Tunisia

02.10.2007

Tunisia

The Report: Emerging Tunisia 2007 Tunisia has a strong sense of national pride- due in part, no doubt, to its proud history of resilience in the face of persistent threats over the centuries from invaders such as European tribe the Vandals and, in the late 16th century, pirates who used it as a base from which to attack shipping lanes. French domination lasted until 1956 and France is now the country‚s most powerful ally, although the sense of national pride continues with Tunisia slowly but surely gaining the status of a developed country and being recognised as a player on the world stage.

Tunisia is a country in a state of good health. Its economy is chugging along at a healthy, although unspectacular, pace. Diplomatic relations are, at the very least, cordial and it ranked first in Africa among nations most at peace, according to the Global Peace Index. Indeed, wedged between Libya and Algeria, it has led peaceful diplomacy in the North Africa region and maintains diplomatic relations with Israel while being a keen supporter of Palestine at the same time. Its current administration, led by President Zine el-Abedine Ben Ali, who has been in power since 1987, favours a cautious, steady path and the maintenance of the status quo. This policy has reaped dividends – for example, Tunis overcame stiff competition to host the World Summit on the Information Society in 2005, and the US established its Middle East Partnership Initiative (MEPI) in Tunis. On the world stage, its two most powerful allies are the US and France. On the economic front, the state has been lessening its control over the past decade. A simplified tax code and some privatisation efforts combined with a long-standing policy of fiscal prudence have primed the economy for private sector expansion. Meanwhile, trade barriers with the EU are gradually being removed and a trade and investment agreement has been signed with the US, with the potential of a free trade agreement with Washington being signed in the not too distant future. Social policies are meanwhile progressive, although never radical, with Tunisia leading the way among Arab countries in areas such as women's rights, with education another priority and Ben Ali's government spending more than 20% of its budget every year on primary and secondary education. The recent policy of enforcing the ban on wearing the Islamic veil has provoked loud criticism from the Islamist opposition, but in parliamentary terms opponents of President Ben Ali and the ruling Democratic Constitutional Rally (RCD) have had extreme difficulty in gaining ground, despite the fact that the law reserves 20% of seats for them. While some critics bemoan the slow pace of democratisation, the safest bet is that Ben Ali will continue to tread his slow but steady path for some time to come. Zine el-Abedine Ben Ali, President of Tunisia, contributes a viewpoint while Romano Prodi, Prime Minister of Italy and Mohamed Nouri Jouini, Minister of Development and International Cooperation, offer interviews.

THE ECONOMY

Although not a naturally wealthy country, and with an administration that follows a cautious and at times protectionist economic policy, Tunisia's economy is in robust shape, having enjoyed stable growth over a long period. GDP has been showing steady increases year-on-year, increasing by 5.3% in 2006 and expected to expand by around 6% in 2007. All sectors are performing well and services, the star performer accounting for 55% of GDP, is predicted to expand by 9% in 2007. Some changes in fiscal legislation were included in the 2007 budget, with added incentives for the transfer of private enterprises, especially those experiencing financial difficulties, and a boost for the handicrafts industry with the removal of Customs duties on imported raw materials. Meanwhile, the government is working towards a free trade agreement with the US, although there has been little progress in actually getting anything down on paper. The major economic challenges for the future lie in attracting more foreign direct investment (FDI) and cutting unemployment, while the development plan for 2007-11 should further boost GDP. Indeed, the next four years look set to be ones of consolidation, during which the Tunisian economy can adapt to free market conditions and a fully convertible dinar and take its place on the world stage with, in the not too distant future, the status of a developed country. One sector earmarked as having great growth potential is IT and communications, the contribution of which to GDP has doubled in the past five years. The chapter also looks at Tunisia's strengthening economic relationship with Italy, which is now second only to France in terms of trade, with the gap between the two expected to close over the coming years.
The chapter includes interviews with Mohamed Rachid Kechich, Minister of Finance; Laurence Parisot, President, MEDEF; Hedi Djilani, Chairman, UTICA; Donald Kaberuka, President, African Development Bank; Mongia Khémiri, General Manager, Foreign Investment Promotion Agency; Jacques Ardant, Deputy General Manager, Union Bancaire pour le Commerce et l'Industrie (UBCI); and Mario Girotti, General Manager, Banca Nazionale del Lavoro.

BANKING

The Tunisian banking sector continued to grow in 2005 and 2006, with net profits reaching $839.3m in 2005 against $760.3m in 2004 and foreign currency reserves hitting $4.52m against $3.64m over the same period. The sector is well developed, including clearing, development, merchant and offshore banks along with factoring and leasing companies and debt collection agencies. The Central Bank of Tunisia handles the liquidity of the economy in an efficient manner that sees harmonious progress and the basic balances of the financial system maintained. Under the 11th presidential development plan for 2007-2011, authorities and financial institutions alike are improving governance and transparency in the sector, while working to meet Basel II international standards. Privatisation in the sector is on-going following the 2005 acquisition by a Moroccan-Spanish consortium of Banque du Sud, which was renamed Attijaribank, with the possibility that Banque Franco Tunisienne (BFT) and BH may be privatised soon, while a new bank, Banque de Financement des Petites et Moyennes Entreprises (BFPME), servicing small and medium-sized enterprises, has been created. To the future, the local banking sector looks set to develop, although some analysts argue that the market could become over-crowded and that the path forward lies in expanded regional development and the introduction of new products, for example consumer lending and leasing. The 2008 date for Tunisia's WTO accession is drawing nearer, meaning banks will have to redouble their efforts to meet new prudential norms. The high level of non-performing loans remains a thorn in the sector's side.
The chapter includes an interview with Taoufik Baccar, Governor, Central Bank of Tunisia, and M Faouzi Belkahia, President, Banque de Tunisie.

CAPITAL MARKETS

Tunisia's capital markets were defined by a substantial rise in turnover and soaring stock market indices in 2006, with the two indices of the market, TUNINDEX and the Bourse des Valeurs Mobilières de Tunis (BVMT), witnessing a strong rise in value, up to record levels of 21.3% and 17.2% respectively. Total turnover had risen by 141% at the end of 2005, the majority of which was due to the trading of Banque du Sud shares, while foreign participation in the capital of listed companies had moved up by 6.61 percentage points at the end of the same period. And, in the first nine months of 2006, foreign investment had increased by around 12.1%. Banking sector stocks turned in a strong performance down in the period while the strong rebound of several small and medium sized-capitalisations also played a role. Many of these impressive figures are due to the institutional progress made over recent years – indeed, on both a structural and a product level, the market has seen exciting transformations. The Financial Market Council (FMC) controls the sector and its operations while the exchange itself is managed by a private entity. Currently, financial authorities in the country are attempting to strengthen the bourse in three main areas: through an improvement in the transparency of financial information; the creation of permanent auditing committees; and the FMC's mandate to define and organise stock portfolio management on behalf of third parties. To the future, the Tunisian stock exchange has ambitions of becoming a regional market, allowing firms from countries such as Libya, Algeria, Mauritania and Morocco to list on it. However many insiders fear it may be too soon for this. There are also calls for the capitalisation of Tunisie Télécom, with the aim of increasing the volume of shares traded. For the moment, however, Tunisia can content itself with its first place ranking in African and the Arab world in terms of investment competitiveness by the Davos World Economic Forum.
The chapter includes an interview with Slaheddine Ladjimi, President, the Board of Directors, Tunisia Stock Exchange, and a viewpoint from the Tunisie Valeurs team, on the private equity sector. Tunisie Valeurs also provides share analysis on Banque de Tunisie, Banque de l'Habitat, Karthago Airlines, Magasin Général and Tunisie Leasing,

INSURANCE

Despite seeing regular growth in all the key indicators between 2000-05, the Tunisian insurance sector has not been performing to its full capacity. Indeed, in 2005 it constituted only 1.91% of the total national economy. To increase that percentage, efforts are now being made by the government to upgrade management within the industry, making it more efficient and improving the quality of services and products on offer to customers. At the same time, its regulatory framework is being brought in line with international standards. One of the aims of this policy is to ensure that local companies can compete with the predicted increase in the number of overseas players operating on Tunisian turf. Taking the sector segment by segment, motor insurance, at 43.35%, accounts for the largest part of the market, although it has, of late, been recording losses, while life insurance, despite new regulations brought in to aid it, is struggling. An ageing population could aid the situation. At present, health insurance accounts for 16.46% of total premiums –however reforms to the national health care system could give it a shot in the arm. To the future, privatisation and increased foreign competition is on the agenda – take as proof the fact that Star, Tunisia's number one insurance company, has opened its capital to foreign investment and is seeking a partner to buy a minority stake. The chapter includes an interview with Abdellatif Chaabane, Chairman, Comité Général des Assurances.

TRANSPORT

Despite its relatively small size, Tunisia is in possession of a lengthy coastline along which most of the population and transport activities are concentrated. The country's relatively comprehensive road network, comprising around 20,000km, is responsible for over 80% of the country's cargo traffic and the new infrastructure projects are benefiting from funding from the World Bank, European Investment Bank, Arab Fund for Economic and Social Development and the African Development Bank, complemented by bilateral funding from the French Development Agency and the Japanese Investments Bank. A construction boom spurred by this injection of funds has added around 200 km of highways, while a project to build a bridge connecting Tunis‚ northern and southern districts is ongoing and authorities are looking at integrating the country's road network as part of an east-to-west Maghreb scheme in order to create closer regional integration. Rail-wise, Tunisia's 2256-km network hauls 12m tones of merchandise and 36.3m passengers a year, while sea lanes account for more than 95% of Tunisia's global export tonnage. Free zones are centred around Bizerte and Zarzis, and a central tenet of the 10th five-year plan (2002-2006) was the improvement of the maritime transport industry. Indeed waiting times at ports has been reduced as a result, but still remains longer than in neighbouring countries – projects are in place to reduce them still further. Build-operate-transfer projects, such as a $20m container terminal in Radès, new $20m quays at La Goulette, a deep-water port at Enfidha, are gaining in popularity and more are in the offing. Taking to the skies, the main current projects are the expansion of the airports at Tunis, Monastir and Djerba, which, when completed, should bring capacity to 13m passengers a year. A new airline, Karthago Airlines, specialising in charter flights, is also on the agenda. To the future, a new, general law regarding concessions of public services is in the offing to conquer legislative barriers hampering development, while Tunisia is attracting overseas logistics investors and the state is looking to privatise public transport.
The section includes an interview with Abderrahim Zouari, Minister of Transport and Belhassen Trabelsi, President, Karthago Airlines.

ENERGY

Tunisia is sometimes overlooked as a producer of hydrocarbons, given the wealth of oil and gas in neighbouring countries such as Libya and Algeria. However, although on a moderate scale, the energy sector in Tunisia is relatively vibrant and the country has been producing hydrocarbons since the 1960s. These days, with the hike in world hydrocarbons prices, every barrel is an asset. Exploration efforts in the country are on the up – the Enterprise Tunisienne d'Activités Pétrolières is responsible for all exploration activities, in general operating in conjunction with foreign companies. At the end of 2006, the offshore Oudna field came on-stream and in 2007 BG-Tunisia is set to start developing the Hasdrubal gas field. Indeed, some analysts believe that Tunisia's offshore gas reserves could be far larger than previously believed. The construction of a second refinery has been announced, with a gas processing and power plant, Hamariyeh on the coast of Cap Bon, which will export electricity to Italy. National electricity company STEG produces 70% of Tunisia's electricity output. In 2006 STEG International Services (SIS) was established – with 55% of shares owned by STEG and its employees – with the aim of overseas expansion into the Arab world and beyond. Meanwhile the government is making efforts to examine alternative resources, such as wind and solar power, with the aim of generating some 10% of the country's total electricity demand through wind farms by 2015. To the future, the sector looks set to thrive with, for example, BG Tunisia, the largest investor in the country's energy sector, foreseeing the injection of additional investments amounting to 10% in Tunisia between 2010 and 2012.
The chapter includes an interview with Afif Chelbi, Minister of Industry, Energy and SMEs, and Ahmed Bassalah, Country Chairman, Shell, Tunisia.

TOURISM

Tourism contributes around 7% of Tunisia's GDP and is the country's largest foreign currency earner, making up 17% of the total. The industry, which is starting to promote the country's 3000 year-old-heritage; sports, golf, spa and adventure packages; and eco-tourism to attract a new breed of visitors, as well as retaining its traditional beach holiday market, provides jobs for an estimated 400,000 Tunisians. Indeed, 2006 enjoyed a record number of foreign arrivals, estimated at some 6.55m. Investment is pouring into the sector, a nod to the country's future potential, with a number of major Gulf-based real estate companies developing projects in the country – for example, Emaar Properties‚ Marina al-Qusor, which will contain six hotels ranging from four-star to boutique. Indeed, the investment climate in Tunisia is favourable – a new business can be set up in as little as a fortnight. Goals for the future include capturing new international markets to boost arrivals, with particular focus on the Gulf, Australia and the Far East; escaping the seasonality of beach holidays; spreading the benefits of tourism income beyond coastal resort towns like Hammamet, Sousse, Monastir and Djerba; and improving the country‚s marketing strategies. The importance of cruises should rise, with the expansion of the port at La Goulette, which aims to increase capacity by 70% by 2010, while several new routes from Tunis to airports in Africa and Europe are opening up. The chapter includes interviews with Aziz Milad, Chairman, Tunisian Travel Service Group and Adel Boussarsar, Chairman, Tunisie Voyages.

CONSTRUCTION & REAL ESTATE

Tunisia's construction industry looks set to pick up pace in 2007 following a slowdown in annual growth to an estimated 3.5% in 2005, as compared to 5% in 2004. Indeed, over $20bn worth of contracts were signed in 2006, including Dubai Holding's multi-billion dollar deal to rehabilitate and develop Lac du Sud. Meanwhile the Tunisian stretch of the Maghreb highway is reaching completion; the new airport and industrial zone at Enfidha creating excitement; land being reclaimed at the port of Sfax; and Emar's $4.5bn Œel-Qoussour‚ residential and tourist resort at Hergla rising from what is currently a semi-wasteland. Marinas are also becoming popular areas for construction, as resorts along the French and Italian Rivieras can no longer cope with the increasing number of visitors. Supervised by the Ministry of Equipment, Housing and Land Development, the Tunisian construction sector as a whole is seeing an increasing level of private involvement, particularly from Gulf-based companies. As foreign players enter, Chaabane & Cie, arguably Tunisia's largest construction firm, is looking overseas for business opportunities. Possible future challenges include the rising price of land, particularly in and around the Tunis area, with some analysts fearing a consequent hindrance to future development there.

Tunisia has seen a growth rate of a healthy annual 3% in real estate over the past decade, and this trend looks likely to continue. While 80% of the population build their own homes, private companies are becoming increasingly important, and could continue to do since a new law was introduced in 2005 making it easier for foreigners to buy and own property in areas designated for "economic and tourist purposes". Residentially, the upmarket areas around Tunis lakes are attracting attention and changing the face of the real estate market, while commercial prices, which are currently relatively low, could rise as businesses demand more efficient and pleasant surroundings, such as the Berges du Lac development. At the same time, the retail market is undeveloped with only one property, Tunis City, that would qualify as a mall by international standards. The chapter includes an interview with Moneim Boussarsar, General Manager, CME.

TELECOMS & IT

The Tunisian telecoms sector remains among the most vibrant in the country, dominated as it is by the mobile industry, which has seen the total number of GSM subscribers grow from 500,000 when private operator Tunisiana entered in 2002 to 6.5m by the end of 2006. While the primary aim of the government's 10th development plan for 2002-06 was to increase private investment in the telecoms sector from 8% to 40%, in which it succeeded with the privatisation of 35% of holdings of national telecoms carrier Tunisie Télécom in 2005, its aim in the 11th development plan for 2007-11 is to increase the country's broadband capacity to 1m ADSL lines. Call centres are also on the increase, with Banque de l'Habitat announcing plans to create what it calls a "call centre city" in Tunis, worth $10.9m and creating an estimated 15,000 jobs, by 2015. The telecoms sector looks set to grow in the years to come, through further product variation, and increasing GSM usage in outlying areas. For Tunisie Télécom, growth lies in installing more fixed lines, particularly in urban centres, and becoming increasingly involved in the internet technology market through its contribution to the upgrade of Tunsia's broadband ADSL network and collaboration with Divona to offer wireless internet access through Wi-Max and VSAT.

Given the 20% annual growth rate in the number of computers owned in Tunisia, alongside the fact that primary schools and universities are increasingly connected to the internet, the country's digital future appears bright. In conjunction with Tunisie Télécom, the government plans to expand Tunisia's ADSL network to 1m lines in the next four years, while Wi-Max is seen as possessing the potential to revolutionise internet access in Tunisia, with its advantage in terms of reducing the cost of expanding the network through cabling. The chapter includes interviews with Fathi Bhoury, General Manager, Planet Tunisie and Ali Faramawy, Vice-President, Middle East and Africa Region, Microsoft.

INDUSTRY AND RETAIL

Textiles is the main tranch of Tunisia's industrial sector, accounting for more than 5.2% of GDP and 35% of the country's exports in 2005. Over two years after the cancellation of the multi-fibre agreement (MFA) the sector is still struggling against the onslaught of cheaper exports from Eastern Europe and Asia, with 5000-6000 jobs disappearing. There are encouraging signs of a fight-back however, with $45.61m worth of new investments pouring in during the first 10 months of 2006, an increase of 19.5% over the same period in 2005. Meanwhile debate continues over origin labeling, and whether or not Tunisia should concentrate on double transformation- sourcing material from one country and assembling it in another – or a value added system based on undertaking all the production steps within one market. Electromechanical goods are the second largest source of exports, representing 29% of the total. The government has established modernisation programmes to gear investment funds towards this segment. Interesting times lie ahead for the pharmaceuticals segment, with the introduction of the National Health Insurance Fund (CNAM), which will promote a shift towards generics rather than brand name medicines. Agrifood, meanwhile, with annual growth of around 6%, remains a vital segment. Under the ninth five-year plan, organisation within the segment will be streamlined, quality improved and production and export levels upped. The retail sector, contributing 2% to GDP, is expanding, with the entrance of international brands such as Carrefour, Champion and Géant, while car part production is attracting attention from overseas investors, offering fast turnaround times and low production costs. The tomato processing segment, considered a strategic industry, is set for major reorganisation. To the future, Tunisia's industrial sector must innovate to prosper in the face of rising competition from East Asia. To this end, three new business incubators are being introduced in Monastir, Sfax and Medenine, with the aim of encouraging young entrepreneurs. A lack of skilled workers, despite an unemployment rate of over 40% among those aged 20-24, also hampers the sector so training is vital. The chapter includes interviews with Senator Joseph Bismuth, President, Bismuth Group; Salah Betbout, Chairman, Managing Director, Magasin Général and Mehdi Abdelmoula, Administrator, Maille Club Group.

MEDIA AND ADVERTISING

While Arabic is Tunisia's national language, dominating everyday life, French is everywhere, including the media. Thus, while the country's favourite newspaper is the Arabic-language al-Shurruq , with a daily circulation of around 80,000, leading French-language newspaper La Presse falls only slightly behind with 70,000. And, while Arabic-language television channels are the most widely watched, there is still a faithful audience for French programmes transmitted from Europe. There are over 200 locally produced newspapers and magazines in the country, around 90% privately owned, which are in competition with those imported from Europe and, increasingly, the Middle East. Sotupresse, owned in part by French distribution giant Nouvelles Messagerie de la Presse Parisienne, NMPP, dominates distribution of the more than 1000 foreign publications available, but sales are declining, in part due to the internet. In terms of broadcasting, there are two state-run television channels which come under the umbrella of the Etablissement de Radiodiffusion Télévision Tunisienne (ERTT), roughly equivalent to the BBC, and two private ones, while there is a nationwide radio system, again operated by ERTT, and two private options. Meanwhile, there are more than 300 Arabic television channels available via satellite – the most popular news channel is al-Jazeera, watched by about 10% of the population. To the future, the trend towards media dominance by the private sector looks set to continue, particularly in radio with the announcement that existing players Mosaïque and Jawhara are to be joined by Materi Group's Radio Zitouna.

The past few years have been marked by brisk growth in the advertising sector, with overall investment reaching its highest level ever. The sector is dominated by two companies – Karoui and Karoui and MIP, which specialises in billboards. The sector is heating up in part due to privatisation and competition between operators in the telecoms and internet sectors, while agribusiness, cosmetics and food processing make up the rest of the top five in terms of advertising spend. Television attracts the highest ad revenue – almost $30m in 2005, spurred by Ramadan, major sporting events and programme sponsorship. The sector is expected to expand further over the next few years, with the rapidly growing banking sector likely to be one of the big spenders. Some issues remain, however, such as streamlining management, improving online and mobile advertising capabilities and making allowance for regional and global market changes.

AGRICULTURE

Generating 13% of Tunisia's GDP, agriculture employs 16% of the country's working population. Olive oil is the most important segment, generating over $538.46m of turnover per year and accounting for 52% of export revenue in 2006. Although the olive oil industry is in good health, there is room for improvement in production and marketing. Dates are another important segment, constituting 6% of export revenue in 2006. Their price is increasing, a fact some analysts put down to improved packaging. Meanwhile the organic farming sub-sector is booming – indeed, Tunisia ranks 35th globally in organic production and is the only nation in Africa with its own EU compliant organic standards, certification and inspection system. To the future, the agriculture industry needs to institute some reforms – for example, eliminating market distortions that are penalising agriculture and high-value exports; granting production associations more independence so they can compete in international markets; and focusing on quality assurance systems and building new facilities. Water supply is also vital and the Ministry of Agriculture is investing much of its budget under the 10th five-year-plan to water conservation projects. At the same time, debate rages over government protectionism of the sector, keeping some produce at inflated prices. Liberalisation of the sector could, some analysts believe, see GDP increase by 8%.

THE BUSINESS GUIDE

In conjunction with partners Ernst & Young, this chapter examines the improvements in the standards of financial reporting in Tunisia, as well as looking at taxation issues and their relevance to the foreign investor. Legal issues meanwhile, particularly those protecting the environment and pertaining to the ITC sector and intellectual property are explored with the assistance of our partners Kallel Associates. The 2007 Finance Law, designed to promote economic growth, also comes under the microscope. Noureddine Hajji, Country Managing Partner, Ernst & Young Tunisia, shares his views on the impact of new tax legislation while Sami Kallel, Partner, Kallel & Associates, gives his opinions on Tunisia's business climate.

THE GUIDE

This chapter offers readers a tour of the seaside resort of Bizerte, which, with its colonial and Art Noveau architecture and rich history, makes the perfect destination for a relaxing weekend break away from busy Tunis. It is also only a bicycle ride away from Cap Blanc, Africa's northernmost point. The section also looks at "ndubbarassi", the philosophy of begging, borrowing, wheedling and cajoling that allows Tunisian bridegrooms to grant their beloveds the lavish weddings of their dreams. Hotel, government and other listings are also included, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.

Tunisia

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