How Tunisia is continuing to attract investor interest

05 Sep 2019

Souhir Mzali, Africa Regional Editor

Souhir Mzali
Africa Regional Editor
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In French

Tunisia’s business community remains cautiously optimistic about local business conditions in the next 12 months, with only 50% of the latest 2019 OBG Business Barometer: Tunisia CEO Survey respondents saying they have positive or very positive expectations. Not only is this figure down from the previous survey conducted in 2017, when 77% of CEOs were positive or very positive, but it also is low relative to our findings in other African markets. For instance, in Morocco and Egypt this figure stood at 73% and 95%, respectively, in our latest CEO surveys, while 73% of respondents in Côte d’Ivoire and 93% in Ghana had positive or very positive expectations.

The prevailing mood is somewhat understandable: GDP growth has struggled to keep pace with pre-2011 levels, dropping from an annual average of 4.4% between 2005 and 2010, to 1.7% between 2011 and 2017. According to government estimates, GDP growth reached 2.5% in 2018 and is forecast to hit 3% in 2019. Public debt has been another matter of concern, increasing considerably since 2010, from 40.7% of GDP to 76.7% in 2018.

A number of more recent unfavourable circumstances have also exacerbated the already delicate economic conditions. Although a slight recovery has been recorded of late, the overall value of the Tunisian dinar has fallen by one-third against the euro since 2015, putting pressure on costs and driving up inflation. In April 2019 Tunisia’s foreign exchange reserves stood at a critical level of $4.36bn, or around 80 days of imports.

Interestingly, though, the prevailing conditions have not been accompanied by the sluggishness in investor interest one would expect under such challenging economic circumstances. Locally, sentiment appears robust, with 70% of respondents saying their company was likely or very likely to
make a significant capital investment within the next 12 months.

In terms of foreign direct investment (FDI), Tunisia saw a 28.6% increase in 2018, according to the Foreign Investment Promotion Agency, to TD2.74bn ($951.7m). The largest share targeted the expansion of existing business activities, testifying to some degree to the level of confidence observed in the market. FDI continued on an upwards trajectory in 2019, rising 16.6% year-on-year to TD1.25bn ($434.5m) in the first half of the year, driven primarily by investment in manufacturing and energy. The latter, in combination with mining, was recognised by 25% of survey respondents as the sector that holds the most potential for growth-enabling foreign investment. This was second only to ICT, which was identified by 34% of respondents.

This comes as no surprise if we consider Tunisia’s many assets and its digitalisation drive in recent years. Its strategic location, openness, affordability and tech-savvy, young workforce are some of the motives that have led the country to strive for greater efficiency, and focus more on sectors such as science and technology. Under its current roadmap, Digital Tunisia 2020, initiatives are under way to improve telecoms infrastructure, promote digital
culture, digitise government services, and encourage entrepreneurship and innovation. Ultimately, the strategy is expected to bring the sector’s contribution to GDP to TD13.5bn ($4.7bn), up from TD4.2bn ($1.5bn) in 2016; increase the value of digital exports from TD950m ($330m) to TD5bn ($1.7bn); and create 17,500 new jobs.

Further improvements to the investment environment are likely to come from the range of reforms and strategic programmes that have been introduced over the past few years, aimed primarily at improving business standards, establishing a new framework for public-private partnerships and facilitating the creation of new ventures.

Perhaps the most prominent of these reforms is the Transversal Law, adopted in April 2019 with the overarching goal of improving business conditions and aligning Tunisian standards with international best practices. The law aims, among other things, at simplifying business creation, strengthening company governance and easing access to credit. The latter is a chronic issue for businesses and entrepreneurs: 71% of our survey respondents said that access to credit was difficult or very difficult in Tunisia. This compares with an average of 57% in the other markets we cover in Africa. The Transversal Law is expected to alleviate some of the burden. Among the measures it introduces are state support on interest payments and the creation of a new mechanism for financing investment.

Another compelling piece of legislation is the Start-up Act. Approved in 2018, it comprises 20 regulatory measures, laying the foundation for the development of a start-up ecosystem. The legislation has a number of incentives and guarantees, including corporate tax exemptions for start-ups, state funding and support in obtaining international patents. Additionally, investors in start-ups are eligible for capital gains tax exemptions and tax deductions.

In recent years there has been a greater degree of awareness and acknowledgment of the potential held by small, early-stage businesses if given the means to thrive. The Start-up Act brings with it the hope of moving the economy onto a surer footing and, most importantly, addressing one of Tunisia’s main challenges: brain drain.

Economic conditions have driven a number of skilled workers to leave the country in recent years in search of better opportunities elsewhere. But if Tunisia is to make its way through these challenging times and capitalise on the economic gains and democratic values witnessed since the 2011 revolution, reversing brain drain must take centre stage. Developing skills in line with the needs of the economy is of equal importance. According to the largest share of survey respondents (44%), leadership is the skill in greatest need in Tunisia, followed by research and development (20%), and computer technology (8%).

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Africa Tunisia Economy

Souhir Mzali, Africa Regional Editor

Souhir Mzali
Africa Regional Editor
Follow Souhir on Twitter LinkedIn