GOT LAYS OUT INVESTMENT STRATEGY IN 11TH ANNUAL

C O N F I D E N T I A L TUNIS 000450

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SIPDIS

STATE FOR EEB/IFD/OMA, EEB/EPPD, AND NEA/MAG (HAYES)
STATE PASS USTR (BURKHEAD) AND USAID (MCCLOUD)
USDOC FOR ITA/MAC/ONE (MASON),ADVOCACY CTR (TABINE),AND
CLDP (TEJTEL AND MCMANUS)
USDOC PASS USPTO (ADAMS, BROWN AND MARSHALL)
CASABLANCA FOR FCS (ORTIZ)
RABAT FOR FAS (HASSAN)
CAIRO FOR FINANCIAL ATTACHE (SEVERENS)
LONDON AND PARIS FOR NEA WATCHER

E.O. 12958: DECL: 03/03/2019
TAGS: EINV ECON EFIN ETRD FAO TS
SUBJECT: GOT LAYS OUT INVESTMENT STRATEGY IN 11TH ANNUAL
CARTHAGE INVESTMENT FORUM

REF: TUNIS 371

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

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Summary
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1. (SBU) The 11th Annual Carthage Investment Forum, held in
Hammamet June 24-25, was the GOT's chance to showcase Tunisia
as an investment destination. The Forum, which brought out
high-level GOT representation, highlighted some
non-traditional sectors of the economy, such as aviation,
tech offshoring, and health tourism. Experts discussed
opportunities for Tunisia in the wake of the economic crisis
and ambitious plans to expand manufacturing exports and
become a Euromed offshoring destination. However, the real
foreign direct investment (FDI) picture remains to be seen.
While the IMF and the GOT maintain FDI is strong, real FDI
inflows for 2009 have decreased over 35 percent from 2008.
The GOT tried to woo investors with the Forum, but in setting
out some unrealistically ambitious goals, may have fallen
short of expectations. End Summary.

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Big Names and Odd Remarks at the Opening Ceremony
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2. (SBU) The 11th Annual Carthage Investment Forum, put on by
the Tunisian Foreign Investment Promotion Agency (FIPA),
brought out the big names in Tunisian government and
industry. The speakers included Prime Minister Ghannouchi,
Minister of Development and Economic Cooperation (MDIC)
Jouini, the Minister of Industry, the Minister of
Communications, the Minister of Health, and high-level
representatives of the Tunisian Union of Industry, Trade and
Handicraft (UTICA). In addition, the Mayor of Marseilles
Jean Claude Gaudin and the American 2004 Nobel Laureate in
Economics Edward Prescott were present. Ghannouchi spoke at
length about the resilience of the Tunisian economy to the
international economic crisis, citing growth estimates of
five percent for 2009 (Note: this is in contrast to the
recent IMF downward revision of three percent growth for this
year.) Jouini mentioned plans for Tunisia to become a
regional shipping hub through the port of Enfidha and gave an
overview of the sectors to be discussed during the forum.


3. (C) Nobel Laureate Edward Prescott, who was invited by the
GOT earlier this year to conduct panels and workshops on
economic issues, praised Tunisia for its economic policies,
adding that he only wished the United States "would listen to
Tunisia and enact some of the same policies, and not those of
the current Obama administration." The statement met with
limited applause, which Prescott seized upon to continue on a
lengthy critique of the USG's economic recovery programs. He
also called Minister Jouini by his first name and then
mispronounced the Prime Minister's last name, but not before
plugging his appearance the following day at a Certified
Public Accountants' conference. From the panel on stage,
Ghannouchi looked directly at the Ambassador and
Econ/Commercial Officer, who were sitting in the front row,
and did a quick "eye roll."

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The Economic Crisis as an Opportunity for Reform
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4. (SBU) On June 25th, the Forum started with a panel on the
international economic crisis and Tunisia's attractiveness in
the wake of a global slowdown. Panelists included experts
from the World Bank and the OECD as well as Secretary of
State of the MDIC Triki, who said Tunisia had fared better
than some other emerging economies. Anthony O'Sullivan, Head
of Private Sector Development at the OECD, forecasted growth
and inflation at five percent for 2009. He commended Tunisia
for good IT infrastructure and for efforts to expand ADSL
throughout the country (Ref A). He also applauded the GOT's
transparency in publishing a list of negative practices which
affected investment.


5. (SBU) O'Sullivan outlined various long-run reforms Tunisia

should undertake to mitigate the effects of the crisis. He
called for further liberalization of telecom, a stronger link
between small and medium enterprises (SMEs) and foreign
investment, and the creation of special trade zones with
better links to the local economy. O'Sullivan said it was
fundamental for the GOT to include the private sector in the
reforms, since success had to depend on more than just
ministry willingness. He noted Tunisia needed to strengthen
the ability of courts to rule on matters of intellectual
property to give investors some measure of protection. He
criticized the GOT for focusing too much on offshoring,
recommending instead the creation of competitiveness poles to
bring together academics and foreign investors. He closed by
saying none of these reforms were possible without the GOT's
political will.


6. (SBU) MDIC's Triki was optimistic about Tunisia's
options. He said Tunisia had a healthy margin to undertake
fiscal stimulus measures since they only had a budget deficit
in 2008 of two percent of GDP. During the last global shock
of this kind, Tunisia had very high debt service ratio (Note:
Triki's figures jive with IMF estimates given earlier this
year.) Triki also mentioned growth figures, noting his
expectation of 3.5 percent real GDP growth for 2009 and 4.5-5
percent for 2010. He said the GOT was replacing its
five-year development plans with three-year flexible plans to
incorporate recovery measures.

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Ambitious Plans for Aviation and Manufacturing
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7. (SBU) The Forum's second panel focused on mechanical,
electric and aviation industries, branding Tunisia as an
industrial hub with high added value. The panelists included
Afif Chelbi, Minister of Industry, Energy and SMEs and
Philippe Cussonet, President of GITAS (the Tunisian Aerospace
Industries Association). Minister of Industry Chelbi said by
2016, Tunisian industry would be split between traditional
and emerging sectors. Plans are to double total exports and
triple manufacturing exports by 2016. He said Tunisia was
the largest independent exporter south of Italy, and traded
over 7 billion euros with the EU in the auto and aeronautical
sector last year. He said Tunisia was a good investment
location because it has over 5,000 engineers, seven percent
of GDP allotted for education, and students make up four
percent of the population (30 percent of those are studying
IT, engineering, or science).


8. (SBU) Philippe Cussonet, President of GITAS, discussed the
aerospace industry, characterizing it as a young industry
with fast growth. He said the GOT has made it a priority
sector and announced the creation of the Aerolia Aeronautic
Park, to start production in late 2009. Cussonet noted there
were currently 50 companies operating in this sector in
Tunisia, employing 2,000 people in aircraft parts
manufacturing and related services. He also described GITAS
as a holding group, with 19 private sector members, whose
objective is to partner with the GOT to represent the
industry and promote a good business environment. According
to Cussonet, by 2013-2014, the sector will employ 4,000-4,500
people.

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Tunisia: A Tech Offshoring Destination
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9. (SBU) The panel on offshoring, IT and electronics
included Minister of Communications El Hadj Gley, General
Manager of LG Electronics Tunisia MJ Leon, and General
Director of Hewlett-Packard Sami Smaoui. The Minister said
IT and telecommunications make up 10 percent of GDP (set to
contribute 13.5 percent in 2015) and that there are over 210
call centers in Tunisia. He said per capita internet reach
was six times that of Egypt, seven times that of Senegal, and
had experienced a 114 percent mean growth rate over the last
year. Consumer rates, according to the Ministry, are
expected to decrease 25-50 percent in 2009. Gley outlined an
ambitious action plan to turn Tunisia into a tech offshoring
destination. He said the GOT had already fostered
competition by awarding a tender for fixed/mobile telephony

and was offering fiber-optic cable in 55 administrative zones
(with 300 new zones to be connected soon.) He also announced
two new technology parks: El Ghazala Ennahli, a 36-hectare
space, and El Ghazala Manouba, 54 hectares and located next
to a university.


10. (SBU) The private sector participation in this panel (LG
and HP) had positive things to say about Tunisia's investment
climate. LG has only been in country for one year, but has
already built a global R & D center in Tunis. LG's overall
goal to increase global mobile telephone market share from
8.6 percent in 2008 to over 10 percent in 2009 will be
reached with input from the research done at this center.
Leon described the Tunisian market as stable and open to new
technology. Sami Smaoui of HP, who recently announced the
creation of an HP Global Delivery Center (one of five in the
world) in Tunisia, praised the availability of skilled,
affordable labor as one of the main factors leading HP to
make such a large investment.

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Robust Plans for Health Tourism
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11. (SBU) The final general panel dealt with health services
in Tunisia and featured Minister of Public Health Mondher
Zenaidi, Boubaker Zakhama, the President of the National
Employers' Federation of Private Sanitary Institutions, and
Jean Louis Poiroux, the founder of Spas Cinq Mondes. Zenaidi
referenced positive overall developmental indicators
(vaccination, infant mortality) as well as export revenues of
US $230 million in 2007 in health services. He described a
vibrant pharmaceutical industry, with 41 Tunisian
pharmaceutical companies operating, producing 46 percent of
consumed medication in 2007. Tunisia exported 40 million TND
(US $29 million) in medication last year, and received
112,213 foreigners in private Tunisian clinics.


12. (SBU) Tunisia is second in Africa as a medical tourism
destination. According to Zakhama, 72 percent of foreign
patients are from Libya, the rest from sub-Saharan Africa (12
percent) and Europe (10 percent). Of total patients in
Tunisia, foreigners make up 23 percent. There are over 104
private clinics (16 percent of the hospital sector) and over
2,000 basic public health care centers nationwide. Zenaidi
projected that the health sector in general will grow 20
percent per year until 2016. To foster this growth, the GOT
will partner with international organizations and social
security/medical insurance groups, increase services in other
surgical fields, create a market strategy for investment
promotion, create medical/tourism "cities" following the Thai
example, and encourage elderly visitors to come for longer
holidays.


13. (SBU) Thalassotherapy, a term referring to salt water spa
treatments, is an important subset of the tourism industry in
Tunisia (second only to France.) Spa services draw over
200,000 visitors (of the seven million annual tourists).
According to Jean Luis Poiroux of Cinq Spas, an important
investor in this sector, the largest market for spa services
is the United States, with 33 million consumers of spa
treatments. Europe is also a large consumer. By his
estimate, including spa services alongside the normal tourist
offer would increase the per-capita expenditure of tourists
by an average of 40 euros, and would capture a new market of
European travelers.

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Bottom Line: Is FDI Increasing?
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14. (SBU) According to IMF experts, who were in-country for
much of June on an Article IV consultation mission, the
external position of Tunisia remains solid in part due to
strong FDI flows. The IMF met with the same ministries that
participated in the Forum, along with the Central Bank.
However, the Central Bank's own statistics, released
mid-June, noted that FDI had decreased 35.5 percent
year-on-year since 2008, and foreign investment in portfolios
had decreased 84.5 percent. The discrepancy is likely due to
the calculation of FDI - the Central Bank records actual

currency flows while ministries include signed projects and
projected FDI. The bottom line is that actual FDI flows are
down, but they could increase over the calendar year as
planned investments materialize.

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Comment
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15. (SBU) The 11th Annual Carthage Investment Forum
represented an attempt on the part of the GOT to highlight
Tunisia's positive investment climate but also to garner
investment in emerging high-tech and knowledge-based sectors.
Representatives of Tunisia's more established sectors, such
as textiles and auto parts manufacturing, were absent from
the forum, as was any straight talk on the effects of the
economic crisis on exports. Many of the goals put forward by
GOT representatives bordered on the unrealistically
ambitious, such as the goal of doubling exports in seven
years. However, the GOT is undertaking some much-needed
reforms, such as opening up the telecom sector, that will be
necessary to continue drawing investment. Although the GOT
projects strong FDI, it remains to be seen if substantial
investment will come to fruition. There has already been
some cancellation of construction projects funded by Gulf
states, and it is possible other projected investments could
also fall through.

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