Tunisia’s informal trade networks reflect growing trends: the country’s progressive shift away from Europe, and the rise of Turkey and China as major trade partners.
The Informalization of International Trade and Trading Partner Complicity in Transnational Trade Networks
Tunisia’s post-2011 governments have witnessed the steady rise of informal trade through maritime corridors. Tightening security has been a crucial element in the reorganizing of these informal trade networks. Tunisian traders who used to import goods produced in China or Turkey over land routes from Libya have come to rely instead on maritime networks and Tunisian ports.
Many of these operators are informal actors, but some companies in the formal economy have been ready to adopt informal economic strategies to reduce their corporate costs, bypass the restrictions that have been imposed to trade between Tunisia and Turkey since 2018, and circumvent regulations and reduce taxation on imported Chinese goods.
Informalization may happen through any number of processes. As imports via Tunisian ports increase, so too do the illegal processes associated with imports. One such process is the rise in payment outside formal banking channels, such as letters of credit issued to importers via illegal cash transfers.
Informal money transfer operators ensure the transfer of money between Tunisia and suppliers in Turkey, Dubai, and Asian countries, allowing Tunisian traders to pay for their imports from Turkey and Asia directly in Tunisian dinars and to bypass the use of hard currencies.
The fact that companies and entrepreneurs in the formal sector have adopted or adapted informal practices further supports the argument that the formal economy and the informal economy should not be understood as mutually exclusive.
Commenting on the informalization trend, a well-established entrepreneur remarked that “the challenge today is not the formalization of informal trade but the informalization of what is currently formal.” Indeed, interactions between formal and informal sectors are currently shaping Tunisia’s supply chains, boosted by growing engagement of Turkey and China in Tunisia and the deeper penetration of Turkish and Chinese goods in Tunisian markets.
Although Tunisia’s trade relations with European partners have been on a downward slope since the 2011 revolution, its economic relations with China and Turkey in particular are part of an upward dynamic.
The increase in imports from China and Turkey (40 percent and 50 percent, respectively, between 2010 and 2019) corresponds to an almost equivalent decrease in imports from France and Italy (−28 percent and −2 percent, respectively).
Turkey, as an emerging regional economic power, is aspiring to expand its sphere of influence and promote its interests in Tunisia through its private sector and by intertwining formal and informal economic strategies.
In 2005, Turkey and Tunisia signed a free trade agreement that entered into force on June 1 of that year. Since 2005, the average value of their annual bilateral trade has amounted to $1.25 billion; Turkey seeks to increase it to $2 billion. This growth is connected to deliberate changes that Turkey has made in its post-2011 foreign policy toward North Africa.
Turkey has sought to strengthen its influence in the region through economic, political, and cultural means, and recently by its military presence in Libya. In the new Turkish strategy, North Africa is both a goal and a means: it is a target for Turkish trade, with a market of about 250 million consumers, and a source for potential strategic alliances as a gateway to sub-Saharan Africa and a key player in the Maghreb.
Nonetheless, the increase in trading volume between the two countries resulted in an alarming trade deficit at Tunisia’s expense, with a loss of 277.7 million TND ($100 million) for the first two months of 2017, for example. Following the signing of the free trade agreement, the elimination of customs taxes on certain consumer and equipment products widened the trade deficit between Tunisia and Turkey. This trend led to the expansion of informal practices and the diffusion of Turkish (as well as Asian) goods through Tunisian ports.
The revision of the free trade agreement between the two countries in 2013 and the partial suspension of the later in 2018 have not reversed the deficit trends. Informal procedures in administrative controls and financial transfers have only added to and in fact have encouraged the trade deficit.
Since 2011, voices within the Tunisian business community and political class have criticized the increasing trade deficit with Turkey, claiming that the free trade agreement is imbalanced. From the nationalist perspective of Tunisia’s political and economic elites, the trade agreement largely favored the access of Turkish products to the Tunisian market.
Tunisian elites feel that their government has done little to protect Tunisian companies, making local businesses reluctant to take further steps toward economic integration. The overflow of the deficit with Turkey is caused by the increase in imports of clothing and other products for local consumption.
These imports, Tunisian elites feel, do not contribute to their countries’ economic development and are in direct competition with equivalent goods available on the local market. Nationalist elites point out, for instance, that the local textile industry cannot compete with Turkish textile products, and so imports of the latter are destroying the Tunisian textile industry.
Over time, part of the public opinion has begun to turn against this situation, as people criticize what they call “anarchic imports.” The political polarization between Islamists and secularists in Tunisia has also exacerbated the anti-Turkey feelings among certain elites; Turkey is perceived as supportive of Tunisia’s Islamist Ennahda Movement.
In 2018, the Tunisia government suspended the free trade agreement with Turkey. Since then, Turkish products have been subjected to high taxation. However, these restrictions have failed to curb the widening flows of Turkish goods: from 2017 to 2019, imports from Turkey grew from 2.26 billion TND ($936 million) in 2017 to 2.74 billion TND ($1.04 billion) in 2018 to 2.86 billion TND ($948 billion) in 2019.
Turkish imports have thoroughly penetrated the Tunisian domestic market, helped by the depreciation of the Turkish lira since 2018, which has made Turkish goods more affordable to North African markets such as Tunisia’s.
As a result, Tunisian entrepreneurs importing sought-after Turkish goods continue to adopt informal economic strategies in order to avoid trade restrictions and difficulties in accessing foreign currency. As in previous years, misinvoicing of imports and illicit financial flows continue to be the main informal strategies to bypass banking constraints and other restrictions to Turkish imports.
China is Tunisia’s third-largest supplier of products. In 2018, Tunisia’s imports from China amounted to $2 billion, including consumer goods, electrical and electronic equipment, plastics, and organic chemicals.
These figures do not reflect the reality of Chinese imports, as part of these imports are informal, but they do reflect the growing role of China as a trading partner in Tunisia. Yet China has not faced the same levels of opposition among Tunisian elites for two reasons.
First, Tunisia is by no means the only country in the world to have a trade deficit with China. Unlike the case of Turkey, there appears to be less resentment against China for its trade practices. Second, many Tunisian elites do not regard China as a major geopolitical player in North Africa, despite China’s growing economic and political activism through the Belt and Road Initiative (BRI).
Tunisia has shown an interest in developing relations with China by joining the BRI and becoming a member of the Asian Infrastructure Investment Bank. It has signed various BRI agreements since September 2018, with a view to attracting Chinese investment, particularly in infrastructure that would compensate for the trade deficit.
As an alternative trading partner, China has much to offer Tunisia; however, it is evident that much of this trade will be facilitated by informal trade networks, with the same potential for corruption and cronyism found elsewhere in the Tunisian economy.
Conclusion: Informality and Geopolitics in Tunisia
The growing informalization of the formal sector in Tunisia reflects the fragmentation of the country’s economic elites. Unlike well-established economic elites who are connected to Europe and operate in the exporting sector, emerging Tunisian elites are operating in trade and import circles that are increasingly related to Asian and Turkish suppliers. The latter have opted for informalization strategies.
This fragmentation among political and economic elites carries potential risks of destabilization in the context of a trade war between nations and the use of informality as a geopolitical tool in the competition in the Maghreb between Turkey and European countries.
This situation echoes a historical episode from the nineteenth century, when colonial powers were fighting for control of North African markets. The British used their colonial outpost on Malta as a smuggling point to convey British goods into Tunisia against the will of the French colonial government.
The rise of China and Turkey as Tunisia’s major trade partners and the active role of these networks in informal transnational trade reflects a progressive and slight strategic shift of Tunisian trade relations. Tunisia, and North Africa in general, is witnessing the emergence of new trade partners beyond the region’s historical European trade networks.
Despite its dependence on Europe’s external financing and investment, Tunisia has so far been dragging its feet in its negotiations over the European Union’s proposed Deep and Comprehensive Free Trade Area.
Multiple civil society groups and academics have expressed doubts about broadening Tunisia’s connections with the European single market. Moreover, the newly emerging populist movements that have sprung up in Tunisia’s 2019 elections aim to reaffirm and strengthen Tunisia’s national sovereignty and reduce its political and economic reliance on Europe.
Regardless of the larger geopolitical dynamics, informal trade continues to pose problems for Tunisia’s domestic constituencies. Unlike Ben Ali’s regime, which used the border economy in a pragmatic way as a safety valve, Tunisia’s post-2011 governments opted for securitization that destabilized local communities.
Protest movements in southern Tunisia reflect the crisis of these regions in the absence of alternatives to border economy. Border economies that exerted stabilizing forces under the Ben Ali regime can no longer function in this role.
The rise of maritime networks that followed the crackdown on land-based border economies illustrate the absence of a comprehensive strategy to address the issue of informalization of trade networks.
The informalization of supply chains has been encouraged in part by Tunisian entrepreneurs’ eagerness to avoid trade restrictions and also in part by the interest shown by potential Turkish and Asian trading partners who desire a greater share of North African markets and are equally interested in circumventing local restrictions.
Far from being a marginal or negligible part of regional trade flows, informal economies appear to be a critical part of the current geopolitical game in the Mediterranean.
This paper draws on interviews with merchants, smugglers, and members of trade associations as well as economists, civil servants, and members of the Tunisian security services.
Conducted in the capital, Tunis, and in Tunisian-Libyan border cities in the summer and fall of 2020, these interviews constituted the fieldwork undertaken for the paper and were supplemented by the author’s first-hand observations.
Hamza Meddeb is a nonresident scholar at the Malcolm H. Kerr Carnegie Middle East Center, where his research focuses on economic reform, political economy of conflicts, and border insecurity across the Middle East and North Africa.