New World Bank Study Details Manipulation of Regulations by Former Tunisian Regime Officials

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March 27, 2014

WASHINGTON, March 27, 2014 - Tunisia’s former regime used existing regulations and created new ones to benefit family members and those close to the regime. Regulations were manipulated to such an extent that by the end of 2010 this group of privileged insiders was capturing over 21 percent of all private sector profits in the country, according to a new study from researchers at the World Bank Group.

All in the Family, State Capture in Tunisia was published today as a World Bank Policy Research Working Paper. The study finds that the former Tunisian ruler’s “clan”, defined as those who have been declared as corrupt and had their assets confiscated, invested in lucrative sectors that were protected, mainly through prior authorization requirements and the use of executive powers to change the legislation in the regime’s favor, creating a large scale system of crony capitalism.

The authors compiled a unique data set of 220 Ben Ali connected firms, as identified by the confiscation commission, created shortly after the 2011 uprising, to identify and confiscate assets belonging to the inner clan of former President Ben Ali. The analysis from the confiscation commission data demonstrates that the firms studied were closely connected to the family of the former president. The analysis of firm level data with the decrees signed by the former president over a 17 year period shows that the legislation often served to carve out and protect clan interests from competition. The evidence found 25 decrees issued during the period introducing new authorization requirements in 45 different sectors and new foreign direct investment (FDI) restrictions in 28 sectors. This resulted in over one fifth of all private sector profits accruing to connected firms.

"This study provides compelling confirmation that the former regime benefited from crony-capitalism," said Bob Rijkers, PhD, researcher at the World Bank Research Department and the study's lead author. “We show that interventionist industrial policy became captured by the family of the president and de facto became a smokescreen for extraction of rents. In fact the evidence suggests that the State allowed capture of a significant part of the private sector to be appropriated for the regime’s own rent-seeking by ‘ring-fencing’ family-connected companies from regulations or giving special advantages to those firms.  More perniciously, we also found evidence that the regulations themselves were in fact being adjusted in function of personal interests and corruption.”

The study shows that although the country’s industrial policy framework, mainly the investment code, were seen as relatively open and the former regime appeared receptive to private sector development, in fact, this masked underlying problems in the Tunisian economy. Tunisia’s openness was largely a mirage, with large sectors of the economy closed, and many of these captured by interests close to the regime.

Ben Ali family corruption was widely known and was a source of palpable frustration for the Tunisian public, as evidenced by the targeted and systematic looting of Ben Ali family holdings after the 2011 uprising. Yet, evidence of corruption has largely been anecdotal, such as the wikileaks cables from the U.S. embassy, and stories regarding the closure of private schools which were in competition with regime-connected ones. The data analysis shows that not only were these anecdotes correct, but that they were based on a systematic perversion of the country’s industrial policy.

The study’s authors explain that while the regime has left, the regulatory structure it created remains largely unchanged.

The problem of crony-capitalism is not just about Ben Ali and his clan--rather it remains one of the key development challenges facing Tunisia today,” says Antonio Nucifora, a World Bank lead economist in the Middle East and North Africa region,Three years after the revolution the economic system which existed under Ben Ali has not been changed significantly.  With the revolution Tunisians have got free of ex-President Ben Ali and the worst of corruption, but the economic policies remain largely intact and prone to abuse. This policy infrastructure inherited from the Ben Ali era perpetuates social exclusion and invites corruption.” 

All in the Family, State Capture in Tunisia is Working Paper number WPS6810 and is available for download at the following link: http://wrld.bg/uWSUo

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