Tunisia courts foreign investment

Tunisia is going above and beyond to attract badly needed foreign money after seeing only a small fraction of the success that Egypt has enjoyed.

al-monitor Tunisian Prime Minister Habib Essid speaks during a conference in Tunis, March 5, 2015.  Photo by REUTERS/Zoubeir Souissi.

Topics covered

tunisia, investment, foreign investment, finance, economy, banking

May 1, 2015

September 2014's Invest in Tunisia: Start-Up Democracy Conference attracted less Arab and foreign investments than expected to save the Tunisian economy, although 22 projects worth 12 billion dinars ($6.3 billion) were proposed. The March 2015 Sharm el-Sheikh Conference, however, achieved brilliant success. Egypt obtained over $160 billion, most of which were investments from the Gulf, not to mention support for the Egyptian Central Bank's reserves, with deposits amounting to $12.25 billion from four Gulf countries.

There is no doubt that the difference between the two conferences stems from political conditions in the Middle East and the importance of Egypt's efforts, especially in terms of the Gulf-Arab alliance. Tunisia has benefited from Gulf support, and a number of companies showed willingness to invest in the country, but probably reconsidered their decision in light of some political and security developments.

Therefore, the Tunisian government seeks to repeat this experience by conducting a careful study of details and completely mobilizing its Arab and international relations [teams]. Tunisia will especially capitalize on its business partnership with the European community — most notably with France and Italy — by holding an international economic conference in October 2015 in the capital to attract foreign investments. Finance Minister Selim Shaker hopes this conference will attract more than $10 billion. Tunisia is betting on restoring international confidence in its democratic regime following the people’s election of a parliament and president and with the advent of a constitutional government that reflects national unity.

More than 60 years of facts and experience have proven that banking secrecy attracts investments while lifting this secrecy and exposing the depositors' accounts repeals investments and affects bank deposits. In light of this, Tunisia has confirmed its insistence on implementing banking secrecy and has rejected two attempts to lift it, first in 2012 and then in 2014.

While the Tunisian government insists on collecting taxes from the evading taxpayers to increase revenues, support the state treasury and reduce the budget deficit, it also fears the country might lose more investments to foreign countries. Many capital owners may be reluctant to deal with banks to save funds, for fear of having their accounts overdrawn, their personal data disclosed and their real taxable wealth exposed.

Tunisia has already faced a loss of foreign, Arab and even Tunisian investments ever since the revolution that toppled former President Zine El Abidine Ben Ali’s regime on Jan. 14, 2011. According to the Tunisian Union for Industry, Commerce and Handicrafts, 300 foreign companies have left the country, thus causing a loss of 40,000 jobs. The most recent example of this is the decision of a French company specializing in the manufacture of aircraft components to refrain from implementing one of its projects in Tunisia.

The perturbations it faced discouraged it, knowing that this project would have provided many job opportunities, especially for Tunisian university graduates. This is just one example of companies that have left Tunisia and opted for competitor countries like Morocco or Eastern European countries due to the bad investment environment in Tunisia. Even Tunisian investors hesitated to launch new projects, and foreign investors were not encouraged to invest.

The Tunisian economy is still suffering from the heavy legacy of the messy economic policies that the Islamist Ennahda adopted in the three years following the revolution. These policies bred high unemployment, a doubled budget deficit and public debt, but experts believe that overcoming the transitional phase to reach democratic stability lifted most of the obstacles that faced the reforms needed to revive the economy.

Prime Minister Habib Essid’s government is preparing a development plan for 2016-20, surpassing the current year, which it considers an economic transition year. Some experts even see 2015 as a “challenging obstacle” that must be overcome with the least damage. The budget deficit is expected to drop to 5% of the gross domestic product, when it was at 5.8% in 2014. However, Tunisia still needs foreign loans estimated at 5 billion dinars ($2.6 billion) to cover the budget deficit.

Tunisia managed to secure $1.3 billion in the form of two equal installments, one from the International Monetary Fund and the other from the World Bank. The remaining amount is to be covered through bonds.

In preparation for the next international economic conference whose goal is to attract $10 billion, the government is considering providing incentives for Arab and foreign investors and inviting them to invest as strategic partners in banking and financial institutions, whether in the public or private sector. Such institutions include three banks the government has majority stakes in and whose capital should be increased: the Banque de l’Habitat, Banque Nationale Agricole and the Societe Tunisienne de Banque.

More from  Adnan Karimeh

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