The relative stability of Tunisia’s politics—achieved through a “national dialogue” whose mediators won the Nobel Peace Prize—is largely holding. Within a broad, governing coalition, Islamists, secularists, trade unions and employers all jockey for advantage in the usual democratic ways. But beneath the comparative calm, an economic crisis threatens the political gains of the only country building a democracy from the Arab Spring uprisings of 2011.

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Tunisian leaders fear that rampant unemployment, especially among the young, endangers social peace.  A growing disparity between the wealthier towns of the Mediterranean coast and impoverished communities in the interior feeds political and social alienation in the landlocked west and south. Corrupt monopolies built during decades of authoritarian rule still enrich the powerful, afflict the weak, and stifle the economy.

“Young people are waiting to see if democracy can deliver any fruits.” --  Sheikh Rachid Ghannouchi, leader of the Islamist Ennahda party

Most worrisome is the damaging cycle set off by two terrorist attacks that killed 60 people, almost all foreign tourists, this year at the Bardo National Museum in Tunis, and at the beach resort of Sousse. The  violence has halved the number of visiting foreigners, throttling a tourism industry that last year accounted for 20 percent of Tunisia’s jobs. Lack of jobs, in turn, incubates terrorists, said Sheikh Rachid Ghannouchi, the leader of Tunisia’s main Islamist party, Ennahda, which is part of the government coalition.

“Economic growth is the key to a stable democracy,” Ghannouchi said at the U.S. Institute of Peace on October 28. “The [2011] revolution was a call for freedom, development and jobs. Young people are waiting to see if democracy can deliver any fruits.”

Houcine Abassi, the secretary general of Tunisia’s main union confederation, the half-million-strong General Union of Tunisian Workers (UGTT), offered an equally sobering assessment at a USIP-hosted event on Nov. 3. Abassi led the UGTT in its role as one of the four civil society organizations, the “national dialogue quartet,” that mediated in the country’s 2013-14 political crisis and was awarded the Nobel Prize.

Like tourism, investment has plummeted over security concerns while the government shifted funds from infrastructure and social needs to boost armed forces spending by about 10 percent, Abassi said. The informal economy represents as much as half of gross domestic product and some of it is tied to contraband that is moved by the same routes and means that violent extremists use to smuggle weapons and fighters, he said.

“Terrorism continues to pose a serious threat in the mid- and maybe long-range,” Abassi said. “It’s creating economic hardship.”

Abassi and Ghannouchi separately called for increased international support for Tunisia. The country of 11 million is too small and vulnerable to dig out on its own, Abassi said, and its revolution is too important not to succeed. “If, God forbid, this fails in Tunisia, I can predict there will be no stability in the Arab world or in North Africa,” he said.

Tunisia’s economic malaise is rooted in the 24-year, authoritarian regime of President Zine El Abidine Ben Ali,  according to The Unfinished Revolution,  a 2014 book-length study by the World Bank. “Beyond the shiny façade often presented by the former regime,” Ben Ali handed out state businesses and entire sectors of Tunisia’s economy were as fiefdoms to his allies and cronies. They sluiced away profits, raising costs for ordinary Tunisians, and ultimately turned the economy into “a system asphyxiated by its own corruption,” the report said.

The widespread state control that facilitated that corruption also discouraged entrepreneurs from expanding into new economic areas. It dampened competition and productivity gains. A bloated bureaucracy, the government’s answer to endemic unemployment, used strangling regulations to regularly seek bribes, measurably crimping business activity, according to the bank. In addition, restrictive policies such as limits on foreign investment kept Tunisia stuck producing goods for export with little value added, squandering the potential of a country classified as “upper-middle income” with a skilled workforce and good infrastructure.

Until now, the post-revolutionary governments lacked the political legitimacy to address these policies and practices, said William Lawrence, a North Africa expert and visiting professor at George Washington University. Prime Minister Mehdi Jomaa, a technocrat appointed in a transitional role between elections, started an economic dialogue that dissolved in recriminations, he said.

“You have lots of diametrically opposed views in the debate,” Lawrence said in an interview. “They run from Maoists at UGTT to liberal pro-free market advocates among business.”

The best place to resolve policy disputes is within the four-party coalition that formed the government, representing 80 percent of the seats in parliament, Lawrence said. Some of the most difficult decisions are those encouraged by the International Monetary Fund (IMF) to strengthen the overall economy by cutting costly subsidies for food, gasoline and other basics. Changes such as these, which the IMF would urge making first, will most likely be left for last because of their potential to spur popular anger, Lawrence said. In the meantime, he said, more than a dozen reforms are critically needed including banking, taxation and investment codes.

Labor laws also need restructuring, said Brad Cunningham, an economist with the Africa Growth Lab at Harvard University’s Center for International Development, who appeared on a panel with Abassi. Companies need the freedom to shrink and expand the workforce, he said. So a virtual ban on firing employees, and pay scales outlined by statute, must end. Both have constrained growth and job creation in Tunisia’s $47.3 billion economy, he said in an interview.

“Unfortunately, four years on, the development model is still in place,” Abassi said without discussing specifics for reform. “As Tunisians, we need a couple of years of social stability.”

The leaders agreed stability is hard to achieve when terrorist attacks aim directly at the society’s unity.

“Our enemies know that if they attack the economy, they can undermine democratic progress and extinguish the last flames of the Arab Spring,” Ghannouchi said. “We cannot improve the economy without the guarantee of security. It’s not easy when our region is full of chaos.”

Still, the need is growing more urgent. The government faces an economy that according to a World Bank forecast will grow 1 percent this year, down from 2.6 percent last year, a figure already lower than before the start of the protests that culminated in revolution. Official unemployment climbed to 15.2 percent, compared with 13 percent before the revolt, with youth joblessness running at about 40 percent, according to the Organization of Economic Cooperation and Development.

Under the former regimes, policies promoted education amid slow economic growth, Cunningham said. This created a huge, restive pool of unused human capital that was at the root of the revolution, he said. According to a 2015 World Bank report, university graduates spend an average of six years to find a job; half of graduates were still unemployed at 35.

The country’s poorest regions, meanwhile, are home to most of the estimated 3,000 Tunisians who have joined violent extremist groups, Ghannouchi said, stressing the tie between extremism and lack of economic opportunity.

Despite the difficulties, Cunningham said he remained optimistic. Any growth in the face of the headwinds Tunisia is battling signals economic strength to build on, he said. The IMF, in announcing an approval for a $301.6 million disbursement to Tunisia as part of a two year macro-economic assistance plan, said on Sept. 30, that Tunisia’s economy had been “resilient” considering the political transition and the international environment. Structural reforms, however, remained “challenging.”

For his part, Ghannouchi called for a “mini-Marshall Plan” that will show the country’s youth that democracy does, in the end, deliver. The cost of an investment in democracy is very modest compared with the price of fighting terrorism, he said.

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