TUNISIA ECONOMIC HIGHLIGHTS: Dec. 16 - Jan. 15

UNCLAS SECTION 01 OF 02 TUNIS 000143 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/MAG (HARRIS) AND EB/CIP (GIBBS) STATE PASS USTR (BELL),USPTO (ADLIN AND ADAMS),USAID (MCCLOUD) USDOC FOR ITA/MAC/ONE (NATHAN MASON),ADVOCACY CTR (JAMES),AND CLDP (TEJTEL) CASABLANCA FOR FCS (ORTIZ) LONDON AND PARIS FOR NEA WATCHER E.O. 12958: N/A TAGS: ECON ETRD ENRG EPET BEXP ECPS EAID TS SUBJECT: TUNISIA ECONOMIC HIGHLIGHTS: Dec. 16 - Jan. 15 REF: A. 06 TUNIS 2749 ¶B. 06 TUNIS 2464 ¶C. 06 TUNIS 629 ¶1. (U) This cable contains highlights of recent economic developments in Tunisia on the following topics: ¶A. Tunisia and Libya Announce Reciprocal Exchange Convertibility ¶B. ALTEK Opens Plant in Tunisia ¶C. Gasoline Prices May Increase Three Times in 2007 ¶D. Tunisia Repays External Debt Ahead of Schedule ¶E. Exports and Imports Up For 2006 -------------- Tunisia and Libya Announce Reciprocal Exchange Convertibility -------------- ¶2. (U) On December 26, Tunisia and Libya agreed to allow exchange convertibility of their two currencies from mid-January 2007. (Note: Currently, the Tunisian and Libyan dinars may not be directly exchanged. The two countries rely on the USD or the Euro for bilateral transactions. End Note.) The Tunisian Central Bank stated that a bilateral commission is still finalizing the details for the implementation of convertibility. In order to facilitate increased trade, the two countries have also agreed to provide national treatment for certificates of origin. According to the Center for the Promotion of Exports (CEPEX),bilateral trade continues to grow between Tunisia and Libya, with more than 980 million USD in trade in 2005, up from 750 million USD in 2004. ¶3. (SBU) Comment: Although trade between Libya and Tunisia is duty free, there are still many formalities which impede trade between the two countries. Reciprocal convertibility of their two currencies will help to facilitate trade and will also benefit the Tunisian tourism sector, which welcomed over 1.4 million Libyan tourists in 2006. Libyans visit Tunisia in greater numbers than tourists of any other nationality. End Comment. -------------- ALTEK Opens Plant in Tunisia -------------- ¶5. (U) In December 2006, American shoe manufacturer ALTEK inaugurated a 18,000-square meter plant in the Menzel Bourguiba industrial zone in northern Tunisia. The plant represents an investment of roughly 22 million USD and will provide 760 jobs. According to Patricia Colombo, ALTEK co-manager, these figures are expected to rise to 2,400 jobs and 30.35 million USD in investment by late 2007. ALTEK will produce work boots and safety shoes for export, primarily to Europe. ALTEK is owned by Bahamas-based US venture capital group Danigre and Danizer. ALTEK is the second major shoe manufacturer to open a plant in Tunisia. EVOL, purchased by US investors from an Italian firm, also produces work boots and safety shoes for export. EVOL has a staff of 4,000 and is the largest employer in Tunisia. -------------- --- Gasoline Prices May Increase Three Times in 2007 -------------- --- ¶6. (U) During the Tunisian parliamentary budget debates, Tunisian Minister of Finance Rachid Kechich declared that if oil prices remain above 58 USD per barrel in 2007, the GOT may raise gas prices up to three times. (Note: Gasoline prices are fixed by the GOT. End Note.) Since 2004, the GOT has increased gasoline prices eight times, subsidizing only 50 percent of the total cost increase. High oil prices have had a serious and negative impact on the growth of the Tunisian economy, increasing the trade deficit but also affecting the GOT budget through its subsidy program (Ref A). ¶7. (SBU) Comment: Although the original level of the GOT subsidy is not public, the increases in gas prices represent an effort to slowly remove gas subsidies and bring prices more into line with the market value. Notably, the GOT has not lowered gas prices in TUNIS 00000143 002 OF 002 response to lower oil prices. This allows the GOT to reduce the share of subsidies in the budget, an IMF recommendation. End Comment. -------------- -------------- Tunisia Repays External Debt Ahead of Schedule -------------- -------------- ¶8. (U) The Tunisian Central Bank announced that during 2006 Tunisia repaid over 630 million USD of its external debt ahead of schedule. The GOT also postponed disbursal of the fourth tranche (144.4 million USD) of an Economic Competitiveness Adjustment Loan (ECAL IV) financed by the World Bank, the European Union and the African Development Bank to support economic reforms. In 2006 Tunisia did not resort to international capital markets for 228 million USD, as forecast in the 2006 GOT budget. In a December 2006 speech, Prime Minister Mohamed Ghannouchi stated that external debt had dropped to 46.1 percent of GDP. A June 2006 IMF report calculated that external debt was equivalent to 68 percent of GDP in 2005. ¶9. (SBU) Comment: Although Tunisia has an excellent borrowing record, the external debt to GDP ratio is extremely high relative to countries at a similar level of development. Tunisia's early repayment of existing loans and avoidance of new loans represent an overall effort to reduce the level of external debt, per IMF advice. The early repayment of external debt has largely been possible due to the privatization receipts, 2.25 billion USD, from the July 2006 sale of a 35 percent stake in Tunisie Telecom (Ref C). End Comment. -------------- Exports and Imports Up For 2006 -------------- ¶10. (U) GOT trade figures for 2006 showed exports up 12.6 percent, but imports outpacing exports by 15.5 percent over 2005 figures. The trade deficit for 2006 has grown to 3.38 billion USD (roughly 11 percent of 2006 GDP),compared to 2.69 billion USD in 2005. Mechanical and electrical industry exports were up 22.9 percent over 2005 and agricultural and food exports increased 28.6 percent. Textile exports remained relatively stable despite fears that the end of the Multifiber Agreement would prove disastrous (Ref B). The rise in imports was generated by significant increases in the value of energy (26.1 percent),equipment (19.9 percent),and farming and basic food product imports (18.5 percent) since 2005. ¶11. (SBU) Comment and Background: During 2006, the high cost of oil had a major negative impact on Tunisia's trade balance, but fluctuation in the dinar also impacted trade. In 2006, the dinar depreciated 5.6 percent against the Euro and appreciated 4.6 percent against the USD. Roughly 80 percent of Tunisia's trade is with the EU. While the weak dinar may have increased exports to Europe, Tunisians also paid higher prices for imported goods. End Comment and Background. GODEC