SCENESETTER FOR VISIT OF BUSINESS EXECUTIVES FOR

UNCLAS TUNIS 002321

SIPDIS

SENSITIVE
SIPDIS

NEA/MAG

E.O. 12958: NA
TAGS: SOCI PREL PGOV PHUM PINR PTER ASEC ECON TS
SUBJECT: SCENESETTER FOR VISIT OF BUSINESS EXECUTIVES FOR
NATIONAL SECURITY TO TUNISIA



1. (SBU) Embassy Tunis warmly welcomes the Business
Executives for National Security (BENS) delegation's
September 13-14 2006 visit to Tunisia. This cable provides
a brief overview of the political situation in Tunisia, as
well as a summary of the business climate.

--------------
The Bilateral Relationship
--------------


2. (SBU) Your visit takes place in the context of a long-
standing and positive bilateral relationship; the U.S. was
the first western power to recognize an independent Tunisia
in 1956. Recent high-level visits include a February, 2006
visit by Secretary of Defense Rumsfeld, a May, 2006 visit by
then-Deputy Secretary of State Robert Zoellick and a March,
2006 visit by Assistant Secretary of State for Near Eastern
Affairs David Welch.


3. (SBU) The Tunisian government considers external security
as one of its top concerns which highlights the value it
places on its historic and robust military-military
relationship with the United States. Unfortunately, and
against the backdrop of a very limited national budget, new
equipment is needed to match an evolving and common threat-
international terrorism. At present, Tunisia receives
approximately 8-10 million USD in Foreign Military Financing
and nearly all of that money is used for the partial
maintenance of its aging fleets of U.S.-origin equipment.
This makes any significant recapitalization of the Tunisian
Armed Forces at least problematic for the near future unless
additional third country financing is secured. That said,
Tunisia has been and remains an active participant in United
Nations Peacekeeping Missions. The GOT is supportive of
several military issues of mutual interest, takes part in
NATO Seminars and activities, and is extremely appreciative
of US assistance (which includes IMET, USEUCOM Humanitarian
Assistance, Counterterrorism related seminars, and other
activities.) In fact, the GOT reciprocated the USG's past
generosity with a symbolic gesture of two C-130 loads of
humanitarian assistance in the wake of Hurricane Katrina.
You may wish to thank them for this effort and the Tunisian
Red Crescent's gifts included blankets, tents, diapers,
detergent, blankets, and water. In total, it represented
some 20 tons of supplies.


4. (SBU) The visit also comes at a time when the USG is
working to advance a number of issues in Tunisia, including
the promotion of greater democratic and political freedoms
and economic reforms.

--------------
Political Overview
--------------


5. (SBU) Tunisia is a constitutional republic with a
population of approximately 10 million, dominated by a
single political party, the Democratic Constitutional Rally
(RCD). Zine el-Abidine Ben Ali has been the president since

1987. Although three opposition parties contested the
October 2004 presidential election, official results
indicated that President Ben Ali won approximately 94
percent of the registered popular vote. The official
turnout was reportedly higher than 90 percent of registered
voters, although there were indications that voter turnout
figures were artificially inflated. Tunisia has a bicameral
legislature. In addition to the Chamber of Deputies, a
second legislative body, the Chamber of Advisors, was
created in a 2002 referendum amending the Constitution. The
legislature plays a limited role as an arena for debate on
national policy but never originates legislation and
virtually always passes bills presented by the Executive
with only minor changes.


6. (SBU) Tunisia proudly -- and justifiably -- calls itself
a "country that works." Despite Tunisia's relatively small
economy and lack of natural resources, the Tunisian
government has proven itself capable of providing basic
education, health care, housing and a workable
infrastructure to its population. Tunisian woman enjoy more
rights and opportunities than in any other Muslim country.
As a result of these policies, the majority of Tunisians are
generally moderate and desire a government intent on
modernizing the country and integrating it fully into the
world economy.


7. (SBU) Despite these positive parameters, political
liberties remain tightly controlled and civil society
development is stifled. Tunisia's sluggishness on political

reform has been a point of contention in the U.S. - Tunisian
relationship in recent years. Although President Ben Ali
has introduced some positive political reform steps in the
past year (pardoning some political prisoners, lifting a
form of censorship for print media, registering a new
political party),civil society and human rights groups
remain deeply cynical and continue to report many instances
of government harassment, intimidation, and limits on their
activities. Journalists reject the suggestion that press
censorship has ended and local media usually lacks any
meaningful coverage of domestic political issues. According
to the 2005 Reporters Without Borders list of Worldwide
Press Freedom Index rankings, Tunisia was 147 out of 167.
National elections - both presidential and legislative -
will be next held in 2009.


--------------
Business Climate
--------------


8. (U) Tunisia has the most diversified economy in the
region. It has one of the highest standards of living on
the entire continent. The country does not have vast
reserves of hydrocarbons like its neighbors Algeria and
Libya but has prospered under long-standing government
policies to develop manufacturing industries for export and
to promote tourism. At the same time, social programs limit
population growth, provide a high standard of education, and
ensure a relatively decent standard of living for all. The
average annual income is approximately 3000 USD.


9. (U) The Tunisian economy is maintaining average annual
growth of almost 4.5 percent. Inflation is running at about
2 percent annually and hard currency reserves of
approximately 4.25 billion USD at the end of 2005 are equal
to 121 days of imports. Manufacturing industries, producing
largely for export, are the motor of Tunisia's economic
growth and a major source of foreign currency revenue,
accounting for nearly 90 percent of exports. Labor-
intensive plants, historically producing textiles, and more
recently, those producing automobile components, create much-
needed jobs. Textiles have long been the primary source of
foreign currency revenue, with more than 90 percent of
production being exported, but foreign orders have slowed in
the face of increased global competition. A government
export promotion center (Centre de Promotion des
Exportations - CEPEX) is responsible for identifying new
export markets. Tourism and mechanical and electrical
equipment sales are the second largest source of foreign
currency revenue. About 6.4 million tourists visited
Tunisia in 2005, compared to 6 million in 2004, bringing in
nearly 2 billion USD in convertible currency. Agriculture
plays a major role in Tunisia, and engages approximately one-
fifth of the population. In 2005, Tunisia exported nearly
940 million USD of agricultural products, mainly olive oil,
seafood, dates and citrus. The government still retains
control over certain strategic sectors of the economy
(finance, hydrocarbons, the national airline, electricity
and gas distribution, land-based telecommunications, and
water resources),but the role of the private sector is
increasingly important. The Government of Tunisia is now
studying the economic impact of a proposed liberalization of
petroleum product price controls, especially since energy
imports accounted for 34 percent of all imports through June
2006, and petroleum products are subsidized.


10. (U) Accessing the Tunisian market can be a challenge for
U.S. companies. Geographically part of Africa but
culturally more Middle Eastern or Mediterranean, this former
French protectorate has extremely close ties to Europe.
These have been reinforced by Tunisia's Association
Agreement with the European Union (EU) which will create a
free trade zone by 2008. Over 70 percent of Tunisia's
foreign trade is with Europe. Tunisia's other major trading
partner is Libya. In 2005, total Tunisian imports were
12.86 billion USD and exports totaled 10.2 billion USD.


11. (U) Foreign Direct Investment (FDI) in Tunisia was
estimated at around fifteen billion dollars and has been
growing steadily, thanks mainly to Spanish companies and
British Gas. A large part of FDI has also come from the
GOT's efforts at privatization, which have led to the sale
of many state-run enterprises and assets. FDI usually falls
into either the food products, automotive or
telecommunications and electronics sectors of the economy,
but retail distribution is growing as well. While the GOT
has made movement toward liberalization of the marketplace,
it still directs FDI toward offshore manufacturing

industries that are primarily export-oriented: The GOT is
not yet fully comfortable with investment that flows toward
foreign firms that compete with local ones, or that mean
foreign exchange leaving the country. The U.S. has been
working towards a Free Trade Agreement with the GOT since
2003, but even the preliminary Trade and Investment
Framework Agreement (TIFA) is still in its working stages.
There are concerns regarding the GOT's failure to relinquish
its control over major sectors of the economy, including its
position as the controlling shareholder of nine major
Tunisian banks. This control has been named by some as the
reason there is little interest in stocks and bonds, leaving
the stock market without strong capital investment.


12. (U) The International Monetary Fund has lauded Tunisia's
performance in the agricultural sector in recent years, but
has suggested that the country is in need of a policy which
would bring down public sector debt. The convertibility of
the Tunisian dinar is another issue which is repeatedly
addressed in economic circles, but the government still does
not allow physical importation or exportation of the
currency. These laws remain based on the Foreign Trade and
Foreign Exchange Code of 1976, which the government has said
it is reviewing. The dinar is convertible for most bona-
fide investment and trade operations. However, the
inability of the average Tunisian citizen to possess an
international credit card, and the strict restrictions on
the amount of currency allowed out of the country, have led
many to question the true gains made in this arena. The
dinar is traded in an intra-bank market. Trading is based on
a fixed basket of currencies (the Euro, the U.S. dollar and
the Japanese yen) established by the Central Bank. The
dollar/dinar value fluctuates on a daily basis, with the
dollar trading most recently at approximately TD 1.30.
Since the beginning of 2005 the dinar has depreciated more
than 12 percent against the U.S. dollar but has gained 1
percent against the Euro. The GOT has hinted that the dinar
will not be fully convertible before 2009.


13. (U) The Tunisian American Chamber of Commerce (TACC) is
a nonprofit trade association developed to facilitate trade
between the US and Tunisia. Since Tunisia hopes to set
itself up as a tourist destination and a palatable
investment option for Americans, TACC helps support U.S.
companies investing in Tunisia. The organization has pushed
for a free trade agreement between the two countries, and is
a strong advocate for liberalizing the Tunisian market
system. TACC also focuses on bolstering regional trade
relations in the Maghreb. TACC hosts a variety of
conferences and seminars on the bilateral economic
relationship between Tunisia and the US, and organizes trade
missions at exhibitions and trade fairs in both countries.
TACC offers English language training courses, as well as
courses for business executives, and it also sends a group
of Tunisian business leaders to Washington annually to meet
with US government representatives and fellow nonprofits.
One of TACC's greatest strengths may be that it frankly and
openly addresses troubling issues affecting many world
economies, from the problems arising from "brain drain," to
whether or not the local currency should become convertible.
TACC holds and publishes debates on a variety of trade and
industry issues; a vital part of any economy.

--------------
Security
--------------


14. (U) The crime rate in Tunisia remains fairly low, but
has been on the rise in the past few years. Violent crime
is still a relatively rare occurrence, especially in the
wealthier areas where tourists and expatriates tend to
congregate, but theft and pick-pocketing of foreigners has
become more commonplace. Females walking alone are common
targets. Burglaries of private residences have also seen an
upward trend.


15. (U) While American citizens or interests have not been
the target of any terrorist attacks in Tunisia, the threat
of terrorism is not absent from the country. In 2002 a
faction of al Qaeda bombed a famous synagogue on the island
of Djerba; the first al Qaeda-related terrorist incident
after 9/11. The GOT remains concerned about signs of
increasing Islamic extremism.


16. (U) The Tunisian press is routinely critical of U.S.
foreign policy, reflecting widespread cynicism about U.S.
policy in the region. These sentiments have not led to any
violent anti-American demonstrations or activities, however.
On July 24, civil society and trade union activists

organized a rally in downtown Tunis to express solidarity
with the Lebanese people. While some demonstrators carried
anti-U.S. banners and chanted anti-U.S. slogans, the event
remained peaceful.

--------------
Public Diplomacy
--------------


17. (U) Your visit represents an important opportunity to
engage Tunisian audiences and to listen to local
perspectives. Especially since the recent events in
Lebanon, Tunisian public opinion and the press has been more
critical of US policy. Tunisians do not agree, in general,
with the position of the USG regarding the Lebanese and the
Palestinian-Israeli conflicts. This has colored their
perceptions of Americans in general. When Secretary
Rumsfeld and then-Deputy Secretary of State Zoellick visited
this spring, they were articulate interlocutors and their
visits resulted in positive press coverage of US policy.


18. (U) The Public Affairs Office at the Embassy has a very
active exchange program with many Tunisian and American
students and faculty participating. It recruits for over
twenty-five different exchange programs, including Fulbright
scholarships for those seeking advanced degrees, and
programs for high school students. The Public Affairs Office
also arranges for speakers, cultural performances and
workshops on a variety of topics. Despite criticism of
American policies, most Tunisians are eager to continue the
longstanding friendship between our two countries. We
trust your visit will reinforce this relative advantage.

BALLARD