TUNISIA ECONOMIC HIGHLIGHTS

UNCLAS SECTION 01 OF 02 TUNIS 001073 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/MAG (HARRIS) STATE PASS USTR (BUNTIN),USAID (MCCLOUD) USDOC FOR ITA/MAC/ONE (NATHAN MASON),ADVOCACY CTR (JAMES),AND CLDP (TEJTEL AND MCMANUS) USDOC PASS USPTO (ADAMS, BROWN AND MARSHALL) CASABLANCA FOR FCS (ORTIZ) LONDON AND PARIS FOR NEA WATCHER E.O. 12958: N/A TAGS: ECON ETRD EINV EFIN KTEX TS SUBJECT: TUNISIA ECONOMIC HIGHLIGHTS REFS: 06 TUNIS 2573 06 TUNIS 2465 06 TUNIS 2464 ¶1. (U) This cable contains highlights of recent economic developments in Tunisia on the following topics: ¶A. Trade Gap Narrows ¶B. President Signs US $14 Billion Emirati Project Bill ¶C. GOT Offers Tax Amnesty for Capital Repatriation -------------- Trade Gap Narrows -------------- ¶2. (U) According to recently published Tunisian National Institute of Statistics (INS) data, the trade deficit for the first half of 2007 declined 7.4 percent over the same period of 2006. Exports, which account for 45 percent of GDP, rose 29.8 percent to 9.818 billion TND (US $7.432 billion),with imports only up 21.9 percent to 11.695 billion TND (US $8.853 billion). Agricultural exports, mainly olive oil and dates, registered a 28.9 percent increase with 1.073 billion TND (US $812.261 million). Textile and apparel exports, a key foreign currency earner, rose 22.5 percent to 3.227 billion TND (US $2.44 billion). Notably, the value of petroleum product imports fell by 17.8 percent to 1.175 billion TND (US $889.475 million). ¶3. (SBU) Comment: The rise in textile exports is welcome development for the GOT after relatively weak performance in 2005 and 2006 (Refs B and C). The improvement indicates that the GOT's strategy to improve productivity and encourage value-added production is finally yielding results. The fall in petroleum imports is notable, but there is no further information regarding whether the decline is a result of falling demand (due to higher oil prices) or increased domestic supply. While there have been significant discoveries and increases in production over the past year, downstream processing has been minimal, forcing Tunisia to import most of its refined petroleum products. End Comment. -------------- -------------- President Signs US $14 Billion Emirati Project Bill -------------- -------------- ¶4. (U) On July 17 President Ben Ali signed into law legislation paving the way for the largest internal investment project in the �A;country's history. The US $14 billion real-estate project between GOT and Sama Dubai, the property unit of state-owned Dubai Holding, will create luxury apartments, offices, trade centers and hotels on an 837 hectare property north of the capital. According to local news reports, the deal came under scrutiny in Parliament due to concerns that the project might stimulate further concessions of Tunisian lands to foreigners. Several articles of the original agreement were reportedly amended to stress the sovereignty of Tunisian law and to allow the GOT to oppose certain provisions and precludes foreign appropriation. The GOT estimates that the investment will boost the GDP growth rate to 6.3 percent by stimulating business activities in all sectors, especially building materials. The GOT projects that the investment will create 15,000 new positions for skilled workers, with the total number of jobs estimated at nearly 130,000 including unskilled work. There is widespread speculation that Sama Dubai has received authorization to bring in a large number of unskilled foreign workers to complete the project. ¶5. (SBU) Comment: The Sama Dubai investment is one of many large Emirati investments currently on the horizon (Ref A). The GOT has been eager to attract foreign direct investment in order to boost GDP growth and tackle the country's very high unemployment rate (officially 13.9 percent). The recent visit of a high-level UAE delegation, led by Vice President and Prime Minister Shaikh Mohammad Bin Rashid Al-Maktoum, highlights the ongoing interest of both countries in joint investment projects. Although FDI from the Gulf TUNIS 00001073 002 OF 002 is growing in Tunisia, much of the investment is targeted towards large real estate projects or privatizations. While investments such as the Sama Dubai project or Tunisie Telecom privatization will raise Tunisia's FDI figures, these types of investment may not lead to the type of job creation necessary to significantly reduce unemployment. End Comment. -------------- -- GOT Offers Tax Amnesty for Capital Repatriation -------------- -- ¶6. (U) According to the recently published official gazette, on June 25, 2007, President Ben Ali signed Law No. 2007-41, a tax amnesty to encourage Tunisians to repatriate currency possessed illegally. The amnesty will apply to individuals and companies who have (1) failed to repatriate their unsanctioned income and assets held abroad, (2) failed to declare personal holdings of foreign currency, or (3) exceeded the amount of undeclared dinars that one can take outside of the country. Tunisians repatriating their capital will be able to keep their funds in foreign currency. ¶7. (SBU) Comment and Background: Although the Central Bank has eased restrictions on foreign currency transactions in recent years, the dinar is not yet fully convertible. In order to transfer money abroad or hold a specified amount of hard currency Tunisian companies and residents must apply for authorization from the Central Bank. Strict annual limitations on foreign currency for residents and the often onerous Central Bank authorizations have driven many Tunisians to keep their money abroad illegally. While the full amount of capital held abroad is unknown, one Embassy contact referenced a World Bank study that estimated that the amount of capital held abroad might equal the level of external debt. With Tunisia's external debt at roughly 20.2 billion dinars (US $15.8 billion),or 46 percent of GDP, the GOT is eager to capture even a fraction of this capital and reincorporate it into the Tunisian economy. End Comment and Background. GODEC