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Large increase of foreign investments in Tunisia
Foreign investors have observed the improvement in the general business climate in Tunisia and have reacted accordingly. In 1990, foreign direct investments (portfolio investments excluded) stood at about $70 million. In 1998, that figure had increased to $760 million.
Currently, 1,950 foreign investors are in Tunisia. Over the past three years alone, more than 500 foreign companies decided to invest in Tunisia. Different factors explain these developments. Authorities view the attraction of foreign investments as an integral part of the economic development of Tunisia and have implemented measures to facilitate the investment process. Fathi Merdassi, minister of International Cooperation and Foreign investments noted, “We consider foreign investments as a complement to our national effort. Today, foreign investments contribute about 10 percent to the national economy. We wish to increase this number because we have chosen the path of globalization. This choice is irreversible. We feel that Tunisia must be able to attract foreign investments in the context of globalization. We have put in place the legislation necessary for companies to work in the best possible environment.”
Foreign investments are viewed as a way to create employment, to promote the transfer of technology and know-how and to bring value added to Tunisian products and services. Since 1987, steps have been taken to give the private sector a greater role in the economy, and the state has relinquished the ownership and management of numerous activities. Tunisia became a member of the World Trade Organization in 1990. In 1993, the Ministry of International Cooperation and Foreign Investment was created. The FIPA (foreign investment promotion agency) is the body within the ministry responsible for promoting investments in Tunisia.
European companies account for the majority of foreign investments. American investors have favored the energy sector. This trend will continue considering that an American company has recently been awarded a large contract for the realization of an electric power plant. American investments remain limited in the other sectors. Some attribute the low interest level to Tunisia’s geographic situation. It is wedged between Algeria and Libya, two countries ignored by American investors. U.S. companies also have been reticent to invest in Africa in general considering the high level of risks in some countries. Yet, according to a report published by the United Nations Conference on Trade and Development last year, the average return on foreign direct investment in Africa has been higher than in any other region. Additionally, Tunisia could hardly be compared to some of the riskier destinations in the rest of the continent. Tunisia has proven over the past decades that it is a stable and safe country. Nayera Amin with Citibank give another reason for the limited number of American companies in Tunisia. “There have not been many efforts until recently to promote Tunisia.”
Gateway to Europe
The limited size of the domestic market has been another concern for American investors. With the recent signing of the free-trade agreement with the European Union, industrial products produced in Tunisia are now able to gain free access to a market of more than 350 million consumers. Merdassi said, “This agreement represents a great advantage for American companies. Tunisia is now a gateway to Europe.”
In addition, Tunisia enjoys reduced customs duties in accordance with the general system of preference for manufactured goods, agricultural products and handicrafts with Japan, Canada, the United States, Switzerland and Australia. Tunisia also enjoys preferential trade agreement with North African and Arab countries.
Qualified Labor Force
Most Tunisians speak both Arabic and French. Starting this year, all Tunisian children will start to learn English at the age of 11. An important factor for companies coming to Tunisia is that they will find here an educated population, open to the outside world and capable of adapting to new technologies at a reasonable cost.” said Merdassi.
Liberal and competitive economy
The 1999 Report on Competitiveness in Africa published by the World Economic Forum at Davos ranked Tunisia the most competitive among all African countries. Moody gave Tunisia a rating of Baa3. Macroeconomic indicators have shown remarkable improvements. The growth of gross domestic product has averaged between 5 percent and 6 percent over the past 10 years, and inflation was brought down to 3.1 percent in 1999.
Good Infrastructure
Tunisia has seven airports and eight commercial ports. The energy supply and telecommunications systems are reliable. Between 1997 and 2001 an additional $10 billion will be invested in the infrastructure.
 Good business environment Capital and benefits can be transferred freely. Transparency is the norm. Tunisia also offers a host of incentives for companies turned toward exports. Full exemption from corporate income tax is granted for the first 10 years for exports-derived revenues and total exemption is granted from import duties and taxes for imported equipment, raw materials and semi-finished products for fully exporting companies. Investment subsidies are granted for projects related to environmental protection, regional and agricultural development. On the downside, the level of bureaucracy is still high. Tunisia is aware of this issue and is starting to address it. President Zine El Abidine Ben Ali has communicated that computers will be used in all administrative offices. Sectors of opportunities All sectors are open to foreign investments although services remain protected. Sergio Martins, chief executive officer of Gabes Cements Co., noted, “I think there are quantities of opportunities to do something here, commercially, and tourist-wise, there is something to be done in every sector.” The sectors of opportunities are linked to Tunisia’s competitive advantages. A large pool of workers is available in the mechanical and electrical components areas for the automotive industry. Most European auto manufacturers are already present. Merdassi explained, “Comparative studies have shown that Tunisia is competitive in the labor-intensive industrial sector. We are not capable of competing solely on the cost of labor.” Tunisia wants to promote foreign investments but not at the cost of exploiting its population. Salaries remain fairly low but regular pay increases are negotiated between workers and the unions. “We do not compare ourselves to Asian countries but to European countries. When coming to Tunisia, foreign investors should compare total costs with Europe. This is a great advantage for American companies since we have signed the free trade agreement with Europe.” The packaging and agribusiness sectors also offer opportunities. Tunisia is the fourth largest world exporter of olive oil and the largest exporter of dates. As exports continue to increase, the supporting industries will also grow. Computer services, notably software development, provide another area of opportunity. Because of Tunisia’s higher level of development compared to the rest of Africa, Tunisia has the capacity to lead the region in this sector. Additionally, the country is well positioned to serve the European, African and Arab worlds. |
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In the recent “Africa Competitiveness Report” published by the World Economic Forum, Tunisia ranked first out of 24 countries in the overall competitive index. The index was calculated based on an average of six indices: openness, government, finance, labor, infrastructure and institutions. Mauritius ranked second and Botswana third.
While foreign investments used to be largely concentrated in the textile sector, they are now in all sectors of the economy. In 1999, the manufacturing and energy sectors proved to be the most attractive to investors. Investments have also become larger, a development that is representative of the increased level of confidence of foreign investors. For example, British Gas (BG Tunisia) is the country’s largest investor and supplies about 65 percent of Tunisia’s total gas requirements. The company recently reached an agreement with the Tunisian government to expand the Miskar gas field and develop the Hasdrubal gas and condensate discovery. With this new capital input, British Gas total investment in Tunisia will reach the $1 billion mark. BG Tunisia is currently looking at imaginative ways to develop a low methane content gas field. Sean Sutcliffe, president at BG Tunisia, noted, “What we find is that the government is flexible in terms of looking at imaginative ways of developing resources. It takes time to get things developed but if one takes the time to understand what the political and strategic requirements are, the analytical and the logical approach is one that works well. One of Tunisia’s advantages is that decisions are based on logical and economic drivers. You know that if you have a good project, it will become concrete.”
American investors are welcome in Tunisia. Merdassi said, “We want to invite American investors to come to Tunisia. Nabisco, Pfizer and Citibank are already here. One hundred American companies are already present through direct and indirect investments in Tunisia. I believe there are great opportunities especially in the pharmaceutical and high technology sectors. Our country offers distinctive advantages for foreign investors.”
Education has been a government priority for many years and it has paid off. Today, 53 percent of job seekers have a university or a professional degree. Sutcliffe of British Gas said, “Tunisia has a well-educated workforce. We have 220 employees and less than 20 are expatriates. They are highly professional. One of our Tunisian employees has just gone to Egypt to lead our health and safety loss prevention work.” Amin at Citibank added, “The best thing in Tunisia for business people is the very good quality of the educational system. At the bank, 98 percent of the employees are Tunisians. Foreign companies do not need to invest in expatriates, which is a big plus considering their costs.”