In the years to come, Africa will offer great growth opportunities. After China and India, it is currently the third largest driving force for global economic growth, and its pharmaceuticals market has doubled over the past five years. To be able to make use of these new opportunities, multinational corporations are now considering the question which country is strategically the best choice to serve as a gateway to this continent – a gateway that typically goes through one of the three North African countries.
Besides its geographical location, which gives it a strategic position in the Mediterranean region, Tunisia has been attracting foreign direct investments for a long time and provides a regional platform to foreign companies that wish to increase their activities on the African continent. Although the year 2012 was characterised by poor economic results, a rising inflation rate and a problematic security situation, the process of political and economic change the country is currently undergoing has not fundamentally shaken the confidence of investors attracted by a favourable economic environment and aid legislation.
1. A booming offshore destination at competitive costs.
As a contracting party to numerous preferential agreements, Tunisia offers investment opportunities in a variety of markets. Preferential agreements were signed with the European Union, the North African countries and some Arab countries resulting in the creation of a high-level free trade zone. Although the economic upswing is slow to gain momentum during this transitional phase, Tunisia can count on the persistent support of foreign financial institutions and partners so that the assistance received could be increased in the short term to an amount exceeding that of the originally approved loan. Moreover, the fact that the investors’ confidence is being restored also manifests itself in an increase in foreign direct investments by 29.2 per cent in 2012, thus almost reaching the investment level of the time before the political change (OBG, 2013).
Tunisia is also characterised by its education system which has long been among the best of the region. Every year, more than 65,000 students graduate from university; they speak multiple languages at a satisfactory level and have completed the most modern technical and technological courses of study. More than ten technology parks are intended to contribute to the further development of the promising sectors and the promotion of the innovation and creativity of the Tunisian human capital. Furthermore, comprehensive educational measures have been initiated to strengthen the intellectual capital and promote new talents. This way, a clear advantage with regard to recruitment is to be provided to companies that wish to establish themselves in the country.
Tunisia is an ideal low-cost destination in terms of logistics as well as brainpower. All of the international observers agree that the economic climate, which is still favourable today, will improve even further with the turn towards democracy. In an assessment conducted by Coface (2013), the economic environment in Tunisia received the ranking A4 (appropriate standard), and the IFC (June 2012) puts Tunisia at No. 50 (of 185 countries) in the “Ease of Doing Business” ranking. There are numerous investment incentives for foreign corporations in the form of tax exemptions, investment aids, the assumption of infrastructure costs and the assumption of the employer’s share of contributions. The intellectual property is protected by national statutory provisions and corresponding international agreements. Tunisia has an infrastructure which sets standards worldwide. The offshore centres of large corporations are located in completely newly designed commercial districts in the vicinity of airports and the most important motorways. The operative costs are among the most competitive in the Euro-Mediterranean region. And the transport infrastructure is also well developed there. Tunisia has seven commercial harbours, which can accommodate approximately 7,600 ships, and 9 international airports, which are served by 138 foreign airlines (FIPA 2013). Last but not least, the ICT sector is one of the most dynamic industries of the Tunisian market, and the quality of the infrastructure is considered one of the most modern in the southern Mediterranean region. Incidentally, the Global Information Technology Report (2012) puts Tunisia at No. 50 of 142 countries in the “Network Readiness Index”.
2. Merck Serono in Tunisia: a virtual platform for Africa.
The Tunisian pharmaceutical industry illustrates the dynamics of foreign direct investments in the country. It comprises nearly 5,000 employees and about forty local production sites for pharmaceuticals as well as twenty international pharmaceutical companies that sell their products domestically or – better yet – do business in all of the Maghreb. These pharmaceutical companies alone represent 52 per cent of the pharmaceuticals industry in Tunisia.
In 2009, Merck Serono, the biopharmaceutical division of the German Merck KGaA Group, decided to set up a regional subsidiary in Tunisia to conduct their business spanning more than 35 African countries from there. Karim Bendhaou, Managing Director of Merck Serono for North and West Africa, explains the reasons for the decision in favour of Tunisia as the hub for large-scale development activities: tax and regulatory incentives offered to foreign corporations, the quality and talent of the local human capital as well as the regulatory system. Furthermore, the company benefits from the preferential agreements with the European Union and the TRIPS Agreement with regard to intellectual property rights, which governs the patent protection for pharmaceutical inventions.
To ensure the marketing and accessibility of its pharmaceuticals, the German company has designed its strategy for the creation of a virtual regional platform (virtual gateway), which consolidates the professional know-how with the Marketing, Medical and Pharmacovigilance departments, but which also includes the most important functions of the company, such as Finance, Human Resources, Supply Chain and IT.
Through the local promotion measures in Tunisia, Merck Serono was able to implement this virtual gateway as a fully export-oriented, non-resident company in order to enjoy tax benefits, such as the full deduction of the profits during the first ten years, the suspension from levying VAT and the excise tax for the import and procurement of goods, the exemption from all actual and parafiscal taxes, the exemption from the tax deducted at source for fees and charges paid to foreign individuals and corporations.
By establishing a subsidiary in Tunisia, Merck Serono has also made a decision in favour of an attractive wage policy to offer appropriate incentives for their employees of different nationalities. The Tunisian pharmaceutical sector does indeed have highly qualified personnel, such as doctors and pharmacists, at its disposal. Interestingly enough, every year, students from the neighbouring countries enrol in the scientific universities in Tunisia with four medical faculties and one pharmaceutical faculty. These students often subsequently decide to stay and work in Tunisia. This does not take into consideration the Tunisian students living abroad who later return to their country in order to embark on their professional career there. “This way, we have been able to form an interdisciplinary team with the colours of the continent”, explains Dr. Bendhaou. “But even though we do not have any difficulties in recruiting junior and senior managers, this does not apply to the same extent to top management positions where salaries do not quite reach the level of salaries paid in Europe”, emphasises Dr. Bendhaou.
3. From the virtual to the physical gateway.
Although the logistical and transport infrastructure in Tunisia can be rated as relatively satisfactory, the country could maintain its appeal as an investment location at the expense of its neighbouring countries through improved statutory rules, and Merck Serono could benefit from an actual physical gateway. Examples of this are:
• the quick improvement of the flight connections by means of direct flights to African countries despite the fact that there are numerous international airports in Tunisia
• the improvement of the sea links to sub Saharan Africa
• the revision of the legislation concerning international trade which prohibits offshore trade with pharmaceuticals:
Until now, Tunisia requires 20 per cent of its export goods to be of Tunisian origin.
• simplification of the flow of goods through the creation of an offshore storage site and shipment to the African countries.
• Tunisia is focussing more on the Middle East and Europe to the detriment of the opportunities offered on the African continent.
• less of bureaucratic obstacles, which can impair any activities. These require flexibility, transparency and a simplification of the flows of goods.
Dr. Karim Bendhaou (MD, MBA) has been the President of Merck North West Africa Group for more than 10 years. He currently heads the operations for 38 countries in this large region. Trained as an MD in Algiers and Paris, he has been working in the pharmaceutical industry for almost 20 years.
Co-author: Rania Dourai,