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Tunisia speeds up its privatization program
In Tunisia, privatization is seen as an important factor for stimulating foreign investments, especially those that contribute to technology transfer and exports. The program is being implemented through the transfer of assets, the selling of shares, public tenders and concessions. Foreign investments contributed to 67 percent of the transfers. The program offers wide opportunities for foreign investors in different sectors especially those related to improvements in the infrastructure.
Privatization in Tunisia began in the late 1980s. Judged to be slow at its inception by some, it has nonetheless been pursued without interruption. In 1987, Tunisia introduced the reforms that would guide it toward a free market economy. When all the reforms have been implemented, the Tunisian economic landscape will have been transformed from one almost exclusively state-controlled to a private-sector driven economy. Tunisia has started to reform all the components of its economic policies including the regulatory framework, taxation, foreign trade, investment and the banking and financial systems.
With the signing of the European Union-Tunisian free trade agreement in 1995, the country has stepped up the introduction of a new dynamic of competition and is laying the foundations for a more liberal economy. The terms of the agreements stipulate that custom duties must be eliminated over a 12-year period for a wide range of imports. Tunisian companies will have to become more competitive or risk going out of business. The government has accelerated its privatization program over the past three years in conjunction to the accord and in response to World Bank suggestions. Between 1987 and 1991, 38 companies were privatized. Between 1995 and 2000, 92 companies were privatized.
Another objective of the privatization program is to ensure the companies’ durability. “We are convinced that the survival of companies depends on the initiative and the capacity of adaptation to the new environment and the flexibility in the management” said Essid Bechir.
The Tunisian government has chosen to remove itself gradually from the different sectors of production. Over the past two years, assets linked to the construction sector have been privatized. The sales of cement plants are the largest privatizations to date representing more than 50 percent of the total proceeds. Spanish, Portuguese, Sicilian and Italian companies have acquired different plants. The two remaining plants will have been privatized by the end of next year.
The Gabes Cement Co. is a subsidiary of Sesil, a Portuguese company. The plant Gabes acquired is now producing 20 percent of the cement sold in Tunisia. Sergio Martins, general director at Gabes explained, “we made improvements in two main areas; management and technical aspects” All operations have been computerized. When the plant was under public ownership, there were delays of up to six months for managers to get the information about the plant’s production. We have also started to implement a project to minimize costs and optimize the efficiency of the plant through training contracts and the transfer of know-how from our mother company. This year, the plant expects to increase its revenue by 20 percent.”
The Tunisian government has placed minimal requirements on the companies that have acquired the privatized units. Under the agreement with the Gabes plant, for example, the plant must first respond to domestic needs before turning itself toward exports.
The approach to privatization in Tunisia has given special attention to the social costs of such programs. When Tunisia engaged itself in the process, it laid down principles within which privatization was to take place. The state is concerned above all with ensuring the durability of the enterprise being privatized. It also tries to maintain the largest number of jobs compatible with the firm’s efficiency and its profit-making potential. Merdassi said, “This is a gradual process because we are looking for both economic and social development. We have to develop the private sector but not at the expense of the general population.” The Tunisian government has put in place mechanisms to protect against this through social programs. The increase in unemployment is one of the main drawbacks of the program. Already considered to be Tunisia’s main challenge, it is expected to increase momentarily as the reforms take place. Merdassi said, “We want to avoid social exclusion. Some countries have privatized overnight and left thousands in the street. Our approach is gradual and through a consensus. All is being discussed and negotiated between the administration, companies and the employees.”
The receipts from privatization are partially directed at fund 21/21 created to address the issue of unemployment. A large share of the proceeds also goes to a restructuring fund for companies in difficulty. Resources in this fund are used to restructure the companies that are not considered viable enough to be privatized. Additionally, funds are being used to modernize the country’s infrastructure and to fund the budget deficit.
Considering the pressure that will be put on the Tunisian economy when its borders open, the privatization program is moving into a new stage designed to widen its scope and provide greater flexibility of procedures. All sectors are now being privatized. Tunisia started privatizing companies that were open to international competition through exports such as the textile sector, followed by tourism, then trade and construction. “For us, there is no sector that is closed to privatization, we have no taboos and are not driven by an ideology. Each developing sector can be privatized once it has competition,” noted Essid Bechir. Currently, the financial sector is being privatized. Two banks will be consolidated and privatized. The insurance sector and maritime transports are also on the list. The telecommunications sector is now open to competition. A second GSM license has been granted to a private operator. A second public offering for Tunisair, the national airline company, is to take place this year.
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The privatization program in Tunisia has been picking up pace with 60 percent of the total proceeds realized over the past 18 months. Total proceeds reached $1 billion this year, with nearly 150 companies having been privatized to date.
Fathi Merdassi, minister of International Cooperation and Foreign Investment explained, “We believe that the private sector is more competitive than the public sector. We are currently privatizing all companies in Tunisia. This process should be finished by next year.” Essid Bechir, general director for the privatization program overseen by the ministry of economic development, added “the Tunisian economy is gradually becoming liberalized and the state is looking to remove itself from competitive activities. The state is looking to go back to its original functions and wants to let the private sector take the initiative of production.”
Martins praised the government’s actions during his privatization experience. “All the agencies are engaged in a professional manner to gradually liberalize the Tunisian market. The government respects its obligations. If foreign investors respect theirs, things will continue to move forward. My experience leads me to conclude that things are moving in the right direction so as to consolidate the opening of the market and the position of Tunisia in the Mediterranean and international market in a more open manner.” Tunisia has been recognized for the fairness and the transparency of the process. Current regulations regarding privatization call for the respect of three practices; competition, public notice and evaluation by professionals who are independent of the government.