March 24, 2014 5:54 pm

Former Tunisia president changed business rules to family’s benefit

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Zein al-Abidine Ben Ali©Reuters

Zein al-Abidine Ben Ali, Tunisia's former president

In Arabic it is called “wasta”, the connections and influence that grease the wheels of the bureaucracy and helps you get ahead. And the family of Zein al-Abidine Ben Ali, deposed president of Tunisia, had plenty of it.

Now a new report by a team working through the World Bank has laid bare how Mr Ben Ali and those close to him were able to change the rules of business in Tunisia to benefit themselves even as they won praise in the west for their handling of the country’s economy.

The report, given to the Financial Times, also underlines the depth of the challenges facing Tunisia today three years after Mr Ben Ali’s regime was overthrown, with many of the same rules of business still on the country’s books.

World Bank researchers analysed previously private tax data provided by Tunisia’s Ministry of Finance and relating to more than 600,000 firms. They found that 220 companies owned by Mr Ben Ali relatives earned 21 per cent of all the country’s private-sector profits between 1996 and 2010, in large part benefiting from rules in their favour.

The Ben Ali family appeared to know which sectors of the market to enter, staying away from businesses where there was too much competition. Moreover, sectors that piqued the interest of Mr Ben Ali’s family members tended to draw more regulatory activity, the report showed.

“It is easier to make money when there are regulations protecting you from competition and even more so when you can create new regulations as needed,” said Caroline Freund, a co-author of the report from the Peterson Institute for International Economics.

Mr Ben Ali’s clan included Sakher el-Materi, who is married to the president’s eldest daughter, Nesrine. In 2004 he bought Enakl, a state-owned car dealership, for about $16m. Soon after the government quadrupled Enakl’s import quota. Mr el-Materi floated 40 per cent of the company in 2009 and netted 53m Tunisian dinars ($33m).

He and his wife had by 2010 amassed ownership or stakes in a total of 36 businesses, including a lucrative shipping operation in the Tunis suburb of La Goulette which he set up after being granted a coveted permit to do so. In addition, he was elected to parliament as a member of his father-in-law’s party.

Companies linked to Mr Ben Ali’s circle on average controlled 6.3 per cent more market share than ordinary businesses, a differential “entirely due to Ben Ali firms sorting into [tending towards] the regulated sectors”, the report stated.

There is nothing illegal happening here. It is just that these laws do not necessarily benefit the public

- Bob Rijkers, co-author of report

“There is nothing illegal happening here,” stressed Bob Rijkers, a World Bank economist who co-authored the report. “It is just that these laws do not necessarily benefit the public.

Over the years of Ben Ali’s rule, he issued 22 presidential decrees resulting in 73 amendments to the business code. Sometimes they were almost comically shaped to confirm the Ben Ali family’s various business interests. A 2007 rule requiring government authorisation for firms producing cement came as Mr Ben Ali’s brother-in-law established a new company called Carthage Cement.

At the time US diplomats noted in dispatches to Washington accusations that Mr Ben Ali’s circle were able to win advantages and crowd out competitors. Ordinary Tunisians also grumbled suspiciously at Mr Materi’s good fortune.

This concentration of wealth in just a few hands also fuelled broad discontent that would ultimately explode into revolution and the Arab Spring. Mr Ben Ali and Mr el-Materi were forced into exile in 2011.

“We tend to think of corruption more directly as bribes,” said Ms Freund. “But what people were upset about [in Tunisia] was this kind of crony-capitalism that characterises the whole region, and other countries as well”.

Well-connected cliques such as those close to Mr Ben Ali did help drive national growth rates of 4-5 per cent before the Arab Spring, impressing outside observers. Mr Ben Ali earned international praise for his handling of the economy by removing much of the regulations on export-oriented businesses.

“By opening up parts of the economy and giving the red-carpet treatment to foreign investors, he gave an impression of a country that was very open to business and investors,” said Antonio Nucifora, lead economist in the Middle East and North Africa region at the World Bank. “What this did was take away the spotlight from most of the economy which remained protected by barriers to entry, price control regulations.”

Unlike Egypt, Libya or Syria, Tunisia managed to squeeze its way out of a political crisis and avoid a descent into chaotic violence or political repression. Tunisia has since then drawn up a consensus constitution that has not only been lauded by the international community but has calmed political nerves after two assassinations last year nearly derailed the country’s transition.

But Mr Nucifora and his team said Tunisia has yet to unravel the regulatory structure at the heart of the Ben Ali era’s dysfunctional economy, and that business rules and restrictions stifling competition remain in place.

“It would be a mistake to assume that following the departure of Ben Ali and his family the cronyism [has] disappeared in Tunisia,” Mr Nucifora said.

Mr Ben Ali, now in exile in Saudi Arabia, has been convicted in absentia and sentenced to life in prison on charges of corruption, theft and complicity in murder.

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