Reforms are pushing Tunisia in the right direction, making this a good time to examine opportunities

This is a good time for U.S. traders and investors to take an in-depth look at opportunities to do business in Tunisia. While Tunisia and the United States have enjoyed a friendly and stable relationship for more than a century and a half, recent trends are making the Tunisian economic climate particularly favorable for American firms.

U.S. exports to Tunisia last year were $160 million. Cereals, financed by guaranteed credits, were the largest U.S. export to Tunisia, followed by edible oils, mechanical and electronic equipment, chemicals, iron and steel, textiles, unrefined sulphur, and tobacco. The United States is also represented in the Tunisian markets for military hardware, and raw materials for the fertilizer industry. U.S. companies dominate the computer market, mostly through their French subsidiaries.

U.S. imports from Tunisia in 1989 totaled $56 million, primarily petroleum, phosphatic products, eyeglass frames, olive oil, and textile and apparel products.

Opportunities are favorable for sales of equipment for irrigation, water treatment, textile production, transportation, and oil and gas field development. The phosphate and chemical fertilizer industries are also major importers and will be expanding over the next three years.

The U.S. Government supports American firms active in Tunisia through several programs. Overseas Private Investment Corporation (OPIC) insurance, finance, and pre-investment programs are fully operational in Tunisia. OPIC's outstanding insurance portfolio in Tunisia includes projects in oil and gas exploration, metallurgy, tourism, and apparel manufacturing.

The U.S. Export-Import Bank has exposure in Tunisia. Because Tunisia has maintained its creditworthiness at a time when many other countries suffer debt service problems, Eximbank is interested in expanding its support of U.S. exporters to the country.

The U.S. Agency for International Development (USAID) program supports Tunisia's structural adjustment program, promotes the development of private industry, facilitates technology exchange, and helps contend with drought and locusts by providing technical and consultant assistance.

Most USAID programs provide Tunisia with technical assistance through exchanges and U.S. consultants. For example, the Technology Transfer Project finances studies by Tunisians in the United States focusing on human resource requirements for structural adjustment, and the Private Sector Development Project is funding a U.S. consultant who is working with the Prime Ministry on its privatization policy.

Some Historical Perspective

Tunisia's economy was growing well until it was hit hard in 1986 by the collapse in oil prices and a drought, which reduced the grain harvest and devastated farm income.

When President Zine el Abidine Ben Ali took office in November 1987 he introduced political and economic reforms. The reforms are aimed at reducing the role of the state and giving the private sector an expanded and predominant role in the economy.

The reforms include privatizing state-run sectors and selling government holdings in public and public-private enterprises. The state tourism company, the national wood importer, and a number of manufacturing enterprises--including textile companies, an appliance manufacturer, and a manufacturer of metal containers--have already been privatized. Other enterprises which will be sold off in the near future include chemical paper, mechanical equipment, and cement companies. Tunisian law allows foreign participation in newly privatized capital of these companies and some are now partly foreign-owned.

President Ben Ali is also improving economic decisions by putting technocrats in management positions and closing down uneconomical state projects. Market-related interest rates have been introduced, foreign currency transaction management improved, and competition among financial institutions increased.

Increasing private investment is a cornerstone in Tunisia's structural adjustment program. The goal is to attract investment in the manufacturing, agricultural, and tourism sectors, and by extension, to create new opportunities for employment and develop an export-oriented industrial economy.

To achieve this end, the government has issued a new industrial investment code, an Agriculture Investment Law, and a Tourism Investment Law. The industrial investment code provides for equal treatment of foreign investment in manufacturing and allows full tax exemption and unrestricted profit repatriation for earnings from wholly export-oriented factories. Enterprises which export more than 15 percent of their production may freely import all of the raw materials and equipment required. In addition, import tariffs on capital goods have been cut considerably, and now the maximum tariff in effect is 43 percent. The maximum rate is supposed to be reduced to 25 percent by 1991.

The Agriculture Investment Law provides a range of advantages similar to those afforded to manufacturing industries. Tunisian law still prohibits the ownership of agricultural land by foreigners, but the investment code provides a special 40-year land lease system which permits agriculture development by foreign companies.

The Tourism Investment Law, which has been recently amended, grants equality to Tunisian and foreign investors and gives nonresident investors the right to transfer the invested capital and income. Companies are considered nonresident when at least 66 percent of their capital is held by Tunisian or foreign nonresidents.

In addition, a new law encouraging foreign investment in the services sector has recently been passed. The law is primarily aimed at data processing, engineering, construction and public works, and consulting services. There is no limit to foreign participation in capital service companies working totally for export, except that the foreign participation must be a minority shareholder when in partnership with a Tunisian firm which does not operate entirely for export.

American investment in Tunisia now totals more than $30 million. It is mostly in oil exploration, but there is a U.S. presence in Tunisia's food processing, financial, and manufacturing industries.

There have been other major steps taken to support expanded U.S.-Tunisian business ties. In October 1989, a Double Taxation Treaty was signed which avoids double taxation on corporations or individuals active in both countries. It is awaiting ratification by the U.S. Senate.

On May 15, 1990, a U.S.-Tunisia Bilateral Investment Treaty (BIT) was signed in Washington, D.C. during the visit of President Ben Ali. The BIT must be ratified by both the U.S. Senate and Tunisia's National Assembly. It will become effective 30 days after the instruments of ratification have been exchanged. The BIT is reciprocal in nature, and covers future as well as existing investments. It guarantees American investors:

The right to establish their investments on a basis no less favorable than that accorded to investors of third countries; and, subject to existing laws, on a basis no less favorable than that accorded to domestic investors;

Treatment of investments that is no less favorable than that accorded to domestic investments or to investments of nationals of any third country, whichever is more favorable;

International law standards for expropriation and compensation thereof;

Free transfers of capital (with a three-year balance of payments exception limited to the proceeds from the sale or liquidation of the investment); and

The right to submit disputes to international arbitration through the World Bank's International Center for Settlement of Investment Disputes.

Above all, the Tunisian Chamber of Deputies formally adopted the Protocol of Accession to the General Agreement on Tariffs and Trade (GATT) on June 25. This was the final step in Tunisia's route to full GATT membership. Lower tariffs on certain products should now make U.S. exports more competitive.

The recovery in Tunisia's economic picture is encouraging. The economy showed 3.1 percent real growth in 1989, and investment rose 8.5 percent from $2.0 billion to $2.2 billion. Foreign reserves were $939 million in January 1990, up 12 percent from January 1989. Tunisian exports grew 35 percent in 1989 to almost $3.1 billion. Manufacturing industries expanded 4.8 percent, with the textile industry being the star performer with a growth rate of 10.2 percent. Imports continue to rise following the 1986 lifting of restrictions on imports of raw materials, spare parts, semi-products, and equipment; imports rose by 31 percent in 1989 to $4.6 billion.

Tunisia has managed its external debt well and has met all of its external obligations on time. The country has never requested rescheduling of its foreign debt.

Over the next few years, American firms will be able to take advantage of Tunisia's strategic location and preferential access vis-a-vis the European and North African markets. Tunisia's skilled and plentiful labor force, whose wages are below those in developed countries, is the nation's major exploitable resource. Tunisia's reforms are aiming the economy in the right direction. A favorable climate exists in Tunisia for U.S. traders and investors, and this is a good time to take an indepth look at the country. For additional information about trade and investment opportunities in Tunisia, contact the Commerce Department Desk Office for Tunisia on (202) 377-2515.

COPYRIGHT 1990 U.S. Government Printing Office
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