ZARZIS FREE TRADE ZONE DISAPPOINTED BY LACK OF

UNCLAS SECTION 01 OF 02 TUNIS 002414

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/MAG (HARRIS) AND EB/CIP
STATE PASS USTR (BELL),USPTO (ADLIN AND ADAMS),USAID
(MCCLOUD)
USDOC FOR ITA/MAC/ONE (ROTH),ADVOCACY CTR (JAMES),CLDP
(TEJTEL),AND HOUSTON USEAC
CASABLANCA FOR FCS (ORTIZ)
LONDON AND PARIS FOR NEA WATCHER

E.O. 12958: N/A
TAGS: ECON EINV ETRD BEXP LY TS
SUBJECT: ZARZIS FREE TRADE ZONE DISAPPOINTED BY LACK OF
AMERICAN INVESTMENT

REF: TUNIS 1630


1. (SBU) Summary: Ten years after its opening, the Zarzis
free trade zone, located in Southeastern Tunisia, has failed
to create the foreign investment and job promotion intended,
despite generous incentives offered by the GOT. In a meeting
with EconOff, newly-designated Director General for the
Zarzis free trade zone Khaled Touibi expressed frustration
and bewilderment at the lack of foreign, and particularly
American, enthusiasm for investing in Zarzis, and expressed
hope that the tide would turn due to the end of the sanctions
against Libya. End Summary.


2. (U) In 1992, the Tunisian government created free trade
zones in the Northern city of Bizerte and Southern city of
Zarzis in order to attract foreign direct investment, create
jobs, and increase exports. The free trade zones also have
the goal of aiding development of regions outside the
capital. The free trade zone in Zarzis, a port city on the
Southeast coast of Tunisia, opened for activity in 1996 with
a package of incentives for foreign investors including a
ten-year tax holiday, full convertability of the Tunisian
dinar, and duty free imports of necessary components and
services. (Note: The Tunisian dinar is not fully convertible
and Central Bank authorization is sometimes required for
foreign exchange operations. End Note.) In addition, exports
to Libya are currently duty free and in 2008 Tunisian exports
to the E.U. will gain duty free status. Due to Zarzis'
proximity to Libyan and Eastern Algerian oil and gas
deposits, energy companies have been a major target for
investment, but the zone leadership welcomes investment from
all sectors.


3. (SBU) Despite the favorable tax and customs concessions,
the free trade zone has had great difficulty attracting the
quantity and quality of foreign investment expected. In its
ten years of existence, the Zarzis free trade zone has only
produced 14.1 million USD in foreign investment and created a
paltry 200 jobs. While the zone is home to 52 projects, most
of these have been relatively small, and none have involved
American investment. Newly-designated Director General of
the Zarzis Park of Economic Activities Khaled Touibi
expresses frustration at the lack of interest on the part of
major companies and American investors. While Touibi was
willing to concede that Americans lacked information about
doing business in Tunisia, he asked why U.S. companies have
not taken advantage of the opportunities in Zarzis, or
throughout Tunisia more generally. When Econoff suggested
that perhaps the prior difficulties faced by major U.S.
companies such as McDonald's or Pizza Hut had negatively
affected American business' perceptions of Tunisia (reftel),
Touibi vehemently denied that there are or were ever any
barriers for Americans to do business in Tunisia.


4. (U) Touibi readily admitted that the free trade zone's
performance to date has not met expectations, yet was puzzled
as to why this was the case. During his tenure, Touibi aims
to to boost investment, increase working capital, and revive
previously signed cooperation agreements, including the
cooperation agreement signed in 2001 with the Houston Port
Authority. In addition, the free trade zone is currently in
talks with Maersk to establish a regular maritime line to
Zarzis, addressing one of the port's major shortcomings.
Deputy Manager of Tunisia's Maersk office Lofti Mouelhi
confirmed that Maersk is currently conducting feasibility
studies, but noted Maersk concerns that there is not
sufficient volume of shipments in and out of Zarzis to
justify opening a maritime line. The free trade zone staff
expressed hope that the end of the sanctions against Libya
would also increase interest in Zarzis. However, the number
of inquiries from foreign investors has not increased to
date. Though the zone's leadership was reticent to discuss
the competition for investors with the Bizerte free trade
zone, Bizerte commands a significant geographical advantage

TUNIS 00002414 002 OF 002


for all sectors except oil, due to its proximity to Tunis.


5. (SBU) Comment: With recent Central Bank figures showing a
widening trade deficit, the GOT is eager to see Zarzis become
a major export hub and views American investment as important
to that goal. However, Zarzis is likely to remain the less
successful of the two free trade zones unless and until it
successfully targets major oil companies. For the GOT,
accustomed to a state-driven model of investment, the lack of
American investment in Zarzis is indicative of American
interest in investing in Tunisia as a whole. Post will
continue to look for opportunities for American business in
Zarzis as well as possible avenues of cooperation with the
Zarzis free trade zone, particularly as they try to revive
and increase their cooperation with Houston. End Comment.
BALLARD