For over four decades Tunisia’s development strategy has focused on expanding its industrial base. This vision, coupled with a large pool of well-educated human resources, has allowed the country to link its production capacity to international value chains. To support development, public policy has focused on improving transport infrastructure and enacting business-friendly regulation. This combination of factors has encouraged the emergence of a handful of significant industrial subsectors, which have aided in employing a growing number of Tunisians and diversifying the economy. Local factories are increasingly widening their scope of activities, including agro-industrial production, automotive and aeronautics component manufacturing, pharmaceuticals development and textile production.
Industrial output, as Tunisia’s overall business environment, has nonetheless been negatively impacted by the post-revolution climate. Much of the development of manufacturing clusters since the 1970s has relied on foreign direct investment (FDI), which not only led to the establishment of new factories, but also employed smaller domestic suppliers. Over the 2011-17 period, however, economic and political instability have lowered investor confidence. Still, improving security and the positive performance of international industries that rely on Tunisian suppliers underline the resilience of the local industrial sector.
Tunisia’s industrial muscle is made up of 5434 manufacturing firms with 10 or more employees, of which 2379 are exclusively export focused, according to the Agency for the Promotion of Industry and Innovation (Agence de Promotion de L’ Industrie et l’Innovation, APII). Per the January 2018 financial statistics bulletin published by the Central Bank of Tunisia, the country’s industrial sector accounted for 24.4% of GDP in 2016, down slightly from 25.2% in 2015. The added-value growth of manufacturing was 1% in 2016, according to the central bank’s 2016 annual report, the latest available at the time of publication.
The sector’s performance since 2012 has varied depending on the segment. Labour disruptions and loss of international market share have been particularly inhibiting for the phosphate industry, a significant source of revenue for the country. However, areas such as aeronautics and automotive component manufacturing have seen some progress over recent years. Between 2014 and 2017 the declared global investment in the industrial sector rose from TD2.6bn (€998.3m) to TD3.5bn (€1.3bn), pointing to a continued improvement in some of Tunisia’s manufacturing segments. Between 2016 and 2017, however, sector investment fell by 7.7%, according to the AIIP, partially due to a large rise in the final month of 2016 that brought that year’s total to TD3.8bn (€1.5bn). Textiles saw the largest investment growth in 2017 at 60%, incresing from TD135.2m (€51.9m) to TD216.3m (€83.1m).
Despite mixed performances at times, industrial exports have followed an overall upward trend, rising by 7.5% to TD26.4bn (€10.1bn) in 2016 and again in 2017 to TD31.1bn (€11.9bn). The value of industrial exports was TD5.9bn (€2.3bn) in the first two months of 2018, up on the TD4.3bn (€1.7bn) in the same months of 2017.
The sector’s orientation towards export activity is largely the result of supportive trade policies. In 1972 Tunisia established an offshore regime, which brought several benefits to fully exporting companies, including tax and duties exemptions for imported inputs, as well as a flexible foreign exchange scheme. This has attracted several waves of industrial FDI. Originally, FDI primarily focused on low-value subcontracting manufacturing, but it has gradually moved up the value chain into more specialised activities. Tunisia’s growing participation in international aeronautic component manufacturing is an example of this.
In addition, the formation of trade agreements, such as the country’s inclusion in the Greater Arab Free Trade Area in 1987 and the 1995 signing of an association agreement with the EU, helped to secure broader international market access for Tunisian manufacturers. As trade relations with the EU are expected to deepen, the prospect of a free trade agreement with the US has been increasingly discussed.
Indeed, the majority of Tunisian exports continue to flow into EU countries. In 2016, for instance, 63.4% of all exports went to France, Italy, Germany and Spain, according to the central bank. This has created an environment where the performance of EU economies has a direct impact on the state of Tunisian manufacturing. According to the European Commission, local factories exported €3.9bn worth of machinery and transport equipment, and €2.3bn in textiles and clothing to the bloc in 2016, representing 66.1% of all exports to the EU.
Other areas are showing progress. According to Tunisia’s Foreign Investment Promotion Agency (FIPA), the plastics segment accounted for TD460m (€176.6m) in FDI in 2015 and has been performing well. The industry is made up of around 500 firms, with over 100 exclusively focused on exports. The plastics segment is also an important employer in the manufacturing sector, accounting for about 15,000 jobs.
Local plastics manufacturers work at various levels of the value chain, making everything from household products for daily use to more complex items used in auto and aerospace components, as well as water distribution infrastructure for the agriculture and construction sectors. The post-2011 period has seen a rise in informal competition, however, but this is largely confined to more generic plastic products. “Informal manufacturers cannot compete for government projects that are more technical and require a proper structure,” Zied Lahiani, executive vice-president at Inoplast, a local plastics manufacturer, told OBG.
Close proximity to Europe has integrated Tunisian automotive component producers into European car manufacturers’ value chains. This has allowed the country to develop a highly technical segment, and demand is now being compounded by a rising interest from European auto brands to increase sales in North Africa and sub-Saharan countries.
Tunisia hosts roughly 200 firms that make components for the auto sector and its assembly lines. The industry employs 80,000 people and has annual exports worth TD6.5bn (€2.5bn), according to the Tunisian Automotive Association (TAA), an organisation that encompasses the majority of auto component exporting firms. The automotive segment now accounts for 4% of the country’s GDP, and years of experience have reinforced local competencies. “About 15% of the segment’s human resources are at the management and middle-management levels applying their strong industry experience, and almost all of them are Tunisian,” Nabhen Bouchaala, president of the TAA, told OBG. “The technical knowledge is here.”
Over the years, an increasing number of international auto component manufacturers from Europe, the US and Japan have opened local subsidiaries, taking advantage of the offshoring regime. This, in turn, has spurred the development of local Tunisian manufacturers, including Coficab, Telnet and Cofat. According to the TAA, manufacturers saw a 9-10% increase in work volume in 2017, driven by strong sales performances.
Growth opportunities on the assembly side of the business have become increasingly attractive. Indian auto manufacturer Mahindra began assembling light trucks in its Souse factory in 2013, and Tata Motors partnered with Tunisian firm Le Moteur to open a light commercial vehicle assembly line in June 2015. Furthermore, French automaker Peugeot announced plans in late 2016 to construct new assembly plants to make pick-up trucks in Tunisia, an extension of its existing production capacity in Algeria and Morocco. The factories are set to produce up to 4000 trucks per year – with 1200 to be sold locally – are operations are scheduled to begin in mid-2018. The plants are a result of a partnership between Peugeot and local firm Stafim.
Domestic assembly also allows automakers to bypass Tunisia’s controversial vehicle import quota. While vehicle imports are ostensibly liberalised under Tunisian law, the reality is somewhat different, with one-quarter of quotas for the segment released every three months. “Tunisian car import growth is limited as a result of the quota system in place since 1995. Cars represent less than 3% of all imports, whereas car parts total more than 40% of exports,” Lassaad Ben Ammar, general manager of Le Moteur, told OBG.
The import quota has also fuelled the illegal sale of vehicles, but local industry is ready to meet demand if the business environment is conducive. “We will see an increase in production if fiscal stability is maintained, as manufacturers make business plans for several years and they need visibility,” Bouchaala told OBG.
Industrial expansion has created a strong construction materials segment as well, which produces cement, plaster, glass, ceramics and bricks. The consumption of building materials has varied over recent years, mainly due to political and social instability, which have affected investor confidence and impacted the execution of large-scale infrastructure projects across the country.
Total investment in the segment rose by 58.4% in 2016, from TD395.8m (€152m) to TD627.1m (€240.8m), but dipped to TD621.6m (€238.7m) in 2017 – a 0.9% contraction. Construction materials exports, meanwhile, experienced a reduction of 10.9% in 2016 to TD527.4m (€202.5m) and an additional 6.4% fall to TD493.4m (€189.5m) in 2017, according to the APII.
Cement remains the biggest component of the construction materials segment, directly employing around 4000 people. As of 2016 Tunisia had eight grey cement plants with an annual production capacity of 11.7m tonnes, according to a report by the Tunis Stock Exchange. The majority of domestic materials are put to use in Greater Tunis and Sfax, while exports are sent to Libya and Algeria. Consumption patterns in the local market have been on an upward trend, rising by an average of 3.8% per year over the 2008-14 period, growing from 6.3m tonnes to 7.9m tonnes. Domestic consumption reached a peak right after the 2011 revolution, fuelled mainly by informal construction due to a lack of urban licensing controls.
The government is a key player in the industry through the ownership of three factories: Ciments de Bizerte, Carthage Cement and Ciment d’Oum El Kelil. The other five units are operated by foreign private companies alongside domestic actors. Portugal’s Secil is active in Tunisia through a collaboration with Société des Ciments de Gabès, and has production capacity of 1.4m tonnes in the southern end of the country. Italian group Colacem operates in partnership with Tunisian firm Ciments Artificiels Tunisiens, and Votorantim of Brazil runs a factory in tandem with local company Jbel Oust which produces 1.8m tonnes per year. Also present in the market is Spanish producer Cementos Portland Valderrivas, which owns 87.86% of local producer Société des Ciments d’Enfidha, and oversees an annual production capacity of 2.1m tonnes.
The business is likely to see further private investment. In late 2017 Tunisian authorities announced they would sell 50.52% of Carthage Cement through a public tender. Besides the 2.2m-tonne production unit located south of Tunis, the company controls two adjacent quarries. The deadline to submit bids was on March 9, 2018. A new TD500m (€192m) production unit is also set to come on-line in Sidi Bouzid in 2018. The new cement plant will employ 300 people and have an annual production capacity of 1m tonnes.
Industry regulations are seeing changes as well. The construction of new factories will be limited by their proximity to raw materials and allowed only in governorates where no other cement production units are available. Updated rules will also include requirements of minimum capital of TD150m (€57.6m) for new cement factories and a minimum 35% ownership in new projects by Tunisian partners.
Other industrial subsectors are benefitting from the country’s natural resources as well. Despite its small size, Tunisia has an important agriculture sector, and manufacturers have developed solid agro-industrial activities. The country is a top exporter of olive oil and dates, and ranks among the top-10 tomato producers in the world, according to FIPA. Over 1000 companies active in food processing accounted for 18.5% of the country’s industrial capacity in 2014.
On the foundation of advantageous production conditions, authorities have taken steps to strengthen the segment through modernisation programmes to improve quality control and support activities. Agribusiness was a top recipient of investment in 2016, when funds increased by 71.5% to reach TD1.5bn (€576m). However, investment dropped 19.3% in 2017 to TD1.2bn (€460.8m). Exports for the segment registered a 32% decrease in value in 2016, from just under TD3bn (€1.2bn) to TD2bn (€767.9m), but bounced back with a 23.1% increase in 2017 to TD2.5bn (€959.9m). In addition to olive oil, dates and tomato products, key agro-industrial goods include pasta, milk, refined sugar, mineral water, soft drinks and wine.
There were over 1100 agro-industrial firms employing more than 10 people, according to the APII, 215 of which exclusively export. Besides exporting to the traditional EU markets of Spain, Italy and France, the number of modern retail outlets and restaurant chains are expanding across the country, although they are largely concentrated in the coastal cities where the majority of purchasing power resides. This is increasing demand for processed foods at home.
Tunisia is consistently ranked among the top olive oil exporters globally. Second only to Spain, Tunisia boasts an olive production area of 1.8m ha, according to the Ministry of Agriculture, Water Resources and Fisheries. After reaching a production volume of 340,000 tonnes in the 2014/15 season, the National Office of Oil recorded output of 112,700 tonnes in 2016/17. The figure, lower than recent years’ average of 180,000 tonnes, was largely the result of a drought. According to the Ministry of Industry in February 2018, the 2017/18 season bounced back and resulted in the production of 220,000 tonnes.
However, the segment has considerable room for value-added growth. Currently, only 12.5% of olive oil is exported in bottles, with the majority sent to international markets in bulk and refined abroad to be re-sold. “Before olive oil only represented 4% added value to the country, but now it represents 15-20%. The challenge today, however, is to increase the volume of bottled olive oil,” Tahar Ktari, managing director for the Maghreb of SGS, an inspection, verification, testing and certification company, told OBG.
Although the US and EU remain the top buyers of Tunisian olive oil, the country has worked hard to enter other global markets, with a stronger presence now felt in regions such as the Gulf and Asia. Indeed, marketing efforts have been geared towards countries with high growth potential, such as Canada, Russia and India. Olive oil exports to Japan, for instance, amounted to roughly TD1m (€384,000) in late 2017, 0.5% of the olive oil market there, according to the National Union Chamber of Olive Oil Exporters. A plan to increase exports to the country, using financing from the Fund for the Promotion of Packaged Olive Oil, aims for Tunisian olive oil to capture up to 5% of the Japanese market.
Despite recent successes, other industrial subsectors are facing difficulties. Vast reserves of phosphate rock have helped Tunisia maintain steady export income for decades. Phosphate is almost exclusively used for the domestic production of fertilisers and other chemicals for export. However, labour protests and the temporary shutdown of many production sites since the 2011 revolution have badly impacted the industry (see Energy chapter). As a result, phosphate production – which hoovered around 8m tonnes per year in 2010 – has suffered a 40-50% reduction since 2011, according to state-owned Gafsa Phosphates (Compagnie des Phosphates de Gafsa, CPG). Before 2011 phosphate accounted for about 10% of all Tunisian exports and the industry employed 30,000 people.
Continuing labour pressures and the loss of international market share for exports of phosphate derivatives have prevented a turnaround for the industry. In 2017 phosphate production recorded a historic low of 3.5m tonnes, according to CPG, far from the initially predicted production level of 6.5m tonnes. This forecast was based on the 46% year-on-year increase in phosphate production in the first three months of 2017.
Building on years of experience, Tunisian manufacturing capacity has been able to capitalise on the country’s geographic position and track record for quality. However, domestic and regional instability have brought challenges to a key pillar of the economy.
In recent times, influential labour unions have become increasingly demanding of salary increases. Continued pressure for raises might impact the high-value proposition that has made Tunisia a manufacturing hub in the Mediterranean, or it may spur manufacturers to move further up the value chain. Although salary increases can be partially mitigated by the fall of the dinar, this situation only helps fully exporting firms. Since several manufactured products require imported inputs, companies have also been forced to increase their end prices, fuelling inflation. This will remain a key problem for Tunisian industry and the economy overall.
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