Why are Tunisian Public Enterprises in the Red … Does it boil down to governance Issues?

The unit that monitors the productivity of Tunisian public institutions and enterprises recently published an aggregate report on the performance of public institutions and enterprises from 2010 to 2012. It is worth paying attention to because the report is both the first of its kind since 2007, and the first to be published on the website of Tunisia’s Prime Minister.
 
Unfortunately, what is most striking about it is the degree of deterioration these enterprises underwent between 2010 and 2012, with the exception of a slight improvement recorded between 2011 and 2012. Otherwise, from 2010 to 2012, the aggregate earnings of 95 public institutions and enterprises in Tunisia dropped by a massive 30 percent, with a net loss of more than TD 200 million (more than US$110 million) in 2012, against a net profit of TD 1.1 billion (US$614 million) in 2010
 
Of the 95 institutions included in the report, in 2012, a full 52 experienced net losses, led by the Société tunisienne de l'électricité et du gaz (STEG), Société des transports de Tunis (Transtu), Tunisian airlines  or Tunisair, Société Tunisienne de Banque  (STB), and the Tunisian Chemical Group, Groupe Chimique Tunisien (GCT). The cream of the crop of Tunisian industry is therefore in the red!
 
At the same time, operating subsidies to public enterprises increased from TD 2.5 billion (almost US$1.4 billion) in 2010 to more than TD 6 billion (US$3.3 billion) in 2012.
 
This is explained by several factors, such as declines in output and increases in costs, particularly in the wage bill, which saw an increase of over TD 600 million (US$33 million) from 2010 to 2012. There are now close to 180,000 people working for public institutions and enterprises in Tunisia, compared to 120,000 in 2010.  Or, in other words, there are more people working for them now than before the Jasmine revolution in 2011 forced Tunisia’s former president, Ben Ali, from power.
 
The cost to the state of its public institutions and enterprises appears to be increasing. How can this be explained?  As demonstrated in a recent World Bank report, in recent years a vicious cycle— leading to inefficiency in enterprises and the misappropriation of funds—seems to have entrenched itself (see Figure 1).
 
This situation illustrates how a poorly constructed system of governance—one that includes counterproductive incentives—results in the poor management of public resources, leading to the erosion of accountability from the heads of these enterprises. (There has been no major public enterprise reform in Tunisia since the 1990s, in contrast, for example, to Morocco.)
 
Without reforming the entire system, however, this inbuilt inefficiency will only persist, resulting in even more financial support from the state in the form of recapitalization and operating subsidies. 

Figure 1: Vicious Cycle of Problems associated with Public Enterprises

Source: Authors’ representation
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Tunisia’s regulatory framework was conceived during the main era of privatization at the end of the 1980s and, although modified in 1996 and 2002, it is still plagued with several major problems. Now, it seems important to align it with current trends toward more governance in enterprise, particularly in respect to the appointment of executives and functioning of boards of directors.
 
The problem at the moment in Tunisia is that membership to a board of directors is often viewed as an opportunity for “additional compensation” than an opportunity to protect the state’s best interests. On top of this, the bodies responsible for monitoring enterprises, though numerous, employ only a small number of officials, and cannot monitor the economic and financial impact that enterprises have. The regular publication of data and the improvement of reporting could prove crucial for improving their performance.
 
The cost of Tunisia’s public enterprises is only expected to continue to rise—they have been used to create jobs and may continue to be used in this way. Put simply, in an extremely challenging macroeconomic environment, a state subsidy of TD 6 billion (US$3.3 billion) to public institutions and enterprises is not sustainable. The time has come to enact transparent reforms and finally address the issue of the scope of the Tunisian state’s involvement in the public sphere, particularly with respect to enterprises that are proving to be structurally flawed.