Tunisia Islamists Back Tax Cuts, Stock Sales to Create Jobs

Iman Mathlothy says she voted for Tunisia’s Islamist party, Ennahdha, because it promised to create jobs and end corruption.

“I believe they have a clear agenda, especially on economic issues and employment,” said Mathlothy, a 31-year-old with a degree in multimedia who’s been unemployed for more than five months. Under the old regime, she said, “anyone without connections had a hard time while the elite thrived.”

Victory in the Oct. 23 ballot for a constituent assembly hands Ennahdha, banned for two decades before the uprising against Zine El Abidine Ben Ali, the task of reviving Tunisia’s economy to satisfy voters like Mathlothy. The party says it will create jobs with tax cuts for the poor and incentives for foreigners to invest and companies to raise capital on the stock market.

Ennahdha won 90 out of 217 seats, meaning it must collaborate with secular parties. It has already invited them to join coalition talks. That may be a test case for rising Islamist movements in other countries such as Egypt and Libya swept up in the Arab uprisings that began in Tunisia.

“All the statements coming from Ennahdha so far show that it is eager to reassure investors and external partners,” said Alia Moubayed, a London-based senior economist at Barclays Capital. “The key challenge ahead of the new government is to accelerate the growth recovery notably through private investment that would help create jobs.”

Vote Protests

The government imposed a curfew from 7 p.m. to 5 a.m. in the central town of Sidi Bouzid after protests over the election, Interior Ministry spokesman Hisham Meddeb said by phone today.

Protests over the anulment of victories in as many as nine seats by Areedha Chaabiya, or the Popular Petition party, broke out late yesterday in Sidi Bouzid, the site of earlier uprisings against Ben Ali, residents and a local official said in interviews today.

The courthouse and the offices of the municipality, the mayor and Ennahdha were partially burnt, said Mohammed Jellali, a lawyer who ran as an independent candidate, and Saif Nsiri, a resident. Security forces fired tear gas to disperse protests, Nsiri said.

While the streets were mostly calm today, protests continued with rural supporters of Areedha Chaabiya joining local residents in the city center, they said. Two army helicopters were hovering in the area, according to Ali Zarai, a member of the regional elections committee.

Reassuring Investors

The need for Ennahdha to reassure investors, as well as women who want to preserve individual rights, follows decades of government attacks on Islamists in Tunisia and the rest of the region. Ben Ali’s ban drove Ennahdha leader Rashid Ghannouchi into exile in London and left many supporters in jail. The ex- president, who fled to Saudi Arabia in January, accused the group of seeking to install fundamentalist Islam in place of a regime that defends women’s rights.

In Egypt, former President Hosni Mubarak, who was forced from office in February and is now on trial, made similar charges against the Muslim Brotherhood, the country’s biggest Islamist bloc. As well as a threat to secular values, he portrayed it as a group with anti-market credentials that will spook foreign investors and destroy the economy.

Now legalized and running for parliament, the Brotherhood - - like Ennahdha -- has placed a strong emphasis on free markets.

‘Clean Hands’

A pre-election visit to one of Ennahdha’s offices helped reassure Mathlothy, who doesn’t wear the headscarf that typically denotes religious conservatism in the region. “They are people from our own neighborhoods,” she said. “They suffered under the former regime because they belonged to Ennahdha and had clean hands.”

In the months before the vote, Ennahdha officials held talks with hundreds of Tunisian investors, spokesman Abdelhamid Jalase said in a telephone interview on Oct. 26. One of Ghannouchi’s first post-election engagements was a meeting with executives and brokers at the stock exchange, whose benchmark index has fallen 9 percent this year.

“They had questions and fears,” Jalase said. “To this day, we’re a movement that has been surrounded by fear and suspicion.”

There are concrete obstacles facing an Ennahdha-led government, too. Economic growth may grind to a halt this year before expanding 3.9 percent in 2012, according to the International Monetary Fund. The country may need $2 billion in external funding to support its budget next year, when the deficit will be about 7 percent of output, Finance Minister Jaloul Ayed said last month.

‘Actions Not Words’

Investors will need more than verbal reassurances before backing Tunisia under Ennahdha, said Simon Williams, the Dubai- based chief Middle East and North Africa economist at HSBC Holdings Plc. (HSBA)

“There is a still a great deal of uncertainty hanging over the near-term political outlook, and a lot of questions about what this means for economic policy,” he said. “The commitments from Ennahdha are promising but it’s going to be action not words that persuade foreign investors to deploy funds.”

Ennahdha has pledged to raise the amount exempted from tax for “low and middle-income” people by 1,000 dinars ($713) to 2,500 dinars a year, and is also offering to waive some unpaid taxes. It has promised improvements in the “business climate” to encourage stock market listings, without giving specific details. The party aims to create 590,000 jobs in the course of its five-year program, cutting unemployment to 8.5 percent.

Bank Mergers

Ennahdha said in its manifesto that it will encourage mergers among Tunisia’s 26 banks to help them “access markets abroad, develop exports and bring in foreign financing.” Shares of Banque Internationale Arabe de Tunisie, the country’s biggest traded bank known as BIAT, have risen 7 percent this year.

Ennahdha says Tunisia will need about $118 billion in financing to boost economic growth to 7 percent a year, and expects the majority of the money to come through domestic savings, foreign direct investment and tools such as Islamic bonds. Yields on the country’s non-Islamic euro-denominated debt maturing in 2020 jumped about 1.7 percentage points in three months to a February high of 5.85 percent, before retreating to about 5.1 percent.

Economic Growth

The Tunisian economy relies on agriculture, tourism and exports to Europe for growth, like other North African economies such as Egypt.

With Europe suffering a debt crisis, and rising demand for higher wages and weak public finances at home, it will be hard for Islamist groups in those countries to follow “isolationist or provocative economic and foreign policies,” Raza Agha, an economist at Royal Bank of Scotland in London, said in an e- mailed report. To keep winning elections, they will need “respectable economic growth, lower unemployment, lower inflation and lower poverty,” he said.

The assembly elected this week is expected to write a new constitution and then hold another vote a year from now. With so little time, spokesman Jalase says the party has been careful to “be realistic during campaigning, and to tell Tunisians that we are able to achieve a lot but we must be patient.”

Mathlothy wants Ennahdha to understand that the patience won’t be inexhaustible and her support shouldn’t be taken for granted.

“We should give it a chance and see what it can offer the country,” she said. “If its promises turned out to be only talk and we see no change on the ground, then we won’t vote for it again.”

To contact the reporters on this story: Mariam Fam in Cairo at mfam1@bloomberg.net; Alaa Shahine in Dubai at asalha@bloomberg.net

To contact the editors responsible for this story: Claudia Maedler at cmaedler@bloomberg.net; Andrew J. Barden at barden@bloomberg.net

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