government has raised the minimum age of marriage for girls to 15 years, limited the former French system of family allowances to four children, and now allows income tax deductions for children to apply only to the first four. But additional measures may be required. President Bourguiba in January 1963, - 2 - named population growth the most urgent problem for Tunisia: "What does a development effort mean, even as vigorous a one as ours, if population pres- sure is continually allowed to ruin the results?" 5. Europeans, mostly French and Italian, numbered around 250,000 at the eve of Tunisia's independence in 1956. Since then emigration has been sub- stantial, and there may be perhaps 75,000 left by the end of 1962. 6. The replacement of non-Tunisians in administrative and public services is practically complete with the exception of an important contingent of European, mostly French, teachers present on a contract basis. Emigration of European professionals, managers, technicians, skilled industrial and office workers has been continuous as their pre-independence status has deteriorated while opportunities in France and Italy greatly improved. The economic loss to the country resulting from this emigration has been increas- ingly recognized in Tunisia. Pecently attempts have been made to try to slow down the departures. Many of the European farmers also have left by now and over the next few years the remaining farm land owned by Europeans is to be transferred into Tunisian ownership. Accompanying the emigration of Europeans has been a repatriation or flight of private capital, which has totaled the equivalent of several hundred million dollars over the last eight years. C. Government and Pa 7. The French Protectorate, established in 1881, was theoretically a system of indirect rule through the Beylical government; but in fact, it created a new structure of administration far more effective than that known before. Independent Tunisia has preserved and built on this foundation, and has consequently an administration which is among the most effective and efficient of the Mediterranean countries. Certainly as important and per- haps even more important in the immense task of transformation of the society and economy faced by Tunisia is the Neo-Destour Party and its accompanying organizations. The Neo-Destour Party was organized in 1934 with Habib Bourguiba and other largely European-educated leaders. The tactics Bourguiba developed were pragmatic and flexible: taking advantage of every opportunity, using a mixture of negotiation and pressure as appropriate and at the least possible cost, step by step to obtain independence and evacuation of Tunisia by French forces. The policy, which was successful in securing internal autonomy in 1955 and in.ependence in 1956, required a high degree of sophisti- cation among the Tunisian leaders and an extremely well organized and politi- cally educated population. 8. Tunisia has now essentially a one-party regime built around the personality and the great prestige of the President, Habib Bourguiba. While there has been no ban on any party until the recent attempt on the life of the President, the appeal of the Neo-Destour Party has been well maintained and it has kept in so close touch with the people that other parties have found it hard to wather popular support. This explains in large part why the opponents of the government turned to conspiracy instead. - 3 - 9. National policy is transmitted to the country not only through the government and the party proper, but also through a number of national organi- zations closely linked to the party: the trade union, the students union, the farmers union, groupings of industry and commerce, of artisans, a league of women, etc. Frequent meetings of the party - from the party executive down to the hundreds of cells throughout the countryside and in towns - and of these organizations help the party leaders who also occupy Cabinet positions to keep in close contact with and educate grass-roots opinion. Thanks to the transistor radio the President himself is a potent direct educative force and through frequent speeches on the development problems of the country has a great impact in helping to try to transform habits and outlook encrusted with centuries of tradition. Success in getting human beings to transform them- selves fundamentally is far from easy no matter what institutional arrange- ments are set up. The lack of success the President has had so far in stopping fasting during Pamadan is merely one indication of this. The ten- sions that such changes create within individuals or within families must be enormous and explain in part the recent conspiracy against the President. 10. One more word is necessary on the government in relation to the economy. While the top government leaders are mature experienced men, essentially the administration is made up of young men - young men who in many cases had to come straight out of the university to take over leading and responsible positions from departing French administrators. The transition has been remarkably successful. One weakness, however, is in the lack of the middle ranks to give the necessary support and follow-up to the policies laid down by the top. The iTrpact on goiernment is as could be foreseen: an openness to new ideas and initiatives which sometimes can go too far; a willingness to undertake, and often to accomplish tasks which others would hesitate to tackle; in short, an administration which may make mistakes but which is quick to learn from them. D. The Economv 11. Tunisia's lands have been tilled for over two and one-half thousand years. The invasion of Bedouin tribes in the eleventh century and their attempt over the centuries since to destroy settled agriculture probably caused a destruction of soil and forests from which Tunisia has not yet recovered. Mineral resources are limited to some large deposits of low- grade phosphate rock, small deposits of iron ore and some lead and zinc mines. Oil prospecting has so far been without success. There is very little domestic fuel supply: a little natural gas and little hydroelectric potential. 12. Except for the abolition of slavery, much of Tunisia in modern times has been very little advanced in terms of economic organization over the Tunisia that Hannibal or St. Augustine knew. Even today, Tunisia is best described as a dual economy. There is, on the one hand, the traditional economy with millions of people who still are in what President Bourguiba has called the "prehistoric, pre-Sahara stage". fnd there is also a modern enclave implanted since the French Protectorate in 1881 next to this tradi- tional economy and surrounded by it. The modern enclave consisted mostly of a modern efficient agriculture occupying the best-watered lands of the country (around one-third of the total arable land of the north), a small mining sector, a tiny manufacturing sector, and modern urban communities built next door to the unchanging Medinas. The modern economy was largely run by and. for the benefit of the Europeans and perhaps an equal number of Tunisians and was largely oriented towards and dependent on the French market. While in 1957, the average per capita G1,P was 50 dinars (0120 equivalent), three-quarters of the population were well below this figure. Since most statistics are available only on a national geographical basis, the aggre- 7ates do not reveal ruch of what is most significant in the structure of the economy. What is perhaps worse is that the aggregates make difficult an appreciation of what is happening in the economy at a time when the tra- ditional economy is in the throes of transformation and the bulk of the former participants in the modern economy are leaving. A stationary GNP in such a case, for eyample, could conceal a substantial improvement in the standard of living of the mass of the people. 13. Wheat, wine, olives and commerce supported Hannibal's Carthaginians and they support most Tunisians today. Some three-fourths of the men are farmers; yet output of this sector accounts for only around 30% of total production. The few thousand modern farms produce one-third of the total and the 500,000 Tunisian neasants the rest. Year to year fluctuations in production are very high as rainfall may vary greatly from one year to another and some differences in the amount and in the seasonal distribution of rainfall may determine success or failure of a crop. 14. The Tunisian trading community - descending from Phoenicien and Jewish traders - has maintained its important position. Commercial activities, dif- ficult to measure and divided between modern trading companies with close links to France and a multitude of small traders in souhs, have been esti- mated in recent years at some 15% of the nation's production. A large share of domestic savings has been concentrated in its hands. 15. Mining and manufacturing account now for some 15% of GNP. The extrac- tion of lead dates back to Roman history and the more important minerals (phosphates and iron ore) presently extracted have been exploited since the early twentieth century. The phosphate mines are now either wholly or half government owned. There has been no disruption in the technical or managerial staff, however. Industries have been based on some transformation of domesti- cally extracted minerals, particularly of low grade phosphate rock, and of agriculture products. Some industries are related to the olive crop: oil pressing and soap manufacturing. Import substitution was not undertaken systematically once the scarcities of World War II were overcome, in part because of the customs union with France. Artisans have continued to pro- duce a broad range of articles, particularly of textiles, and have been closely related to traditional agriculture. 16. Tunisia possesses a well-developed transport infrastructure: the modern and extensive road system largely built by the French includes a 1/ Andre Paymond, La Tunisie, Que Sais-Je, No. 31F, Presses Universitaires de France, Paris, 1961. Roman causeway linking the Island of Djerba with the mainland and a number of bridges built by the Turks. Hard surface highways permit high speed transportation between the major cities. The railroad system is also fairly well developed. A standard gauge system links the cities northwest of Tunisia and offers a direct line to Algeria. A narrow gauge system covers the rest of the country. Ports mostly have sufficient capacities. Produc- tion of power has been ample to cover expanding needs. 17. A Central Bank was established in 1958 and is run, by now, without foreign advisers. The rest of the banking system has also been increasingly Tunisified as a few government controlled banks have competed successfully for business formerly undertaken by a group of subsidiaries of French banks. 18. Economic expansion taking the decade of the 1950's as a whole barely kept up with population growth. A major French government financed program up to independence helped put in the excellent infrastructure referred to above. But private investment in Tunisia declined and was adversely affectec by flight of capital and the emigration of the Europeans as independence became imminent, and after. GNP grew very slowly during the Republic's early life from 1956 to 1960 and unemployment became an increasing problem. Felationships with France were intermittently disrupted by incidents arising out of the Algerian war. By 1960, private investment rose again, public investment became more important and a large-scale governmert program to utilize unemployed labor got underway. However, expansion came to an abrupt halt with the Bizerta incident in summer 1961. While government expenditures on current and capital account continued to rise, private investors turned to a wait and see attitude. This had not yet changed when the Three Year Plan came into effect in 1962. 19. In the census year 1956, Tunisia's unemployed were estimated at 125,000 - some 10% of the labor force. Underemployment in agriculture was also greet. Employment in agriculture is limited to only a few months a year for many crops: cereals, olives and esparto grass. To help meet these problems the government launched, in 1958, a large-scale work relief program called the "Fight Against Underdevelopment" Pro-ram. Starting out with some 25,o00 laborers in 1958, tY.e program employed some 170,000---200,00 men in 1961 and 1962. With this program a massive effort has been made toward utilizing the vast reservoir of Tunisia's most abundant economic resources: idle labor, for land development, land clearance, hillside terracing, reforestation, road maintenance, water retention, low-cost housing, etc. Yost of these works can be done with simple tools and little skill. The program is administered by the provincial governors who have shown great energy and ingenuity in organiz- ing and putting to work a large number of laborers. The workers are paid part.y in cash by the Tunisian Government (0.2 dinars per day) and partly in kind, semolina (1.5 kilograms per day, worth about 0.OP dinars) supplied by the U.S. Government through PL 480, Title II. 20. The changes which tYe program so far has introduced into Tunisia are evident almost throughout the country. A great number of hills in tle north and in the center of the country have been terraced and reforested, along the main roads rees have been planted even under the very poor soil condi- tions of the Sub-Sahara plains, fountains have been dug, etc. The economic returns on these outlays may often be very low - and slow - and the cost cf some projects may not have been below the price which would have been ohare - 6 - by contractors paying market wages. However, the program has replaced unem- ployment relief; a sense of purpose has been instilled, and the migration from the southwest to the coastal cities has been greatly reduced. 21. Despite poor national resources, there are potentials for Tunisia's economic growth which, if properly utilized, could lead to the gradual absorp- tion of both presently underemployed and unemployed and keep up with a reduced rate of population growth. Tunisia has a good top layer of civil servants. The infrastructure can handle additional agricultural and industrial produc- tion. She has seasonal advantages over other Mediterranean producers in citrus fruit and vegetables. A few large-scale industrial production units may be feasible on the basis of local raw materials and the oil and gas of the nearby Sahara fields. With European industries being increasingly dependent on inexpensive labor from Mediterranean countries, Tunisia may have increasing attraction as a site for light industries producing for the European market. She has many tourist attractions which are not yet ex- ploited. Her favorable geographical position, the cosmopolitan outlook of her leaders and the relative stability and security of the country are not inappreciable advantages. E. Plans and Planning Yechanism 22. There was much thinking in the Neo-Destour Party about economic plan- ning even before independence. After independence, considerable work was done on long-term plans in several of the ministries, particularly in educa- tion and agriculture, and by a planning secretariat which worked on several models and made detailed studies of the economy. In 1959, a National Planning Council was instituted to lay down general policies and objectives in the ecc- nomic and social fields. The Council consists of the President, the Ministers responsible for the economic and social sectors, the Governor of the Central Bank, two members of the National Assembly and four representatives of national economic and social organizations. The Secretariat of the National Planning Council was originally placed in the Presidency. In February 1961, the Plan- ning Secretariat was combined with the Ministry of Finance into a new Ministry of the Plan and Finance under a new Minister, Mr. Ben Salah, who had been a vigorous proponent of planning for many years. (The Ministry also has divi- sicns on agriculture and fisheries; industry, artisans and energy; commerce, and social affairs and labor.) An intensive effort was then made to prepare a development program. This work has had two main results: "The Ten Year Perspectives of Development, 1962-1971" and the "Three Year Plan, 1962-1964". Both are important and both must be considered. 23. The "Perspectives" is the prior document in time and in logic: it lays down the major objectives for the country for the next 10 years. The Three-Year Plan sets the concrete tasks for the first three years of the ten-year period, 1962-1971. The Tunisian Government in fact calls it a "Pre-Plan". In these first three years, Tunisia is to build a foundation and acquire the experience to make it possible in the following seven years to carry out a "rapid and harmonious development". Both the Perspectives and the Pre-Plan are not paper exercises but guides to action; they are intimately related to the work of the whole people. Both documents have MAP 2 BIZERTE TABARKA GTUNIS BEJA GROMBALIA' LEKEF MAKTAReSOUSSE K IROUANm.de MONASTIR MAHDIA jKASSERINE SFAX GAFSA LA SKHIRRA . TZEUe nGABÉS DJERBA TUNISIA MDNN POPULATION DENSITY (1956 Census) Per Kmn2 Por Km2 less than 15 moins de 15 15--29 .15-29 30-49 30-49 50-74 50-74 75-99 75-99 Source:' Secretariat of Siole for Information. 100 and over 100 el plus runisia Wor/rs. VMARCH 1963 IBRD-1119R - 7 - been widely disseminated and discussed in the country; the whole government and party apparatus is involved in trying to carry them out. Even if they achieved nothing else, the Perspectives and the Pre-Plan have had substantial impact in achieving a consciousness of the economic problems facing the country. 24. In preparing the plans, the technicians of the Planning Secretariat started with a rough economic model of the country. At the same time each of the ministries concerned, often with the aid of technical assistance or consultants, elaborated detailed programs for its own field. A continuous exchange of views took place between the central planning body and the respective ministries in order to reconcile the sector programs with the overall model. Adjustments had to be made to the model at various stages. After approval by the National Planning Council a first draft of the Perspec- tives and later of the Plan was circulated for a broadly based discussion within the government, the party, the trade unions, professional groups, etc. The subsequent meetings held throughout the country involved much of the Tunisian population. In order to maintain the interest by the population, such discussions are held regularly also during the period of execution of the Plan. However, little is published in the Tunisian press on the criti- cisms expressed by various interested groups. 25. After extensive discussions within the above organizations the Three Year Plan was presented to the National Assembly in early 19$.2 and became law on May 31, 1962. The three-year public expenditures foreseen in the Plan are now the three-year capital budget to be executed by the government. How,,ever, the expenditures by the various rinisters and agencies of the gov- ernmcnt have still to be approved for each project by the Ministry of the Plan and Finances, giving the Ministry a say in the timing of the Plan's execution. In addition, the Ministry has a continuous influence on invest- ment in the private sector by its close ties with the publicly owned credit institutions. 26. According to the law, the Ministry has to review annually the implemen.- tation of the Plan. This report on the Plan to be submitted to the National Assembly each year is expected to include proposals for any action deemed necessary as result of experience. But the Ministry may also suggest changes during the year if such revisions are in line with the general policies laid down in the Plan. II. TEY YEAR PEFSPECTIVES, 1962-1971 P. General Objectives 27. Based on an analysis of the social and economic structure, four basic objectives are presented by the Perspectives for the country's social, poli- tical and economic development during the decade 1962-1971: (a) decolonization, (b) promotion of man, (c) reform of structures, and (d) independence of (net) foreign assistance. 28. "Decolonization" is considered the logical continuation of a process which began with political independence in 1956. According to the Perspec- tives, the importance of French and to a lesser extent, Italian, interests in agriculture, finance and trade built up during the period of the Protec- torate should be reduced, mainly through strengthening Tunisian but also , foreign non-French interests. Second, the overwhelming share of France in both Tunisia's imports (1961/62: 54%) and exports (1961/62: 56%) is to be reduced. This decolonization process is expected to help in integrating the modern still largely French sector with the traditional Tunisian sector. 29. "Promotion of the man" refers both to moral and material progress. According to the Perspectives conditions should be created to provide equal opportunity (and the minimum standard of living necessary for decent living) for everybody. A minimum per capita income of 45 dinars (1957 prices) or :110 is set as the target for 1971. This goal is to be achieved essentially through an increase of the nation's economic product; but some income redis- tribution is also foreseen. 30. These first two political, social and economic objectives are inti- mately linked to a third basic goal: changes in Tunisia's economic and social structure. Some institutional changes in the government and in the organization of agriculture are considered essential. Second, a change in attitudes of the people is required to overcome certain traditions - "obscurantism", to use the language of the Perspectives - and to result in an acceptance of modern ways of life. Third, changes in the social structure are postulated to break the vicious circle of poverty in the large low-income groups. These reforms are to be designed to overcome the backwardness of some economic sectors and regions (particularly the Center and South) and to eliminate under-employment. 31. According to the Perspectives the investment effort required to implement these objectives cannot be financed from the start by a domestic savings effort without an undue lowering of consumption. In view of the low per capita income of the Tunisian population, a reduction of the per capita consumption is conside ed feasible only for a very small group; as a result, major reliance on foreign aid is considered necessary. However, the Perspectives have the objective to use an increasing part of the growth in incomes to finance investment, so that from 1973 onward no net inflow of foreign capital will be required. - 9 - 32. It is realized by the government that some of the goals set in the Perspectives are not completely consistent with some others. In particular, a rapid program of decolonization may well reduce the rate of advance in economic development, at least for some time. However, no absolute priority is given to any one of the goals; the Tunisian government plans to determine the respective priorities in the light of a continuous review of develop- ments. 33. The Ten Year Perspectives are not a development plan; they are a set of national political, social and economic objectives. No non-Tunisian can justifiably criticize or quarrel with these objectives as such - they are matters which only Tunisians can legitimately decide. The main considera- tion that outsiders can give to national goals like the Perspectives is essentially to try to understand the logic and implications of the objec- tives and especially the economic significance and impact of them. 34. Perhaps the most important aspect of the Perspectives is the fact that they manifest the realization by the government that the biggest problem in economic development is the need for change in human beings. The Tunisians have already seen immense changes in a short period: the advent of political independence, a rapid emancipation of the women, the emigration of large numbers of the previously dominant economic groups, an opening up of the minds of thousands of children from shepherds' and peasants' families to wider horizons. But all this not only has not been fully digested and assimilated but the process quite clearly is far from finished. The economy has moreover not grown appreciably since independence. To sustain or even accelerate the momentum of social and economic change, the Tunisian government has found it wise to hold out to the public the series of long- term objectives that have just been described. B. The Overall Model 35. The overall economic target of the Perspectives is an annual growth of production and income of 6%, i.e. almost twice the rate achieved since self-government. This goal was based on the desire to maintain at least the rate of growth of private consumption observed during the past decade, a rate of investment assumed necessary to achieve the production targets, and the desire of the government to limit reliance on foreign aid to 50Z of the net capital formation during the decade. On this basis, total producticn would rise from some 280 million dinars in 1961 to 486 million dinars in 1972. 36. As a first step the planning office made use of a simple growth model to test growth targets with certain other macro-economic magnitudes. To start with, it was assumed that for an increase in gross domestic product, of 1 unit, additional (net) investment of 4 units would be required. This coefficient, the capital-output ratio, ias estimated on the basis of actual - 10 - data for investment and output growth in Tunisia during the 1950's. The factors affecting the capital-output ratio during the past decade, however, are likely to be very different from those determining the ratio during the 1960's. During the past decade considerable investment went into infrastruc- ture and into post-independence public capital outlays such as administrative buildings (e.g. for Gouverneurats, for courts and for the Presidence); on the other hand, output growth was unfavorably affected by developments of the post-independence period: emigration of qualified European personnel and of capital in the commodity producing sectors, but also by two consecutive years of extraordinary drought. In the future a larger share of resources is pro- jected to be channeled into directly productive investments. But, the impact of administrative changes, of reforms in the economic structure and of other than capital outlays, e.g. in education or in agricultural extension services, is likely to be as important for the prospective capital-output ratio as the level and composition of investment expenditures themselves. Some of the investments indicated in the Perspectives, such as those for reforestation, for school buildings, are definitely slow-yielding. Other investments may be rather low-yielding, e.g. some irrigation schemes. A tentative conclusion would indicate that during the early part of the decade the annual capital- output ratio of 4 to 1 is likely to be over-optimistic while during the second half of the 1960's a lower ratio may result. 37. Given the assumption as to size of investments required for a 6% annual rate of GDP growth and the desire of the Tunisian Government to limit reliance on foreign aid to less than 5O%) of net investment the authors of the Perspectives found that savings would have to rise substantially above past rates. It was consequently assumed that the rate of savings could be increased from some 11 of GDP in 1962 to 20% in 1965 and 26% in 1971. This means that out of the increase of income of each