The only country to come out of the ‘Arab Spring’ revolutions as a fully fledged democracy, Tunisia has paid a price for its transition in the form of economic uncertainties that were compounded further by security threats. FDI has been an essential ballast during the uncertain times, says Marouane El Abassi, governor of the Central Bank of Tunisia.

“FDI is a fundamental financing source of both the current account deficit and growth, which have been affected by the fallout from the revolution – sociopolitical, geopolitical, security climate, etc,” says Mr El Abassi. “FDI allows limiting the use of debt to finance the current account deficit of the Tunisian balance of payments. This structural deficit is partly financed by FDI, despite its decline in recent years.”

Well-balanced mix

Fortunately, Mr El Abassi reports, FDI flows into Tunisia increased by 28.6% in 2018 to reach more than TD2.7bn ($942m), representing 23.4% of total long-term external financing, while at the same time the breakdown of FDI shows that in recent years Tunisia has enjoyed greater diversification in its inbound investment. Its composition includes a well-balanced mix of manufacturing industries, besides energy, telecommunications, health and education, among other sectors. At the end of 2018, the number of foreign or foreign-backed enterprises (excluding energy) in Tunisia had reached about 3500 companies, creating nearly 390,000 jobs. 

“Tunisia’s economic growth, which has been slowly gaining steam since 2017, is projected to reach 2.7% in 2019 before gradually approaching its potential over the medium term – above 4% – against a backdrop of increasing pace of domestic and foreign investment through our improved business climate, greater security and social stability and structural reforms,” says Mr El Abassi. 

Tourism, a major plank of the economy, suffered heavily after a series of terrorist attacks in 2015, but is now recovering healthily. “The tourism sector, which registered a sound performance in 2018, should break records in 2019. This promising growth should continue from the European markets, [as we are] benefiting from a regaining of confidence there, in addition to the contribution from Algerian and Russian tourists. Our tourism sector benefits from a strategy that aims to modernise and improve the quality of services and products,” adds Mr El Abassi.

Recovery is also being seen in the phosphate (and by-products) and hydrocarbons sectors, the latter having recently benefited from measures that include the launch of a development plan for maritime oil and gas exploration and the initiation of exploration of the Nawara field in October 2019, which is expected to increase national gas production by 50%. Meanwhile, a sound cereal harvest planned in 2019 will offset a significant drop in olive oil production.

Diverse base

Tunisia has a large diversified industrial base (which includes the electrical mechanics, aeronautics, chemical and textile industries) that Mr El Abassi  says “require an upmarket move to play a key role in the structural transformation of the Tunisian economy”. This is a move in which foreign investors can certainly assist. 

Threats to stability, both internal and external, remain omnipresent, however. In June 2019, a pair of simultaneous suicide bombings rattled the capital Tunis and caused authorities to declare a state of emergency, and in July president Beji Caid Essebsi – a key figure in the country’s transition to democracy and its first democratically elected leader – died aged 92, creating worries over a power vacuum developing ahead of elections later in 2019. 

“The sluggishness of activity in the eurozone, the uncertainties surrounding Brexit, the trade war between China and the US and the rise of protectionism could generate certain risks for the Tunisian economy. In addition, the instability of the geopolitical environment and the outlook for commodities and energy markets could be challenges that the country faces in the coming period,” says Mr El Abassi. 

But these externalities aside, there are reasons to hope the Tunisian economy could soon be on a firmer footing than it has at any time since 2011.

“What is really important to highlight is the quality of the growth. Before, it was mainly based on the demand side, but it is changing because it is now related to the industrial sector, to services, etc,” says Mr El Abassi. “The investment is not yet back… but hopefully once we [achieve greater] political stability, we can [move away from] the political transition period, and we can get some significant international investment coming back this way. We are, hopefully, at the end of political transition, and we are trying [to create an environment] for stronger economic growth,” he says.