Identifier
Created
Classification
Origin
07TUNIS1433
2007-10-29 14:47:00
CONFIDENTIAL
Embassy Tunis
Cable title:  

INVESTORS GIVE TUNISIA VOTE OF "NO CONFIDENCE"

Tags:  EINV EFIN ECON TS 
pdf how-to read a cable
VZCZCXYZ0000
PP RUEHWEB

DE RUEHTU #1433/01 3021447
ZNY CCCCC ZZH
P 291447Z OCT 07
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 4048
INFO RUCNMGH/MAGHREB COLLECTIVE PRIORITY
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0936
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
C O N F I D E N T I A L TUNIS 001433 

SIPDIS

SIPDIS

STATE FOR NEA/MAG (HARRIS)
STATE PASS USTR (BURKHEAD),USAID (MCCLOUD)
USDOC FOR ITA/MAC/ONE (NATHAN MASON),ADVOCACY CTR (JAMES),
AND CLDP (TEJTEL AND MCMANUS)
CASABLANCA FOR FCS (ORTIZ)
LONDON AND PARIS FOR NEA WATCHER
CAIRO FOR TREASURY (SEVERENS)

E.O. 12958: DECL: 10/29/2017
TAGS: EINV EFIN ECON TS
SUBJECT: INVESTORS GIVE TUNISIA VOTE OF "NO CONFIDENCE"

REF: A. TUNIS 1268

B. TUNIS 1224

C. TUNIS 1073

D. TUNIS 948

E. 06 TUNIS 2538

F. 06 TUNIS 1622

Classified By: Ambassador Robert F. Godec for reasons 1.4 (b) and (d).

-------
Summary
-------

C O N F I D E N T I A L TUNIS 001433

SIPDIS

SIPDIS

STATE FOR NEA/MAG (HARRIS)
STATE PASS USTR (BURKHEAD),USAID (MCCLOUD)
USDOC FOR ITA/MAC/ONE (NATHAN MASON),ADVOCACY CTR (JAMES),
AND CLDP (TEJTEL AND MCMANUS)
CASABLANCA FOR FCS (ORTIZ)
LONDON AND PARIS FOR NEA WATCHER
CAIRO FOR TREASURY (SEVERENS)

E.O. 12958: DECL: 10/29/2017
TAGS: EINV EFIN ECON TS
SUBJECT: INVESTORS GIVE TUNISIA VOTE OF "NO CONFIDENCE"

REF: A. TUNIS 1268

B. TUNIS 1224

C. TUNIS 1073

D. TUNIS 948

E. 06 TUNIS 2538

F. 06 TUNIS 1622

Classified By: Ambassador Robert F. Godec for reasons 1.4 (b) and (d).

--------------
Summary
--------------


1. (C) While Tunisia can boast about its impressive economic
development and steady economic growth, paltry investment
rates reveal that the economy faces significant challenges.
Low levels of investment, particularly domestic, not only
jeopardize continued economic success and efforts to reduce
unemployment, but signal a broader lack of coQidence in the
Tunisian economy. While red tape and unpredictability deter
investors, ultimately these problems are rooted in the lack
of transparency typical of GOT governance. Both foreign and
Tunisian business people acknowledge that uncertainty over
the political direction of the country has a negative impact
on investor confidence and the economy as a whole. End
Summary.

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Paltry Investment
--------------


2. (C) Despite the Tunisian economy's steady growth rate (an
average of nearly 5 percent over the past decade),investment
remains surprisingly low. According to World Bank Resident
Economist Ndiame Diop, private domestic investment is 12.5
percent of GDP, or roughly half the rate in comparable
countries (e.g., Morocco). Diop asserts that the economy's
growth is largely due to increased productivity. However,
Ezzedine Saidane, economic consultant and former Chairman of
the Arab Banking Corporation, argues that the Tunisian
economy is fueled by consumption. The decline in the
domestic savings rate and concern over rising household debt
appear to bear this out.


3. (C) While foreign direct investment (FDI) figures are more
robust than the rate of domestic investment, overall FDI

remains below the levels being seen in other comparable
economies such as Morocco or Jordan. The GOT is quick to
tout Tunisia's World Economic Forum rating as the most
competitive economy in Africa and the Middle East (Ref E) and
is eager to adopt the mantle as the "next Dubai"; FDI figures
indicate that investors have a much different perception. In
2006, total FDI was about 4.4 billion dinars (US $3.5
billion) or 10.8 percent of GDP. Yet, economists highlight
that a high percentage of foreign investment during the past
years can be attributed to privatization receipts. FDI for
2006 excluding privatization was 1.4 billion dinars (US $1.1
billion) or 3.5 percent of GDP. Foreign investment may
remain higher in the short-term as the GOT continues to
privatize state-owned enterprises, but eventually the GOT
will lose this source of income.

4. (C) Not only is the quantity of investment -- both
domestic and foreign -- lower than it could be, but the
investment is not allocated to the sectors most likely to
erode unemployment and add the greatest value to the economy.
Saidane told EconOff that domestic investment is primarily
limited to two areas: land and stocks. He argued that
neither of these two types of investments are contributing to
private sector job creation. Land purchases, as opposed to
investment in real estate, generates little value for the
economy. While he acknowledged that investment in the stock
exchange is generally positive, the tremendous growth in
stock values is "more speculation than true investment." In
2006, stock values were up an impressive 43 percent without
representing a true increase in value. Saidane cited Banque
de l'Habitat, where stock prices are up despite the fact it
is fundamentally the same bank as before.


5. (C) Although privatizations and large Gulf investments
will have a positive impact on the economy, these types of
investments are also unlikely to solve the unemployment
dilemma. Privatization receipts, such as the US $2.3 billion
from the Tunisie Telecom privatization, should be considered
an income rather than a true investment. Rather than create
the new jobs the economy desperately needs, privatizations
may even lead to job loss as new private management attempt
to return the often inefficient state-owned enterprises to
profitability. Further, most of the large Emirati
investments recently announced, such as the US $14 billion
Sama Dubai project (Ref C),are in real estate. Real estate
investments will help promote long-term growth, but in the
short-term will not lead to technology transfer or create the
skilled employment that Tunisia needs.

--------------
Lack of Confidence
--------------


6. (C) The low levels of investment reflect a lack of
confidence in the economy. Saidane emphasized that foreign
investment and domestic investment go hand in hand. He asked
rhetorically why foreigners would invest money in Tunisia
when Tunisians will not invest themselves? Mourad Bsiri, a
freelance economic consultant, argued that the positive
assessments of Tunisia's competitiveness by the World
Economic Forum and by international financial institutions
were simply not accurate. He told EconOff, "It's not true.
Tunisia is not a great place to invest." Bsiri noted that a
high and growing percentage of Tunisia's FDI comes from the
Gulf, reflecting liquidity based on high oil prices rather
than signaling the strength of the Tunisian investment
climate.

--------------
Red Tape
--------------


7. (C) Tunisia's cumbersome and bureaucratic procedures
inhibit both foreign and domestic investment and are a common
complaint among Tunisian and foreign business people.
Maraoane Abbassi, Professor of Economics at the Institute for
Advanced Commercial Studies (IHEC),complained that the
overabundance of bureaucrats -- and poorly qualified
bureaucrats, at that -- breeds red tape. Without the red
tape, Abbassi noted, these people would be out of a job.
Abbassi recounted the story of a former Ministry of Commerce
official who tried to open a pizza restaurant and ultimately
abandoned the endeavor when even he could not navigate the
complicated maze of licenses and permits. ExxonMobil Tunisia
Director General Arnaud Blouin has been waiting four years
for the required permit to sell a building, highlighting the
disincentive to acquire new assets.

--------------
A Level Playing Field?
--------------


8. (C) While many business people complain about excessive
regulation, it is clear that some people are able to bypass
the red tape. Corruption is the word that many Tunisians
dare not utter, but has an undeniable impact on both foreign
and domestic investment. Although difficult to quantify and
verify, rumors of corruption, particularly among President
Ben Ali's extended family, are rampant (Ref F). According to
the 2007 Transparency International index, the perception is
that corruption is increasing; Tunisia's ranking dropped 10
spots from 51 to 61 (septel). It is not just rumors of
corruption that impact investment levels, but a general
perception that the playing field is not level -- that doing
business in Tunisia depends on who you are and who you know.
Both Tunisian and foreign investors note that everything is
negotiable (Ref A). One American investor told EmbOffs that
this unpredictability creates a level of risk that makes
long-term business planning nearly impossible.

--------------
More Reforms Needed and Now
--------------


9. (C) With a tightly controlled press and an opaque system
of governance, there remains great uncertainty over the
political direction of the country. Saidane told EconOff
that Tunisians notice the early calls for Ben Ali's
reelection in 2009 and know that there is no possibility of
significant political change until at least 2014, so why
invest? While international rating agencies interpret this
political stability as a positive, many domestic and foreign
investors view this as stability as evidence of stagnation.
Mondher Khanfir, a private economic consultant, stated that
the lack of a strong civil society impacts business. He
noted that UTICA, the Tunisian Employers' Association, is not
representative of the larger business community. UTICA
Secretary General Hedi Djilani is one of President Ben Ali's

SIPDIS
in-laws and UTICA's leadership is comprised of Tunisia's most
powerful business people. Whereas the well-connected can
resolve their problems through the direct intervention of the
relevant minister, ordinary business people have no avenue
through which to address their concerns.


10. (C) Despite complaints about inept lower-level
bureaucrats, Tunisian and foreign investors generally praise
the quality of the top economic leadership -- in particular
Prime Minister Mohamed Ghannouchi, Minister of Development
and International Cooperation Mohamed Nouri Jouini, and
former Minister of Commerce Mondher Zenaidi. (Note: Minister
Zenaidi became Minister of Public Health in the September
cabinet reshuffle. Ridha Touiti was appointed the new
Minister of Commerce (Ref B). End Note.) All are viewed as
capable administrators that understand the need for continued
reform. Yet, as Tunisian-American Chamber of Commerce
President Mondher Ben Ayed emphasized, "Reforms should be
faster."

--------------
Comment
--------------


11. (C) As both business people and economists note, low
investment rates are themselves a problem but also signal
larger issues in the Tunisian economy. Although the GOT can
be justifiably proud of the level of economic development it
has already delivered, it is time to raise the bar. In its
11th Development Plan, the GOT targeted 6.1 percent growth --
a target that is too low to reduce the country's extremely
high unemployment rate (Ref D). Reaching the 7 to 8 percent
growth necessary to significantly reduce unemployment will
require greater investment and, most importantly,
liberalization. Improving Tunisia's investment climate will
require more and faster reform -- on both the economic and
political side. End Comment.
GODEC