Tunisian public enterprises in debt on the road to ruin

Tunisian state-owned enterprises are in dire straits, facing a perfect debt storm, mismanagement, the coronavirus pandemic and a decade of political instability that could push some into bankruptcy, experts say.

Ten years after a revolution that toppled the nepotist regime of Zine El Abidine Ben Ali, the radical reforms that economists deem necessary to clean up the state’s finances have not yet materialized.

The situation has pushed many of the cash-strapped North African country’s 110 state-owned enterprises to the edge.

“Today we are not talking about reforms but about rescue plans,” Transport Minister Moez Chakchouk told reporters last week.

Economist Hakim Ben Hammouda urged the government to “declare a state of economic emergency”.

Among the state-owned companies that focus on life-sustaining are the national airline Tunisair and a phosphate giant that is one of Tunisia’s top employers.

The overstaffing left the two with a staggering payroll.

Tunisair now operates a fleet of 26 aircraft, of which only seven are operational – but employs some 7,600 people.

On top of that, the coronavirus pandemic reduced the annual number of passengers by more than two-thirds last year, with revenue down 70% from 2019.

The company is now in debt of 955 million dinars (348 million dollars) and struggles to pay its creditors.

Last month, a Tunisian court temporarily froze its bank accounts for unpaid bills owed to a Franco-Turkish operator.

Tunisair operates a fleet of 26 aircraft, seven of which are operational – but employs around 7,600 people. By FETHI BELAID (AFP / File)

The airline has been considering laying off staff for years to reduce its payroll.

But this proposal met with strong opposition from the powerful Tunisian union UGTT, which pledged to prevent any initiative to privatize the airline.

In February, CEO Olfa Hamdi was sacked after just two months on the job, after leaking documents related to the UGTT.

In a Facebook post on Monday, the young engineer accused the union of blocking essential reforms.

Phosphate flop

The airline isn’t the only public company struggling with a bloated payroll.

The Gafsa Phosphate Company, established in colonial times to exploit one of Tunisia’s scarce natural resources, has seen production repeatedly halt as protesters in marginalized Gafsa region demand jobs and investment local.

Tunisia ranked in 2010 as the world’s fifth largest producer of the mineral, an ingredient in artificial fertilizers and once a key source of state revenue. Today it arrives at number 12.

Last year, phosphate production hit one of its lowest annual figures in a decade, at just over three million tonnes, according to former trade minister Mohsen Hassen.

Tunisia was even forced to import phosphate from neighboring Algeria.

Since the fall of the Ben Ali regime, successive governments have created thousands of menial jobs in the public sector.

Hassen said doing it at the Gafsa Phosphate Company had a “snowball effect”.

However, even before the revolution, “the government tried to buy social peace by hiring people in these companies, which exacerbated their problems,” according to Ben Hammouda.

Need for a “ new social pact ”

In a decade of democracy, Tunisia has experienced repeated political crises and nine governments, leaving it deprived of any long-term economic strategy.

As a result, the aggregate debt of state-owned enterprises has reached around 40% of GDP, according to the International Monetary Fund.

Demonstrators blocked access to the headquarters of the Ministry of Labor to protest the results of a recruitment exam organized by the company Phosphate Gafsa. By Fethi Belaid (AFP / File)

This has undermined public finances as a whole: last week, Moody’s downgraded Tunisia’s sovereign debt, citing – among other issues – “exceptional guarantees to public companies at more than 15% of GDP in 2020”.

On Tuesday, Chris Geiregat, head of the IMF, demanded tighter controls on transfers to “poorly managed public enterprises”.

During a virtual press conference, he called for “a reform strategy that assesses the role of public enterprises in the economy, centralizes their control, strengthens their corporate governance and improves the transparency of their finances”.

The former Minister of Commerce Hassen had another prescription to get out of the crisis: “A new social pact which defines the strategic and economic orientation of the State and its role in the preservation of these institutions”.