TUNISIA ECONOMIC HIGHLIGHTS

UNCLAS SECTION 01 OF 02 TUNIS 000439

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/MAG (HARRIS)
STATE PASS USTR (BURKHEAD)
USDOC FOR ITA/MAC/ONE (NATHAN MASON),ADVOCACY CTR (REITZE),AND
CLDP (TEJTEL)
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 EFIN BEXP ENRG TS
SUBJECT: TUNISIA ECONOMIC HIGHLIGHTS

REF: TUNIS 387
TUNIS 386
TUNIS 52


1. (U) This cable contains highlights of recent economic
developments in Tunisia on the following topics:


A. Tourism Earnings Up 8.6 Percent

B. Trade Gap Widens As Oil Bill Soars

C. Inflation Reaches 5.9 Percent Year-on-Year

D. Tunisia Announces Transport Cooperation with Libya and Morocco

E. GOT Issues Law on Concessions

--------------
Tourism Earnings Up 8.6 Percent
--------------


2. (U) Tunisia's tourism revenue rose 8.6 percent to 501 million
dinars (US $435.76 million) in the first quarter this year over the
same period last year, according to official statistics. There were
1.101 million foreign tourists visiting the country for the period,
up 6.2 percent from one year ago. For 2007, total revenue reached a
record 3.0 billion dinars (US $2.37 billion),with a total of 6.7
million visitors, 3.2 percent higher than in the previous year. The
GOT projects an 8 percent increase in revenue this year. Tourism is
a major foreign currency earner, representing about 20 percent of
total hard currency receipts, and employs 18.5 percent of the
engaged labor force. The growth in tourism is welcome news,
suggesting that the February kidnapping of two Austrian nationals -
reportedly in southern Tunisia -- did not negatively impact the
sector (Ref B).

--------------
Trade Gap Widens as Oil Bill Soars
--------------


3. (U) Tunisia's trade deficit widened by 31 percent in the first
quarter of 2008 over the same period of 2007, according to the
National Statistics Institute. The first quarter trade gap was 1.0
billion dinars (US $868 million),up from 765 million dinars (US
$604.35 million) in the first quarter of 2007. Imports soared 23
percent to 6.82 billion dinars (US $5.93 million) based largely on
high oil prices, while exports rose 21. 6 percent to reach 5.82
billion dinars (US $5.06 billion). The value of oil imports jumped
98 percent to 1.2 billion dinars (US $1.04 billion) in the first
quarter of 2008 over the same period in 2007. Agricultural exports,
mainly olive oil, totaled 705 million dinars (US $613.35 million) in
the first quarter, up from 582 million dinars (US $459.78 million) a
year earlier. Textile, clothing and leather sales to foreign
markets were 1.714 billion dinars (US $1.49 billion),up from 1.563
billion dinars (US $1.235 billion).

--------------
Inflation Reaches 5.9 Percent Year-on-Year
--------------


4. (U) Inflation increased 5.9 percent in April 2008 over April 2007
and is up 5.8 percent for the first quarter of 2008 over the same
period in 2007, according to the National Statistics Institute.
Food price inflation slowed to 8.5 percent in March from 8.6 percent
a month earlier, but transport costs quickened to 6.4 percent from
4.3 percent. The GOT forecasts a cumulative inflation rate of 3.0
percent for 2008, which would represent a decrease from 2007's rate
of 3.1 percent. However, the International Monetary Fund estimates
that Tunisia's inflation will reach 4 percent in 2008 due to soaring
world commodity prices.


5. (SBU) Comment: With the recent protests in the mining area of
Gafsa and the growing strain of food and fuel subsidies on the state
budget (Ref A),high inflation remains a significant concern for the
GOT. Continued and rising food inflation represents a burden for
Tunisians, as food is estimated to represent nearly 37 percent of
the average Tunisian household's expenditures. On April 30, the
Central Bank announced that while it would hold benchmark interest
at 5.25, it would raise the reserve requirement in an effort stem

TUNIS 00000439 002 OF 002


inflation and absorb liquidity. End Comment.

--------------
Tunisia Announces Transport Cooperation
with Libya and Morocco
--------------


6. (U) On April 27, Tunisia and Libya and signed an agreement for
cooperation in the fields of communication and transport. The
agreement, signed by the Secretary of the General Peoples Committee
of Communication and Transport and the Tunisian Minister of
Transport, calls for an increase in the number of flights between
Tripoli and Tunis as well as a joint program in civil aviation
including airports, aviation safety and air cargo companies. In
addition, the two sides agreed to launch a direct maritime line.
Tunisian and Libyan officials are expected to meet in May to discuss
practical steps to develop the Tripoli-Tunis highway. On April 1,
the direct maritime link between Casablanca and the Port of Rades
(Tunis) was launched, following the December 2007 implementation of
the Morocco-Tunisia Open Sky Agreement.


7. (SBU) Comment: The GOT has been a major proponent of Maghreb
integration, including, but not limited to, improved transportation
linkages. For Tunisia, regional integration is critical to
attracting continued investment given its small domestic market.
End comment.

--------------
GOT Issues Law on Concessions
--------------


8. (U) On April 1, President Ben Ali signed a new law outlining the
procedures for granting government concessions, such as public land.
The law stipulates that the adjudication process for concessions
will take place through tenders, with the details defined by decree.
The law specifies, however, that a concessionaire can be chosen by
consultation or direct negotiations in situations if the tender is
declared unsuccessful, the concession deals with national defense or
public safety, the emergency provision of public services is
necessary or, finally, if there is only one company capable or
legally able (due to patent issues) to provide the services or
function specified in the contract.


9. (SBU) Comment: The concessions law follows a slew of recent
GOT-granted concessions, primarily to Gulf investors in the form of
land (Ref C). The terms of many of these large real estate
projects, such as the multi-billion dollar Sama Dubai investment,
were not made public. Some lawyers and business leaders questioned
the legality of the deals and argued that the GOT must increase
transparency surrounding the negotiation of these projects. While
it remains to be seen how the law will be implemented in practice,
the passage of a clear legal framework based on tenders is a welcome
development for investors. End Comment.
GODEC