Building on its reputation for stability, Tunisia is in the midst of upgrading its infrastructure

Tunisia is considered to be one of the success stories – if not the success story – of the Arab Spring, but that does not mean its economy has escaped the turbulence of recent years. The instability generated by Tunisia’s 2011 revolution resulted in the delayed roll out of important infrastructural projects and needed maintenance of existing infrastructure.

Although Tunisia’s utility infrastructure (water, electricity and gas) ranks strongly by regional standards, its transport-related infrastructure – historically one of the country’s important comparative advantages, with high levels of productivity and reliable performance – has deteriorated in recent years. From 2010 to 2014, the country dropped 49 places in the World Bank’s Logistics Performance Index country rankings, falling from 61st to 110th.

However, the 10m-person country has an extensive backbone of maritime and aviation infrastructure, and in total travel and transport activities comprise nearly three-quarters of Tunisia’s service exports. While there is room for improving internal connectivity to the poorer interior regions, the national highway network is also relatively well developed, with 20,000 km of paved roads.

To reverse the decline of recent years, and in turn improve maintenance, capacity and efficiency, the country is rolling out several initiatives to boost connectivity, in collaboration with external donors and private sector partners. Among the new projects mooted are a new Africa-focused freight carrier, highway upgrades and a pending open skies agreement – all of which, if executed in a timely fashion, should help Tunisia begin to move up the rankings.

Highways

As is the case throughout North Africa, almost all inter-city movement of people and freight occurs via Tunisia’s road network, which also consists of 360 km of highways. According to the World Bank, 80% of goods transported within Tunisia are moved by road, a testament to their importance in commerce.

Tunisia’s principal highways connect the industrial corridors of Bizerte and Tunis in the north to Sousse and Sfax in the east. An additional motorway links Tunis to Oued Zarga, near the city of Beja in the north-west. Tunisian companies are currently managing road construction projects including a 70-km addition that will link the existing western toll highway from Tunis to Oued Zarga with Bou Salem. This highway, along with an extension of the existing Tunis-Sfax highway to reach Gabes, is expected to be opened in the summer of 2016.

In 2015 the Tunisian government signed a 20-year, $29.8m loan agreement with the Kuwaiti Fund for Arab Economic Development to cover 52% of total project costs for construction of a 15-km two-way ring road motorway surrounding the Greater Tunis area to help smooth traffic flow and ease congestion.

Studies have also begun for construction of a 60-km highway from Tunis to the central Tunisian town of El Fahs, which would ultimately be extended on to Sidi Bouzid, Kasserine and Gafsa. Tunisia’s Ministry of Equipment, Habitat, and Land Planning, Mohamed Salah Arfaoui, explained that the construction of these highways will bring Tunisia’s total highway network to 1000 km.

Interior Roads

In spite of the large size of Tunisia’s road network, and its relatively high capacity, the bulk of the country’s well maintained motorways are concentrated in the more developed coastal regions. Tunisia has one of the largest rural connectivity deficits in the MENA region, at 39% rural access compared to a 58% average in MENA. The country’s interior remains insufficiently served by transport infrastructure. Away from the well-maintained strip of highways connecting Bizerte, Tunis, Sousse and Sfax, drivers contend with two-lane roads slowed by numerous speed bumps through small town centres.

To help spur development in Tunisia’s lagging interior, the World Bank recently approved the $230m Road Transport Corridors Project (see analysis). The project aims to reduce regional discrepancies, rehabilitating key roads linking Tunisia’s interior regions to the country’s urban and business centres. It will upgrade and widen approximately 146 km of roads in three transport corridors, rendering access to targeted areas cheaper, easier and safer. The World Bank expects the project to have a major impact, enhancing employment, commercial and educational opportunities for an estimated 373,500 residents in Tunisia’s underdeveloped areas.

Urban Transport

With a population of over 1m, Tunis – Tunisia’s capital and largest city – boasts the best urban transport infrastructure in the country. TRANSTU, the city’s state-owned transport authority, oversees a network of public buses as well as the métro léger tramway network, which has five lines, and the TGM light rail line, which links downtown Tunis to the northern beach suburb of La Marsa.

The network’s rolling stock is also due for an upgrade. In 2010 TRANSTU awarded French company Alstom a €58m contract to supply 16 new trams and maintain the expanded fleet of 55 trams for five years. In September 2015 the Ministry of Transport issued a call for tenders to purchase 1200 buses to replace old buses. Three domestic companies bid for the tender, but Tunisia ended up purchasing 300 used buses from France as a stop-gap measure since, according to statements from the country’s former minister of transport to the press, waiting for the Tunisian companies to deliver on the new order would have taken a year and a half.

Railways

Given that the preponderance of internal freight movement happens by road, Tunisia’s rail sector is – in line with its counterparts throughout North Africa – largely under-maintained and underutilised. The country inherited much of its rail transport network from France. A public sector company called the Société Nationale des Chemins de Fer Tunisiens (SNCFT) constitutes a legal state monopoly, and has operated all infrastructure, passenger as well as all freight transport, on Tunisia’s railways since 1956, the year the country gained independence. It possesses 2167 km of railways, calling at 267 stops, and includes three rail/road links. According to the SNCFT, Tunisia had 247 passenger trains and 25 freight trains as of 2013. Freight traffic carried 1827 tonnes of goods, generating TD16,024 (€7348) in the same year.

Tunisian railways also have six logistics platforms to facilitate shipping, located near the urban centres of Tunis, Sousse, Sfax, Gabes, Kasserine and Gafsa. The government is currently discussing options regarding large-scale intermodal freight transport, although according to comments from the Ministry of Transport. This is unlikely to happen in the near future, given the low levels of rail efficiency.

Maritime Transport

In Tunisia 96% of foreign commercial trade is conducted by sea. At least 80% of maritime trade is processed through Radès Port, the country’s principal container facility. Tunisia has eight other ports, including a second container port in Sfax, Tunisia’s second-largest city, and smaller, more specialised commercial ports in cities including Bizerte, Sousse, Gabès, Skhira and Zarzis. The port of Skhira specialises in the transport of petroleum, while Bizerte and Zarzis have free trade zones. Two state-owned enterprises (SOEs) – the Office de la Marine Marchande et des Ports and the Société Tunisienne d’Acconage et de Manutention (STAM) – manage port operations and employees, respectively.

In light of the country’s close links with Europe for both trade and tourism, its maritime infrastructure has traditionally been relatively efficient, with a range of passenger, container and bulk terminals throughout Tunisia. The turbulence of recent years has had an impact, however, and there is currently significant scope for improvement in terms of both operational efficiency and infrastructure, especially at Radès Port, with long dwell times and inadequate terminal space costing the government $300m annually according to the World Bank (see analysis). In a 2015 report, the World Bank also pointed to overstaffing and poor performance ratios, governance problems in Customs and complicated tariff regimes.

In 2008 plans to circumvent structural inefficiencies at Radès by creating a purpose-built deep-sea container port at Enfidha, just north of Sousse, were proposed, and while the government has continued to study the project, it has yet to break ground.

Cross-Border Transit

Globally, Maghreb countries have the lowest intra-regional trade in goods (ranging from 3-5% of their total trade). Although diplomatic disputes between Algeria and Morocco contribute to this, poor road and rail connectivity is also a central cause of the lack of regional trade integration. In April 2015 Yassine Ben Jaballah, director of Algeria’s national rail company, announced plans for a trans-Maghreb high-speed train linking Casablanca, Algiers and Tunis. Technical studies for the project have begun in Algeria, which has reportedly ordered 30 freight locomotives for the project. Construction of the line into Tunisia is unlikely to happen in the short term, with the Ministry of Transport yet to release specifics on the project.

A planned extension of the Tunis-Sfax-Gabès highway onto Medenine and then Ras Jdir on the Libyan border, planned for completion in 2014, has been delayed. The African Development Bank was cofinancing the Medenine-Ras Jdir section of the project, which would stretch over 104 km to the Libyan border at an estimated cost of €225m. However, only 27% of the highway has been completed due to financing difficulties. In 2015 Tunisia announced plans to modernise its nine land border terminals with Algeria and its two border terminals with Libya.

Air Transport

Tunisia’s largest airport is TunisCarthage International Airport, located 8 km from Tunis city centre. There are seven smaller airports in Tunisia, four of which currently handle international charter and seasonal flights: Djerba, Enfidha, Monastir and Sfax. Of these, Enfidha Airport, located near Sousse, services 19 airlines, making it Tunisia’s second-busiest airport. Three other airports, in Tozeur, Tabarka and Gafsa, are labelled “international” airports. However, these airports host only domestic flights to and from Tunis on Tunisair.

The majority state-owned national carrier Tunisair retains a leading share in most of the main routes, and holds a near monopoly in the domestic market through its subsidiary Tunisair Express. On the back of declining passenger numbers – which dropped 25% in the first nine months of 2015 compared to 2014 as a result of the decline in the number of foreign visitors – Tunisair is grappling with mounting debt, which totalled TD936.2m (€429.3m) as of September 2015, representing a year-on-year increase of 134%.

Deep structural reforms are currently being negotiated in a bid to bring the firm back on its feet and Tunisair Express, which operates most of its flights locally, is expected to be merged in the near future with its parent company.

Limited local competition has come from the privately held carriers Nouvelair, a charter airline specialising in holiday bookings, and Sfax-based carrier Syphax Airlines, founded in 2011.

In 2013 Nouvelair began offering regular flights to France and Germany, while in April 2014 Syphax became the first Tunisian airline to launch a long-haul flight (Tunis-Montreal). The company subsequently signed an agreement to undertake long-haul flights to and from China, but due to financial difficulties suspended all operations in 2015.

LCCS

As with many aviation markets – and indeed most of its peers in North Africa – in the emerging world, liberalisation in Tunisia’s aviation market has been limited. However, this is starting to change, as the country begins to selectively allow in low-cost competition. In 2014, low-cost carriers Transavia and Vueling launched flights to Djerba and Tunis, respectively. German carrier TUI fly followed, opening a flight to Enfidha in 2015. Ryanair may be next. Talks between the low-cost giant and Tunisia’s Ministry of Tourism are under way.

Potential for growth in the low-cost market is huge in Tunisia, given the country’s significant domestic travel to and from Western European destinations, which already account for 63% of departing flights (see Tourism chapter). However, it may take some time for passenger volumes for low-cost carriers to pick up following the drop in visitor arrivals after terrorist attacks in the summer of 2015. UK-based travel operator Thomson Airways has announced it will cancel all flights to Tunisia until November 1, 2016, citing consular warnings from the UK government. Passenger traffic declined by an estimated 21.5% in Tunisia between 2014 and 2015 following the attacks.

Open Skies

One major reform, which should help stoke a significant increase in visitor figures, is the pending open skies agreement with the EU. In the pipeline for several years already, the agreement has gathered momentum recently, with a six-month round of negotiations launched at the end of November 2015 for the gradual liberalisation of air traffic between Tunisia and the EU. The deal is expected to allow new airlines to penetrate the market at competitive rates, and consequently bolster tourist numbers. This should also allow Tunisia to tap into the expected rise in global air passengers, the number of which is due to more than double in size over the next 20 years. The agreement is also expected to have a knock-on effect on a number of related services, such as ground transportation, technical assistance, catering and cleaning services.

Logistics

While 2015 was a challenging year for passenger traffic, Tunisia has seen advances in boosting logistics and air cargo capacity. In January 2015 UPS and its local Tunisian partner, Express Logistic, launched reciprocal cargo flights from Enfidha Airport to Germany and Malta. Nine months later, the pair launched a new Tunisian cargo airline, Air Cargo Express, which aims to start daily flights from its Enfidha hub to 51 African countries in the first quarter of 2016. The project will make Enfidha Tunisia’s first ever hub for Africa-bound cargo transit.

In July 2015 Netherlands-based international courier TNT launched a flight linking Tunis to its hub in Leige, Belgium via Marseilles. Mahmoud Ben Abbes, general-director of TNT’s Tunisian partner Comatral, said that the project was proof that despite post-revolutionary challenges “good intentions can go a long way,” and stated that “had it not been for the patience and trust” of TNT’s Dutch headquarters the project could not have moved forward. There have also been improvements in efficiency at the household level, with upgrades to national distribution chains and improved payment processes.

According to Yosri Bachouch, projects monitoring officer at Tunisia’s National Postal Service, La Poste has over the course of 2015 been working on/ rolling out new dispatching platforms across different areas of the country, with a new modern central hub for express mail services close to Tunisia Carthage International Airport. “We’ve been collaborating with app developers and international settlements providers such as the Universal Postal Union, World Trade Organisation and World Customs Organisation, to reinforce logistics, innovation and the development of e-commerce,” Bachouch told OBG. Challenges remain, though, due to the inefficient performance of Tunisian SOEs, which renders efficient servicing of freight and logistics difficult. Competition from Tunisia’s unregulated shipping in the informal market continues to cost logistics companies revenue.

Administrative Challenges

In spite of Tunisia’s relatively extensive infrastructure network, there are a number of other regulatory hurdles and governance issues which have impacted foreign direct investment (FDI) in transport. Barriers against FDI in transportation, for example, prevent foreigners from holding a majority interest in a joint venture, and require foreign companies to have at least 50% Tunisian employees on their payroll.

Centralised decision-making results in frequent delays with paperwork and Customs approvals. Investors in Tunisia’s transport sector report that corruption affects routine business procedures, including Customs approvals. “There’s a real market for investment in transportation in Tunisia,” Thierry Millot, director of CGA-CGM Transport, a French shipping container company, told OBG. “The problem is that there are too many administrative constraints. There are problems with the Interior Ministry and residency, and obstacles related to corruption in the country.”

SOES: The scope for improving efficiency can be seen in the push by the government to improve the performance of state-owned enterprises in the transport sector. The public sector accounts for approximately 70% of sector ownership. SOEs are prominent in aviation, rail transport, utilities, postal services, port logistics and other sectors of Tunisia’s transportation system deemed strategic by the government. The high level of state involvement, according to the World Bank, positions Tunisia’s rail and port sectors – among others – closer to Russia and China than most OECD countries. In light of the country’s challenging fiscal situation these SOEs – which include TRANSTU (urban transport), SNCFT (railways), STAM (port operator) and Tunisair (flagship airline) – are characterised by high levels of borrowing, and have had difficulties maintaining operational performance.

Outlook

Improving the accessibility, efficiency and quality of transport services is crucial. Doing so will make the country’s broader socioeconomic goals – attracting greater investment, spurring job creation and mitigating deep-seated regional inequalities – more attainable. The sector possesses immense potential in air transport and logistics, given Tunisia’s natural advantage of geographic proximity to and heavy traffic to and from the EU. Policy changes, including reforms to the regulatory structure and increasing the private sector’s role through partnerships, will serve to encourage further investment.

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The Report: Tunisia 2016

Transport chapter from The Report: Tunisia 2016

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