Executive summary
This policy brief explains the necessity of regulating Blockchain technology in Tunisia to solve economic and financial problems in light of the successive economic crisis.
Introduction
According to the National Institute of Statistics, the unemployment rate in Tunisia reached 17,4% in 2020[1]. The rate is even higher among university graduates. Socio-economic problems such as the growth of the informal economy, corruption, and the deterioration of purchasing power further accentuated by the COVID19 pandemic, have exacerbated the situation.
New technological developments can solve the economic and financial crisis. In May 2018, the first African summit on Blockchain took place in Tunis. It was co-organized by the Central Bank of Tunisia (BCTBanque Centrale de Tunisie ) and a forum of Central Bank Governors to understand the impact of this technology on African finance[2]. In addition, the BCTBanque Centrale de Tunisie has launched many initiatives like the BCTBanque Centrale de Tunisie -Fintech[3] and its regulatory “Sandbox”[4] to offer innovative Blockchain technology-based solutions to the banking and financial sector.
Blockchain is considered an economic accelerator in many countries. Small countries such as Liechtenstein and Malta, thanks to their “Blockchain-friendly” regulations, have attracted many investments. Powered by the popularity of Bitcoin, Blockchain is a technology that tracks a set of transactions, in a decentralized, secure, and transparent way, in a blockchain form and allows its users to share data without any intermediary.
The main goal of Blockchain is to allow digital information to be recorded and distributed, but not edited which guarantees a high level of security[5].
While some countries like Iran and Egypt have chosen to prohibit Blockchain, others like Germany, the USA, and Switzerland have chosen to regulate it. Despite its advantages, Tunisia has chosen to not take a clear position towards this technology. This has created a legal vacuum.
Economic challenges and difficulties
Macroeconomic imbalance
The Tunisian economy remains very fragile. Due to the COVID-19 pandemic, economic activity has declined in growth by -6,1%[6]. Public finances have also deteriorated. The budget balance has decreased by -7.1 billion dinars, at the end of November 2020, compared to -3.7 billion a year earlier[7]. Furthermore, Tunisia’s public debt increased in 2020 to a record level of 91.8 billion dinars, 9.2 billion more than in 2019[8]. The political crisis worsened the economic growth during this year by adding uncertainty to the economic climate.
Furthermore, due to the lack of formal employment opportunities, many unemployed graduates have been forced to find work in the informal sector. This has lead to the growth of this sector which now represents 40% of the Tunisian economy[9]. The informal economy refers to all activities that are not legally declared. The informal economy is causing a shortfall of tax revenues and social contributions of 11.7 billion dinars which represents almost 28.8% of the 40.6 billion of the state budget for 2019[10]. Furthermore, the informal sector poses problems for the consumer, it poses a threat to the state-regulated formal sector, and informal sector workers lack health protection and national security.
Small businesses that are operating in the informal sector have encountered corruption problems but also bureaucratic and legal “red tape” obstacles that prevented them from integrating into the formal economy.
Corruption: a source of business inefficiency
Corruption wastes public resources, deepens economic and social inequalities, and reduces trust in public institutions. In Tunisia, the cost of corruption represents 54% of its GDPgross domestic product in 2019[11]. 71% of Tunisians think that the level of corruption is a major problem and 59% disapprove of the government’s performance in fighting corruption[12]. Unfortunately, the problem is widespread and affects many sectors including public procurement, recruitment in the public service and customs.
Corruption negatively affects the economic climate by preventing businesses from prospering. A survey conducted by the Tunisian Institute of Competitiveness and Quantitative Studies in 2016 asked business leaders if they were forced to pay bribes to benefit from the service in question or to speed up administrative procedures. 25% of them stated that to speed up customs procedures, customs officials asked them to pay bribes[13]. Furthermore, according to the National Authority for the Fight against Corruption (INLUCC)[14], at least 25% of the value of public contracts goes into the pockets of crooked officials[15]. Although small and medium-sized enterprises (SMEs)[16] represent the largest part of the economy, they are almost discarded from the access to public procurement.
Adding to that, the number of cases related to suspected money laundering investigated by the BCTBanque Centrale de Tunisie reached nearly 645 in 2019[17]. Money laundering affects financial institutions and promotes crime that reduces economic growth. Moreover, foreign investors avoid countries that suffer from the proliferation of money laundering because the financial system will be affected by dirty money, and consequently, price instability.
According to the BCTBanque Centrale de Tunisie , the volume of currency circulating in the informal sector exceeds the amount of 3 billion dinars[18], which means this amount is out of the state’s control. It could be used for criminal purposes as terrorist financing or smuggling.
Heavy procedures for entrepreneurship
Financial services are expensive as evidenced by the fees imposed on transferring funds, creating a banking account, obtaining credit, and converting currencies. Also, transaction fees are not very affordable, especially for entrepreneurs who make frequent transactions. SMEs are considered to be the tool for boosting the Tunisian economy but they do not meet the banks’ requirements to cover their financial needs. The high prerequisites for applying for credit makes it difficult for them to continue trading. The banks’ requirements, such as terms of mortgage guarantees and excessive debt costs, affect the competitiveness of these enterprises.
Alongside these difficulties, the legal and administrative licenses aggravate the situation, because this regulatory complexity proliferates corruption in public services and constitutes a barrier to SMEs. Their growth is constrained by the inhibitions that regulations impose on them.
Administrative barriers including regulatory and administrative constraints or administrative approvals can reduce foreign investments. As a result, business investments fell by more than 28%[19]. In business, time is money. However, administrative procedures take a long time. For example, the application for a building permit should take 4 months but can take up to a year. Also, requests for currency transfers can take up to 6 months[20]. This inefficiency could encourage companies to resort to unofficial currency exchanges. These constraints affect the standard of living and reinforce inequalities between business leaders and encourage people to resort to paying bribes to avoid these barriers or closing their businesses.
Economic Relaunch Plan
Blockchain can solve the most complicated financial problems that the world is currently facing and it can help Tunisia to overcome its economic challenges. Blockchain can facilitate business creation, lower transaction costs, make payments more transparent, and open the door for stock exchange markets.
Facilitate business creation and startups
The digital transformation and the proliferation of startups are boosting the economy. Tunisia has encouraged startups by passing the startup Act in 2018, which was an important step for encouraging innovation.
Startups can take advantage of Blockchain technology. Since new startups can create a cryptocurrency[21] and a digital wallet for their project which allows for almost instantaneous exchange of values as the crypto-currencies are convertible by default[22]. This can solve the problem of access to foreign currencies, since this prohibition can only promote the circumvention of the law, and the Government should strive to promote their economic growth and sustainability and take actions to improve the business environment.
The Blockchain contributes to the improvement of a startup while increasing its profits and notably boosts the efficiency of investments. 2017 was a year of remarkable growth for the French blockchain startup market. Indeed, this could be linked to the explosion of the market of cryptocurrencies that took place at the same time in 2017.
During the Hackathon organized in Tunisia in 2018, the American company ConsenSys proved that it was possible to conduct a financial transaction between a Moroccan and a Tunisian in seconds, rather than 72 hours, by creating on the Blockchain a token for each country (the equivalent of a fictitious currency) that is convertible and exchangeable at the real rate at the time of the transaction[23]. This has the effect of simplifying and facilitating business creation and promoting international trade.
In August 2020, Tunisia enacted a crowdfunding law[24] to facilitate the financing of new businesses as funding is one of the most difficult obstacles for entrepreneurs. Crowdfunding platforms could operate more efficiently with Blockchain technology since it allows engagement with a large multitude of Internet investors without recourse to a third party or middleman. Financing via Blockchain also strengthens trust in the allocation of funds and reduces management costs. It is a way to make transactions more fluid and democratize investments.
This secure and unforgeable way of operating the data ledger can attract investors to fund multiple projects. Also, the creation of a standardized method of recording transactions, as offered by Blockchain, would make it easier for all actors in the economic system to communicate.
Fight corruption
Blockchain is an anti-corruption technology. It is designed so that no stored data can be altered[25], thanks to cryptography and decentralization. It also operates according to rules established by its members which removes the need for a centralised decision-making body. This can prevent corruption in public procurement, for example, by guaranteeing the traceability of the various stages of the procurement process.
Furthermore, Blockchain can help prevent money laundering, a major form of corruption, by allowing BCTBanque Centrale de Tunisie to more easily trace, in real-time, the currency in circulation at every stage of the financial system[26]. Unfortunately, most of the current anti-money laundering efforts are uncoordinated with each bank working in isolation. This lack of collaboration makes money laundering more difficult to detect.
Global adoption of Blockchain technology would be a great step in the fight against money laundering. Any risky transaction could then be detected and processed quickly because it can allow different actors to work more closely together by having a much simpler flow of information about the transaction.
Digitalize procedures
Tunisia can attract investors by reducing administrative costs and simplifying operations to businesses and citizens, thus promoting a proactive and business-enabling environment. Given the reduction of the cost of financial transactions can support financial inclusion.
The use of a Blockchain-based currency could reduce the number of banknotes in circulation. This will reduce the operating costs associated with the printing and distribution of central bank bills. In 2015, “Santander InnoVentures” stated it expects Blockchain technology to cut banking costs by more than $20 billion a year by 2022[27].
Blockchain could also simplify money transfer procedures by reducing the number of intermediaries in public administration. This has several advantages: it lowers costs, simplifies and accelerates procedures as no paper processing or manual operations are required, and it increases security since only the involved parties have access to the stored data.
The impact of the Blockchain goes beyond the simplification of administrative procedures, it is a key political tool to transform government. It can help reduce government spending with less public expenditure and provide user-focused quality services. It also uses innovative technologies that are better for engaging citizens in entrepreneurship.
In Tunisia, judicial procedures are slow and litigation cannot be settled easily. Thanks to innovation, “smart contracts” that are based on Blockchain technology can now be used by businesses. Their terms and conditions are executed automatically thanks to the rules pre-established by the contracting parties and they allow automatic compensation.
Blockchain ensures the transfer of an asset – an asset that is linked to a program that is itself stored in a blockchain – when the contractual conditions are met, which offers the possibility of bypassing many procedures. In other words, “The program runs the code at some point if it automatically validates a condition and it determines whether the asset should be sent to one person or returned to another, or whether it should be paid back immediately to the person who issued it, or a combination of all of these.”[28]
Improve stock exchange
The traditional system of the stock exchange markets is developed as a centralized system that brings together all the market actions from the agents. However, thanks to its decentralized nature, Blockchain could change this traditional system since it offers stock market participants transparency, security, and trust by providing self-enforced validation through smart contracts, reduction costs of commissions for customers, and global agreement for all transactions.
The Blockchain ledger lets all participants record all transactions. It also eliminates the need for intermediaries through smart peer-to-peer contracts, for faster trade settlement and increased trust in the market. Blockchain can also increase liquidity, investment and democratize the trading activity by lowering entry barriers. Thus, it paves the way for anyone wishing to take part in the stock market by removing the cost barrier[29].
Recommendations:
- The BCTBanque Centrale de Tunisie should develop technological regulations to facilitate the transition to a digital economy which could reduce monetary inflation.
- The Finance, Planning, and Development Committee in PRA should create a Blockchain Act to prepare an appropriate framework to balance two fundamental imperatives: First, to preserve the potential for technological and financial innovation. Second, to analyze and reduce the possible risks.
- The General Directorate for the Digital Economy, Investment and Statistics in the Ministry of Communication Technologies should support and secure Blockchain projects in their issues especially legally and regulatory.
[1] National Institute of Statistics. (2020 ) The unemployment rate in Tunisia in 2020 http://www.ins.tn/fr/publication/indicateurs-de-l%E2%80%99emploi-et-du-ch%C3%B4mage-quatri%C3%A8me-trimestre-2020 [2] I.B et agence Ecofin, Finance : l’Africa Blockchain Summit le 14 Mai 2018 à Tunis, Kapitalis, 10 Février 2018. http://kapitalis.com/tunisie/2018/02/10/finance-lafrica-blockchain-summit-14-mai-2018-a-tunis/[3] BCTBanque Centrale de Tunisie fintech homepage bctBanque Centrale de Tunisie .gov.tn/”>https://fintech.bctBanque Centrale de Tunisie .gov.tn/[4] Sandbox homepage: bctBanque Centrale de Tunisie .gov.tn/fr/sandbox”>https://fintech.bctBanque Centrale de Tunisie .gov.tn/fr/sandbox [5] Luke Conway (2020) Blockchain explained. Investopedia. https://www.investopedia.com/terms/b/blockchain.asp [6] The growth rate in Tunisia in 2020 http://www.ins.tn/fr/publication/la-croissance-%C3%A9conomique-au-quatri%C3%A8me-trimestre-2020 [7]BCTBanque Centrale de Tunisie , Direction Générale de la Politique Monétaire, Note sur les évaluations économiques et monétaires, Février 2021. bctBanque Centrale de Tunisie .gov.tn/bctBanque Centrale de Tunisie /siteprod/documents/Document_20210217_fr.pdf”>https://www.bctBanque Centrale de Tunisie .gov.tn/bctBanque Centrale de Tunisie /siteprod/documents/Document_20210217_fr.pdf [8]O.E.O, L’encours de la dette publique atteint un record de 91,8 milliards de dinars à fin novembre 2020, ilBoursa.com, le 17 Février 2021.https://www.ilboursa.com/marches/l-encours-de-la-dette-publique-atteint-un-record-de-91-8-milliards-de-dinars-a-fin-novembre-2020_26649[9] Lilia Blaise (2020) In Tunisia, the informal economy is damaged by the coronavirus. Le Monde Afrique. https://www.lemonde.fr/afrique/article/2020/03/27/en-tunisie-l-angoisse-des-travailleurs-precaires-face-au-coronavirus_6034654_3212.html[10] Ezzeddine Ben Hamida (2019) The weight of the illegal informal economy in Tunisia: A lack of tax revenues and social contributions of nearly 12 billion dinars for the State. Leaders. https://www.leaders.com.tn/article/27325-le-poids-de-l-economie-informelle-illegale-en-tunisie-un-manque-de-recettes-fiscales-et-cotisations-sociales-de-pres-de-12-milliards-de-dinars-pour-l-etat [11]OECD (2019), Good Governance and Anti-Corruption in Tunisia Project status. http://www.oecd.org/mena/governance/Brochure-Tunisie-Gouvernance.pdf[12] AFRO Barometer (2020) Press release: Tunisians are concerned about smuggling and corruption,and poorly judge the performance of the government in these areas. https://afrobarometer.org/sites/default/files/press-release/Tunisie/comm_de_presse-tunisiens_sont_soucieux_de_la_contrebande_et_corruption-afrobarometer-7oct20.pdf[13] Institut Tunisien de la Compétitivité et des Etudes Quantitatives (2018) ITCEQ Report: Business Climate and Business Competitiveness: Results of the 2016 survey. http://www.itceq.tn/files/climat-des-affaires-competitivite/enquete2016-climat-des-affaires-competitivite.pdf[14]National Authority for the Fight against Corruption.[15] (2018) Corruption: Chawki Tabib confirms that 25% of public contracts are misappropriated.Web Manger Center. https://www.webmanagercenter.com/2018/04/02/417995/corruption-chawki-tabib-assure-que-25-du-montant-des-marches-publics-sont-detournes/[16]Small and medium enterprises [17]Tunisian Commission for Financial Analysis (2019) Activity Report 2018-2019: Completion of the FATF action plan. https://ctaf.gov.tn/data/uploads/pdf/Rapport2018-2019.pdf[18] Hajer Mehouachi (2020) Corruption Perception Index 2019- Analysis of the main results, the Tunisian Institute for Competitiveness and Quantitative Studies (ITCEQ).http://www.itceq.tn/files/climat-des-affaires-competitivite/indice-perception-de-la-corruption-2019.pdf [19] Ahmed Saoudi (2021) A drop in foreign direct investment in Tunisia during the year 2020. Le Manager. https://www.lemanager.tn/2021/02/12/une-baisse-des-investissements-directs-etrangers-en-tunisie-durant-lannee-2020/ [20] Hajer Mehouachi (2020) Corruption Perception Index 2019- Analysis of the main results, the Tunisian Institute for Competitiveness and Quantitative Studies (ITCEQ).http://www.itceq.tn/files/climat-des-affaires-competitivite/indice-perception-de-la-corruption-2019.pdf [21]Crypto-currency is “a monetary value, stored in an electronic form, including magnetic, representing a claim on the issuer which is issued against the remittance of funds for the purposes of payment transactions accepted by a natural or legal person other than the ‘electronic money issuer’” The definition of crypto-currency according to Art. L. 315-1 (Law no 2013-100 of January 28, 2013, art. 5-V) https://www.dalloz.fr/documentation/Document?id=CODE_CMON_ARTI_L315-1&scrll=CMON086319&FromId=CODES_SECS_CMON [22] Mariem Brahim and Karim Maxime Salah (2019) Is Blockchain a model for getting Tunisia out of the cash economy? La Tribune. https://www.latribune.fr/opinions/tribunes/la-blockchain-un-modele-pour-sortir-la-tunisie-de-l-economie-de-rente-832030.html[23] Mathieu Galtier (2019) Tunisia: is blockchain a lever for growth? Jeune Afrique.https://www.jeuneafrique.com/mag/645909/economie/tunisie-la-blockchain-un-levier-de-croissance/[24] Law n° 2020-37 of August 6, 2020, related to “Crowdfunding “ .http://www.tunisieindustrie.nat.tn/fr/download/news/2020/Loi_Crowdfunding-n2020-37.pdf [25]“Each validated transaction is recorded chronologically in a transaction block, chronologically within a block of transactions. Each block of the blockchain contains different data, including the hash of the block and the hash of the previous block. A hash is like a fingerprint composed of numbers and letters. Each block hash is generated using a cryptographic hash algorithm. All confirmed and validated blocks are therefore derived from the very first block. Any attempt at corruption would then cause a change within a block and block and render the entire blockchain invalid because the following blocks would have information as a result of the change in the previous block. All confirmed and validated blocks are therefore derived from the very first block. Any attempt at corruption would then cause a change within a block and block and render the entire blockchain invalid because the following blocks would have information as a result of the change in the previous block.”Théo Malacari (2019) Assessment of the risk of money laundering linked to cryptocurrencies, Undergraduate Thesis from Geneva University of Management. https://doc.rero.ch/record/328752/files/HEG_Th_o_Malacari_TB_2019.pdf [26]Hubert de Vauplane, Blockchain et banques centrales : Aspects juridiques et réglementaires, ResearchGate, May 2018.https://www.researchgate.net/publication/329686562_BLOCKCHAIN_ET_BANQUES_CENTRALES_ASPECTS_JURIDIQUES_ET_RGLEMENTAIRES[27] Yessi Bello Perez (2015) Santander: Blockchain Tech Can Save Banks $20 Billion a Year. CoinDesk. https://www.coindesk.com/santander-blockchain-tech-can-save-banks-20-billion-a-year[28]Ameer Rosic (2020) Smart Contracts: The Blockchain Technology That Will Replace Lawyers. Blockgeeks. https://blockgeeks.com/guides/smart-contracts/ [29]Som Shekhar Singh (2018) How blockchain will change the way you trade in stock markets, The Economic Times. https://economictimes.indiatimes.com/markets/stocks/news/how-blockchain-will-change-the-way-you-trade-in-stock-markets/articleshow/62161610.cms
