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Raising a nation’s competitiveness
Regarding the long-term benefits of the agreement, Moncef Ben Abdallah, minister of industry noted, “According to the success of the program and the progress over the past three years in the balance of trade, the result could be a mix of two components. First, through the improvement of our competitiveness, we will increase exports and secondly, we will have a better balance of trade.” Tunisia expects all the sectors of the economy to benefit from this agreement. Ben Abdallah said, “I would say that manufacturing goods will firstly benefit, especially value-added components in the mechanical and electrical industries. High-end textiles will also benefit. We also expect the food industry to be one of the winners because we have succeeded in upgrading this sector and we are entering an era of excess production. Services such as software development, auditing and international trade should also do well.”
Since the signing of the agreement, foreign investments have grown at an unprecedented rate. The number of joint ventures between Tunisian and foreign companies has more than doubled. This is a win-win situation whereby Tunisian companies benefit from the input of capital and technological know-how and foreign investors can manufacture goods at a lower cost and export them duty free to a market of 350 million consumers.
Tunisia recognized early on the need to be able to participate in the global economy. Until the early 1980s, the economy was mostly controlled by the state and riddled with inefficiencies and overemployment. In 1986, the government launched a structural adjustment program to liberalize prices, reduce tariffs, and reorient Tunisia toward a market economy. The country became a member of the World Trade Organization in 1990. The economic reform program has been acclaimed as a model by international financial institutions. Tunisia has never looked back on its decision and has moved gradually toward establishing a free-trade zone with Europe in 2008. Tunisia was the first country south of the Mediterranean to sign such an agreement.
This voluntary program has been well received. To date, almost 1,500 companies have participated. The program provides grants for investments geared at improving overall competitiveness. Companies receive grants of 20 percent of the value of capital investments. A budget of $2 billion has been allocated for the 10-year program. As part of the agreement, Tunisian companies were given an adjustment period of 10 years. The period officially started in 1998 but as a sign of its commitment to the program, Tunisia started restructuring in 1996. Sixty percent of the investment dollars totaling $1.3 billion are already under application.
More companies are joining the program. Ben Abdallah explained that 2,000 companies should be participating by the end of 2001. This would represent 50 percent of the total number of employees in the manufacturing industries and 50 percent of the total number of companies targeted for the set deadline of 2008. More importantly, these 2,000 companies represent two-thirds of the total turnover of all manufacturing industries in Tunisia. This program targets all manufacturing companies in Tunisia. The top 50 companies have already completed the program. Special attention is given to small-and medium-size enterprises since they represent 80 percent of the total number of manufacturing industries. In 1999, 63 percent of them had already been restructured.
The program has had encouraging results. Last year, the ministry conducted an evaluation based on a sample of 360 companies. Overall, their turnover had increased by 15 percent annually; exports had increased by 13 percent. More significantly, 38 percent of the companies started exporting their products and services for the first time. The program has also created employment and fostered the training of skilled labor.
The creation of new companies in competitive sectors in an open market atmosphere is the ultimate measure of success. “Our objective is not solely to upgrade the existing stock of companies but to create new ones. The hope is to double or triple the number of manufacturing companies in Tunisia. The numbers already show that 500 companies are already created annually,” noted Ben Abdallah.
Tunisians have accepted the need to participate in the global economy. Resistance to change was significant at the launching of the program but has now dampened in light of its success. Some labor unions were worried as to the potential impact of the dismantling of tariffs on imports and how it would ultimately affect employment. Ben Abdallah noted, “We are now in the fifth year of dismantling tariffs and we have not experienced any difficulty. The main reasons companies run into difficulties are mismanagement, a high debt ratio. Very few encounter difficulties because of increased competition.”
The statistics seem to support the minister’s argument. Manufactured goods now represent 89 percent of total exports to the European Union, an increase of 7 percent over the past two years. Total trade with EU has also increased each year since the signing of the agreement.
The Tunisia-EU agreement has built the momentum for the integration of Tunisia into the world economy. The general objective of Tunisia’s economic policy is to diversify international trade and to keep markets open. The dismantling of tariffs will continue. Tunisia will enter discussions with other regions. The Eizenstat initiative geared at increasing trade between the United States and the Maghreb has been supported in Tunisia. The country is also negotiating for the establishment of a free-trade zone with eight countries in West Africa.
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Table of Contents A crash course in 3000 years of world history |
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On July 17, 1995, Tunisia entered into a free trade agreement with the European Union. The agreement postulates the gradual dismantling of tariffs to allow EU products to enter the Tunisian market. Reciprocally, goods manufactured in Tunisia will have free access to the European market. The ramifications of the agreement are significant considering that Europe is Tunisia’s first trade partner accounting for more than 80 percent of its imports and exports.
The stakes at the signing of the EU-Tunisia agreement were high especially for the industrial sector. Manufacturing industries represent 21 percent of gross domestic product and almost 90 percent of the export of goods. The companies in this sector had to become more competitive or risk going out of business. A number of economic incentives and reforms such as a new code of investment incentives, the adoption of a program of quality promotion and the preparation and development of industrial zones had started in the early 1990s. By far the most ambitious, a program to modernize and upgrade the sector was launched in March 1996.