A Recipe for Success: Adjustments Foster a More Welcoming Business Environment

 

Tunisia’s rank in the World Bank “Doing Business” index was 88th among 190 economies in 2018, down from 77th in 2017 and 75th in 2016. While substantial barriers to investment remain, due in part to persisting malpractices and the uncertainty since the country’s revolution of 2011, the government is working towards improving key factors such as the stability of the tax system and the efficiency of the administration.

Impediments to Investment 

The local business environment is affected by a host of factors, including state-owned enterprises that play a large role in the economy, while foreigners first require permission from the government before they can invest in many industries. “Unions, especially in the public sector, have been at the heart of the manifestations that took place before, during and after the revolution,” Mohamed Ali Boughdiri, deputy secretary-general of the Tunisian General Labour Union, told OBG. Boughdiri estimates union membership to be approximately 70% within the public sector, and around 10% in the private sector due to the predominance of the public sector in Tunisia’s economy.

In addition, companies from the formal sector are challenged by the informal sector, said to account for up to half of the country’s GDP, and smuggled goods. However, one of the main challenges to a more efficient business environment, as cited by business operators, takes the form of administrative bottlenecks. “Opening a new business can take up to a year, while the law says it should take a month,” Ali Ayadi, country representative at the Centre for International Private Enterprise, told OBG.

Finally, the 2017 Finance Law contained a 7.5% exceptional corporate tax, which has been described as a factor of uncertainty. “The stability of the tax system is key for foreign investors,” Fausi Najjar, regional director of Germany Trade and Invest, told OBG.

Corruption Crackdown 

The government has declared its intention to improve the business climate through a crackdown on corruption, which has led to the creation of the Independent Constitutional Authority for Good Governance and the Fight Against Corruption, whose executive members should be appointed in 2018. In May 2017 the government launched operation mains propres (clean hands), arresting several high-level political and business representatives, as well as media figures, on corruption charges. “The government stated its intention to improve the business climate, and has started bringing together some of the key ingredients to do so, which further indicates that investment activities should pick up again in 2018,” Wided Ben Naceur, project manager at the French Development Agency, told OBG.

Opportunities 

Despite the challenges facing Tunisia’s business environment, the country benefits from several comparative advantages, including its proximity to Europe, its relatively educated workforce, and its welcoming attitude towards foreign direct investment.

Recent years have seen the Tunisian economy diversifying away from electronics manufacturing and textiles, with additional promising sectors including agribusiness, aerospace, health, telecommunications technologies and services. To boost this potential, the Parliament approved an investment law, which was signed in September 2016 and came into effect in April 2017. The law aims to improve the investment framework, facilitate the transfer of funds out of the country, provide financial incentives for investment and open other sectors to foreign participation.

In addition, the 2018 Finance Law provided companies with a clearer and more stable tax regime, with no temporary tax, except for the financial sector, with regular charges to be integrated into the balance sheets of companies, as exemplified by the new social contribution, set at 1% of income, aimed to finance welfare funds. As economic reforms are implemented, the business environment is expected to improve due to simpler and more transparent regulations.

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The Report: Tunisia 2018

Economy chapter from The Report: Tunisia 2018

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