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‘Tunisia Is Approaching a Fiscal Cliff’: ‘Coup’ Puts Sourcing in Limbo

Brands are hoping Tunisia quickly returns to economic stability after newly installed President Kais Saeid ousted former Prime Minister Hichem Mechichi and dissolved the parliament on Sunday in the latest bout of political upheaval for the north African nation.

Ten years after the Jasmine revolution in 2011, when Tunisia broke from the authoritarian regime of former President Ben Ali, and ironically, on the occasion of Republic Day on July 25, the shock of another political and economic meltdown rippled through Africa’s northernmost state. While opposition parties have denounced the president’s move as ‘coup,’ Saeid garnered support in the capital city of Tunis on Sunday as people cheered in the streets, set off fireworks, and honked their cars—still in the hope of a better reality, despite the ninth government in the last decade.

“We have taken these decisions… until social peace returns to Tunisia and until we save the state,” Saeid said in a televised address announcing his intention to appoint a new prime minister.

With a soaring inflation, and high unemployment exacerbated by fast-growing Covid-19 infections driving a one of the highest global per capita death tolls in the country of 12 million, business conditions are tense especially now that any aid from the International Monetary Fund is now under a cloud.

After the ouster of “now-sacked prime minister” Mechichi, who was spearheading the nation’s IMF loan negotiations to service international debt, “Tunisia is approaching a fiscal cliff,” Hamish Kinnear, an analyst covering the Middle East and North Africa for risk-analysis firm Verisk Maplecroft, told Sourcing Journal. “With Mechichi’s dismissal, the negotiations face further delays.”

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And the optics of the Tunisian government’s response to the coronavirus crisis didn’t win the deposed president any favors, according to Kinnear, who said “Saeid’s power grab” only came after a “massive build-up of discontent” over leaders’ handling of the health emergency.

“Hichem Mechichi and other government ministers, already unpopular, were photographed spending time by a luxury hotel pool” less than two weeks ago, “just after Tunisia’s per capita death rate was reported to be the highest in the world,” Kinnear said. “The president may have thought twice about his dismissal of Mechichi’s government if its response to Covid-19 had been more successful.”

Business analysts are not holding their breath, despite Saeid’s reassurances Wednesday that the “wrong economic choices have caused major financial problems to the country”—issues he means to fix quickly.

An important apparel sourcing country for the European Union, Tunisia gained traction during Covid as EU retailers focused on near-sourcing while the virus crippled manufacturing supply chains in India, Bangladesh and Sri Lanka. Italy, by contrast, is just an hour’s flight from Tunisia.

Tunisia’s textile and apparel industry employs more than 200,000 workers; of the 2,094 manufacturers employing 10 or more persons,1,656 produce exclusively for the export market and are centered around Tunis and also in the coastal regions of Monastir, Nabeul, Tunis, Bizert, Sousse and Sfax. As Tunisia’s second-biggest contributor to the country’s GDP, the garment, textile and leather industry drove $2.9 billion in exports, according to Statista. More than 200 brands source from Tunisia, including Diesel, Kings of Indigo, a Fair Wear Foundation member, and Mango, which works with five factories there, as of its inaugural supplier report published in October.

“I know many premium brands from Italy decided to manufacture in Tunisia because they knew they are very strong in terms of quality, aesthetics, and skilled in manufactur[ing],” said Luca Braschi, creative developer and sustainable processes expert for the fashion industry based in Florence, Italy. “Some companies build a sister company in Tunisia, or find skilled partners who were readily available there. It is one of the top five production centers for Europe.”

Braschi believes that the changing situation is likely to cause more disruption. “This change in the political situation is not helping much, and it may [prevent] some brands from doing more production there,” he said.

Tunisia’s logistics infrastructure, including ports and airports, remains operational for the moment, according to Kinnear. However, Sara Alkawari, risk intelligence analyst for Everstream Analytics, a supply-chain risk analytics company, told Sourcing Journal that the main Tunis-Carthage International Airport shut down for two days before reopening. In recent months, Tunisia’s port congestion has delayed vessels by an average of 25 days, “so shipping lines have stopped accepting bookings anyway in the past few weeks,” she added.

Overall, the situation seems to have calmed down a bit in recent days, but authorities also imposed a nightly curfew to further restrict protests.”

Covid-19 has hit the country hard—in the apparel manufacturing industry, more than 50 factories have reportedly shut down over the past year, industry sources say, and more than 5,000 textile and garment workers lost their jobs, according to the Tunisian Federation for Textiles and Garments. The fast-growing health crisis, with more than 580,000 cases and 19,000 deaths as of Thursday—including a spread of the Delta variant—has been muted by politics, leading to unrest in recent months.

Meanwhile, as curfews and restrictions take hold, Mechichi’s party Ennahdha has opted not to resort to violence, but rather to use dialogue to find the path forward “for the sake of the democratic path.”

Hopes of restoring democracy are buoying business as well.

While many global companies suspended their local manufacturing after the Feb. 1 Myanmar coup, stakeholders are closely monitoring and assessing the crisis in Tunisia to decide next steps. Labor unrest is “likely to be a concern” over the next year, Kinnear noted, and even likelier to explode if a sovereign debt default leads the government to stop paying wages and causes unions to organize and strike.

On Tuesday, Secretary of State Antony J. Blinken spoke with Saeid, underscoring the United States’ strong partnership and continued support for the Tunisian people as they face the dual challenges of an economic crisis and the Covid-19 pandemic.

Additional reporting by Jessica Binns.