Because of its effects on employment and supply chains, Tunisia’s construction sector has always been a central component of the economy. Despite its importance, however, it has suffered periods of erratic performance over recent years, most notably after the 2011 revolution. The challenging macroeconomic environment has had a toll on public and private spending, but a return to more stable levels is expected to come through government-backed infrastructure development plans. Execution of projects continues to be marred by localised pockets of popular discontent, which can lead to interruptions in construction work.
Sector Weight
Recent years have not been easy. Erratic implementation of public works and housing programmes in a climate of political instability and constrained state budgets has led to a reduction of the sector’s weight in the economy. While it once accounted for roughly 7% of GDP, by 2016 the contribution of construction eased to about 4%, according to figures from the National Federation of Construction and Public Works Entrepreneurs (Fédération Nationale des Entrepreneurs de Bâtiment et des Travaux Publics, FNEBTP).
The sector is made up of a small group of larger firms, supported by an array of minor suppliers. According to the FNEBTP the sector includes about 6000 companies covering all sizes. Of those, only around 550 have an annual turnover of €10m or more, leaving the majority of other players supporting work for the bigger contractors. Additionally, the sector is linked to a strong manufacturing base that produces a range of construction materials, including cement, ceramics and glass. Investment in building materials manufacturing rose by 58.4% in 2016 to reach TD627.1m (€240.8m) and the segment’s total exports amounted to TD527m (€202.4m), according to figures from the Agency for the Promotion of Industry and Innovation.
The period since 2010 has come with budgetary constraints, as the country worked to balance the political transition with meeting increased social demands and a reluctance of foreign investors to absorb market risks. The impact on the construction sector was particularly strong because of its dependence on public contracts. “In terms of infrastructure, the Tunisian state normally accounts for about 80% of all work, but its ability to invest has been severely weakened over recent years,” Chokri Driss, former president of the FNEBTP, told OBG.
The post-revolutionary context brought a higher level of irregular construction, as people in major cities took advantage of feeble permit controls to expand their homes, especially between 2011 and 2014. In the first three years after the revolution 35% to 40% of all housing activity was informal, according to Driss.
A change in dynamics is expected to leave its mark from 2018 onwards. A comprehensive infrastructure development plan launched in 2016 to cover the 2016-20 period is expected to mobilise state investments and attract international firms to key projects in transport, energy, water and housing. Under the development plan, over 50 strategic projects are being prioritised. Although some initiatives are in areas outside of construction and infrastructure, the sector is likely to benefit from planned expenditure of up to $60bn. Until these plans get under way, however, the market is likely to remain somewhat constrained.
Improved Visibility
Despite the challenges, the sector has benefitted from regulations implemented in 2014 with the goal of enhancing governance and transparency of the tendering of public projects, including the fact that all public tender notices must now be published online. Additionally, minimum local content requirements were eliminated, and the state raised the level of participation of the private sector by restructuring public construction purchasing procedures.
Some additional regulation, however, might be needed to improve quality controls on works. The current environment of cost-cutting has led to an excessive focus on price over quality. This, according to sector operators, is something that could affect the longevity of recent work. “Every time there is a flood, it shows that some of the new infrastructure is poorly made,” Driss told OBG. According to him, the firms winning bids for projects are those offering the lowest prices. “This system is bringing the overall level of construction work downwards,” he continued. “Projects need to focus on quality, so infrastructure works are done with a long-term perspective.”
Transport Infrastracture
Government plans to reduce logistics costs and support business operations have put the transport sector at an advantage in terms of infrastructure development, with road expansions, port developments and urban railroad projects scheduled for the coming years. Roads projects in particular are set to receive a considerable amount of funding, as the government’s plan envisions increasing the length of the highway network from 420 km to 1200 km between 2016 and 2020. Ongoing projects include the 140-km highway between the coastal cities of Sfax and Gabès, and an 84-km project between Gabès and Ras El Jedir on Tunisia’s border with Libya.
Additionally, a $230m loan from the African Development Bank is set to finance the revamping of rural roads, under the Road Transport Corridors project which is working to upgrade an existing 146 km of roads by the end of December 2020. Launched in 2015, the initiative has largely kept to its schedule: in April 2018 the World Bank reported that Lots 1, 2, 4 and 5 on National Route 12 were between 30% and 60% complete, and Regional Road 133 was approximately 45% completed. Meanwhile, technical studies for the Tataouine corridor were concluded by 2017 and a call for bids was issued in January 2018.
Railway networks also got a boost from multilateral sources. The European Bank for Reconstruction and Development announced in late 2017 that it would allocate €160m to state-owned Société Nationale des Chemins de Fer Tunisiens to revamp the railway line connecting the interior town of Kasserine with the capital, Tunis, and increase cargo and passenger capacity along the 239-km line. In addition to these, there is growing discussion regarding the construction of a new international airport to service Tunis.
Energy & Water
In addition to strengthening transport networks, the sector is likely to contribute to covering existing gaps in energy production and distribution over the coming years. As electricity consumption continues to climb towards domestic production capacity, so is demand for the construction of power plants and the development of renewable options. To increase the role of renewable energy Tunisia plans to channel $1bn towards wind and solar electricity plants in the lead-up to 2020. In mid-2017 the Tunisian government opened a tender for the construction of 210 MW of wind and solar generation plants at a cost of TD400m (€153.6m). Up to 69 contractors had been pre-selected to participate in the bidding by November 2017, according to the authorities. The winners of the tender are expected to be announced in mid-2018.
Water and sewage works will also receive improvements and extensions. In Sfax plans to build a desalination plant are expected to advance in 2018, government sources told local media in September 2017. The TD480m (€184.3m) project will be built over a 20-ha area south of the city and will have the capacity to treat 2m cu metres of water per day, helping increase the efficiency of water distribution in the city, which has historically been dependent on northern Tunisia for water. The unit will be financed through a loan from the Japan International Cooperation Agency.
Social Development
Other infrastructure projects will help improve health and housing conditions. Through financing agreements with multilateral institutions – including the Kuwaiti Fund for Arab Economic Development, the Islamic Development Bank and the Saudi Fund for Development – a handful of hospitals and health facilities are scheduled to move into the construction phase over the 2017-18 period. Overall, 12 hospitals and health centres are expected to be built, including a children’s hospital in Manouba, a cancer unit in Tunis and two multidisciplinary hospitals for the cities of Gabès in the southern region and Beja in the north.
Housing is also expected to receive added government financing, although the implementation of programmes to aid lower-income citizens to access a home have been delayed since 2011. Under the 2016-20 development programme, up to 100,000 social housing units are set to be built, as the government also channels investment towards urban renovation.
Neighbouring Markets
Besides the stable development that the sector enjoyed for several years until the 2011 revolution, construction firms often expanded into neighbouring markets to compensate for domestic challenges, and although the Libyan construction market was once fertile ground for international expansion plans, its instability has removed a nearby source of activity for Tunisian contractors. “Before the Libyan revolution there were roughly 50 Tunisian companies working in Libya, on projects worth a global $2.5bn, employing around 2000 people,” Driss told OBG, adding that once security conditions improve, Tunisian firms will likely return to the Libyan market. Sub-Saharan markets, especially francophone countries of West Africa, have become increasingly attractive for Tunisian contractors, though their expansion into those markets has lagged behind that of neighbouring Morocco.
Human Resources
Construction will also need to fill in its human resource gaps. According to figures from the FNEBTP, the industry employs between 450,000 and 500,000 people but requires more labourers than are available. “The sector is in a paradox: on the one hand, you have 600,000 unemployed people in Tunisia; on the other hand, the sector cannot find enough human resources,” Driss told OBG. While part of this is due to a skills mismatch, the sector is facing staff shortages even for non-technical positions.
A skills-training centre focusing on construction activities began operations in 2014 in Ibn Sina, near central Tunis. The centre was established as part of a partnership between the French Agency for Development and the Tunisian government. It runs training programmes to cultivate modern skills needed by construction employees, including know-how for processing techniques of construction materials. However, the centre has had difficulty in filling available capacity for students. Part of the problem, contends Driss, is related with the sector’s negative image in the eyes of prospective employees. The FNEBTP estimates that about 3000 trained Tunisians enter the construction labour market every year, although the sector needs 25,000-30,000 new workers annually.
Operational Challenges
Construction activity has also been affected by changes since the 2011 revolution. Increased social tensions have led to the occasional interruption of projects, raising costs and lengthening completion deadlines. Government projects have also faced obstacles in land expropriation, which has been a regular cause of delays. Part of this is due to the post-revolutionary social and political environment. “Tunisians have created some difficulties for the government, which can no longer simply expropriate lands,” Driss told OBG. “People are more demanding in terms of the value they request for land plots, and they require payment in cash, so this is preventing the fast execution of construction projects.” Protests against government austerity measures in early 2018 have served as a reminder that several regions remain exposed to cyclical outbursts of unrest. However, if the authorities’ plans to increase employment opportunities for Tunisians come to fruition, the risk of instability hampering construction projects is likely to be reduced.
For the foreseeable future these are set to continue to be a component of an overall context of rising operational costs. “Construction and real estate will pass through a difficult phase as the cost of construction increases. There is now a Customs duty, consumption duty and value-added tax increase, all of which push prices up,” Radhi Meddeb, president and director-general at Comete Engineering, told OBG. “Unused land prices are increasing, while the purchasing power of Tunisians is decreasing. There is a growing disparity between prices and way of life.”
Outlook
Transport and energy infrastructure initiatives are set to continue to driving construction growth over the medium term, with projects for roads, water treatment plants, dams, renewable energy structures in the works. A combination of multi-year government planning and financing from international institutions is likely to support these plans and help return the sector’s GDP contribution to previous, higher levels.
However, the environment firms are facing is likely to remain challenging. The speed of execution of major projects is anticipated to remain vulnerable to financial restrictions and social instability. This will represent an added risk for companies operating in the country, but such a risk is likely to be mitigated by the size of the portfolio of upcoming construction projects and international support that Tunisia has been enjoying in its transition to democracy. Despite somewhat scarce public finances, efforts to improve quality control in ongoing construction projects will be key to development.
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