Tunisia is of strategic importance for multiple reasons: it is located in direct proximity to Europe, it is situated in the middle of Northern Africa, and it is the birthplace of the Arab Spring. This means that what happens in Tunisia in the future is relevant well beyond the region’s borders. It is therefore by no means only in the (understandable) interest of the local population that this country, which is so central not only geographically but also in the politics of the southern Mediterranean region, continues to gain in strength.
KfW is well aware of this distinguished role in its financial cooperation with Tunisia on behalf of the German federal government. Many of the joint projects that have been initiated in the two years since the Tunisian Revolution and that will be tackled in the future are aimed at continuing to stabilise Tunisia in this crucial transitional phase. KfW is contributing to this in various areas.
One of the country’s biggest challenges are its limited water resources. Tunisia is among the twenty most arid nations in the world. At approximately 400 cubic metres, the reclaimable amount of fresh water per capita is less than a quarter of that available to each person living in Germany. At the same time, Tunisia’s population is increasing all the time, just like in almost every other country in the region. As a result, demand for food increases which, in turn, also leads to higher water consumption. In other words, Tunisia has a water problem, which is bound to get worse as a result of climate change and which poses a potential risk to the country, because this deficit can affect all areas of life and all economic activities in Tunisia.
For this reason, KfW provides particular funding to the water sector in Tunisia. This collaboration did not just begin after the upheavals, but has been in place for several decades. Since then, however, KfW has increased its commitment particularly in the water sector, adapted its programmes and aligned them to the changed conditions.
As 90 per cent of the water in Tunisia is used for agriculture, KfW is currently concentrating on rural areas in particular. A new holistic programme for Integrated Water Resource Management (IWRM), for example, is geared specifically towards remote and neglected regions (“régions defavorisées”), such as in Central Tunisia, around Kairouan and Sidi Bouzid. These are regions where irrigation farming is an important economic factor, able to create jobs and generate income. In total, KfW has already pledged 60 million euros to Tunisia for these purposes in the form of subsidised loans and grants.
The idea behind this IWRM approach is to comprehensively modernise the water sector in an entire region. Specifically, this means more efficient utilisation through water reservoirs, better pipe systems and modern irrigation systems, as well as treatment or re-use of waste water and much more.
In a country like Tunisia, water is also an important lifeline in political terms. Using it sensibly boosts the production of foodstuffs – even for export in some cases – and keeps even more people from migrating to the cities where it is particularly difficult for young people to find work these days. Everyone knows that the high unemployment rate among young people and the lack of prospects especially in these rural areas were among the key factors which brought about the Arab Spring. Therefore it is now all the more important to make sure that these two factors do not destabilise the country in the long run. Only if the young generation is given a fair chance for income and employment is there a chance of stable political conditions in the country.
Consequently, the primary concerns of the interim government in Tunis include boosting the economy and creating jobs. The government’s objective is to reduce unemployment, which is currently at an estimated 25 per cent, to 10 per cent over the course of the next four years. This means that approximately 500,000 new jobs have to be created.
KfW attempts to support the government in this effort with its funding activities. In addition to its commitment to the water sector, which is intended to secure and create jobs in rural areas, KfW had already set up a fund for industrial environmental protection (FODEP) a few years ago. This fund was renewed last year with an additional pledge and now holds a total of over 50 million euros. Companies that invest in environmental protection – for example by setting up their own sewage treatment plant, equipping their chimneys with air filters or eliminating the use of hazardous chemicals in manufacturing their products – can receive support in the form of low-interest loans and grants. Besides this positive effect on the environment, FODEP also strengthens the competitiveness of Tunisian companies, who would otherwise have great difficulty in exporting their products to Europe, for example because they do not meet the strict environmental specifications of the EU.
Furthermore, KfW is preparing an employment programme in the form of a refinancing line and has already launched a regional fund for the direct promotion of employment. From this refinancing line of initially 50 million euros, Tunisian banks can obtain low-interest loans in order to pass them on to small and medium-sized companies (SMEs). It is these SMEs which are particularly important for creating employment opportunities, but they and micro enterprises in the informal sector often do not have access to financing. KfW has also established the “SANAD” fund to remedy this very problem. This was done on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) and with the support of the European Commission as part of the Neighbourhood Investment Facility (NIF). SANAD is aimed at various countries in North Africa and the Middle East, including Tunisia, and makes capital available to banks and microfinance institutions to enable them to offer loans to small businesses. It is hoped that up to 115,000 businesses will ultimately benefit from SANAD.
After all, our many years of experience from all around the globe have taught us that it is especially the small enterprises which provide security for an economic system, in a sense, from the bottom up. Each of these micro enterprises may only create one, two or three new jobs, but all together, they have great potential and enormous power. It is beyond dispute that Tunisia needs more commitment from businesses and a larger private sector – now more than ever. Before the revolution, more than half of all formal employment relationships were in the public sector. However, in light of fluctuating tax revenue, a growing budget deficit and rising inflation, the public authorities cannot – and should not – continue to be the country’s main employer. Small and medium-sized companies are therefore all the more important for economic development in Tunisia.
In order to provide direct relief to the nation during the current transformation phase, the German federal government has also announced that it will convert a total of 60 million euros of Tunisia’s debt. This will allow the country to initiate development projects itself and finance measures in Tunisian dinars to promote employment, including in poorer regions. This way, the government saves valuable foreign currency, which it would otherwise have to raise to pay its debt. After such projects have been financed, the German federal government will waive Tunisia’s debt to the tune of 60 million euros as announced.
Over the past couple of years, KfW has intensified its cooperation with Tunisia and signed financing contracts of more than 120 million euros in 2011 alone. The German Federal Ministry for Economic Cooperation and Development (BMZ) has committed around 90 million euros in new funds for Tunisia for financial cooperation during each of the last two years; roughly two thirds of these pledges come from KfW’s own funds. For the time being, the intention is to maintain the commitment at this level, but diversify to other sectors, such as renewable energies. Tunisia still depends on fossil energy sources like gas and oil to cover more than 90 per cent of its needs, but the conditions for solar energy in particular are excellent. As it is vital that the Tunisian economy continues to grow, energy consumption is also rising – most recently by an average of four to five per cent annually. Meeting this demand in an environmentally compatible way and independent of any imports could bring long-term benefits – not only for Tunisia. With financial assistance from the BMZ and the EU, KfW is therefore planning a photovoltaic power plant in Tozeur, which could serve as a model for other plants.
In addition to the KfW’s Development Bank business sector, the KfW subsidiaries IPEX-Bank and DEG (Deutsche Investitions- und Entwicklungsgesellschaft mbH) are also active in North Africa. DEG has a 10 million euro share in a regional SME equity fund focussing on Tunisia. And IPEX Bank’s holdings include various aeroplane financing projects, including for government-owned Tunisair. Both of them are willing and ready to expand their activities in Tunisia significantly in the future.
The strategic importance KfW attaches to cooperation with Tunisia can be seen not only through new projects and higher pledges, but also through its local presence. A few months ago – in October 2012 – KfW opened an office in Tunis to facilitate direct contact with partners and even more efficient cooperation, as well as allowing projects and political events to be monitored more closely.