Tunisia

Lying on the Mediterranean coast of North Africa, Tunisia is the easternmost of the nations situated along the Atlas mountain range, bordering Algeria to the west and Libya to the south-east. 45% of the country is composed of the Sahara Desert, however much of the remainder consists of particularly fertile soil with easily accessible coastline.

Tunisia’s established agriculture and close proximity to both Africa and Europe have made it an important historic economic centre. In ancient times, the region was known as the ‘bread basket’ of the Roman Empire, and throughout history was the subject of countless wars as different countries fought to gain control of its economic and geographic riches.

Home of the ancient city of Carthage, Tunisia has been a key player in the Mediterranean region for centuries, particularly given its location in the centre of North Africa, at the epicentre of vital shipping routes. Not surprisingly, it was controlled at different times by the Romans, Arabs, Ottoman Turks and French – all of whom realised its strategic significance.

The Republic of Tunisia gained independence as a sovereign state in 1956 and, following decades of rigid state control, over the past 20 years has undergone a period of reform and liberalisation which has made it one of the most politically and economically stable nations in North Africa.

Tunisia’s current President, Zine el-Abidine Ben Ali, in power since 1987, and his political party, the Rassemblement Constitutionnel Democratique (RCD), are virtually unchallenged in the Tunisian political landscape. President Ben Ali’s recent economic initiatives have focused on increasing privatisation of state-owned assets, simplifying Tunisia’s tax system and controlling debt.

Tunisia has a diverse economy, with important agricultural, mining, energy, tourism, and manufacturing sectors. After averaging GDP growth of approximately 5.0% over the past decade, the Tunisian Government is now aiming to accelerate growth to 6.3% in an effort to create 100,000 jobs per year between 2007 and 2016. Fulfilment of this objective would require an increase in foreign investment from its 2006 level of 22.7% of GDP, to 26.1% in 2016.

In an effort to stimulate foreign investment, in 2005 legal provisions were made for exporters to retain all their foreign currency earnings. The Tunisian Government has also recently outlined plans to eliminate the requirement for some Government approvals, increase the quota of production that offshore companies are allowed to sell on the local market, and improve the business climate by lowering transaction costs, enhancing transparency and predictability, and strengthening market contestability.

President Ben Ali has voiced his commitment to floating the Tunisian currency by 2009, and has also promised import-export businesses a steep reduction of taxes on profits by 2008.

These ongoing strategies to boost foreign investment appear have been successful. Over the past 10 years, Tunisia's economy has become less dependent on the volatile farming sector and opened up to outside investors. Foreign investment has created an average of 260,000 jobs over the past decade, with about 80% of those in labour-intensive businesses such as food processing, textiles and automobile assembly.

The energy sector has been a key beneficiary of this increase in foreign investment, accounting for more than 85% of total foreign investment in Tunisia, compared to just over 50% in 1996. The investment is made mainly in petroleum exploration and development.

Total oil reserves stood at 600 million barrels in 2004, which, at current production levels, would last until 2013. Oil producers in Tunisia operate about 30 oil fields, which are relatively modest in size and have a total oil and condensate output of less than 70,000 barrels per day.

Tunisia’s natural gas reserves amounts to over 97 billion cubic metres. In order to replace declining oil reserves, the Government is heavily promoting the natural gas sector. Local production typically meets about 80% of domestic demand. With demand increasing at a greater pace than production, Tunisia’s natural gas market has been growing by 10-12% per annum since the mid-1990s.

Tunisia exports oil and gas, textiles, machinery and agricultural products, with most of the country’s trade carried out with the European Union and the USA.The EU is Tunisia’s major market, with approximately 75-80% of Tunisia’s exports going to the EU, and more than 60% of imports originating from France, Italy, Germany and Spain. The 1995 trade and Cupertino agreement with the EU provides for the gradual creation of a free trade zone between Tunisia and the European Union over a 12-year period.

In June 2005, the United States and Tunisia opened negotiations on a free trade zone. Tunisia has also signed several regional preferential trade agreements, including the Greater Arab Free Trade Area (GAFTA), the Arab-Mediterranean Free Trade Agreement, as well as agreements with the European Free Trade Association and the Union du Maghreb Arabe, and various bilateral agreements.

The World Economic Forum’s 2005/06 Global Competitiveness Report rated Tunisia as the most competitive African economy, however, the International Monetary Fund (IMF) is concerned that the gap in per capita income between Tunisia and the OECD emerging countries (Mexico and Poland) has not narrowed in the last decade. The IMF has stated that Tunisia should persevere with its policies of privatisation, subsidy cuts, restructuring of the banking and financial sector and multilateral trade liberalisation to sustain positive growth into the future.