MENA: Living off the Books
BY HAMZA MEDDEB, Carnegie Middle East Center, 29 April 2020
Economies in the Middle East and North Africa are suffering from supply chain problems due to the coronavirus.
As coronavirus-related lockdowns are implemented worldwide, they are posing serious problems for supply chains and increasing the vulnerability of Middle Eastern and North African economies.
Supply chains in many sectors throughout the region have been severely impacted by the closure of ports and delayed shipments. The departure of goods and shipping volumes from Chinese ports have plummeted since the implementation of measures to curb the spread of the coronavirus, and the activity of many ports throughout Asia, Europe, and the Middle East has slowed.
A good example of this situation is Tunisia and its supply chains. The new Tunisian government has announced the doubling of strategic stocks of basic food, medicines, and fuel. It has done so because it aims to prevent panic buying generated by the long confinement. Because of the risk of food shortages, given the limited number of operating suppliers and the slowdown in transportation, governments are under pressure to secure a variety of basic necessities.
The coronavirus pandemic hasn’t only impacted formal economic exchanges but also invisible supply chains providing for markets across the region. Informal economies in the region don’t exist as separate entities. They are inextricably linked to domestic and international formal economies. Many goods supplying formal economies make their way through complex global commodity chains that are linked in one way or another to informal economies. In North Africa, these supply chains are usually diverted toward illicit cross-border trade through border markets, such as the one in Ben Gardan in Tunisia or Souq Dubai in Al-‘Aulma in Algeria.
Unregistered and misevaluated because of corrupt arrangements, these flows transit through ports and border posts. All across the region informal operators trade products through illicit distribution mechanisms as this means they don’t have to comply with registration, tax, and licensing regulations. Similarly, transnational economic actors use the informal economy and border markets to reach low-income segments of the population whom large formal retailers cannot supply.
Since the 1990s, border markets in North Africa have been energized by extended supply chains importing Asian-made consumer goods and low-cost products. With globalization there has been a restructuring of production and distribution in many industries, characterized by outsourcing and subcontracting through global commodity chains. Border markets and small retailers sell items that are made in Asia before being shipped to North and sub-Saharan African through Dubai. That’s how the Tunisian economy ended up being supplied with Asian goods transiting through Libya or Algeria.
In North African countries such as Egypt, Tunisia, Algeria, and Morocco, informal economies represent between 35–40 percent of GDP. Informal employment has been massive in sub-Saharan Africa, with 85 percent of employment taking place in the informal sector. In Asia, the figure is 68.2 percent and in the Arab world 68.6 percent. In total, 93 percent of the world’s informal jobs are in emerging and developing countries, showing that globalization has gone hand in hand with informalization.
The current coronavirus lockdown underlines an interesting fact, namely that many informal economies have been globalized over the decades. This is notably the case of border markets. The border market of Ben Gardane, in southeastern Tunisia, has played an important role in supplying the Tunisian and Libyan economies with consumer goods and fuel. Since the 1990s, Ben Gardan has been an entrepôt in which informal cross-border trade between Tunisia and Libya has been concentrated. Cities in western Libya have connected southern Tunisian cities to the global illicit economy. After the fall of the Qaddafi regime, the border economy became a magnet for non-state armed groups seeking to control and profit from illegal flows of goods, people, and money.
The struggle for control over economic resources and illicit cross-border traffic has had a significant impact on Ben Gardan. This has been mainly due to fighting between Libyan militias over the control of border rent and the frequent disagreements between the Tunisian authorities and their Libyan counterparts over procedures at the Ras Jedir border crossing. The closure of the crossing has sparked massive protests, strikes in Ben Gardan, and anger directed against the Tunisian authorities for contributing to the marginalization of the border region. The Libyan conflict, the coronavirus lockdowns, and the slowdown in global supply chains, will drastically limit the flow of goods transiting through Ben Gardan.
Tunisia’s government has sought to cushion the impact of the new situation and has put in place an economic package to prevent job losses and assist poor families who have been severely hit by the economic crisis. Tensions rose recently as people struggled to cope with the unprecedented sanitary and economic crises, while the government still does not have accurate data about the poor in order to help them. That is why Tunisia’s political elites have to think strategically on how to integrate the informal economy and address the needs of all those living off the books.