As Tunisia completes its transition to democracy, there are hopes that the results of recent presidential elections will bring improvements to the investment climate after a difficult period.

After a November vote – the first free presidential elections in the country’s history – the top two candidates, Beji Caid Essebsi and incumbent president Moncef Marzouki, will compete in a runoff at the end of December. Mr Essebsi, Nidaa Tounes founder and a veteran minister of the regimes of both Habib Bourguiba and Ben Ali, Tunisia’s first two presidents, is widely projected to win the runoff vote.


Market orientation

Nidaa Tounes is a secular, centre-right party with a liberal economic platform and will lead the government for the next five years. “Nidaa’s win is a positive thing for investors and businesses, as they are more free market-oriented and investor-friendly,” said Noomen Lahimer, professor of economics at the University of Carthage.

“The spirit of the investment code will be more liberal and I think we will be able to offer more incentives to foreign investors,” he said. The party has also vowed to make security and counter-terrorism their top national priority, a critical point for investors considering Tunisia’s fragile borders with Libya and Algeria.

The new investment code should be completed in the first few months of 2015 – “something that is pretty urgent”, according to Mr Lahimer.

Development disparity

Another challenge for the new government is regional development disparity. Tunisia’s coastal regions are highly developed, while its south and interior suffer from stagnation and economic decline.

The current investment code attempts to address this disparity by incentivising investors to build their enterprises in these “priority areas” by offering 100% coverage of employer’s contribution to social security, 100% capital repatriation for the first 10 years, 25% subsidisation of project costs, 85% coverage of infrastructure costs and permanent exemption from a range of taxes, including the professional training tax. These benefits are not set to change – if anything, they may be enhanced to attract more investment in crucial sectors and areas, according to Mr Laabidi. 

“Under the Ben Ali regime we had stability and investors liked this,” says Mr Lahimer. “But the difference a democracy makes is that all stakeholders, all parties, will have a role in the decision-making; politicians, financial players, unions… With this comes better productivity. We have the opportunity to make sure the investment code is good for both the nation and investors.”

FDI drive

While the new investment code has yet to be put together, “there is no option,” says Mr Lahimer, but to formulate policies encouraging more foreign investment and job creation, particularly for Tunisia’s burgeoning population of degree-holders. “The new code will not only aim to attract more investors, but will also aim to target what kind of investors would come to Tunisia. We don’t need any more low-skilled investors. We will give more incentives to high-tech investors that are intensive in high-skilled labour,” he says.

The next few years will see a push for investment, especially in up-and-coming sectors such as information and communications technology, healthcare and media. Telecoms, IT and data services also have high projected growth rates, with low regulatory barriers and an easy availability of production factors.

Nearly four years after the impoverished street vendor Mohamed Bouazizi set himself alight in a neglected town in Tunisia’s interior and sparked a region-wide uprising, the country where the Arab Spring began remains arguably its most successful.

Instability following the 2011 revolution that deposed long-time dictator Zine el Abidine Ben Ali led to nationwide strikes, increased unemployment and a spike in terrorism, including two political assassinations at the hands of militant Islamists. After having contracted by 3.9% in the first quarter of 2011, the current GDP growth rate hovers around 2%, still hindered by persisting political uncertainty.

Difficult period

Nonetheless, foreign enterprises already established prior to the revolution in large part stayed in the country and “some enterprises even extended themselves and became bigger”, according to Khalil Laabidi, director of Tunisia’s Foreign Investment Promotion Agency.

“We passed a very difficult period in 2011 to 2012 – FDI decreased by 25%,” said Mr Laabidi. “But now, from 2013 to 2014, we’re in the process of decreasing this gap and the current figure is closer to 12.8%; less than what we had in 2010.”

October’s legislative elections – the second democratic elections in the country’s history – have unfolded smoothly, hailed as highly transparent and fair by international observer groups. The results came as a surprise, as secular opposition party Nidaa Tounes took the lead with 86 seats in the 217-seat People’s Assembly, followed by former favourite, moderate Islamist party Ennahda, with 68 seats.

Mr Laabidi stressed the importance of the elections’ success in increasing investor confidence and creating jobs for Tunisians. The new government and its corruption-free, democratic entry to power, as well as the creation of January 2014’s internationally praised Constitution, is pivotal to lasting political stability and security.

“Seventy per cent of FDI in Tunisia is greenfield investment – we rely a lot on this,” said Mr Laabidi. With 3200 foreign enterprises, 335,000 employees and a total worth of TD3.2bn ($1.7bn or 3.8% of Tunisia’s GDP), roughly 52% of FDI is in industrial manufacturing, 38.5% in services and 8.6% in tourism.

Textiles comprise a significant area of FDI in industrial manufacturing, one example of which is Benetton, one of Europe’s largest clothing manufacturers, which has three plants and 10,000 employees in Tunisia and continues to grow.