The Elephant in the Room
¶11. (S) Several Tunisian economists argue that it does not matter whether corruption is actually increasing because "perception is reality." The perception of increasing corruption and the persistent rumors of shady backroom dealings has a negative impact on the economy regardless of the veracity. Contacts tell us they afraid to invest for fear that the family will suddenly want a cut. "What's the point?" Alaya Bettaieb asked, "The best case scenario is that my investment succeeds and someone important tries to take a cut." Persistently low domestic investment rates bear this out (Ref H). Foreign bank accounts, while illegal, are reportedly commonplace. A recent Ministry of Finance amnesty to encourage Tunisians to repatriate their funds has been an abject failure. Bettaeib stated that he plans to incorporate his new business in Mauritania or Malta, citing fear of unwanted interference. Many economists and business people note that strong investment in real estate and land reflects the lack of confidence in the economy and an effort to keep their money safe (Ref C).
¶12. (S) Thus far, foreign investors have been undeterred, and according to Tunisian business contacts, largely unaffected. Foreign investment continues to flow in at a healthy rate, even excluding the privatizations and huge Gulf projects which have yet to get underway. Foreign investors more rarely report encountering the type of extortion faced by Tunisians, perhaps reflecting that foreign investors have recourse to their own embassies and governments. British Gas representatives told the Ambassador they had not encountered any impropriety. XXXXXXXXXXXX stated that several years ago Belhassen Trabelsi attempted to strong arm a German company producing in the offshore sector, but that after the German Embassy intervened Trabelsi was explicitly cautioned to avoid offshore companies. Despite pronouncements about increasing domestic investment, the GOT focuses heavily on increasing FDI flows to the country, particularly in the offshore sector. Nevertheless, there are still several examples of foreign companies or investors being pressured into joining with the "right" partner. The prime example remains McDonald's failed entry into Tunisia. When McDonald's chose to limit Tunisia to one franchisee not of the GOT's choosing, the whole deal was scuttled by the GOT's refusal to grant the necessary authorization and McDonald's unwillingness to play the game by granting a license to a franchisee with Family connections.
Comment
¶13. (S) Although the petty corruption rankles, it is the excesses of President Ben Ali's family that inspire outrage among Tunisians. With Tunisians facing rising inflation and high unemployment, the conspicuous displays of wealth and persistent rumors of corruption have added fuel to the fire. The recent protests in the mining region of Gafsa provide a potent reminder of the discontent that remains largely beneath the surface. This government has based its legitimacy on its ability to deliver economic growth, but a growing number of Tunisians believe those as the top are keeping the benefits for themselves.
¶14. (S) Corruption is a problem that is at once both political and economic. The lack of transparency and accountability that characterize Tunisia's political system similarly plague the economy, damaging the investment climate and fueling a culture of corruption. For all the talk of a Tunisian economic miracle and all the positive statistics, the fact that Tunisia's own investors are steering clear speaks volumes. Corruption is the elephant in the room; it is the problem everyone knows about, but no one can publicly acknowledge. End Comment.