Co-production in Tunisia - Context, realisations and perspectives
Analytical summary of the report Coproduction in Tunisia.
Located on a vertical line joining Sub-Saharan Africa and Europe, Southern and Eastern Mediterranean Countries (SEMCs) have a high development potential. They boast significant natural and human resources, they have accesses to the Atlantic and Mediterranean coasts and have cultural and linguistic bonds with the populations of both continents.
In this region, Tunisia has long drawn the attention of observers as the country served as a “laboratory” in many fields, and especially in the attraction of investments. Yet, with the global recession, the Arab springs and the lasting security crisis, Tunisia is struggling to attract new foreign investors. Although they reached a peak of $3.3 billion in 2006, FDI inflows are stagnating around $1.1 billion per year. Even though this phenomenon reached all SEMCs, which all underwent these crises, the Tunisian trend remains worrying, especially in comparison with Morocco, which is in stable recovery since 2010.
An economy that strongly relies on the global economic situation and especially on the European one
European countries as main partners
Today, Tunisia hosts nearly 3,220 foreign-invested enterprises accounting for over 330,000 jobs (8.25% of the active population), half of which in the industrial sector.
In 2014, EU4 countries (Germany, Spain, France and Italy) remained among the first investors in Tunisia, with 24% of flows, and 15% for France.
French and Italian investments are quite diversified and evolve from one year to another (financial, energy and electric/electronic sectors for France, pharmaceutical industry, energy, leather/shoes, rubber and textile for Italy). On the contrary, Germany and Spain show stable trends and highly targeted sectors: electric and electronic appliances for German companies, agriculture and agro-food industry for Spanish ones.
FDI mostly directed towards offshore activities
Nearly 77% of EU4 companies (except for Spain) established in Tunisia completely export their production abroad. In terms of employment the gap is quite large: German offshore activities account for 95% of jobs, vs 81% for France and 85% for Italy. Spain is an exception here, as its offshore activities account for 56% of companies and employment. This can be explained by the presence of Spain almost exclusively in sectors that are little liberalised, for which investments cannot be made without Tunisians partners.
Generally speaking, non-offshore FDI focus on capital-intensive non-liberalised sectors, as is the case for the production of construction materials, and, especially for France, telecommunications.
Investors waiting for reforms
It is quite clear that since 2011, the investors already present in Tunisia have been waiting for the implementation of the current reform projects. Thus, (i) extension investment exist but they remain limited given the potential of the country, and (ii) creation investments are struggling to start up again.
A real potential for scaling up in the range
As Tunisia has always been open and promoted exportations via sub-contracting and co-contracting, the country still benefits from a strong industrial foundation favourable to the development of quality coproduction. This moving up in the range is also made possible thanks to the existence of cutting-edge companies in each key sector. An analysis of the Tunisian sectorial strengths and opportunities in terms of coproduction highlighted historical leading industries (ICT, mechanical industry, textile) and future-oriented industries (renewable energies, health and pharmaceuticals, agro-food industry).
For Tunisia, the issue is to go beyond the classic model of exporting companies by adopting a greater integration of value chains (by locating more production segments in Tunisia and by integrating new markets via the diversification of exportations). This will be done by strengthening and better coordinating the investments of Tunisia’s historical partners - France, Germany, Italy and Spain - as well as by opening up the Tunisian economy to Africa. By imposing itself as an entrance to this continent with a booming economy, especially for its European partners, Tunisia could get round its limited national market.
Necessary reforms to favour the development of an inclusive and sustainable economy
In order for Tunisia to attract investors again and to move up the range, administrative, financial and structural reforms are necessary.
Reforming the Investment Code to make Tunisia more attractive for foreign investors
Historically, Tunisia has a quite flexible legislation regarding foreign investments. The current framework is established by the Investment Incentives Code, adopted in 1993. In order to take up the challenges facing the country, Yassine BRAHIM, the Minister of Development, Investment and National Cooperation, started a reform process of the Investment Code, which will be one of the foundations of the new 2016-2020 Strategic vision for Tunisia.
One of the main features of the future Code will be to extend the freedom of investment to most industries, by suppressing the authorization of the Higher Investment Council (as well as the other authorisations of the Code and by integrating them in sectorial laws and specifications).
Besides, the new Code intends to adopt a new unique corporation tax rate of 15%, which will result in a higher tax rate for offshore companies and a lower tax rate for onshore companies.
This reform would enable Tunisia to have a competitive position in the sub-region, with one of the lowest corporation tax rate.
Making convertibility and currency transfer easier to favour cross-investments
As regards currency transfer abroad, the new Code provides a response time of 15 days maximum from the Central Bank. Beyond this period, the decision will be considered as favourable. The objective of this provision is to overcome one of the main obstacles facing investors. Today, only transfers for regular operations, gain on sale or assets’ liquidity can be made freely. Other transfer operations require the authorisation of the Central Bank.
Reforming the Customs Code in order to improve commercial exchanges
The new project of Customs Code has two main objectives: (i) accelerating and simplifying formalities, and (ii) reducing delays for the loading and removal of goods.
Finalising the law on Public-Private Partnerships (PPP) in order to develop the infrastructures necessary to the economic take off
Minister Brahim also contemplates the development of PPP. This is a major measure of the government, as at least 4 out of the 22 priority projects regard PPP. The reform would enable to introduce any form of PPP (public market, public service delegation, partnership agreement). However, it remains the object of significant debates as the State fears to loose sovereignty in the exercise of public services. Today, PPP are allowed only in the digital sector (2008 legislation).
Boosting decentralisation to favour territorial cohesion
Indeed, the objective is to create more homogeneous territories by relying on real economic and employment basins. The new regions should be in line with the realities on the ground, in their analysis of the means, especially economic and social infrastructures, and in their capacity to federate public and private (Tunisian and international) investors, via PPP for instance.
Eventually, these changes improve the quality of regional public services and reinforce their presence in the most remote provinces. Thus, the economic efficiency of all territories will be improved, as well as long-term growth factors, through the reduction of development gaps.
Restructuring the banking sector in order to make the financing of the local economy more effective
The banking sector, characterised by the presence of many public banks, should reorganise in order to better meet the financing needs of local economic actors. Let us mention here the opportunity for the Caisse des dépôts et consignations to make complementary investments in productive sectors favouring job creation.
Favouring the productive investments of the Tunisian diaspora
Twice higher that FDI, fund transfers of Tunisian immigrants, which are very often counter-cyclical, are almost never oriented towards productive investments. Following the example of Morocco, Tunisia should implement mechanisms to develop and guide these investments, which represent a stabilisation factor in crisis periods via direct investments as well as a great indirect financing tool of the economy.
Reforming professional training to better meet the needs of the labour market
The high unemployment rate is mostly due to the incompatibility of trainings with the needs of the labour market. A large number of young graduates are over-qualified while Tunisia has not scaled up in the range as expected.
Thus, the government launched a reform of the national professional training programme, which must be accelerated, in order to level qualifications with the labour market.