Since the 1970s Tunisia has opted for an economic model geared toward exports and industrialisation, sustained by the implementation of investor-friendly legislation, as well as supportive public investment in infrastructure and human capital. The approach has been successful for decades, with manufacturing forming the basis of the country’s GDP growth over the last 40 years. A wide variety of subsectors has thrived, including textiles, agri-business, pharmaceuticals, and mechanical, electrical and electronic industries (MEEIs). Exports are fostered by the close proximity to European markets, a competitive logistical infrastructure, and an affordable and qualified labour force.
However, manufacturing industries have experienced a slowdown in production during the post-revolution years as a result of broader instability, more frequent labour disputes, a slowing of capital spending – technology spending in particular – and heightened international competition. This is a concern for the government, which – in a bid to reboot industrial growth while simultaneously boosting employment and export revenues – has put in place several reforms to improve Tunisia’s investment climate and encourage operators to move up the value chain.
Tunisia’s implementation of an offshore regime in 1972 formed the centrepiece of an economic approach based on exports, technology transfer and gradual integration into the global economy. While the overall framework is now being revised, particularly in terms of taxes, this regime has long offered fully exporting companies multiple benefits, including almost complete relief from employee and employer contributions, a flexible foreign exchange regime, and tax and duties exemptions on input importation.
The policy had an immediate impact. Initial investments were largely subcontracting operations for labour-intensive, low-value-added manufacturing activities, most commonly with European companies. Since then, however, firms have moved up the value chain, shifting to segments such as aeronautic component manufacturing, while large multinationals – such as Benetton and Airbus – have opened wholly-owned production plants in the country.
Exports have also been facilitated by the growth in trade accords, including the Greater Arab Free Trade Area, signed in 1987, and the EU-Tunisia Association Agreement, inked in 1996. The country is currently holding negotiations for an EU-Tunisia Deep and Comprehensive Free Trade Area, as well as pursuing a free trade agreement with the US.
In the post-revolution years between 2011 and 2015, the Tunisian manufacturing sector has seen a mixed performance, with a substantial decline in production by traditional industries such as phosphate and textiles offset by the expansion of technology-based segments such as automotive and aeronautics. According to the National Institute of Statistics, the manufacturing sector contributed 15.5% to GDP at market prices when measured in the second quarter of 2016. Growth in the third quarter was recorded at 1.1% and at 0.6% in the fourth quarter, with raw phosphate, the chemical industries and MEEIs being the largest segments.
Growth is expected due to a recent spike in industrial investments as announced by the Agency for the Promotion of Industry and Innovation (APII), an entity which has served as a one-stop-shop platform for local and foreign investors since the establishment of the offshore regime. According to the APII, declared investments in the sector grew from TD2.6bn (€1.1bn) in 2015 to TD3.8bn (€1.6bn) in 2016, led by MEEIs (an increase of 111%), agri-business (71%) and chemical industries (26%). By contrast, textiles and apparel, as well as leather goods, have seen their levels of investment shrink by 40% and 62%, respectively.
Within the total 2016 amount, foreign direct investment (FDI) increased by 35% to reach TD1bn (€429m) – equivalent to around 25% of total investment in the sector. As a whole, all industrial projects currently in the pipeline have the potential to create 40,000 jobs.
Almost half of Tunisia’s manufacturing environment is orientated towards overseas markets, with 2500 fully exporting companies out of a total of 5500 firms. In 2016 manufacturing exports increased by 7.5% to reach TN26.4bn (€11.3bn), driven by growth in the exports of MEEIs (15.7%), chemical companies (18.3%), and textiles and apparel (9%).
As with Tunisia’s broader trade profile, more than three-quarters of the country’s exports are primarily for the EU market. The two largest export categories are apparel and electric components. Textile and apparel exports are largely directed to France and Italy, which together account for almost two-thirds of the €1.4bn total in 2015, according to the most recent figures from the World Bank. Exports from MEEIs, meanwhile, have seen a significant increase in recent years on the back of a boom in the automotive and aeronautical components industries, with two-thirds of MEEI’s exports to the EU destined for France.
As with much of the country’s secondary and tertiary economy, manufacturing is clustered in coastal areas, where 85% of wholly exporting enterprises are currently located. This has been supported in part by the ease of access to shipping and transport infrastructure – and large pools of labour – but also by the establishment of industrial zones.
Industrial zones, which offer land and turnkey infrastructure for investors, were first established in the 1980s. In total, 144 industrial zones stretching over an area of 4289 ha have been set up, including 18 in the Greater Tunis area, 38 along other coastal areas, 49 in regional development areas and the remaining zones located elsewhere. To meet growing demand, the Industrial Land Agency has plans to construct 64 new industrial zones covering approximately 1600 ha across Tunisia, including five in Greater Tunis, 14 along coastal areas and 45 in inland areas.
Tunisia also has free trade zones – known as parcs d’activités économiques – in Bizerte and Zarzis, where companies are exempt from taxes and Customs duties, and benefit from unrestricted foreign exchange transactions. Production in these zones has a limited duty-free entry into Tunisia for the purpose of transformation and re-export.
Industrial development in interior areas of the country has been fairy limited as a result of weak economic incentives for activities oriented towards the comparatively small domestic market of 11m people. According to the World Trade Organisation’s “Trade Policy Review: Tunisia” conducted in 2016, the offshore/domestic duality has given way to market distortions and held back economic integration and private sector development. The manufacturing activity that does occur in these regions is predominantly composed of low-value-added activities such as clothing production, mechanical assembly and mineral products processing, most of which are areas that have sharply declined in the post-revolution years as a result of slowing GDP growth and an erosion of local purchasing power.
In an effort to diminish offshore/domestic dualism, the government raised the rate of corporation tax on wholly exporting companies from zero to 10% and simultaneously reduced it from 35% to 25% for non-exporting companies in 2016.
The textiles industry is one of the most established in the country and has long been one of the main engines of GDP growth, with both subcontractors and multinationals operating a range of facilities for well-known brands and labels.
However, as has been the case throughout the Middle East and Africa, textiles have had to grapple with increased competition since 2008 as a result of the dismantling of the Multi Fibre Arrangement in 2005 (see analysis). The sector remains overtly dependent on EU markets, which accounted for 80% of Tunisia’s textile exports, totalling $2.4bn in 2016.
The sector is currently composed of 1700 companies that account for roughly 25% of the country’s total exports. Around 2.47% of all EU textiles come from Tunisia, with lingerie, swimwear and knitted products particularly prominent. FDI totalled TD40m (€17.2m) in 2015, mainly from French and Italian companies, which account for 36% and 28% of local production, respectively. According to data from the APII, 2016 presented a mixed picture as investment dropped by 45% and exports picked up by 10%.
Initially focused on low-cost operations, the industry is now investing in product development to manufacture high-end underwear or technology textiles for the growing automotive, health care and aviation areas.
While textile producers have had to work in a more challenging environment in recent years, the plastics sector has achieved average annual growth of about 10% in the post-revolution era. The sector – made up of over 500 companies and employing 15,000 workers – contributes 3% to Tunisia’s GDP, according to Tunisia’s Foreign Investment Promotion Agency. The majority of plastics firms are clustered in the north of the country where there is sufficient access to shipping and transport infrastructure, large labour pools and several industrial zones.
In 2015 the plastics sector attracted FDI to the tune of TD460m (€197.3m), mostly from European countries such as France (61%), Italy (20%) and Germany (5%). Since the mid-2000s, growth has been increasingly driven by high-value-added segments such as technical plastics to serve agri-business and MEEIs.
The technical plastics segment already represents 30% of the sector’s turnover, comprising about 60 companies, of which 80% are under the offshore regime. Other segments such as high-density polyethylene pipes and polyvinyl chloride pipes have also been on the rise as a result of a higher volume of infrastructure investment across Tunisia.
Tunisia is home to more than 700 companies that focus on building materials and which produce a range of goods including clinker, brickwork, plaster and ceramics (see Construction chapter). The building materials sector as a whole has recently witnessed fluctuating investments as a result of political and economic uncertainties.
Investment in building materials dropped by 22.5% in 2015 and then rebounded by 58% in 2016, according to the APII. Also in 2016 the sector received investment totalling TD5.6bn (€2.4bn), with Spain and Portugal as the leading contributors. Exports have followed a downward trend since 2011 due to the Libyan crisis and the development of cement production in Algeria – both key export markets. Exports of construction materials dropped by 10% in 2016 and cement exports decreased further, by 20%.
Cement is the largest segment of Tunisia’s building materials sector. It is comprised of one white cement plant owned by private corporation Tunisian-Andalusian Company of White Cement (Société Tuniso-Andalouse de Ciment Blanc, SOTACIB) – a subsidiary of Spanish group Cementos Molins – and eight grey cement plants, three of which are state-owned by Carthage Cement, Ciment de Bizerte and Ciment d’Oum El Kelil.
The five private companies operating grey cement plants are Italy’s Colacem in partnership with Ciments Artificiels Tunisiens; Portugal’s Secil in partnership with Société des Ciments de Gabès; Brazil’s Votoramtim Cimentos in partnership with Ciments de Jbel Oust; Spain’s Cementos Portland Valderrivas in partnership with Société des Ciments d’Enfidha; and SOTACIB.
Ciments d’Enfidha is the largest cement manufacturer with a market share of 20%, followed by Carthage Cement (18%), Ciments de Jbel Oust (14%), Ciments de Gabès (12%) and SOTACIB (10%). Total installed grey cement capacity currently stands at 12m tonnes – with 5m tonnes produced by the state-owned plants. This is set to grow with the upcoming completion of a new cement plant by the government in Sidi Bouzid. Estimated at TD500m (€214.4m), the facility will have a capacity of 1m tonnes and employ 500 people.
Moreover, the authorities are looking to initiate a new licensing system that will limit the construction of cement plants to one unit per governorate and only in those where raw materials are available. Minimum capital will be set at TD150m (€64.3m), with 35% of the shareholding being Tunisian.
Until 2014 cement prices were fixed by the government and the sector was granted subsidies on energy, but the sector has since been liberalised and subsidies on energy removed (the cement sector is responsible for 10% of Tunisia’s total electric consumption). With cement prices floating freely on the market, Carthage Cement in February 2015 lowered its prices of cement by TD6 (€2.57) per tonne for bagged cement and TD10 (€4.29) per tonne for bulk.
Since the early 2000s Tunisia’s automotive components industry has posted double-digit growth, driven by the establishment of an increased number of global equipment manufacturers. Today the country ranks among the top-10 global manufacturers of electrical cables for the automotive industry and is second only to Morocco in Africa in the export of automotive components to the EU.
The industry relies on a network of 270 companies, employing around 80,000 people and generating a turnover of more than TD6bn (€2.6bn). A wide range of global players from Europe, Japan and the US operate via local subsidiaries, including Valeo, Sagem, Johnson Controls, Pirelli, Mets Leoni, YURA Corp, Kromberg & Schubert, Dräxlmaier, Bosch, Yazaki Era, Imtec (Groupe Carghil), Zodiac and Faurecia. Tunisia has also developed its own expertise – an exception in Africa – with local manufacturing firms that have gained global recognition, such as Coficab, Cofat, GIF Filter and Telnet.
The sector is 90% reliant on exports and largely concentrates on assembling wires and cables, which account for more than half of the sector’s exports. However, the sector has shifted its attention to electric components, energy accumulators, plastic parts, electronic devices, light devices, engine parts, steel parts, tyres, filers and software.
In 2015 the sector’s exports amounted to TD5.2bn (€2.2bn), mostly to France, Germany and Italy, but also smaller quantities to Algeria and Morocco. On the whole, activities have been based in the low-value-added range with low-cost labour and less advanced assembling technologies.
Nonetheless, the country is moving further up the value chain by orienting production towards higher-value-added segments such as navigation systems, mechatronics, innovative materials and energy efficiency components. Companies in Oman are already operating in the listed activities. OneTech, for example, has been focused on mechatronics for some time now.
Automotive work has typically been confined to assembly activities, with a small production of 5000 trucks, buses and light trucks by Indian group Mahindra geared to the local market.
Full production activities are set to grow with a deal made in late-2016 between French car manufacturer Peugeot and local firm STAFIM for the assembly and commercialisation of a Peugeot pick-up truck. Operations are expected to begin in mid-2018 and produce 1200 vehicles per year for the Tunisian market. “Given the lack of restrictions on trucks and other industrial vehicles, focusing on these kinds of vehicles is a good commercial strategy for boosting local sales,” Lassaâd Ben Ammar, general manager of Le Moteur, told OBG.
Despite these positive prospects, growth of the automotive parts sector remains fragile. The country is still impacted by the current political landscape, which has prompted some foreign companies – including the US-based Lear Corporation – to leave the country in recent years. The company cited security concerns as the single-largest factor for why it had decided to exit the Tunisian market ENCOURAGING TALENT: According to Said Nabhen Bouchaala, president of the Tunisian Automotive Association, one method of addressing productivity and quality is through boosting the supply of the country’s skilled labour. Although Tunisia enjoys a large pool of skilled engineers and technicians, with hiring costs lower than in the EU or its North African neighbours, an increased effort on developing quality training capabilities could further help the sector attract global auto-parts manufacturers. “Tunisia should set up specific programmes dedicated to the automotive sector in universities and technical centres and develop an Automotive Academy to optimise capacities in this field,” Bouchaala went on. “Should we adopt a clear and all-encompassing sectoral strategy, the automotive components sector would have the potential to double its turnover in a short time and account for 10% of GDP.”
As the third-largest manufacturing segment in Tunisia behind textiles and leather goods, agri-business accounts for 3% of the country’s GDP and 15% of all jobs. It is comprised of more than 1000 companies, of which 200 are solely export-focused and 166 are majority foreign-owned. Among the top locally manufactured food items are milk, wheat, pasta, olive oil and vegetable oil, tomato paste, refined sugar, wines, mineral water and soft drinks (see Agriculture chapter).
In 2015 investment in primary food processing amounted to TD41m (€17.6m) – four times higher than funds contributed in 2014 – as a result of a host of investment projects geared towards edible oil extraction, packaging activities and refrigerated food storage. FDI in agri-business remains marginal, however, and restricted. Foreign investors are required to partner with a local company, where they may hold a maximum of 66% of shares, and only lease land where involved in agricultural production.
The agri-business sector exports over TD2bn ($857.7m) worth of products annually, mostly to the EU. Nonetheless, in an effort to diversify market outlets overseas, the sector has been increasingly exporting to the Americas, Russia, Japan, the Gulf states and sub-Saharan Africa to alleviate dependence on Europe.
One of the most promising segments for exports is bottled olive oil. In 2015 the country recorded a bumper olive crop that gave a significant boost to oil exports. Albeit still limited, the export of bottled olive oil – which accounts for only 6% of olive oil exports, since the majority is sold in bulk – increased 16-fold from 1250 tonnes in FY 2005/06 to 20,000 in FY 2014/15. The sector presents significant potential for exports since 75% of Tunisian olive oil production is classified as extra virgin, the highest quality level granted by the International Olive Oil Council. In 2007 the authorities set up the Fund for the Promotion of Packaged Olive Oil in an attempt to reach a production target of 50,000 tonnes by 2020. Among the leading export markets for bottled olive oil are the US (38%), Europe (37%) and the Gulf (17%).
As a whole, manufactured food exports have been sustained by a proactive policy of innovation and quality control. In line with the government’s Industrial Upgrading Programme, the authorities set up an agri-business cluster named AgroTech in Bizerte which currently hosts more than 100 businesses, several research centres and engineering schools.
In the long run, agri-business shows significant growth potential, and the authorities are looking to double agri-business exports by 2025 through a host of measures. These include reinforcing the sector’s collection, transport and refrigerated storage capacities; better identifying international markets with the implementation of exports consortia and clusters; and furthering food-processing activities.
Since its privatisation in the early 1990s, the Tunisian pharmaceutical industry has grown at an average annual rate of 15%, driven by the increased needs of the domestic market combined with growing opportunities to export. The sector is made up of 39 manufacturing firms – which primarily operate as joint ventures with international companies – that generated a turnover of $900m in 2016.
With a turnover of TD93m (€39.9m), Adwya is the largest local drug manufacturer. The company accounts for 15% of all local production and 7.7% of the total market share, according to Enko Capital, and is followed by Unimed, Sanofi Tunisie, Teriak and Opalia.
Altogether, local private production meets more than 60% of the domestic market’s needs. The rest of demand is supplemented by medicine imports which, since 1961, have been regulated by a system of centralised purchase supervised by the Central Pharmacy of Tunisia (Pharmacie Centrale de Tunisie, PHCT).
Similar to elsewhere in North Africa, Tunisia has been looking to encourage the local production of generic medicines to reduce health care costs and improve access to medicine for the population. As part of this, the government introduced tax incentives which have helped to increase generics production, which today accounts for two-thirds of total local production.
Although increasing, exports account for less than 10% of local production – as much is absorbed domestically – and are composed of subcontracting deals to supply European markets and regular export streams to neighbouring and West African countries. To tap the potential of sub-Saharan demand, Tunisian manufacturers are expanding into continental markets, with Teriak purchasing Cameroon’s Cinpharm plant in 2015.
Over the next few years, the Tunisian pharmaceutical market is estimated to grow at an annual rate of 10% and reach a turnover of TD4.3bn (€1.8bn) by 2025. However, the market is expected to remain challenging for multinational companies due to some lingering constraints with regards to the country’s regulatory environment, in particular data protection and pricing restrictions (see Health chapter).
To address current roadblocks, a series of reforms are currently in the works, including the implementation of a more appropriate pricing policy to encourage investment and exports; the simplification of registration procedures to reduce processing times for the introduction of medicines to the market; and a review of the PHCT’s purchasing policy to encourage greater investment in higher-value-added segments. In addition, a more appropriate legal framework for clinic tests and research will be implemented.
While Tunisia’s hydrocarbons wealth is not quite of the same scale as large neighbouring countries Algeria and Libya, it does have measurable reserves of phosphates, which have contributed to a significant fertiliser and chemical industry. In Tunisia, the vast majority of phosphate rock is used to supply local fertiliser and phosphate-processing plants. The processing sector is composed of two major companies, including the public-driven Group Chimique Tunisien (GCT) – which produces phosphate-based fertilisers through four industrial sites – and the joint venture Tunisian Indian Fertilisers company, which runs a phosphoric acid production plant in Skhira.
In the post-revolution years, phosphate production has been hampered by labour disputes linked to job allocation and local unemployment near production sites, and fell from 8.2m tonnes in 2010 to an average of 3m tonnes annually between 2011 and 2015. This compares to an average of 7.8m tonnes annually between 2005 and 2009, based on data by the US Geological Survey Mineral Resources Programme. According to the state-owned mining company Gafsa Phosphate, total production picked up at 3.6m tonnes in 2016.
In a bid to boost the country’s fertiliser capacity, the construction of a new trisodium phosphate plant is currently under way by GCT at M’dhilla. As a result of the drop in phosphate production, exports of phosphate-based products shrank between 2011 and 2015, but rebounded 30% in 2016, driven by rising exports of phosphoric acid and diammonium phosphate. However, the Tunisian phosphate sector is at risk of losing international competitiveness as a result of rising production costs, in particular related to labour disputes and declining global phosphate prices, which are combining to near $70 per tonne (see analysis).
Tunisia’s manufacturing sector relies on a qualified, productive workforce at competitive salary levels. The labour pool is relatively large and contains a significant number of engineers, owing to a robust higher education system made up of several engineering schools and higher technical institutes (see Education chapter). According to the National Institute of Statistics, the number of engineering students who graduated in 2014 was 8234 – the most up-to-date figure at the time of publication – behind only computer science, and business and administrative affairs. Tunisia currently has nine post-secondary engineering institutions and a network of 137 publicly funded vocational training centres nationwide.
Tunisia’s industrial fabric – composed largely of smaller manufacturing units – has suffered from a number of challenges endemic to emerging economies, including a limited domestic market, a lack of incentives for domestic-oriented production and problems in accessing financing.
The country also faces more specific challenges. In the wake of the 2011 revolution, for example, social disputes have also become more acute, resulting in disruption to production and weakened investor confidence. Tunisia is also heavily reliant on EU demand, which absorbs three-quarters of its exports.
Over the years, red tape and bureaucracy have also remained a major hurdle. An APII-led study showed that 7500 companies could not be created between 2005 and 2015 due to the prevailing cumbersome administrative procedures. In September 2016, however, Tunisia adopted a new investment law that simplifies the procedures to obtain investment licences, permits and authorisations (see Legal chapter). The law led to the creation of the High Investment Board as a central body to replace the multitude of administrative bodies that previously issued these required documents.
In addition, labour productivity has been lagging. Tunisia is home to the most rigid labour market regulations in the MENA region and ranks 133rd out of 144 countries in terms of labour market efficiency based on the World Economic Forum’s 2016-17 “Global Competitiveness Report”. The country ranked particularly low regarding pay and productivity (132nd), inflexibility of wage determination (129th), lack of cooperation in labour-employer relations (128th) and women’s participation in the national workforce (127th).
The challenges are far from minor and, in the broader context of the macroeconomic slowdown, industrial producers have a ways to go. However, as a whole, the Tunisian economy benefits from some encouraging fundamental traits, including a developed industrial infrastructure, a strategic location on the Mediterranean in proximity to the 500m-person European market, a well-developed education system and an efficient logistical infrastructure.
Growth in Tunisia is projected to improve in 2017 and 2018 on the back of new capital spending on transport infrastructure and a new law governing investment, which came into force in 2017, and which is expected to shore up investor confidence and stimulate activity. In a context where several European economies are seeing modest increases in consumption, Tunisia’s manufacturing industry is hoping to benefit from the cyclical improvements and further diversification.
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