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  • Private firm dynamics and job creation in Tunisia 1996-2010

    • Date of posting : 25-04-2013
    • Type : Report
    • Language : Arabic, French
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    A recent joint study of Tunisian firm dynamics by the INS and the World Bank underscores the need for urgent policy reforms to catalyze job creation and firm growth.. Making unprecedented use of the Tunisian Business Register, a high-quality database containing information on all non-agricultural private sector enterprises in Tunisia, this study examined firm performance in terms of job creation and productivity. It highlights that the Tunisian private sector suffers from ‘structural stagnation’, which reflects low competitiveness and productivity, with limited growth opportunities. This lack of opportunity is manifested not only in disappointing jobs creation, but also in their quality; production is concentrated in relatively unproductive small-scale activities.

    In 2010, 86% of all firms were one-person enterprises and only 0,5% of all firms employed 100 people or more. Nonetheless, these large firms account for 37% of all jobs, which is more than all one-person firms combined. Such large firms are disproportionately outward oriented; they are much more likely to export and import, to be foreign owned and to be in the offshore regime, which is an important source of income and jobs, accounting for 32 % of all wage employment in 2010. Moreover, the importance of self-employment has been increasing over time, since net job creation has been limited and concentrated in one-person enterprises, with nearly half of all 672,877 net new jobs created between 1996 and 2010 being in the form of self-employment. The lack of job creation has been driven by very limited upward mobility. Of the firms that existed in 1996, only 4% had grown by 2010 and a total 55% had gone out of business. The correspond numbers for small firms are even more dramatic. Young firms are disproportionately responsible for job creation, but after approximately 4 years, firms on average shed labor.

    The dismal job creation performance raises concerns about the desirability of promoting small firms and providing incentives to mature firms, but also underscores the need for removing obstacles to firm growth. Consistent with the bleak job creation performance, the study also unveiled severe deficiencies in the competitive environment: productivity is not a very important determinant of firm growth; even the very best firms are not able to expand very rapidly; the estimates suggest that doubling productivity would accelerate job creation by only 3.9%.

    Similarly, moving up a decile in the profitability distribution is associated with 1.2% faster job creation. As a result, allocative efficiency is low and has not improved over time and productivity growth has been very weak, in part because a lack of capital deepening due to limited'investment. While the offshore sector has been very successful in creating wage jobs and attracting FDI, most of the offshore production is concentrated in assembly, rather than R&D, activities, with limited linkages to the domestic economy. The duality between onshore and offshore firms creates an uneven playing field, which constrains the growth of domestic firms. The offshore sector’s success nonetheless demonstrates the benefits of lean regulation. Appropriately targeting incentives to also encourage exports by onshore firms could simultaneously minimize duality and accelerate growth.

    Above all, the study’s findings emphasize the need for urgent action. Simulations presented in the report show that if the current trend towards small scale employment continues unabated, by 2025, 92% of all firms will be one-person firms. The time to act is now; Tunisia simply cannot afford another decade of structural stagnation.