Viewpoint: Ghazi Meziou
Since the conclusion of the 2011 Jasmine revolution, Tunisia has carried out several major reforms, including the adoption of a new constitution, the freeing of the press, the implementation of new banking regulations and an overhaul of the legal framework for investment, among others.
Several additional legislative projects are under way at various stages of development, including an overhaul of the inheritance law, which will finally enshrine equal inheritance rights for men and women – an equality which does not exist in any Arab-Muslim country to date.
Among these legislative projects, the reform of foreign exchange regulation seems to be the most vital in terms of encouraging investment and generating economic activity. The current framework governing exchange controls has been characterised as difficult to understand, and penalising to both Tunisian and foreign investors.
Barring a handful of exceptions, the regulatory framework can by simplified by distinguishing between residents and non-residents.
With regard to companies, a company under Tunisian law is classified as a resident entity unless it combines the following two elements: first, that two-thirds of its capital is held by non-resident investors; and second, that the company status is that of a completely export-oriented company.
From the moment a Tunisian company does not meet the two aforementioned requirements, it will be considered a resident firm within the meaning of the exchange regulations and will therefore be subject to the jurisdiction of the Central Bank of Tunisia (Banque Centrale de Tunisie, BCT).
According to the current regulations, a resident company must obtain prior authorisation from the BCT for any transfer of funds outside Tunisia. It should be noted, however, that this rule makes an exception for a relatively broad set of current operations, which allows a company to conduct its business in a reasonably relaxed way, freely acquiring the goods and services necessary for its activities both domestically and abroad.
In addition, resident companies are subject to strict limits on foreign borrowing capacity and investment abroad. Any borrowing or investment exceeding the thresholds set by BCT regulations is subject to prior authorisation. Current regulations also require that resident companies repatriate all income earned in a foreign currency. While this money may be kept in foreign denominations in special bank accounts, the funds can only be used for a limited set of current operations permitted by the BCT or with prior special authorisation. However, an increasing number of operations requiring BCT approval has created a backlog of requests. For some businesses, this situation is prohibitive.
From an economic point of view, Tunisia may not be ready to abolish exchange controls. In this case, it may be necessary to delay implementation of this specific liberalisation, which, from our point of view, is not only desirable but inevitable.
A number of changes need to be implemented to the current regulatory system. These include increasing thresholds for foreign borrowing and investment so they are not prohibitively low; considerably expanding the list of current operations that can be carried out without prior authorisation from the BCT; allowing residents free use of their foreign currency income; setting a maximum deadline for responses from the BCT; and mandating that refusal decisions be necessarily reasoned.
To enable investors to protect themselves against exchange rate risk, it would also be useful to allow banks to create financial products to address this task. Lastly, a simplification of legal texts would enable sector stakeholders to better understand the regulatory framework in which they are operating.
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