Dr. Jürgen Friedrich: Between political uncertainty and high economic potential

Transition with risks/New dynamic in successful transformation. In the third year after the Tunisian Revolution, economic development is still weak due to the uncertain political situation and stagnating European demand, although some progress is indeed taking place. However, the chances have improved no­ticeably that the important conclusion of the constitution will be made and par­­liamentary and presidential elections held promptly in the current year, 2013.

A cabinet reshuffle took place in March 2013 and also led to the appointment of three independent ministers. The reasons for this can be attributed to the significant drop in the popularity of the conservative Islamic majority party Ennahda, especially after the assassination of the opposition politician Chokri Belaid on 6 February, 2013. The assassination plunged the transitional government, consisting of the Ennahda party and its junior partners CPR and Et­­takatol, into a serious political crisis and triggered mass protests in the country.

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New investors therefore remain uncertain and are holding back. German com­­panies that are already established in the country have an entirely different picture of the situation and invested well in 2012. But only once the political transition has been concluded successfully will the locational advantages of Tunisia come into full effect. In this context, an increase in the internal dy­­namic and new opportunities for the par­­ticipation of German businesses is to be expected. Exploring opportunities at this early stage is certainly a sensible idea.

Since the mid-1990s, Tunisia has developed into an increasingly important location for European businesses in the region. Companies value its high level of flexibility and ability to supply. After France and Italy, Germany is one of the key in­­vestors in the manufacturing industry and Tunisia’s third largest trading partner. There is also major interest in ex­­­panding cooperation into new areas. At the end of January 2013, the German Federal Minister of Economics and Tech­­nology, Dr. Philipp Rösler, and the Minister of Economy at the Prime Minister’s Office, Ridha Saidi, launched the German-Tuni­­sian energy partnership. The cooperation focuses, among other things, on the ex­­­pansion of electricity grids, energy re­­search and the political backing of the Desertec project.

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Competitive industrial location. Com­­pa­­ring regional standards, Tunisia’s eco­­­nomic advantages encompass a high de­­­gree of industrialisation, a good level of education and high added value in the manufacturing industry. The constant de­­valuation of the Tunisian dinar has made no small contribution to the high produc­­tivity with low labour costs. The Tuni­­sian currency has lost nearly 33 per cent of its value against the euro since 2002. Fur­­thermore, another of the country’s factors for success lies in its good transport connection to the export harbours and from there on to Europe. Neither a stable power sup­­ply nor a developed IT network are self-evi­­­dent in Africa.

Moreover, the extensive tax pri­­­vileges for purely export-oriented companies – with or without foreign involvement – play a major role in Tunisia’s competitive edge as an industrial location: along with the exemption from import and export duties, the profits of export companies remain tax-free for a period of ten years. Future governments may possibly make chan­­ges to the investment law. However, ac­­­cording to observers, a fundamental chan­­ge of the export rules is not to be ex­­­pec­­­ted. Instead, the main focus will be on intensifying investments in the neglected regions of the country.

Tunisia’s export-orientated industrialisation driven by foreign direct investments has indeed achieved remarkable success. According to a World Bank study, the ex­­­ports shares to research and development have steadily increased since 1994 from 1.5 per cent per year to 6.1 per cent (2009), while the investments in the manufacturing industry have tripled between 2001 and 2009. The Tunisian investment authority FIPA (Foreign Invest­ment Promotion Agency) reported 2,664 industrial companies with foreign shares and 275,640 employees for 2010. Even in post-revolutionary Tunisia, the manufacturing industry accounts for around 70 per cent of exports.

Target country for German investments. The German-Tunisian Chamber of Com­­merce and Industry has indicated that around 250 wholly German businesses or businesses with German shares are currently active in Tunisia. According to FIPA, around 51,700 staff were em­­ploy­ed in companies with German shares in 2012. About 57 per cent worked in the manufacture of electrical and automotive components (mainly in cable production) and around 28 per cent in the textile industry. The Tunisian investment authority counts 111 German textile companies and 45 manufacturers of elec­­trical or electronic components. The automotive suppliers Dräxelmaier and Leoni alone employ nearly 22,000 people; other cable producing companies in the country include SE Bordnetze or Kromberg & Schubert. Marquardt, the German manufacturer of switches and switching systems, also runs a manufacturing facility in Tunisia, while the Rieker Group operates a branch that manufactures shoes. Van Laak produces its top-quality shirts with highly sophisticated handicraft.

Despite the crisis: German investments are stable with potential for growth. The figures for direct foreign investments de­­monstrate the good conditions for competition, even for the difficult year of 2012. According to an analysis by FIPA, German industrial investments amounted to 41.8 million Tunisian dinars (around 20.8 million euros) in the year 2012. The main focus of German companies was primarily on expansion investments for the manufacture of cables and electronic components. Even during the year of revolution in 2011, the exports of the so-called mechanical and electrical industries increased by nearly 15 per cent and the clothing industry by 5.6 per cent.

The stable investments in 2012 aren’t the only thing that speaks for the sustainable commitment of German companies: the German-Tunisian Chamber of Commerce and Industry reported that none of their member companies suffered the closure of their business due to the revolution. According to a survey published by the German-Tunisian Cham­­ber of Commerce and Industry in Oc­­­to­­ber 2012, 20 per cent of the participating companies rate the business development of the current year as positive. The forecast for the coming months was optimistic for 25 per cent of the companies surveyed; 35 per cent ex­­pect an unchanged economic development.

New dynamic in successful transformation. Greater constitutionality and de­­moc­­­racy opens up more room for en­­­trepreneurial activities. Tunisian compa­­nies in particular were the ones who suf­­fered most as the Ben Ali clan became richer. In 2004, private sector investments accounted for only a small share of just 12.5 per cent of the gross domestic product. A number of Tunisian companies held back with their activities in fear of compulsory purchases by the government.

German companies have the chance to participate in invigorating the economy in a variety of ways. The healthcare sector also represents one of the promising in­­dustries for cooperation. Tunisia has de­­veloped into an important target country for regional health tourism. With more than around 1,800 ICT businesses and over 17,500 employees, the IT sector offers additional opportunities. Service orders of a number of multinational busi­­nesses are processed in eight centres. The ICT sector counts as a high potential business area. According to the Global Competitive Report 2011/­2012, Tunisia was ranked seventh world­­wide for its good availability of engineers.

Partnerships with Tunisian businesses may also help in developing the often difficult neighbouring markets in Libya and Algeria, as these mostly have a qualified group of engineers at their disposal and maintain long-term business relationships in the region. Favourable natural geographic conditions for the implementation of renewable energies and the need for consultancy services for promoting energy efficiency and a green economy present additional opportunities for cooperation. The recently-founded German-Tunisian energy partnership also plays a vital part in this con­­­text. New concepts are required for the development of the important tourism sector.

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025-Kopiehigh level of Challenges remain. Despite the development by regional standards and positive GDP growth rates averaging 4.4 per cent, it has not been possible to create sufficient employment in the past decade. Along with the increase in added value, the neglected western and southern areas of the coun­­try have to be further integrated into the economic cycles. There is also a need for a stron­­ger link between the export-oriented and domestic economies. Fur­t­her efforts are particularly re­­quired in practice-oriented educa­tion and training in order to main­­tain and increase the international competitive edge of the Tunisian branches of industry that are exposed to wage pres­­­sure. German business will also ap­­ply its strength here thro­ugh prac­­­tical train­­­­­­ing pro­gram­­­mes.

 

Foto_Jürgen_Friedrich_GTAI_130129_JF-KopieThe author studied Mining Engineering at the Claus­­thal University of Techno­­logy. He has been the managing director of Germany Trade and Invest – Gesell­schaft für Außen­­wirtschaft und Standort­­­­marketing mbH since 2009. Before that, he assumed positions for the German in­­dustry in Dubai and Washington D.C. and led the “North Africa, Near and Middle East” Division of the Federal Ministry of Eco­­nomics (BMWi) in Berlin.