Tunisia pins hopes on attracting investment

Tunis

Jihad Al Safadi, a young Tunisian street seller, still dreams of going back to Italy where he spent a brief stint as an illegal immigrant in 2011. Four months after he crossed the Mediterranean aboard a smuggler’s boat and found work as an agricultural labourer, the Italian authorities deported him back to Tunisia.

“I would go back if I could,” said the 22-year-old, who sells colourful hair ornaments at a stall on the Rue Charles de Gaulle in the centre of Tunis. “Here there is no work. This trade is good, but as soon as you set up, the police come. They arrest whoever they can and the rest of us just have to run.”

Unemployment — it stands at 15.7 per cent, and is thought to be much higher among young people — was one of the main drivers of the Tunisian revolution in 2011 and remains one of the biggest challenges facing the government of Mehdi Jomaa, the technocratic prime minister sworn in last month as part of a political deal between secular and Islamist parties.

The main plank of the agreement, a consensus constitution approved overwhelmingly by parties from across the political spectrum, has increased hopes of political stability that could help attract increased investment, boosting the economy and reducing unemployment.

“We are very optimistic because the political agenda is clearer than before,” said Noureddine Zekri, the director of the Foreign Investment Promotion Agency, a government body. “What is important for Tunisia is consensus, and to prove that we can live together. We have overcome the difficult period.”

Job openings

Tunisia needs about 100,000 jobs every year to meet demand from new entrants to the labour market. Before the revolution, foreign direct investment, mainly from Europe, provided up to around 18,000 new jobs, according to Zekri. Since then, domestic turmoil and Europe’s own economic woes have reduced investment flows.

According to Fipa’s figures foreign direct investment in the first 11 months of 2013 was around $1 billion (Dh3.67 billion), an increase of 12.5 per cent over the same period in the previous year but still below 2010 levels. The new investment was driven by 315 newly created companies, and 177 expansions of existing projects, and provided 7,470 jobs.

The export-oriented economy is heavily reliant on European investment in manufacturing sectors such as automotive parts, aeronautics and textiles. Proximity to Europe and privileged access to European markets provided by an association agreement with the EU — the bloc aims to stem illegal emigration by fostering economic growth — have been big draws for investors seeking lower labour costs.

“The EU remains by far the largest investor in Tunisia, with up to 70 to 80 per cent of investment” noted a western diplomat, who said that despite post-revolution upheaval, “there has been no rush to the exit at any point whatsoever” on the part of European companies.

He said there was intense interest from Italian companies and he cited forthcoming investments by OMV, the Austrian oil company and by Shell.

Tunisian officials are also hoping that a $1.7 billion loan agreement signed with the International Monetary Fund in July will help attract investment.

The fund last week agreed to release the second tranche of the loan, $506 million, in a sign of its approval of economic reforms and broader confidence in prospects for political stability.

Budget deficit

In a bid to address a budget deficit put by the IMF at 8.8 per cent of gross domestic product, the government has reduced energy subsidies and is reconfiguring the tax system to raise revenues. The price of petrol has already gone up by around 8 per cent and electricity tariffs for energy intensive industries like cement have been raised.

The authorities have also introduced a 10 per cent tax on previously exempt export industries, which tend to be located in more prosperous coastal areas, and decreased the tax burden on industries geared towards the domestic market from 30 to 25 per cent in order to stimulate job creation in deprived inland areas.

The measures “will support the development of the companies in the domestic market while preserving the competitiveness of exporting firms”, said Giorgia Albertin, the IMF representative in Tunisia.

She noted that a new investment code, which has to be approved by parliament, is expected to provide a more transparent and efficient regulatory framework.

“There will be more activities to be undertaken without prior government approval and more freedom for investors to to invest in Tunisian manufacturing,” she said, adding that the country’s reform programme aimed to “lay the foundation for more inclusive growth necessary to absorb unemployment”.

Albertin’s optimism has yet to spread to many of Tunisia’s poor, however, who argue that the revolution has not delivered the changes they hoped for.

“I want to be anywhere except in Tunisia,” said Abdel Jalil Al Safadi, who sells men’s trousers. “I need a job and a car. Nothing has changed here after the revolution. On the contrary, things got worse.”

— Financial Times