The projected 6.6% growth in Zambia’s GDP in 2010 is up from 6.4% in 2009. Agriculture, tourism, construction, manufacturing and mining are driving growth which is expected to expand by 6.5% and 6.7% in 2011 and 2012 respectively.

Overall, primary industries performed well in 2010 with agriculture growing by 7.6%. In 2011 and 2012 agriculture growth is projected at 3.2% and 4.6%, respectively. The largest contribution to 2010 growth came from maize production. The harvest reached 2.8 million tonnes compared to 1.9 million tonnes in the previous season. Zambia is Africa’s biggest copper producer and the mining sector’s big recovery was due to improved global copper prices. The sector is estimated to have grown by 7.4% in 2010.

Manufacturing, which historically has contributed about 10% of GDP, grew by 2.5% in 2010. The government has made substantial progress in infrastructure construction and has invested in manufacturing through the establishment of Multi Facility Economic Zones. Tourism, which was hard hit by the financial crisis, is expected to rebound strongly with estimated growth of 25% in 2010. Construction was expected to expand by 10% in 2010 and maintain double-digit growth in the next few years.

Monetary policy focused on sustaining stability by maintaining single digit inflation while ensuring adequate liquidity for the growing economy. Annual inflation declined to an estimated 7.9% at the end of 2010, down from 9.9% in December 2009. Annual food inflation declined sharply from 8.0% in December 2009 to 2.8% in September 2010.

The Zambian government is pursuing aggressive business reforms to encourage increased private investment and reduce business costs. The Private Sector Development Reform Programme is intended to ease private sector development. The barriers include: i) limited and high cost credit; ii) excessive bureaucratic trade procedures due to the involvement of multiple government agencies and border clearance systems; iii) lengthy inspection and certification processes; iv) poor border information technology; v) outdated customs techniques;vi) inadequate skilled personnel; vii) inadequate infrastructure.

Progress in improving public financial management has led to the publishing of work plans by government agencies, and the introduction of a Treasury Single Account to improve budget execution and cash management.

In the past few years, donor assistance has shifted from developed countries to emerging economies, especially from Asia. Zambia has built new partnerships with China and India. There is, however, growing concern that the motives of these new powers may not be very different from the traditional partners – all are interested mainly in Zambia’s vast mineral and energy resources.

Zambia remains one of the most politically stable countries in the Southern African Development Community (SADC) and Africa as a whole. There has been democracy since 1991 when a two-decade old single party system was ended. The Movement for Multiparty Democracy (MMD) which has been in power since 1991 is likely to face a formidable challenge from a possible merger between the Patriotic Front (PF) and the United Party for National Development (UPND) going into presidential and general elections in 2011. The vote is expected to be peaceful and whatever the outcome, the country is likely to remain stable.

Table 2: GDP by sector (in percentage)

Source:AfDB Statistics Department, based on data from Statistics Zambia.

Figures for 2010 are estimates; for 2011 and later are projections.

Table 3: Demand composition

Source:Data from the National Bank of Zambia; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

To consolidate the improving economy, the Zambian government is directing more resources to stimulating growth and diversifying the economy. The government is seeking to get through the international economic troubles and get growth back to pre-crisis levels.

Under its 2011-13 Macroeconomic Framework, the government will focus on maintaining stability and building on the achievements of the last framework. The Sixth National Development Plan sets out the key economic objectives of: i) expanding and diversifying the economy; ii) keeping inflation to single digits; iii) increasing domestic revenue mobilisation;iv) reducing commercial lending rates; v) maintaining public debt sustainability; vi) and increasing productive employment.

Table 4: Public finances (percentage of GDP)

a  Only major items are reported.

Figures for 2010 are estimates; for 2011 and later are projections.

Monetary policy in 2010 aimed for stability – maintaining single digit inflation while ensuring adequate levels of liquidity for the growing economy. The financial crisis left little room for monetary manoeuvre. The Bank of Zambia had to shift from strict use of monetary aggregates to short-term interest rates to anchor monetary policy. To help financial markets, the central bank introduced an overnight lending facility for commercial banks. The Bank of Zambia is trying to reduce interest rates. On average, commercial bank lending rates declined from 29.2% in December 2009 to 26.8% in September 2010. Rates remain high however for small and medium enterprises. The Bank of Zambia is trying to find ways to reduce the gap between central bank interest rates and those used by commercial banks for lending.

Annual inflation decreased to an estimated 7.9% at the end of 2010 from 9.9% in December 2009. The major contributing factor was a sharp decrease in food inflation from 8.0% in December 2009 to 2.8% in September 2010 due to bumper yields in maize and other staples. However, non-food inflation rose during the same period, mainly due to fuel and electricity prices for which annual inflation reached a high of 12.5% in September 2010. The weakening of the kwacha against major currencies in the first half of the year contributed significantly to inflationary pressures.

Although Zambia has a growing trade surplus, turbulent financial markets and a lack of confidence by investors, particularly from the country’s traditional partners, remain stumbling blocks. Uncertainty about a full recovery from the financial crisis in developed countries means prices of commodities such as copper remain uncertain though there are signs that copper could reach a record high USD 10 000 per tonne.

The 2010 currency reserves are expected to revolve around four months of imports. Additional revenues from the sale of raw materials, non-traditional exports and tourism are likely to be boosted by the depreciation of the kwacha and the gradual recovery of the global economy. Additional debt relief funds under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiatives programme in 2006 will help strengthen Zambia’s external position.

Zambia’s exports are still heavily dependent on copper. The financial crisis slowed demand for Zambian exports and reduced its trade surplus. New partnerships with China and India are expected to restore and increase demand for Zambia’s natural resources and guarantee increasing trade surpluses. However, the additional surplus will not cover the deficits in services and income balances. Additional foreign direct investment is expected from China which has invested heavily in mining and infrastructure such as hydro electricity generation projects.

A strategy to make Zambia a middle-income country by 2030 partly involves reducing dependency on aid. However, this will also require substantial economic growth, prudent export diversification and expansion of the domestic revenue base. The government is seeking to strengthen public financial management and ensure that domestic and external resources are utilised in an accountable, efficient manner.

Despite tighter fiscal management, external borrowing is expected to increase significantly from 2008-13 to finance the economic infrastructure which the government has made a priority. Most of the funds will go to the rehabilitation of roads, bridges, power generation projects, schools and hospitals. About USD 2 billion was expected to be contracted to support the financing of various infrastructure projects in 2010. The contracted figures will increase Zambia’s debt to GDP ratio from 9.1% in 2009 to about 14.9% of GDP in 2010.

Zambia reached the HIPC completion point in 2005 and has had about USD 7 billion in debt cancelled. Zambia’s external debt in 2010 stood at USD 1.2 billion, up from about USD 500 million in 2005. But the figure is only very slightly up from 2009 (USD 1.16 billion) so Zambia should not fall into another unsustainable debt trap.

Financial assistance from its main partners has been unpredictable since 2008, mainly due to the financial crisis. This uncertainty is expected to continue through 2012 and beyond, until there is a full recovery from the financial meltdown. The lack of assistance has put pressure on the 2010 and 2011 budgets.

The trade balance increased to 13.7% of GDP in 2010 up from 7.1% in 2009. The trade balance is expected to increase to 16.4% in 2011 while the current account balance is expected to improve from -3.2% in 2009 to about -1.5% in 2010.

Table 5: Current account (percentage of GDP)

Source:Data from the National Bank of Zambia; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Figure 2: Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services)

Zambia, like other African nations, has strengthened co-operation with China, India and Brazil, in line with the shift in global economic power. The change can be seen particularly in infrastructure, mining, manufacturing, and agriculture.

While African nations prefer South-South co-operation for development partnership building, Africa sees the traditional economic giants and the emerging powers as having the same interests: access to the continent’s vast energy and raw material resources.

Zambia’s exports to the emerging economies are dominated by unprocessed primary products, particularly minerals such as copper. Levels of foreign direct investment (FDI) from emerging economies have significantly increased however compared to those from developed countries.

Zambia has increased co-operation with China since 2005, particularly in mining and commodities. Mining is Zambia’s economic backbone and accounts for about 70% of its foreign exchange earnings. However with the global crisis, revenue from copper sales dropped to USD 2.9 billion in 2009 from USD 3.6 billion in 2008, an 18% decline.

During the crisis, investors from developed countries closed or scaled down mining operations in Zambia, which badly hit the economy and opened the door to players from China, Brazil and India who stepped in to reopen some major mines and manufacturing projects. China’s Non-Ferrous Metal Mining Company (NFC) won a contract to reopen the Luanshya Copper Mines – and re-employ about 1 700 miners. In 2009, China invested more than USD 400 million in Zambia’s mining industry. In addition, Chinese concerns own at least three mining operations in Zambia, including a new 150 000 tonne-a-year copper smelter for new mines in northwest Zambia. Despite these positive developments, there are mixed views regarding China’s interest in Zambia’s mining industry.

Zambia and India have also strengthened economic ties. In 2010, India offered lines of credit amounting to USD 125 million and the Exim Bank of India and Zambian government signed an agreement on a USD 50 million concessional loan for the Itezhi-Tezhi hydropower project which will generate about 120 MW of power. Another USD 75 million loan has been extended over two years for health, education and other social sectors.

India, like China, has vast mining interests. Vedanta Resources, one of India’s big mining companies, has invested about USD 1.5 billion in Konkola Copper Mines (KCM). India has also helped with training. Vedanta Resources has an exchange programme for Zambian engineers and the Indian government has trained more than 2 300 Zambians under the Indian Technical and Economic Cooperation (ITEC) programme which organises short-term courses at Indian institutions.

Zambia and Brazil have signed memorandums of understanding and several agreements to enhance bilateral and economic co-operation. There are major prospects for co-operation in mining. Vale, one of the world’s biggest mining companies, started a new mine in August 2010 and the concentrator plant is expected to be commissioned in late 2010 with the mine at full production in 2015. Despite interest by Brazilian investors in Zambian mining, annual trade between the two countries has remained at about USD 10 million for the past five years.

Zambia is considered one of the most stable countries in southern Africa.

Multi-party democracy was interrupted in 1972 when Zambia became a single party dictatorship. But democracy returned in 1991. The Movement for Multiparty Democracy (MMD) has been in power since then. One reason for its success has been the rotation of the leadership between ethnic groups.

Zambia went through a special presidential election after the death in September 2008 of President Levy Mwanawasa, two years into his second term of office. The election was won by Rupiah Banda, who was vice president. A legislative election in 2011 and a possible alliance between the Patriotic Front (PF) and the United Party National Development (UPND) is likely to put pressure on the MMD. Whether the opposition parties succeed will depend on their willingness to compromise and agree on power sharing. In addition to the new alliance, tensions have risen in the MMD following President Banda’s announcement that he would seek a new term.

The Zambian government has put a high priority on social investment to reduce poverty. About 85% of people in rural areas and 34% in urban districts live below the poverty line. About 64% of the population of more than 13.5 million people live on less than one dollar a day.

Fifty per cent of the 2011 budget was allocated to social spending and infrastructure – both with the aim of combating poverty. The 2010 budget statement said spending will increase on health, education, water and sanitation. With government intervention, access to health services has significantly improved. There are fewer cases of malaria and maternal, infant and child mortality rates have dropped along with HIV/AIDS prevalence. It is likely that 2011 expenditure will be lower than 2009-10 due to a fall in aid from developed countries as a result of the financial crisis. The government may struggle to keep up with the good intentions it has expressed. The share of health spending in the national budget is likely to increase from 25% in 2010 to 30% in 2011.

Zambia has made mixed progress on achieving the United Nations’ eight Millennium Development Goals (MDGs). According to the 2008 MDG Progress Report, targets on hunger, universal primary education, gender equality and HIV/AIDS are likely to be met by 2015. Progress on reducing extreme poverty, child and maternal mortality, malaria and other diseases, and improving water and sanitation has been slow. Zambia has improved primary education enrolment and is firmly on track to meeting the target of universal access to education. The government is also addressing other education issues, including learning standards.

Access to clean water and sanitation in urban and rural areas has increased through the National Rural and Urban Water Supply and Sanitation programmes. The rural programme, in particular, will be scaled up in a bid to attain the MDG on sustainable access to safe drinking water and sanitation.

To improve gender equality, the government put gender components in the Fifth National Development Plan for 2006-10, aiming to improve gender capacity building and to review legislation. Despite these efforts, women’s empowerment remains a challenge. Women account for about 70% of the labour in subsistence farming. Gender disparity remains widespread in decision making. Out of 150 members of parliament only 22 are women. Only five of the 26 cabinet ministers are women and only two of them are full cabinet ministers.

Zambia has one of the world’s highest HIV/AIDS prevalence rates and is rated seventh among sub-Saharan African nations suffering from the huge burden of HIV epidemic. About 14.3% of the adult population aged between 15 and 49 is estimated to be HIV positive, though this has been reduced from 16%. Between 1980 and 2010, Zambia’s Human Development Index (HDI) rose by 0.1% annually and the country was ranked 150th out of 169 countries in the last UN report.

The Ugandan economy recorded weaker growth of 5.1% in 2010 because of receding aggregate demand, mainly in private consumption, and weak external demand for traditional exports, in particular coffee. In spite of the declines, regional demand for Uganda’s exports remained high. Export earnings fell from 2.9 billion US dollars (USD) in the financial year 2008/09 to USD 2.8 billion in 2009/10. Although lower than 2008/09 levels (USD 883 million), remittance receipts in 2009/10 (USD 820 million) surpassed traditional foreign exchange earners coffee and tourism. Earnings from coffee and tourism in 2009/10 were USD 262 million and USD 400 million respectively. Sustained public investment in infrastructure and the global recovery are expected to spur growth in the short to medium term. The near-term prospects for the oil and gas sector remain uncertain because of disputes between the government and oil exploration firms. The real gross domestic product (GDP) growth rate is projected to increase to 5.6% in 2011 and 6.9% in 2012 because of increasing regional demand and the improved global outlook.

Growth in 2010 was primarily driven by the telecommunications, financial services and construction sectors, while the services and agriculture, forestry, fishing and hunting sectors, which account for 54.4% and 24.8% of GDP respectively, showed weaker growth. Growth in telecommunications was bolstered by expansion in mobile telephony while financial sector growth was boosted by the licensing of an additional commercial bank and expansion in the size and outreach of the existing financial institutions. The rebound in fishing and food production was offset by falling growth for the cash crops of coffee and cotton, leading to stagnation in the agriculture sector. In the recent past the declining GDP share of the agriculture sector has been the result of low productivity, limited value addition and lack of commercialisation. On the demand side, growth was driven by private consumption and investment growth, albeit at rates lower than in 2009. Private consumption and private investment projections are for weaker growth in 2011 but recovery in 2012.

Inflation declined markedly from 13.4% in 2009 to 7.3% in 2010 as a consequence of falling food prices resulting from favourable weather conditions and subsequent improved food production. Projections are for further reductions in 2011 and 2012. The monetary policy stance over the medium term remains focused on seeking to restrict inflation at the target of 5%. The fiscal policy stance will remain expansionary in view of the government’s sustained public investment in infrastructure, including roads and energy. Tax receipts are expected to recover in tandem with the improving economic prospects and tax administration efficiency gains, although these gains will not be sufficient to cover the shortfall in grants. Thus the overall fiscal deficit (including grants) as a percentage of GDP is expected to increase in 2011.

The external position weakened as a result of a decline in export earnings from the traditional export crops, in particular coffee. International reserves, currently covering slightly under five months of imports, are expected to remain healthy, in part because of the weekly purchase of foreign exchange by the central bank.

The social sector also saw marked improvements with a reduction in the poverty rate from 31% in 2005/06 to 23% in 2009/10 although income inequality worsened. Progress was also recorded in education thanks to the universal primary and secondary education programmes. However, stagnation and reversals were reported for the health-related indicators.

Weak infrastructure, inadequate financial services to the private sector, and weaknesses in public sector management and administration are the major constraints to growth. The recently launched National Development Plan (NDP) is expected to prioritise reforms aimed at addressing these constraints.

Uganda’s major Emerging Partners (EPs) in 2009 were China; Hong Kong, China; India; Singapore and United Arab Emirates (UAE). The UAE; China; and Hong Kong, China accounted for 29% of total foreign direct investment (FDI) in 2009, with 54% of these investments in equity capital. In addition, the bulk of this FDI is concentrated in three sectors: finance, insurance and business services; manufacturing; and wholesale, retail, catering, accommodation and tourism. Emerging partners in Asia and the Middle East1 accounted for 13% of Uganda’s export earnings and 57% of imports.

Table 2: GDP by sector (in percentage)

Source:Uganda Bureau of Statistics.

Figures for 2010 are estimates; for 2011 and later are projections.

Table 3: Demand composition

Source:Data from Uganda Bureau of Statistics and Bank of Uganda; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Macroeconomic policies in Uganda aim to achieve strong real GDP growth of at least 7%, inflation below 5%, a competitive exchange rate and adequate foreign reserves. These goals are shared by the International Monetary Fund (IMF) as outlined in the Policy Support Instrument (PSI) to which Uganda has subscribed since December 2006. The seventh review of the PSI and subsequent approval of a new PSI in May 2010 concluded that Uganda has been successful in maintaining macroeconomic stability. Prudent macroeconomic policies helped Uganda weather the effects of the financial crisis better than was initially expected, helped restore single-digit inflation, and sustained Uganda’s gross international reserves. The new PSI-supported programme will continue to support infrastructure development while ensuring macroeconomic stability.  However, the first review under the new PSI conducted in December 2010 was not completed because of a breach of three quantitative targets, including the ceiling on net credit to government, ceiling on increase in the base money liabilities of the central bank and the stock of domestic budgetary arrears. However, the government is committed to redressing these shortfalls to avert a possible PSI cancellation and consequent sending of adverse signals to development partners and investors

Table 4: Public finances (percentage of GDP)

a. Only major items are reported.

Figures for 2010 are estimates; for 2011 and later are projections.

The Bank of Uganda (BoU) is responsible for monetary policy, since the country is not a member of a monetary union. The BoU’s primary objective is to control inflation, with a secondary objective of maintaining stability in domestic financial markets and foreign exchange markets. In 2010 the conduct of monetary policy aimed to keep inflation around the 5% target through foreign exchange sales from aid inflows to reduce interest rates and bolster private sector credit growth. The actual inflation rate amounted to 7.3%, thus exceeding the target. The BoU continues to sell treasury bills and bonds to carry out its sterilisation functions and repurchase agreements to smooth intra-auction liquidity. It also made adjustments in the re-discount rate and the bank rate to facilitate lending operations.

Base money grew by about 19% in 2010, as the BoU implemented a gradual easing of monetary policy with a view to reducing interest rates. Falling food prices, structural rigidities and under-execution of the capital budget resulted in a marked decline in the headline inflation rate. The large injections of liquidity by the BoU contributed to a sharp fall in interest rates on government securities, with the average yields-to-maturity on the two-year and three-year bonds falling from 12.3% and 13.9% respectively in 2009 to 8.8% and 11.2% in 2010. However, lending rates did not come down as banks moved to a more conservative risk stance. As a result, private credit growth slowed markedly and only trended up marginally by the end of 2010.

Uganda has operated a flexible exchange rate since the early 1990s. While remaining committed to a flexible exchange rate, the BoU intervened sporadically in the foreign exchange market to limit volatility. The BoU stepped up its foreign exchange purchases in 2009 in response to the sudden appreciation of the shilling (UGX). It also shifted the pattern of its monetary interventions from November 2009, reducing its regular daily sales of foreign exchange while maintaining the stock of domestic securities broadly unchanged. This contributed to depreciation of the shilling by around 17% between January and October 2010.

In the short- to medium- term, monetary policy is expected to anchor inflationary expectations while the flexible exchange rate regime will help maintain competitiveness and a judicious level of international reserves to cushion against exogenous shocks.

Export receipts as a percentage of GDP are estimated to have declined from 16.7% in 2009 to 15.6% in 2010 because of falling earnings from coffee and non-coffee exports. Export earnings from coffee, also the primary cash crop, fell from USD 283.3 million in 2009 to USD 281.4 million in 2010. Gains from increasing coffee prices were offset by poor weather and outbreak of pests in key producing areas. Coffee export prices increased by 15% in 2008, fell by about 7% in 2009, and are projected to rise again by 14% in 2010 and 12% in 2011.

The GDP share of imports increased only marginally between 2009 and 2010, partly because of the depreciation of the shilling, weak private sector demand and lower oil prices. Projections for the import share of GDP are for increases in 2011 and 2012. Consequently, the current account balance worsened in 2010 with sustained deterioration projected for 2011 and 2012 because of the possibility of large increases in non-oil imports as the country speeds up investments in oil production.

The East African Community (EAC) common market protocol came into force on 1 July 2010 establishing a framework for free movement of goods, persons and services within the EAC region. However, relevant legislation and the institutional framework to facilitate the implementation of the common market protocol are not yet in place. Negotiations to eliminate barriers to regional trade are continuing under the auspices of the EAC-Common Market for Eastern and Southern Africa (COMESA)-Southern African Development Community (SADC) tripartite arrangement and are expected to bolster inter-regional trade in East and Southern Africa.

Capital inflows, consisting mostly of foreign direct investment (FDI) and official loans, more than financed the current account deficit, creating a surplus in the balance of payments and raising international reserves to about five months’ imports of goods and services by the end of 2010. FDI is estimated to have increased from USD 787 million (4.8% of GDP) in 2008 to USD 799 million (4.8% of GDP) in 2009, an increase of 1.5%, and with a positive outlook for 2010 and 2011 because of the global economic recovery. Workers’ remittances dropped by USD 63 million to USD 820 million in 2009/10 following strong growth in 2008/09. However, remittances are projected to increase to USD 980 million in 2010/11.

Sound macroeconomic policies and cautious public borrowing following debt relief (Heavily Indebted Poor Countries [HIPC] in 1999/2000 and Multilateral Debt Relief Initiative [MDRI] in 2005/06 and 2006/07) have allowed Uganda to maintain a sustainable debt position, with all debt indicators declining to levels well below their policy-dependent thresholds. Total debt stock as a percentage of GDP declined from a high of 63.6% in 2003 to an estimated 14% in 2009 and 13.3% in June 2010. New external borrowing has been limited to financing for energy, roads and agricultural development, and was contracted on highly concessionary terms, mostly from the International Development Association (IDA) and the African Development Bank (AfDB). Public and publicly guaranteed external debt has remained low as a percentage of GDP (13.3% in 2009/10), and is mostly owed to multilateral partners. Domestic debt, issued exclusively for the conduct of monetary policy, amounted to less than 10% of GDP. Sustained macroeconomic management and prudent fiscal management together with modest public sector deficits are expected further to strengthen Uganda’s debt position over the medium term. The substantial infrastructure investments planned over the NDP period (2010/11-2014/2015) are expected to benefit from concessionary funding and are thus not expected to have a negative impact on Uganda’s debt position.

Table 5: Current account (percentage of GDP)

Source:Data from Uganda Bureau of Statistics and Bank of Uganda; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Figure 2: Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services)

Uganda’s major Emerging Partners (EPs) in 2009 were the United Arab Emirates (UAE), China, Hong Kong, Singapore and India. The UAE; China; and Hong Kong, China accounted for 29% of total foreign direct investment (FDI) in 2009, with 54% of these investments in equity capital. In addition, the bulk of this FDI is concentrated in three sectors: finance, insurance and business services; manufacturing; and wholesale, retail, catering, accommodation and tourism.

China has also been actively engaged in funding infrastructure projects in the country including roads and office blocks, and has recently shown interest in Uganda’s oil industry. China’s state-owned CNOOC Ltd. has already agreed a joint venture with the UK’s Tullow Oil PLC and France’s Total SA to develop Uganda’s downstream oil industry in at least three oil blocks in the Lake Albertine Rift basin. This joint venture is projected to invest at least USD 10 billion in the country’s oil industry. The main interests of the EPs in Uganda appear to lie in natural resources and access to markets, especially in the light of the East African Community common market.

The UAE; Singapore; Hong Kong, China; and China are among the emerging destinations for Uganda’s exports, largely made up of fish and fish products, coffee, cotton, and cobalt, accounting for about 5% of Uganda’s export earnings in 2009, while 39% of Uganda’s imports, ranging from equipment and machinery to fabrics and petroleum products, come from India, the UAE, China, and Saudi Arabia.

Data from the Bank of Uganda indicate that official development assistance (ODA) from non-African and non-OECD countries comes exclusively from China, with USD 205 million in loans and grants disbursed since 2007, the bulk of this ODA going to infrastructure.

EPs differ from their traditional counterparts in several ways, in particular the approach to development co-operation. For instance, while the traditional partners are interested in addressing development challenges in their totality including political governance, human rights and other freedoms, as well as economic governance and management, EPs typically are mostly interested in rates of return on their investments, expanding markets and/or seeking new sources of raw material. Consequently, EPs are complementary to rather than substitutes for the traditional partners. 

Another important key difference between the EPs and the traditional partners, in particular the multilateral partners, lies in the conditions attached to development assistance. For instance, while ODA from the multilateral partners usually requires counterpart funds from government, EPs typically finance the entire investment as a turnkey project. In addition, while standard procurement rules and procedures are often followed in the case of investments and ODA from the traditional partners, this is not a requirement for the EPs. In particular, almost all supplies and labour are usually sourced from the EP.

The tenure of engagement between EPs and government usually depends upon either the profitability of the investment or the lifespan of the natural resource of interest. In the case of the former, the EP’s commitment is short to medium term: in the latter longer term.

The Ministry of Finance, which is constitutionally mandated to co-ordinate development assistance, conducts all negotiations of loan and grant agreements with both EPs and traditional partners. The Uganda Investment Authority (UIA), a semi-autonomous agency established by the Investment Code Act (1991), operates in partnership with both the private sector and government to spearhead economic growth and development. The UIA’s major role is to facilitate and promote private sector investment in Uganda by contributing to and advocating for a competitive doing-business environment.

The NDP is the major framework that governs the engagement between EPs and government. The NDP contains the national development priorities and mechanisms to put into effect these priorities, and the EPs’ ODA and FDI is aligned to these national commitments. Traditional partners also use the NDP as a basis for their engagement with government and accordingly ODA and FDI from EPs and traditional partners are complementary. However, EPs have exploited the absence of a robust investment regulatory framework to invest in business ventures such as retail trade and catering activities which would ordinarily be preserved for local citizens. This has stifled local entrepreneurship, thereby impeding the development of a local middle class.       

Although the World Investment Report (2010) indicates that Uganda has been a leading destination for FDI in the EAC region since 2007, it is reasonable to suppose that EPs that locate their FDI in Uganda also target the bigger EAC market. However, governments in the region appear to compete for FDI, as, for example, evidenced by the uncoordinated tax concessions and other ad hoc incentives, as opposed to the marketing of the EAC as a single FDI destination.

Uganda has invested in industrial parks, fully equipped with the requisite infrastructure, as an initiative to reduce the cost of doing business. In addition, ad hoc tax exemptions and other tax incentives have been offered to EPs to enhance Uganda’s attractiveness as an investment destination. However, since such incentives are not ratified, their sustainability cannot be guaranteed. Uganda has also entered into 15 bilateral investment treaties, 11 double taxation treaties and nine international investment agreements with several countries with a view to supporting and strengthening domestic investment and attracting more FDI. The share of ODA from EPs in the national budget increased over the short term from about 8.8% in 2007 to 12.3% in 2009. However, since this debt is acquired on highly concessionary terms, it is not expected to have a negative impact on Uganda’s debt position.

The key benefits from EPs comprise creation of employment, augmenting the country’s export earnings, diversification of productive capacity, and technology transfer. Furthermore, in the case of ODA, EPs provide an additional source of development financing, which has been very instrumental in unblocking infrastructure bottlenecks.

A total of eight presidential candidates were nominated in November 2010 to contest Uganda’s top political office for the period 2011-15. The ruling National Resistance Movement party nominated the incumbent, Yoweri Museveni, to stand for his fourth term in office, while the opposition political parties fielded several candidates including an interparty coalition candidate.

The electoral process leading up to the 18 February 2011 presidential, parliamentary and local elections although largely peaceful, was marred by claims of poor preparation by the Electoral Commission, delays in the ratification of election guidelines, and the use of public funds by the incumbent. In particular, the Electoral Commission used voters’ registers instead of voters’ cards because of delays in the completion of biometric national ID cards. Opposition politicians interpreted this as a ploy to rig the elections and even threatened to seek a court injunction against them.

Museveniwas declared winner of the 2011 presidential election with 68% of the votes cast and parliamentary election with a total of 279 MPs compared to the 56 opposition legislators and 37 independents. His closest challenger, Dr. Kiiza Besigye polled 26% of the votes cast. However, opposition politicians have disagreed with the election observers’ endorsement of the February 2011 poll and called on Ugandans to take to the streets in protest against Museveni’s leadership. 

The controversial Institution and Cultural Leader’s Bill was passed into law in 2011. The legislation seeks, among other things, to stop traditional and cultural leaders from engaging in partisan politics and lays down entitlements and penalties in case of abuse. Sections of the population, including the Buganda Kingdom, condemned the new legislation and have vowed to contest it in court.

Uganda is among the few countries in sub-Saharan Africa that will meet the Millennium Development Goal (MDG) 1 target of halving poverty by 2015. The proportion of the population living below the absolute poverty line declined from 56% in 1992/93 to 31% in 2005/06 and to 23.3% in 2009/10. The pace of poverty reduction has slowed, however, as a result of the increasingly unequal distribution of income in the country: the Gini coefficient, a measure of income inequality, increased from 0.3 in 1992 to 0.41 in 2005/06 and to 0.42 in 2009/10.

Uganda’s population was estimated at 31.8 million in 2010, with 50% of the population below 15 years of age and a dependency ratio of 117 which is among the highest in the world. At the current annual population growth rate of 3.2%, the population is projected to reach 91.3 million by 2050. This presents several significant challenges in terms of provision of social services. For example, the latest Uganda Demographic and Health Survey (UDHS) shows that although the proportion of underweight children under five years of age fell from 23% to 16% between 1991 and 2006, 68.5% of the population were still unable to obtain enough food to meet the recommended calorie intake in 2006.

The introduction of universal primary education in 1997 led to a 204% increase in gross enrolment, from 2.7 million children in 1996 to 8.2 million in 2009. The Net Enrolment Ratio, a key MDG indicator that measures the proportion of children of school-going age who are actually in school, increased from 86% in 2000 to 93% in 2009, close to the 100% required to meet the MDG. In addition, the gender gap in primary education has disappeared, with the proportion of girls in total enrolment rising from 93% in 2000 to 100% in 2009. However, the primary completion rate at 53% in 2009 remains low. The pupil-teacher ratio remains very high, at 57 to 1 in 2007, although this is a slight improvement from 59.4 to 1 in 2000. The number of pupils per classroom is also high at 72, but considerably better than the 84 in 2004.

Infant mortality has declined from 81 deaths per 1 000 live births in 1995 to 76 in 2006, but still far above the MDG target of 31 deaths per 1 000 live births.  Similarly, the under-five mortality rate has declined, but not by enough to put Uganda on track to meet the target by 2015. The maternal mortality rate is also high, although it fell from 505 per 100 000 live births in 2000 to 435 in 2006. To meet the MDG target, Uganda will need to reduce the maternal mortality rate to 131 deaths per 100 000 live births by 2015. HIV/AIDS prevalence fell from 18% in 1992 to 6.4% in 2008 but continued vigilance is needed to combat the pandemic.  Communicable diseases contribute over 50% of disability adjusted life years (DALYs) lost. This dismal performance of the health sector reflects limited access to existing facilities most of which are dilapidated.

Significant progress has been made with regard to increasing access to safe water and sanitation but access to potable water remains low, especially in rural areas. It is estimated that only 65% of the rural population and 66% of the urban population have access to safe water, while access to sanitation is estimated at 68% and 73% for the rural and urban areas, respectively.In sum, Uganda is on track to achieve at least three of the eight MDGs, namely halving poverty, HIV/AIDS, and achieving universal primary school enrolment. Strong progress has also been made in addressing gender inequality in education. However, strategic interventions are urgently required to sustain progress and to meet the other MDGs especially those relating to reducing child mortality and improving maternal mortality.

Although Uganda has ratified several international conventions and commitments, including the Convention on the Elimination of All Forms of Discrimination against Women and the Beijing Platform of Action, and there are several provisions in the country’s constitution which guarantee equality between women and men, only minimal progress in eliminating gender disparity has been made. For instance, the share of women in wage employment in the non-agricultural sector dropped from 39% in 2003 to 28% in 2006. However, the number of seats held by women in the national parliament increased from 18% in 2000 to 30% in 2006.

Climate variability and change has serious implications for the Ugandan economy and the welfare of the population since these are intricately linked to the natural environment. In particular, as current average temperatures in Uganda are expected to increase by up to 1.5o C by the 2020s and as rainfall patterns change, some urgent measures are needed to mitigate the effects of the expected socio-economic impacts of climate change on food security, health, and the economic development of the country. The 2007 National Adaptation Programmes of Action indicate that drought is the most dominant consequence of climate change in Uganda, the others being floods and landslides. Extreme weather increases the susceptibility of populations to harsh living conditions and outbreaks of waterborne diseases such as diarrhoea and cholera. Prolonged dry spells, on the other hand, have resulted in respiratory disease, and rising temperatures are changing the geographical distribution of malaria and other disease vectors.

When a young man died after setting fire to himself in the town of Sidi Bouzid, 265 kilometers from Tunis, in mid-December, students, young people and others took to the streets to protest against unemployment and the high cost of living. Unrest and clashes with police and troops spread to other parts of Tunisia, including Jendouba, Kasserine, Le Kef and Gafsa, and then to big cities and the capital. President Zine El Abidine Ben Ali and his aides fled into exile in Saudi Arabia on 14 January 2011, ending his 23-year rule. The shock-wave of the revolution was felt in neighbouring countries. It also shook Tunisia’s economic, social and political stability and sharply changed prospects for the future.

Budget and current deficits are expected to increase, due to the revolution’s effect on tourism and foreign investment. Hopes for recovery are good thanks to sound macroeconomic policy in recent years. Corrective measures were taken early in the 2008/09 world economic crisis but growth should slow sharply to 1.1% in 2011, down from 3.7% in 2010 and 3% in 2009.

The interim government must organise the election of a constituent assembly in July 2011, but also end corruption and bad governance, restore the economy and meet numerous social demands. A return to normality and economic prospects for 2012 depend on how these challenges are met. The government will have to keep subsidies for staple products and energy to avoid unrest. It will also have to create jobs, both in the civil service and through public investment. Higher spending will increase the budget deficit to 5.2% of gross domestic product (GDP) in 2011 and 4.8% in 2012, up from a moderate 2.7% in 2009 and 2.6% in 2010. Inflation (4.4% in 2010) has already exceeded the 3% target for 2011 and should reach 4.7%. The external account will be affected by a drop in tourist revenue and bigger trade deficit. The current deficit is expect to rise substantially to 7.6% of GDP in 2011, from 4.7% in 2010 and 2.8% in 2009.

Tunisia has privileged ties with the European Union (EU) and is close to Arab League and North African countries through several free-trade agreements. Partners among the new economic powers are still few despite the attractive phosphate industry. Oil exploration and increasing mineral output should keep total exports at about a third of GDP. Nearly all the 18 targets under the Millennium Development Goals (MDGs) have been achieved, but more must be done to reach the goal of developing ”strategies for decent and productive work for youth.” Unemployment of qualified school-leavers and college graduates, as well as sharp economic disparities between the tourist-dominated coastal areas and the interior of the country, set off the uprising. Authorities have long recognised these problems but reforms have not sufficiently boosted competitiveness and employment. The country has made little progress with reforms, moving with a caution often criticised by international financial institutions. This hesitance increased during the world financial crisis. The revolution is therefore a new chance to speed up reform and improve governance, competitiveness and respect for human rights.

Table 2: GDP by sector (in percentage)

Source:AfDB Statistics Department; Ministry of Development and International Cooperation.

Figures for 2010 are estimates; for 2011 and later are projections.

Table 3: Demand composition

Source:Data from Central Bank; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Bold macroeconomic policies softened the blow to national growth of the world economic crisis in 2009 and 2010 and their boost to recovery should continue in 2011 and 2012. As well as creating jobs, the government wants to reduce inflation through consumer subsidies. The budget deficit should grow in 2011 and external imbalances increase, due to less FDI and fewer tourists.

Current spending in 2010 was about 18.4% of GDP (18.1% in 2009) due to recovery measures taken after the world economic crisis, including an 8% higher wage bill for 2010 and creation of 16 000 public sector jobs. Investment spending also increased in 2010. Major public infrastructure projects to ease the crisis should continue at a slower pace in 2011 and 2012, so as not to widen the budget deficit. The government helped exporting firms through the crisis in 2010 with funding to encourage job creation and boost their income, and also increased subsidies for fuel, food staples and transport. Prices of these subsidised items were expected to rise gradually as subsidies were reduced, but the revolution has changed all this and the TND 1.5 billion in subsidies in 2010 has risen to 2 billion in the 2011 budget.

Spending rose in 2010 and was set to increase sharply to about 28.5% of GDP in 2011, with tax revenue about 20%. This means the budget deficit will grow – from 2.7% of GDP in 2009 and 2.6% (2010) to 5.2% in 2011 and 4.8% (2012), all of it domestically funded.

 

Table 4: Public finances (percentage of GDP)

a. Only major items are reported.

Figures for 2010 are estimates; for 2011 and later are projections.

Monetary and exchange policy aims to head off inflation and ensure a solid external balance. Official goals for 2011 and 2012 include boosting the financial sector and continuing to liberalise foreign transactions. But the revolution has weakened banks and the financial system. Soft loans to troubled sectors such as tourism, as well as to the families of former President Ben Ali and his wife, may increase the amount of bad debts and affect the prudential ratios of commercial banks.

Monetary policy also seeks to streamline operations, so as to attack inflation, which rose to 4.4% in 2010 (from 3.5% in 2009) and is expected to be 4.7% in 2011 and 4.6% in 2012, well above the goal of 3%. The new government will probably not be able to alter monetary policy very much.

The Central Bank has not changed interest rates since it lowered its intervention rate in February 2009. To mop up excess liquidity in 2010, it was more active in money markets and increased required reserve ratios, from 7.5% to 10% in March 2010 and then to 12.5% in May. These steps, along with lower foreign exchange reserves, greatly reduced the commercial banks’ liquidity, so the Central Bank had to supply cash to them after the revolution. Exchange reserves continued to fall, to TND 12.2 billion (EUR 6.32 billion) (139 days of exports) in February 2011, down from TND 13 billion in December 2010 (147 days of exports).

Tunisia’s exchange policy aims to keep the economy competitive and there are no restrictions on standard foreign payments and transfers. Convertibility of the dinar requires a more solid financial system and major reforms. It would increase the risk of financial contagion from outside but could also boost economic growth. The dinar fell 9.2% against the US dollar in 2010 but was steady against the euro. The authorities were hoping to achieve dinar convertibility and opening-up of the capital account by 2014 but this may now be delayed while the financial system is strengthened after the damage done by the revolution.

The Tunis stock exchange index fell 9.8% during October 2010 after a 10% tax on share profits was announced in the 2011 budget. The tax was amended for profits of more than TND 10 000. In January 2011, during the revolution, prices of 45 of 46 traded stocks fell and the exchange was closed. Tunisia’s stock exchange capital (about 20% of GDP) is not very high for the region. Eleven of the country’s 20 or so commercial banks are quoted on the Tunis exchange.

 

Tunisia belongs to the Union for the Mediterranean (UPM) and has very close ties with its main trading partner, the EU. Free trade in industrial goods was introduced in Tunisia in 2008 and bilateral talks are just starting on opening up trade in services, farm products and processed food. To strengthen its incorporation into the European-Mediterranean region, which includes 42 countries and more than 700 million consumers, Tunisia has also adopted (when it signed the Barcelona Declaration in 1999) the pan-Euro-Mediterranean cumulation of origin system (a gradual extension of the pan-European cumulation system to other countries by 2010).

Tunisia continues to open up to the outside and lower its customs duties to meet international free-trade commitments. The government said in 2010 it would cut its highest duty from 36% to 30% and promised to reduce rates for nearly 1 250 tariff headings or exempt them entirely. Free-trade agreements have been signed with Turkey and with countries of the Arab League, the European Free Trade Association (EFTA – Norway, Switzerland, Iceland and Liechtenstein) and the Agadir Agreement (Morocco, Egypt and Jordan). Tunisia takes part in sub-regional integration efforts through the Arab Maghreb Union (AMU – Algeria, Libya, Mauritania, Morocco and Tunisia). Tunisia and Libya also agreed in May 2010 to allow free movement of goods and people across their shared border and to set up a free economic zone there, but this has been delayed because of the political upheavals in both countries.

Before the February 2011 revolt in Libya, they were discussing a banking union and a shared bank credit card. Libya is Tunisia’s main regional economic partner, with more than USD 2 billion worth of trade in 2010, and its fifth biggest trade partner worldwide. The conflict in Libya will hit bilateral trade and direct investment as Libya is the fourth largest Arab investor in Tunisia. It will also affect employment prospects and the funds that come from migrants as more than 90 000 Tunisians were working in Libya before the uprising.

Tunisia has a preferential trade agreement with the West African Economic and Monetary Union (WAEMU) and free trade agreements with the Central African Economic and Monetary Community and other countries in Africa and the Middle East. It has 100 or so commercial agreements. Its deal with Syria, for example, covered USD 37.5 million worth of trade in 2009. A free trade accord with the United States has been delayed because of Tunisia’s reluctance to open up its agricultural and banking sectors.

The depreciation of the dinar against the euro in 2009 stabilised the trade balance and made Tunisia’s goods more competitive, but exports, which rose in 2010, are expected to fall back in 2011 because of economic instability and the shutdown of some firms. Imports were up in 2010 and 2011 due to the need for cereals and also fuel (after closure of the country’s oil refinery). Energy and lubricants were 77% by value of all imports because of higher crude oil prices and the rise of the US dollar against the dinar. The cost of imports, long greater than export earnings, produced a trade deficit equivalent to 10.9% of GDP in 2010 and expected to rise to 12.4% in 2011 and 11.6% in 2012. The deficit was covered in 2010 by drawing on foreign exchange reserves.

Mechanical and electrical goods led exports with 34.5% of the total, followed by textiles and clothing (22.3%). The EU is still Tunisia’s main customer and bought 18.3% more of the country’s products in 2010 over 2009. Exports to the AMU fell slightly (4.2%) as did sales to the Far East (down 5.1%), while exports to North America rose 115.6% and to non-EU European countries 101%. Exports of vegetable oils and organic dates did well and organic agricultural exports as a whole were up 15% in quantity and 30% by value compared with 2009.

The current account deficit was smaller than the trade deficit because of a services balance surplus, but with the current upheavals, especially in tourism, the current account was expected to rise to 7.6% of GDP in 2011 (from 4.7% in 2010).

Foreign investment has begun to recover from a slump in 2009 due to the world economic crisis and rose slightly in 2010, though not yet to pre-crisis level. The new uncertainties will again slow this funding. About 73% of foreign investment is direct and 12% portfolio investments and is focused on the energy sector (55%) and manufacturing (21.8%). Foreign investment in industry fell 14.9% in 2010.

Ratings agencies downgraded Tunisia’s foreign debt in mid-January 2011. The Central Bank quickly responded, saying the country would repay all its debt on time and not seek new loans abroad. The government has substantial repayments due in April and September 2011, of USD 775 million on treasury bonds floated on the international market. The ratio of external debt to gross national disposable income (GNDI) was 36.9% in 2010 (38.1% in 2009). The debt service to exports ratio fell to 11.8% in 2010 (from 12.2% in 2009). Tunisia’s debt situation is very satisfactory and is backed by multilateral and bilateral funding sources.

Table 5: Current account (percentage of GDP)

Source:Data from Central Bank; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Figure 2: Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services)

Tunisia is looking for new economic partners and markets after completion in 2008 of the process of opening up trade in industrial products with the EU. China, India and Turkey are its most active new partners in trade and direct investment. Tunisia’s main selling point is its closeness to Europe, the Maghreb nations and Africa.

Between 2000 and 2009, trade increased tenfold with China, fivefold with the United Arab Emirates (UAE) and three to four times with Brazil, India, Indonesia, Kuwait and Turkey. The world’s fifth largest phosphate producer, Tunisia mainly exports inorganic chemical products and fertiliser to Brazil, China, Argentina, Saudi Arabia, India and Turkey. It imports mostly electrical equipment from China and India, salt, sulphur, lime and cement from Kuwait and the UAE, sugar and sugar products from Brazil and cotton from Turkey. It has had a trade deficit since 2008 with emerging countries, except India, which is the world’s biggest importer of phosphoric acid. Tunisia sells India 2.5 million tonnes a year, worth TND 721 million in 2008 – 12% of India’s total imports of phosphoric acid and expected to rise to 20% in 2011 under a new partnership agreement. Tifert – the country’s first mixed-capital company, comprising two Tunisian state firms (CPG and GCT) and two Indian companies, Gujarat State Fertilizers and Chemicals (GSFC) and Coromandel Fertilizers Limited (CFL) – began operations in June 2010 in Skhira. Tifert is capitalised at TND 90 million and the TND 225 million Skhira phosphoric acid plant (with 360 000 tonnes annual production capacity, all for Indian customers) has created 350 jobs.

Table 6 shows that FDI by emerging countries in Tunisia was mainly in services in 2008/09, while industry attracted funding from a wider range of countries. Neighbouring Libya is the only country to have invested heavily in all sectors of Tunisia’s economy.

Tunisia and Turkey have freely traded industrial products since November 2004 and gradually lowered tariffs on agricultural items. In 2010, 27 Tunisian firms were operating in Turkey. Relations with Argentina, Brazil and China are governed by various diplomatic, economic, financial, technical, scientific and legal agreements and trade tariffs remain very high, with partnership and co-operation only just beginning. Only six of the 3 000 or so foreign firms in Tunisia in 2010 had Chinese capital in them. Exports to Brazil were seriously obstructed by high import duties of 80% for vegetable oils and 70% for dates in 2010.

Ties with the UAE are deeper and long-established, with a first economic co-operation accord signed in 1975. Despite the suspension of investment in the Samar Dubai services and business-hub project because of the world economic crisis, several UAE firms are still putting money into Tunisia. A council of Tunisian businessmen in the Gulf states was set up in September 2010 to boost trade, investment and jobs for Tunisians, especially university graduates, in the Gulf.

President Zine El Abidine Ben Ali abandoned his post and left the country on 14 January 2011 after a month of violent street protests. Parliament president Fouad Mebazaâ constitutionally replaced him and formed a transitional national unity government. Ben Ali’s political party, accused of terrorising people after his departure, was disbanded. The state of emergency proclaimed after he left is expected to remain until free elections are held. The national constitution requires presidential elections within two months but these will not take place before 2012. Elections will be held in July 2011 to choose a constituent assembly to draft a new constitution. To speed up the changes, parliament (still dominated by Ben Ali’s party) in February authorised the interim president to rule by decree. The new government quickly signed major international human rights and anti-torture agreements. A plan for a law in 2011 giving women equal rights in acquiring, changing and keeping nationality may now be postponed.

Deep social discontent, lack of civil liberties and official corruption caused the revolution. The government’s battle against Islamic fundamentalism was used as an excuse to stamp out civil rights and freedom of expression. Non-governmental organisations such as the Ligue des droits de l’homme, Amnesty International, Reporters Without Borders and Human Rights Watch routinely condemned repressive laws, prison conditions, arbitrary arrests and media censorship. Tunisia ranked 144th out of 165 countries in the 2010 Democracy Index compiled by the Economic Intelligence Unit (EIU). The uprising at the end of 2010 was facilitated by the Internet and social network websites, the only places of free expression for thousands of young people. The army brought down the regime by refusing to fire on demonstrators. About 200 people were killed and 500 wounded during the rebellion between mid-December 2010 and mid-January 2011.

The regime’s stability, a key to investor confidence, was shaken and Tunisia could lose its place as Africa’s second most stable country (after Botswana) in the EIU’s 2010 Global Peace Index.

The government’s main social challenge is still reducing unemployment. All the MDGs should be achieved on schedule by 2015, except for target 16 concerning job creation for young people. The UN Development Programme’s 2010 Human Development Report puts Tunisia in 81st place among 169 countries. Its Human Development Index score improved by an average 1.5% a year between 1980 and 2010 and poverty has greatly diminished, with only 2.6% of the population living below the poverty line in 2010.

The government spent 7.2% of GDP on education in 2010 and 3% on health. The healthcare system works very well and figures show substantial improvement. Life expectancy at birth was 74.3 years in 2010, malnutrition almost non-existent and infant mortality 21 per thousand. Health insurance is obligatory for all. Government clinics and hospitals provide free treatment to all Tunisians and resident foreigners.

Tunisia has focused in recent years on higher education, gender parity and a balanced distribution of universities around the country. The government funds 75% of public universities and technical colleges (Instituts universitaires technologiques – IUT) and 6.2% of adults had higher education2 certificates in 2010, above the world average of 3.94%. Gross enrolment at the country’s 13 state universities, 24 IUTs and 20 private universities has sharply increased (to 31%) in recent years. But growing unemployment of graduates and qualified school-leavers has led to doubts about educational content and debate about job creation. The cost of higher education was 1% of GDP in 2009 – USD 65 per student (at purchasing power parity).

Unemployment, high for the last decade, was officially 14.2% in 2010 (13.3% in 2009), with women (16%), under-25s (30%) and graduates (20%) the most affected. A 2010 unemployment survey (“La précarité de l’emploi en Tunisie et ses impacts sur les travailleurs”) showed a large gap between the quality of jobs available and increasingly-skilled job-seekers. The European economic crisis also reduced the market for some graduates and many were forced to take low-paid or low-skilled jobs for lack of a system of unemployment benefits. This led to unrest among the country’s youth and to the revolution. In January 2011, the interim government offered long-term unemployed graduates and school-leavers a monthly TND 150 (EUR 77) payment, along with healthcare and cheap public transport, in exchange for part-time civil service work. This compared with the national minimum public sector 40-hour-week wage of TND 225. Longer-term solutions need to be found.

The unrest began when high-school students, young people and others took to the streets to protest against unemployment and high prices after the suicide of a young street-vendor in the town of Sidi Bouzid. Demonstrations and clashes with police and troops spread to other provincial areas and then to big cities and the capital. Regional economic disparities were also a cause of the uprising and it was significant that protests began in backward areas where unemployment and poverty were greater than in tourist-dominated coastal areas that get more than two-thirds of government investment.