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The Tunisian Stock Exchange: small but efficient
The Tunisian stock exchange was first created in 1969, but not until 1995 when it was privatized did it become an integral part of the Tunisian financial market. Now, the capital is split equally between the 28 brokerage firms in the market. Having averaged a 30 percent return over the past two years, the stock market is representative of the buoyancy of the Tunisian economy.
The financial market was reformed according to international standards in 1994. The CMF (conseil de marche financier) is the regulatory body equivalent to the SEC in the United States. Parallel to this, the STICODEVAM is the clearing corporation and acts as the central depository for the market. All trades are done through brokers. Because of the regulatory and supervisory infrastructure, Tunisia’s financial market is considered by many in international financial circles to be among the best in the African and Arab world.
The Stock Exchange experienced two difficult years in 1996 and 1997 but regained strength in 1998 as reforms were put in place to increase efficiency and transparency. They included the introduction of a new trading system based on the French SUPERCAC electronic trading system, which ensures a high degree of price transparency and real-time price quotations on Reuters.
The market remains small with total capitalization of about $3.6 billion but has performed remarkably well with a price-to-earnings ratio of 12 in 1999. Trade volume increased 57 percent last year. It is non-speculative. The stock exchange has set an acceptable variation of 4.5 percent for its index. Beyond that, it closes until the following day. This decision was made in the spirit of equity to give individuals the opportunity to react to fluctuations. It has also protected the market efficiently against speculators.
A few companies have seen their stocks soar. For example, the stock of SOTETEL, a subsidiary of the phone company traded at about $20 at the beginning of its offering in 1999; now it is worth about $215. The value of the stock of another company, CFBI, involved in agribusiness has increased threefold this year alone.
Foreigners can participate within the limits of 50 percent of the offering of a company. Above 50 percent, an authorization is necessary. Foreigners currently account for 25 percent of the total capitalization. They appreciate the modernity of the market as well as its return but its smallness remains the main constraint. As the market grows foreign investors are expected to play a proportionally important role.
Based on the previous examples, the stock market certainly has achieved its goals in terms of returns. What is surprising, however, is that the accumulation of wealth of participants was not the sole objective. Indeed, Tunisia was faithful to its basic dogma when it created the stock exchange.
Hamza Knani, president of the Tunisian Brokers Association explained, “Ever since independence, Tunisia has differentiated itself from other developing countries in numerous areas, notably giving equal status to women, education opportunities for all and a widespread social program to form the current middle class.” In the past 10 years, the per capita GDP in Tunisia has doubled. Seventy percent of the population now belongs to the middle class.
Knani added, “We remain in the logic instituted by the Change (the period when Ben Ali became president). Our objective is to have the total population, 9 million Tunisians, with access to the stock market. As such, Tunisians become employers and employees at the same time and this is an essential element of stability.” Today, 120,000 Tunisians trade on a small scale.
The instruments have been created with the idea of facilitating access for all. The government has also granted financial incentives to make it even more attractive. The Compte Epargne Action is similar to the Individual Retirement Account in the United States. Tunisians can contribute minimal sums at regular intervals for a minimum of five years. Half the amount that they contribute is deducted for tax purposes up to a maximum of about $4,500.
As the economy grows, the stock market’s total capitalization should also grow. For now it represents only 15 percent of the gross domestic product. Knani, who is also the assistant director of Arab Financial Consultants, explained that cultural differences exist at both the commercial and individual levels. The mentality of hiding the money under the mattress still exists. Knani and his colleagues try to develop the mentality of using the stock market through training seminars at companies and universities.
Their success is important for the economic development of Tunisia. Until the 1980s the financing of companies was done almost exclusively through the banking system. The idea is now to bring together those who have the capital and the companies that need it without going through the intermediary of a bank.
Forty-four companies currently have their stock listed. Last year, they were 38. Participation has been timid. Aside from cultural differences, Knani explained that companies are also being courted by foreign exchanges such as London and Paris. Nayera Amin, general director at Citibank, noted “ the stock market is small and efficient. Its invigoration will depend on two things. One is transparency because to be listed, a company has to issue quarterly statements. Secondly, credit is cheap in Tunisia and for a company to be accredited in the stock market, it needs to have a certain level of capitalization and notation from a rating agency or they would have to issue a guarantee by a prime bank. This process costs money. As of now there is no inherent interest for companies to be listed in the stock market”
The government has recently put in place fiscal advantages to incite companies into listing their stock on the Tunis stock exchange. For example, companies will get a 20 percent to 35 percent decrease in their corporate income tax for a period of five years when they list at least 30 percent of their capital in the stock market. Considering that the infrastructure is already in place and that the economy is doing so well, it is likely that the stock exchange will double the number of quoted companies in a relatively short period of time.
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