Business

Why banana smuggling is profitable in Tunisia

Banana boxes

In many countries around the world, bananas are among the cheapest type of fruit available. Not in Tunisia.

Bananas here are about 30% more expensive than in the UK and according to a World Bank study, bananas were in the top 10 smuggled goods entering the country from either Algeria or Libya.

The bright yellow star of cross-border contraband can be found at fruit stalls across the country.

"Bananas from Algeria cost half of what I would have to pay for wholesale produce in Tunisia," explains a 43-year-old fruit vendor in Tunis who bought his bananas from across the border.

Neither Algeria, Libya nor Tunisia produce bananas domestically, but Tunisia has a 36% duty on imported bananas and only a handful of businessmen have the licence to import them.

In the past, contacts with the circle of deposed President Ben Ali allowed some to circumvent the duty and charge a premium. Four years after the revolution, the duty is still in place - and the market has been flooded by smuggled bananas.

While Tunisia has made significant political strides this year by managing an internationally applauded transition towards democracy, the economic problems that caused the revolution in 2010-11 remain.

Illegal cross-border trade has become a headache for the Tunisian government and it is losing tax revenue.

The World Bank estimates that in 2013, informal trade was worth approximately $1.2bn (£762m), or 2.2 % of Tunisia's annual economic output or GDP.

Image caption Like many, coffee shop manager Noussair wants economic changes

Competition discouraged

Heavily regulated and taxed coffee imports are another legacy of the previous regime, making Arabica coffee beans twice as expensive as in the UK, for instance.

A few local coffee roasters are exempt from the duty, but the majority of coffee imports are subject to hefty import taxes.

Noussair, aged 47, is the manager of a cafe in a middle-class suburb of Tunis. He believes he would be more successful if he could offer his clients coffee at more competitive prices.

"Of course we would like to have more choice," he says.

"It's competition that creates quality and determines the price. I could increase our revenues if we could sell different types of coffee, brewed from higher quality beans like Arabica."

It is a common tale among Tunisian businessmen, who struggle with a system that seems to discourage competition and growth.

Image caption Most coffee imports are subject to heavy import taxes

"Regulations, procedures and barriers prevent market entry in a number of sectors for Tunisian as well as international investors," says Jean-Luc Bernasconi, the World Bank's lead economist for Tunisia.

"More than half of the Tunisian economy is closed to new entrants. It's the result of years of dictatorship and cronyism.

"One way for cronies of the previous regime to carve themselves rents and privileges was to craft tailor-made regulation and barriers - and these regulations are still in place."

That is true for most sectors across the country - the system and privileges created by dictatorship since independence from France remain largely untouched.

Image caption Even now it seems that businesses need the law on their side to succeed, says Alia Mahmoud

Low growth

While many Tunisians complain about the rising cost of living and the lack of economic opportunity, the economy itself has been stagnating.

Growth has been too low to absorb the numbers graduating from university, and this year alone foreign investment fell by 25%.

For Alia Mahmoud, the 29-year-old Tunisian-American director of the Microsoft Innovation Centre, who has been working with entrepreneurs for the last three years, it is the corrupt legacy of the past that is stifling entrepreneurs' potential, and needs to be overcome.

"For decades, there was no incentive to try harder and work harder," she says. "For what? It was a shake-down economy that discouraged success and poking one's head out.

"Even now it seems you need to have law enforcement in your pocket to be able to run a business here."

The stifling legacy of a system that some refer to as crony capitalism can be felt across all sectors, but it is the feeble performance of the public banking sector that really highlights decades of mismanagement and is now dragging down the entire economy.

"The public banks were the financial arm of 'crony capitalism' here," says the World Bank's Jean-Luc Bernasconi.

"Resources were channelled, not to profitable projects but to projects of buddies and friends."

Image caption Fixing Tunisia's financial sector is key, says the World Bank's Jean-Luc Bernasconi

Banking problems

The mismanagement has led to a high level of non-performing loans in the public banking sector - about $2.4bn. The banks not only require recapitalisation from the cash-strapped Tunisian state budget, but have also led to decreased and overly cautious lending.

"The banks are the locomotives in any economy," says Mr Bernasconi. "Fixing the financial sector is key and requires urgent action."

While in 2011, the Tunisian president was dislodged at breathtaking speed - reforming a mismanaged economy and public sector has proved more complex.

In a recent survey by Pew Research, some 88% of Tunisians described the country's economic situation as bad, and for many voting in last month's first round of the presidential elections the economy was at the forefront of their minds.

The outgoing caretaker Prime Minister, Mehdi Jomaa, a 52-year-old former business executive who spent his entire career in France before returning to Tunisia in 2013 to join the government, says the country is at a turning point.

"We forgot the economy but the economy never forgot us. After changing the political system, we now need to change the economic system.

"We are closing the page on the political transition and now we need an economic and social transition. We have to succeed in that, otherwise democracy will fail.

"If we wait one month, we will lose one year."

Whether the next government will take his call for reform seriously remains to be seen. Nidaa Tounes, the party that has secured the largest number of seats in parliament, has been described by observers as having strong ties to the old regime.

Image caption Tunisia needs to reform its economy, says outgoing Prime Minister Mehdi Jomaa

'We need to be courageous'

Mr Jomaa acknowledges it will be difficult to convince people who were protected by the previous system to give up their privileges.

"That's the reality, we had a system and some were taking advantage of it. But we have to break with it and look to the future.

"It's about what is in the interest of this country. We are sitting in this ship together, if the ship sinks we will all sink."

Among the first pieces of legislation the new parliament will have to consider in order to qualify for loans by international financial institutions are reforms of the financial sector.

"Let's not fear reforms," says Mr Jomaa. "We need to be honest with people - the next two or three years will be difficult. But we need to be courageous."

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