A Country That Works

The computer programmers drink mint tea with pine nuts. The offices are decorated with delicate tiles of azure blue and canary yellow. But aside from the Arabic details, you might mistake the Tunis Technology Park for any high-tech enclave in Silicon Valley. Walls are plastered with posters advertising multimedia fairs and Linux training sessions. Firms like Alcatel and Ericsson are here, as is one of the country's top technical colleges, where twentysomethings in T shirts hover over laptops, talking code. Two of them, Mohamed Sadok Mouha and Mohamed Ramzi Abdelhak, recently launched a software firm, Progress Engineering. "We want to be as big as Microsoft," says Mouha.

That may take a while, since Tunisia's GDP is a fraction of Microsoft's market cap. Yet lofty ambition doesn't seem totally out of place in a country of 10 million people that is defying the tragic decline of the Arab world, where vast oil wealth and billions in foreign aid have been squandered by corrupt and incompetent regimes. Alone among Arab states, Tunisia has made real progress building an economy based on resources other than oil. It's also the only Arab economy to create a strong non-oil export sector, and a record of at least moderate economic growth (about 5.2 percent) in the last decade, according to a recent report from the World Economic Forum, which holds a Middle East summit in Jordan next month. Even more striking, Tunisia has achieved all this with neither great oil wealth (it's a net importer) nor huge foreign aid (like the billions that keep Jordan afloat). In contrast to the decay of its neighbors, Tunisia bills itself with some justification as "a country that works."

What makes Tunisia different? Tunis, the capital, feels like a European city, at least on the surface. Stylishly dressed men and women sip Turkish coffee in outdoor cafes, conversing fluently in both French and Arabic. Poverty is low; women fill 25 percent of the jobs, far more than in most Arab states. Literacy is high, but look closer: the media and Internet are censored. Portraits of President Zine El Abidine Ben Ali are everywhere. Speaking out against Ben Ali is a quick ticket to jail, even torture--but not to a grave. This is an important distinction. Diplomats in Tunis say Ben Ali runs a soft dictatorship, more like Singapore or South Korea in the 1980s than like some other Arab countries today.

Only 80 miles from Europe, Tunisia, like its Arab neighbors, has long been a crossroads for traders and emperors. The crucial difference: Tunisia had a relatively benign experience under French colonial rule, and emerged noticeably less bitter at the West. The postcolonial boundaries created a 98 percent Arab and Sunni Muslim population, so there was little of the ethnic and religious conflict that radicalized other new Arab nations. The first president after independence, a French-educated lawyer named Habib Bourguiba, was a common-sense reformer, not a strict follower of the Nasserite socialism that came to dominate the Middle East. Bourguiba was the first Arab ruler to outlaw polygamy, and he forced parents to send girls as well as boys to school. He was an Arab nationalist, but one who invested in health and education rather than an army, and left the capitalist class largely intact, allowing traditional industries like textiles to flourish. "Tunisia has by and large managed its wealth for the benefit of the population," says Theodore Ahlers, director of the Maghreb region (which includes Tunisia) for the World Bank.

By 1987 Bourguiba was losing power to a rising fundamentalist movement, and the then-Prime Minister Ben Ali took his place in the presidential palace. In a bloodless coup that became known as The Change, Ben Ali squashed the fundamentalists and launched market reforms that made Tunisia a model for the International Monetary Fund. In 1995 he became the first Arab leader to sign a free-trade agreement with the European Union, capping Tunisia's unique export boom, which rests largely on sales of textiles and light-manufacturing goods like car parts and insulated cable to Europe. While Tunisians identify themselves as Arabs, they measure themselves against Western standards of health, education and welfare. The U.S. ambassador to Tunisia, Rust Deming, says, "I believe Tunisia is well placed to be the first truly modern Arab republic."

While trade in the Middle East continues to stagnate, Tunisia is heading in the opposite direction. It embraces globalization, offering a one-stop shop for foreign investors, with courts, customs and all other services in one building. As of the year 2000, Tunisia had the third largest foreign direct investment stock in the Middle East, which is stunning, given its small size and lack of oil. Tunis is home to offices of major international firms like Benetton, Danone, Nestle, Peugeot and Citibank. "Tunisia's modern business climate is something that you just don't see elsewhere in the region," says Holger Standertskold, head of the trade-commission unit at the EU. "When a boat comes into port in Tunisia, it can be in and out in a matter of days. In Egypt, it might get held up for weeks." American businessman Tom Wendt recently set up P&K Tunisie to make jet-engine parts for General Electric, citing a skilled, low-cost labor force and the fact that "I didn't have to pay anybody to do business here."

Now success is bringing new challenges. Tunisia is threatened by the rising manufacturing prowess of China. The Filtiss company has been around since 1943, making clothes and later linens. It saw exports to France and Italy boom in recent years, but now is overwhelmed by a flood of Chinese competitors, says marketing manager Ghazi Darghouth. To respond, Filtiss and other Tunisian companies are trying to capitalize on their geographic advantage over China by making items for European retailers who want to get new designs on the shelves in days, not weeks.

The move into "agile manufacturing" is strongly supported by the government, perhaps too strongly, according to critics. In 1996 Tunisia created the mise a niveau enterprise-upgrading program to help companies prepare for increasingly free markets by upgrading equipment, retraining staff, and so on. So far, 2,563 Tunisian companies have joined the program, which has helped firms increase exports by as much as 18 percent. In the face of a global downturn that slowed Tunisian GDP growth to 1.9 percent last year, the government is working hard to create new export industries, like electronic components and call centers catering to French companies. It's even providing medical services to countries with backlogged national health systems, like Britain, which is starting a trial to send patients to Tunisian hospitals. "We know we can't rest on our current activities," says Finance Minister Taoufik Baccar. "We have to diversify further."

It's not clear that Tunisia can continue to match its performance of the past decade. Moody's recently upgraded the country's credit rating, citing its "stability" and "resilience to external shocks." But experts at the IMF and World Bank worry that Ben Ali has come to rely too much on subsidies, and has slowed the pace of privatization and other free-market reforms. In response to new fundamentalist threats, including a terrorist bombing last year, the government is growing more repressive, and economists worry that the crackdown could stifle creativity and the Arab world's highest productivity-growth rate.

At the same time, an increasingly comfortable middle class is getting restless for political freedom, producing a friction very familiar to Asian tiger economies. That tension is visible on the faces of the young founders at Progress Engineering. Asked whether Tunisia should be importing elements of the business cultures of Asia or the West, they look nervous. "We just want to import their technology, not their culture," says Abdelhak. "This is a different market, and we have to be more political--I mean, more flexible." Still, no matter how delicate the politics of globalization gets for Tunisians, it could be a lot worse. Stuck in immobile economies under stagnant regimes, most Arabs can only wish they had Tunisia's problems.