Tunisia-Libya Dialogue Managing Risks and Seizing Opportunities Together Institutions: World Bank, UN-ESCWA, ITCEQ, INS, IACE Team: Abdoulaye Sy, Marouane El Abassi, Vincent Belinga, Majdi Hassen, Mohamed Hedi Bchir, Habib Zitouna, Lotfi Ayadi, Sami Mouley, Saidi Hedi, Lotfi Hrizi, Habib Fourati, Zied Ouelhazi, Anna Fruttero, Jose Cuesta. December 2016

Strong Linkages and Interdependence between the Two Countries Long historical ties of trade, migration and metissage Interdependence of the situation (economic, social, political etc.) in both countries Two countries need to manage the risks they face through collaboration and coordination Deepen their dialogue now to promote the conditions for and seize the economic opportunities of recovery and reconstruction

“When things go well in one country they go well in the other…” (1) Proportion of firm managers that evaluates that the conflict in Libya had a negative impact on their turnover Evaluation by firm managers of various factors on their investment decisions on a scale of -5 to 5 (-5 : negative impact ; 0 : no impact ; 5 : positive impact)

“When things go well in one country they go well in the other…” (2) Between 2010 and 2014, remittances of Tunisian workers in Libya decreased by TD 17.8 million, resulting in a loss of TD 300 per worker Tourist overnight stays in hotels dropped by 55 percent in 2015 compared to 2014 In 2011, Libyan investment in Tunisia declined by about 82 percent. There was an upward trend since 2013, but volumes were still below 2010 levels. percent. Share of exports to Libya (authors’ survey)

“When things go well in one country they go well in the other…” (3) Number of Libyan visitors/tourists in Tunisia Cash brought in by Libyan travelers through the border Sharp slowdown in border crossings in 2014 following an uptick in the conflict in Libya Cash brought in by Libyan travelers through the banking system

“When things go well in one country they go well in the other…” (4) We evaluate that the Libyan crisis has reduced growth in Tunisia by .94 percentage points per year Equivalent to 8.8 billion Tunisian dinars (TD) or 880 million U.S. dollars (US$) per year, about 2 percent of 2015 GDP per year Loss mainly driven by effect on private investment and tourism Fiscal impact: increased government security spending and loss in tax revenues Overall loss in growth and simulated impact of the Libyan conflict Evaluation by firm managers of the impact of the conflict in Libya on a scale of -5 to 5 (-5 : negative impact ; 0 : no impact ; 5 : positive impact)

The Need for Collaborating and Coordinating on Policies: The Case of Contraband (1) Informal imports from Libya Contraband fuel from Libya is estimated at 495 million liters in 2015 (17 percent of Tunisia’s domestic consumption in 2014), with a market value of TD 297 million Tobacco contraband is estimated at TD 400 million for the year 2015. This market involves a number of countries in North Africa and the Sahel region. Other contraband goods: electronics, household appliances, clothing etc. Informal exports from Tunisia Volume of subsidized foods seized at the Tunisian border has doubled to TD 1.1 billion (1.3 percent of the 2015 GDP) between 2014 and 2015. Exports that have successfully made it into Libya are estimated at TD 42.8 million in 2015. Estimates of Informal Trade Volumes (TD millions) Tobacco Seized by Tunisian Customs

The Need for Collaborating and Coordinating on Policies: The Case of Contraband (2) Drivers of contraband trade Price differentials across the border because of subsidy/tax policies, exchange rate dynamics and gap with official rate etc. Weak monitoring of border Corruption Weakness of state-owned enterprises Lack of economic opportunities in border regions Fuel price differentials across the border Tobacco Seized by Tunisian Customs

Deepening the dialogue now to seize the economic opportunities of recovery and reconstruction We simulated the effects of a recovery and reconstruction in Libya and its impact on Tunisia (will be expanded to other countries/blocs: Egypt, Turkey, Italy, France, other EU countries, China etc.): - Reference scenario: zero percent growth in Libya between 2016-23 - Recovery and reconstruction scenario: (i) oil production gradually recovers to its 2010 level by 2020; (ii) implementation of a public investment program that increases public investment by 50% relative to the reference scenario Impact on Tunisia - GDP increases by up to US$ 500 million every year (losses during 2011-15 quickly recovered) - Main impact on non-metallic products (e.g. cement), agribusiness, other manufacturing products, chemical industries (e.g. fertilizer). Need to promote peace and reconciliation and to deepen the dialogue and cooperation to seize these opportunities Impact of a recovery and reconstruction of Libya on Tunisia (GDP in constant 2010 US$) Libya GDP (constant 2010 US$) in reference and take- off scenario Impact of a recovery and reconstruction of Libya on Tunisia (GDP in constant 2010 US$)

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