2013 Investment Climate Statement
Bureau of Economic and Business Affairs
February 2013
Report

Openness to, and Restrictions Upon, Foreign Investment

The Tunisian Government actively encourages and places a priority on attracting foreign direct investment (FDI) in key industry sectors, such as call centers, electronics manufacturing, aerospace and aeronautics, automotive parts, and textile manufacturing. The government encourages export-oriented FDI and screens any potential FDI to minimize the impact of the investment on domestic competitors and employment.

Foreign investment in Tunisia is regulated by the Investment Code (Law 1993-120), which was last amended in January 2009. The Investment Code is now under revision, with an aim to foster job creation, reduce regional disparities, and develop infrastructure in the west and south-central regions of Tunisia. The revision of the Code is likely to result in reforms that liberalize the onshore sector and relax requirements for foreign investors.

The current Tunisian Investment Code divides potential investments into two categories:

  • Offshore, in which foreign capital accounts for at least 66% of equity and at least 70% of production is destined for the export market (with some exceptions for the agricultural sector); and
  • Onshore, in which foreign equity is limited to 49% in most non-industrial projects; onshore industrial investment can have up to 100% foreign equity.

Current legislation contains two major hurdles for potential FDI:

  • Foreign investors are denied national treatment in the agriculture sector. Foreign ownership of agricultural land is prohibited, although land can be secured through long-term lease (up to 40 years). However, the government actively promotes foreign investment in agricultural export projects.
  • For onshore companies outside the tourism sector, government authorization is required if the foreign capital share exceeds 49%, and can be difficult to obtain.

The offshore/onshore division is being examined as part of the planned revisions to the Investment Code.

Investment in manufacturing, agriculture, agribusiness, public works, and certain services requires only a simple declaration of intent to invest. Other sectors can require a series of Tunisian government authorizations.

The Government of Tunisia (GOT) allows foreign participation in its privatization program and a significant share of Tunisia’s FDI in recent years has come from the privatization of state-owned or state-controlled enterprises. Privatization has occurred in telecommunications, banking, insurance, manufacturing, and petroleum distribution, among others.

In March 2011, the GOT issued a decree (Law 2011-13) confiscating the assets of former President Ben Ali and his close family members. The list of assets touches upon every major economic sector. Some of Tunisia’s largest companies, such as Zitouna Bank (banking), Karthago Airlines (aviation), Carthage Cement (construction), Tunisiana (telecom), Orange Tunisie (telecom), Bricorama (home goods), Banque de Tunisie (banking), Ennakl (automotive), and Alpha Ford (automotive), were included on the list. Experts estimate that up to US$2 billion worth of Ben Ali assets were leveraged by Tunisian banks.

To date, the GOT has appointed conservators for these companies so that they can continue to operate on a day-to-day basis. According to members of the GOT Commission to Investigate Corruption and Malfeasance, which investigates corruption during the Ben Ali era, a court order is necessary to determine how the frozen assets are handled. Realizing that obtaining a court order could take several years, and facing immediate budget needs, the GOT decided to operate on a case-by-case basis and released calls for bids to privatize its shares in Tunisiana, Ennakl, Carthage Cement, City Cars, and Banque de Tunisie. The GOT did not exclude the possibility of selling shares on the stock exchange. As details unfold, there may be opportunities for U.S. companies to participate in the eventual privatizations. So far, the privatization process has led to the sale of the GOT’s 60% stake in Ennakl to Tunisian consortium Poulina-Parenin for US$150 million, its 13.1% stake in Banque de Tunisie to French group Crédit Industriel et Commercial (CIC) for US$140 million, and its 66.7% stake in City Cars to Tunisian consortium Bouchammaoui-Chabchoub for US$74 million.

Prior privatizations included the 2006 TECOM Investments and Dubai Investment Group purchase of a 35% stake, valued at US$2.25 billion, in state-owned Tunisie Telecom. In July 2008, French company Groupama won a bid to purchase 35% of the Société Tunisienne d'Assurances et de Reassurances (STAR) for around US$100 million. In 2008, the French bank Caisse Générale d’Epargne purchased 60% of the Tunisian Kuwaiti Bank (BTK), valued at US$249 million.

Tunisia’s investment promotion authorities established a system of regulations that received favorable feedback from established U.S. companies. Nevertheless, there are difficulties, particularly when U.S. companies attempt to launch projects in sectors that the GOT does not actively promote. Until recently, the government discouraged foreign investment in service sectors such as restaurants, real estate, and advertising. Many of these issues are expected to be addressed in the context of ongoing negotiations between Tunisia and the European Union over liberalization of the services sector under the EU-Tunisia Advanced Partner Status Agreement.

Indeed, FDI in retail distribution is gradually expanding. French multinational retail chain Carrefour opened its first store in 2001, followed by the entry of French retail company Géant in 2005. Until then, Monoprix, a French grocery franchise, dominated the retail grocery market. Although rioters looted and burned Géant and multiple branches of Monoprix following the overthrow of the Ben Ali regime in January 2011, they have subsequently reopened.

In August 2009, the Tunisian government adopted a new law to regulate domestic trade (Law 2009-69), which included a legislative framework for franchising. Until that time, franchise status was only granted to businesses on a case-by-case basis. A July 2010 implementation decree outlined a list of sectors in which franchises would need no prior authorization to operate in the Tunisian market. Sectors not on the list, such as food franchises, still need approval to operate. However, under this new law, many franchises now have the ability to set up shop like any other business serving the Tunisian market. In general, the law is set to encourage investment, create jobs, and boost knowledge transfer. Many Tunisian business groups have already started looking for international franchisors and are confident the market exists for franchises to thrive. However, others are still waiting for the full liberalization of foreign franchises in the food, real estate, and advertising sectors.

Since 2007, there have been numerous announcements of significant Arabian Gulf company investments in the real estate sector, but due to the international economic crisis, some investments have been postponed and cancelled. Sama Dubai, which was set to build the Mediterranean Gate mega-construction project, halted its operations in 2009. Investment has not come to a complete standstill, however. The Bukhatir Group's Tunis Sports City, a sports and recreational complex, as well as Gulf Finance House's Tunis Financial Harbor, are moving forward, albeit slower than planned and with new delays associated with Tunisia’s political transformation.

FDI in certain state monopoly activities (electricity, water, postal services) can be carried out following establishment of a concession agreement and with certain restrictions on trade activities. With few exceptions, domestic trading can only be carried out by a company set up under Tunisian law, in which the majority of the share capital is held by Tunisians and management is Tunisian. An additional barrier to non-EU investment results from Tunisia’s Association Agreement with the European Union. The EU is providing significant funding to Tunisia for major investment projects, but clauses in the agreement prohibit non-EU member countries from participation in many EU-funded projects.

Conversion and Transfer Policies

The Tunisian dinar (TND) is not a fully convertible currency, and it is illegal to move dinars into or out of the country. Although it is convertible for current account transactions (i.e. most bona fide trade and investment operations), Central Bank authorization is needed for some foreign exchange operations. Prior to the 2011 revolution, the GOT had publicly committed to full convertibility of the dinar by 2014. This timeline is now widely regarded as unrealistic given Tunisia's political transition and other more pressing financial sector reforms.

Non-residents are exempt from most exchange regulations. Under foreign currency regulations, non-resident companies are defined as having:

  • Non-resident individuals who own at least 66% of the capital; and
  • Capital financed by imported foreign currency.

Foreign investors may transfer returns on direct or portfolio investments at any time and without prior authorization. This applies to both principal and capital in the form of dividends or interest. U.S. companies have generally praised the speed of transfers from Tunisia, but lamented that long delays may occur in some operations.

There is no limit to the amount of foreign currency that visitors can bring into Tunisia and exchange for Tunisian dinars. Amounts exceeding the equivalent of TND 25,000 (US$16,150) must be declared at the port of entry. Non-residents must also report foreign currency imports if they wish to re-export or deposit more than TND 5,000 (US$3,250). Tunisian customs authorities may require currency exchange receipts on exit.

The Tunisian dinar is pegged to a basket of currencies, using weights that reflect the importance of these currencies in Tunisia’s external trade (including among others, the U.S. dollar, the Japanese yen and the heavily weighted Euro). It is adjusted in real effective terms to the fluctuations of these currencies, taking into consideration inflation differentials. The exchange rate is freely quoted by Tunisian banks and the Central Bank publishes a daily currency report. The Central Bank can intervene in the market to stabilize the currency. The Tunisian Dinar follows a managed floating exchange rate regime and is officially convertible for current account transactions. In 2012 (through November), year on year, the TND depreciated 6.791% against the U.S. dollar and 1.544% against the Euro.

On December 25, 2012 the Central Bank announced that foreign currency reserves cover 115 days of imports, up from 113 days at the end of 2011.

Expropriation and Compensation

The Tunisian Government has the right to expropriate property by eminent domain. There is no evidence of consistent discrimination against U.S. and foreign companies or individuals. There are no outstanding expropriation cases involving U.S. interests and such cases are rare. No policy changes on expropriation are anticipated in the coming year.

Dispute Settlement

There is no pattern of significant investment disputes or discrimination involving U.S. or other foreign investors. However, to avoid misunderstandings, contracts for trade and investment projects should always contain an arbitration clause detailing how eventual disputes should be handled and the applicable jurisdiction. Tunisia is a member of the International Center for the Settlement of Investment Disputes and is a signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Tunisia and the United States have a Bilateral Investment Treaty, which also has dispute resolution clauses.

The Tunisian legal system is based upon the French Napoleonic code. There are adequate means to enforce property and contractual rights. The Tunisian constitution guarantees the independence of the judiciary and courts generally handle commercial cases objectively, however, some legal experts caution that Tunisian courts remain susceptible to political pressure.

The Tunisian Code of Civil and Commercial Procedures does allow for the enforcement of foreign court decisions under certain circumstances. Commercial disputes involving U.S. firms are infrequent.

Performance Requirements and Incentives

Performance requirements are generally limited to investment in the petroleum sector or, more recently, in the area of private sector infrastructure development. These requirements tend to be specific to the concession or operating agreement (e.g. drilling a certain number of wells or producing a certain amount of electricity). More broadly, the preferential status (offshore, free trade zone) conferred upon some investments is linked to both percentage of foreign corporate ownership and limits on production for the domestic market.

The Tunisian Investment Code and subsequent amendments provide a broad range of incentives for foreign investors, which include tax relief on reinvested revenues and profits, limitations on the value-added tax (VAT) on many imported capital goods, and optional depreciation schedules for production equipment. With the ongoing review of the Investment Code, further incentives may be added to attract foreign investment to Tunisia.

In April 2011, the Tunisian government's Foreign Investment Promotion Agency (FIPA) announced a series of new incentives to draw investment to Tunisia's interior regions. These incentives extended the advantages available to the offshore sector, such as the 10-year tax exemption on profits for onshore investments in priority development areas. According to FIPA, companies investing in these regions are able to import raw materials, semi-finished products, and equipment duty and tax-free, or purchase those same items locally without paying the VAT. In addition, the Tunisian government provides an 8-25% investment subsidy on the total value of the investment (up to US$230,000 in general; US$715,000 in priority regional development areas).

For labor costs, the Tunisian government also assumes up to 16% of social security costs for the first seven years of the investment for new college graduates employed, with an extension of up to 10 years for investments in the interior regions. FIPA also announced a US$178 per month stipend provided to the company by the Tunisian government for every college graduate hired, plus a credit for 50% of training costs, with a total US$178,000 ceiling. In September 2012, the GOT announced the hiring of 61,000 new public servants in the first six months of 2012 and an additional31,000by the end of the year. It also stated it would provide start-up micro-capital for projects that had a job creation component.

Large investments with high job creation potential may benefit, under certain conditions determined by the Higher Commission on Investment, from the use of state-owned land for a symbolic Tunisian dinar (less than US$1). Investors who purchase companies in financial difficulty may also benefit from certain clauses of the Investment Code, such as tax breaks and social security assistance; these advantages are determined on a case-by-case basis.

Additional incentives are available to promote investment in designated regional investment zones in economically depressed areas of the country, and throughout the country in the following sectors: health, education, training, transportation, environmental protection, waste treatment, and research and development in technological fields.

Further benefits are available for investments of a specific nature. For example, companies producing at least 70% for the export market receive tax exemptions on profits and reinvested revenues, duty-free import of capital goods with no local equivalents, and full tax and duty exemption on raw materials and semi-finished goods and services necessary for the business.

Foreign companies resident in Tunisia face a number of restrictions related to the employment and compensation of expatriate employees. Tunisian law limits the number of expatriate employees allowed per company to four (excluding oil and gas companies). There are lengthy renewal procedures for annual work and residence permits. Although rarely enforced, legislation limits the expatriate work permit validity to two years. Central Bank regulations impose administrative burdens on companies seeking to pay for temporary expatriate technical assistance from local revenue. For example, a foreign resident company that has brought in an accountant would have to document that the service was necessary, fairly valued, and unavailable in Tunisia before it could receive authorization to transfer payment from its operations in Tunisia. This regulation prevents a foreign resident company from paying for services performed abroad.

According to the World Bank report “Doing Business 2013,” Tunisia’s overall ranking dropped to 50 out of 185 countries, falling five spots from 45 out of 185 in 2012.The largest drop for Tunisia (12 spots) was in “Starting a Business,” in which there were more difficulties noted regarding the number of procedural requirements, delays in starting a business, and higher start-up costs.

For U.S. passport holders, a visa is not necessary for stays of up to three months; however, a residence permit is required for longer stays.

Right to Private Ownership and Establishment

Tunisian government actions clearly demonstrate a strong preference for offshore, export-oriented FDI. Investors in that category are generally free to establish and own businesses, and to engage in most forms of remunerative activity. Investment which competes with Tunisian firms, on the Tunisian market, or which is seen as leading to a net outflow of foreign exchange, may be discouraged or blocked.

Acquisition and disposal of business enterprises can be complicated under Tunisian law and depends on the nature of the contract specific to the proposed transaction.

Disposal of a business investment leading to reductions in the labor force may be challenged or subjected to substantial employee compensation requirements. Acquisition of an onshore company may require special authorization from the government if it is an industry subject to limits on foreign equity shareholding (such as in the services sector).

Protection of Property Rights

Secured interests in property are both recognized and enforced in Tunisia. Mortgages and liens are in common use. Tunisia is a member of the World Intellectual Property Organization (WIPO) and has signed the United Nations (UNCTAD) Agreement on the Protection of Patents and Trademarks. The agency responsible for patents and trademarks is the National Institute for Standardization and Industrial Property (INNORPI - Institut National de la Normalisation et de la Propriété Industrielle). Foreign patents and trademarks should be registered with INNORPI.

Tunisia's patent and trademark laws are designed to protect only owners duly registered in Tunisia. In the area of patents, U.S. businesses are guaranteed treatment equal to that afforded to Tunisian nationals. Tunisia updated its legislation to meet the requirements of the WTO agreement on Trade-Related Aspects of Intellectual Property (TRIPS). Copyright protection is the responsibility of the Tunisian Copyright Protection Organization (OTPDA - Organisme Tunisien de Protection des Droits d'Auteur), which also represents foreign copyright organizations. New legislation now permits customs officials to inspect and seize goods if copyright violation is suspected.

The new Customs Code, which went into effect on January 2009, allows customs agents to seize suspect goods in the entire country for products under foreign trademarks registered at INNORPI. Tunisian Copyright Law (Law 1994-36) has been amended (Law 2009-33), and includes literary works, art, scientific works, new technologies, and digital works. However, its application and enforcement have not always been consistent with foreign commercial expectations. Print audio and video media are considered particularly susceptible to copyright infringement, and there is evidence of significant retail sale of illegal products in these media. Illegal copying of software and entertainment CDs/DVDs is widespread.

Although the concept and application of intellectual property protection is still in the early stages, the government is making an effort to build awareness and has increased its enforcement efforts in this area. These efforts have led a major supermarket chain to halt the sale of pirated audio and video goods. A U.S. government-backed initiative, managed by the Department of Commerce in conjunction with United States Patent and Trademark Office (USPTO), provides training for Tunisian officials in the field of IPR regulation enforcement. The GOT has announced that new IPR legislation is being drafted that will improve enforcement capabilities and strengthen punishment for offenders.

Transparency of the Regulatory System

While the Tunisian government has adopted policies designed to promote foreign investment, some aspects of existing tax and labor laws remain impediments to efficient business operations. Some bureaucratic procedures, while slowly improving in some areas, remain cumbersome and time-consuming. Foreign employee work permits, commercial operating license renewals, infrastructure-related services, and customs clearance for imported goods are usually cited as the lengthiest and most opaque procedures in the local business environment. Investors have commented on inconsistencies in the application of regulations. These cumbersome procedures are not limited to foreign investment and also affect the domestic business sector.

The World Bank’s “Doing Business 2013” report ranked Tunisia 50, down five places compared to 2012. Despite the lower ranking, Tunisia remained the highest-ranked country in North Africa for the ease of doing business.

Capital Markets and Portfolio Investment

The bank-dominated structure of Tunisia’s financial system remains an impediment to faster economic growth and stronger job creation. Banks account for roughly 90% of financing in Tunisia, with the small stock market providing 6-7% of total financing. Other mechanisms such as bonds, private equity, and microfinance, account for a marginal contribution to the overall financing of the economy. Although the financial system has the key ingredients for success, including established institutions and an investment savvy-public, it continues to suffer from an overreliance on troubled banks and burdensome regulations.

Tunisia hosts 29 banks, of which 18 are universal banks (serving as both commercial and investment banks), eight are offshore, two are business banks, and one is an Islamic bank. Although some bank branches were damaged during civil unrest in December 2010 and January 2011, the impact of this damage on the banking sector was minimal. After the fall of the Ben Ali government, companies, banks, and real estate that belonged to ousted President Ben Ali’s family were brought under GOT receivership. Zitouna bank, formerly owned by the former president's son-in-law Sakher El-Matri, was operated by a legal administrator appointed by the Tunisian Central Bank from January 2011until the board elected a new director in June 2012. The final disposition of the assets of the former president and his family will be decided by Tunisian courts.

Despite government reforms to fight corruption and reform the sector, small firms often have difficulty accessing capital. Private credit as a share of GDP stands at 65% in Tunisia, which lags behind economic peers such as Morocco and Jordan, where the rate is 80% according to the World Bank. As noted above, the World Bank’s 2013 “Doing Business Survey” ranks Tunisia 50th overall, but the report places Tunisia 104th in terms of ease of access to credit.

Tunisia’s banking system suffers from a legacy of structural problems exacerbated by the challenges of the Tunisian revolution and Europe’s economic downturn. Tunisia is overbanked, with 21 onshore banking companies offering essentially identical services to an identical segment of Tunisia’s relatively small market.

Government regulations hold down interest rates, which prevent banks from pricing their loans appropriately and gives bankers incentives to restrict credit provision through other means. While competition has the effect of lowering observed interest rates, banks often place conditions on loans to borrowers that impose far higher costs than interest rates alone would suggest. Frequently, these non-interest costs include massive collateral requirements, which normally come in the form of real estate and often equal or exceed the principal of the loan. Collateral requirements are often high because banks face difficulty using regulations to reclaim their collateral, thereby adding to banking costs.

The post-revolution economic disruptions and the economic downturn in Europe have exposed bad loans to regime insiders, increased loan losses, and choked off liquidity. Ben Ali’s departure has brought to light a large number of questionable loans made to regime insiders, which the Central Bank estimated in 2011 amount to roughly US$2 billion. According to official figures, the sharp increase in nonperforming loans (NPLs) in 2010, along with the events that took place in Tunisia in 2011 after closing the financial year, were reflected in the quality of banks’ portfolio. In effect, the outstanding balance of NPLs increased in 2010 by 17.2% or TND 927 million (approximately US$600 million), 49% of which was attributable to businesses tied to the former regime. Because of the sharp increase in loans, the NPL ratio fell to 13% in 2011, but rose again to 19% in October 2012, reaching TND 10 billion (US$6.451 billion). In 2011, the Central Bank decreased banks’ reserve requirement ratio three times (from 12.5% down to 2.5%) in order to provide enough financing to the economy and prevent liquidity squeeze at banks. In August 2012, the Central Bank increased the interest rate 25 basis points to 3.75% in an effort to contain inflation. Although in recent years the government has undertaken a number of bank privatizations and consolidations, the GOT remains the controlling shareholder in 10 of the 20 major banks. In June 2011, the estimated total assets of the country's five largest banks were nearly TND 29 billion (US$19.77 billion). Foreign participation in their capital has risen significantly and is now well over 20%.

The stock market is the second largest financing mechanism in the Tunisian economy. Tunisia’s stock market “Bourse de Tunis” is under the control of the state-run Financial Market Council and lists 60 companies, and trading volumes are exceptionally low. On November 30, 2012, the stock market capitalization of listed companies in Tunisia was valued at US$9.1 billion, approximately 20% of 2012 GDP, down 2.32% from US$9.3 billion in 2011.

In the last five years, regulatory and accounting systems have been brought more in line with required international standards and most of the major global accounting firms are represented in Tunisia; however, this has not resulted in a significant increase in companies listing on the stock exchange. Despite government tax incentives to encourage companies to join the exchange, they remain modest and the accompanying accounting requirements to list on the exchange exceed what most Tunisian firms can, or are willing, to provide. Tunisian firms listed on the stock exchange are required to publish semiannual corporate reports audited by a certified public accountant. Capital controls are still in place and foreign investors are permitted to purchase shares in resident firms (through authorized brokers) or to purchase indirect investments through established mutual funds.

In addition to the traditional banks and the stock market, there are few effective financing mechanisms in the Tunisian economy. There is essentially no bond market in Tunisia, government debt is sold to financial institutions and is not re-traded on a formal and transparent secondary market. Private equity remains a niche element in the Tunisian financial system because firms have difficulty raising sufficient capital, sourcing their transactions, and selling their stakes in successful investments once they mature. Many of the private equity firms in Tunisia do the lion’s share of their business elsewhere in Africa. Although the GOT has taken steps to develop microfinance, decree (Law No. 2011-117) aims to promote microfinance by allowing more microfinance institutions to provide micro credits, it remains underexploited, with non-governmental organization Enda Inter-Arabe the dominant lender in the field.

The GOT has taken steps to create mechanisms for foreign investment in Tunisia. In June 2009, the GOT passed legislation addressing access to financial services for non-residents (Law 2009-64). Financial authorities aimed to address regulatory gaps in the existing system by giving an appropriate framework for financial transactions between non-residents, introducing new financial tools attractive to foreign investors, defining new rules for monitoring, and supporting the creation of the Tunis Financial Harbor project (a US$3 billion Bahraini project inaugurated in June 2009 and envisioned to include banks, real estate firms, investment companies, commercial centers, housing units, and tourism areas). The code allows non-resident individuals or companies to use financial products and services as well as perform other relevant financial operations. Non-resident financial service providers may, in some cases and under certain conditions, provide services to residents. Regarding financial products, the code distinguishes between two types: securities and financial contracts. Both must be issued in Tunisia or negotiated on a foreign-regulated market member of the International Securities Commissions Organization.

Concerning financial service providers, the code established two categories regarding of activities: banking (deposits, loans, payments and exchange operations, acquisition of capital in operating companies or companies in current creation) and investment services (reception, transmission, order execution, and portfolio management). Non-resident financial entities, namely lending institutions authorized to act as banks, investment companies, and portfolio management companies, are considered by the code non-resident investment service providers.

Among the conditions required, non-resident financial service providers must present initial minimum capital (fully paid up at subscription) of TND 25 million (US$16.13 million) for a bank, TND 10 million (US$6.45 million) for a financial institution, TND 7.5 million (US$4.84 million) for an investment company, and TND 250,000 (US$161,300) for a portfolio management company.

Competition from State Owned Enterprises

Since the implementation of the International Monetary Fund Adjustment Program at the end of 1986, Tunisia has undertaken many reforms aimed at limiting the government's intervention in economic activities in the domestic market. These reforms have centered on:

  • Re-structuring the national economy as part of the program for the comprehensive upgrade of private and public enterprises.
  • Liberalizing trade through the removal of import and export licenses, dismantling customs duties on imported goods in line with Tunisia's international commitments (especially within the World Trade Organization and the European Union), and establishing bilateral and/or multilateral free-trade agreements with Arab countries such as Morocco, Egypt, Jordan, Libya and Algeria. However, imports of the most basic products such as cereals, sugar, oil, and steel have remained under the control of state-owned enterprises (SOE) due to their socio-economic impact and to protect against inflation.
  • Providing incentives to the private sector through a unified investment code for public and private enterprises, reforms in financial and tax systems, trade policy reforms, and privatization of a number of sectors, such as telecommunications.

SOEs are active in many sectors and compete alongside private enterprises (such as the telecom and insurance sectors). However, SOEs retain monopoly control in other sectors considered sensitive by the government, such as railroad transportation, water and electricity distribution, postal services, and port logistics. In these companies, senior management is appointed by the GOT and reports to the respective minister. The board of directors is mainly formed by representatives from other ministries and public shareholders. Like private companies, SOEs are required by law to publish independently-audited annual reports, whether their capital is publicly traded on the stock market or not.

Tunisia does not have a Sovereign Wealth Fund (SWF).

Corporate Social Responsibility

The concept of corporate social responsibility is developing progressively through governmental campaigns but has not yet taken firm hold in Tunisia. The most successful campaigns to date have focused on preserving the environment, energy conservation, and combating counterfeiting.

To date, most corporate social responsibility initiatives come from foreign multinationals that incorporate Tunisia into worldwide campaigns. Examples include supporting an educational program related to children's nutrition, supporting a clean water initiative, and creation of a program aimed at discouraging emigration of skilled workers from Tunisia. Such programs are viewed favorably by the GOT.

Political Violence

Tunisia has a history of stability, and incidents involving politically-motivated damage to economic projects or infrastructure were extremely rare. In December 2010 and January 2011, however, civil unrest erupted in the underserved interior regions of Sidi Bouzid, Kasserine, and Le Kef, as well as in Tunis. These protests, fueled by economic grievances, public resentment of corruption, and the lack of political freedom, spread and eventually forced former President Ben Ali and some members of his family to flee Tunisia on January 14, 2011.

Immediately after his departure, there was looting and damage to holdings of the Ben Ali extended family network, including grocery chains, individual residences, and other symbols of the Ben Ali clan. There were also reported cases of looting and property damage to companies unaffiliated to the former ruling family, although American companies were not specifically targeted. There were also clashes between former Ben Ali loyalists and military forces in major urban areas of Tunisia, although these lasted only a few days and occurred immediately after the former president's departure.

Within one week of Ben Ali’s departure, the military and police had quelled the violence and looting had stopped in Tunis. Most American companies operating in Tunisia reported some disruption to their operations, but returned to prior levels of activity within one week.

One government official noted that up to 10-20% of businesses had been directly or indirectly impacted due to disruptions in port operations, customs, and transportation networks since the revolution. The government has enacted a series of assistance measures designed to compensate companies who suffered losses due to the civil unrest.

The security situation in Tunisia remains unpredictable as demonstrations and other incidents generally related to domestic political concerns can occur. On September 14, 2012, protestors attacked the U.S. Embassy and American Cooperative School in Tunis. Travelers are urged to visit www.travel.state.gov for the latest travel warnings and alerts regarding Tunisia.

Corruption

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both foreign market opportunities for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

It is important for U.S. companies, regardless of their size, to assess the business climate in the market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U.S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.

U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at http://www.justice.gov/criminal/fraud/fcpa/.

Other Instruments: It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-bribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. Tunisia is a party to the United Nations Convention against Corruption.

OECD Anti-bribery Convention: The OECD Anti-bribery Convention entered into force in February 1999. As of April 2012, there are 39 parties to the Convention including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). Major exporters China, India, and Russia are not parties, although the U.S. Government strongly endorses their eventual accession to the Convention. The Convention obligates the parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Anti-bribery Convention through the U.S. FCPA. Tunisia is a not a party to the OECD Convention.

UN Convention: The UN Anticorruption Convention entered into force on December 24, 2012, and there are 165 parties to it as of December 2009 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Anti-bribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. Tunisia is a party to the UN Convention, signing it in March 2004; it came into force in September 2008.

OAS Convention: In 1996, the Member States of the Organization of American States (OAS) adopted the first international anticorruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption and provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment, and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as mutual legal assistance and technical cooperation. As of December 2012, the OAS Convention has 34 parties (see http://www.oas.org/juridico/english/Sigs/b-58.html). Tunisia is not a party to the OAS Convention.

Council of Europe Criminal Law and Civil Law Conventions: Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anti-corruption standards. Currently, GRECO comprises 49 member States (including the United States). As of December 2009, the Criminal Law Convention has 42 parties and the Civil Law Convention has 34 (see http://www.coe.int/t/dghl/monitoring/greco/default_en.asp.) Tunisia is not a party to the Council of Europe Conventions.

Free Trade Agreements: While it is U.S. government policy to include anticorruption provisions in free trade agreements (FTAs) that it negotiates with its trading partners, the anticorruption provisions have evolved over time. The most recent FTAs negotiated now require trading partners to criminalize “active bribery” of public officials (offering bribes to any public official must be made a criminal offense, both domestically and trans-nationally) as well as domestic “passive bribery” (solicitation of a bribe by a domestic official). All U.S. FTAs may be found at the U.S. Trade Representative Website: http://www.ustr.gov/trade-agreements/free-trade-agreements. Tunisia does not have a FTA with the U.S.

Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the relevant U.S. Embassy can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. Embassy can provide services that assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Foreign and Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at www.trade.gov/cs.

The Department of Commerce and Department of State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce’s Trade Compliance Center “Report A Trade Barrier” website at tcc.export.gov/Report_a_Barrier/index.asp.

Guidance on the U.S. FCPA: The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at www.justice.gov/criminal/fraud/fcpa. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce website, at http://www.ogc.doc.gov/trans_anti_bribery.html.

Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to various international conventions discussed above.

Most U.S. firms involved in the Tunisian market (generally in the offshore sector) have not identified corruption as a primary obstacle to foreign direct investment. Some potential investors have asserted that under the former Ben Ali regime, unfair practices and corruption among prospective local partners had delayed or blocked specific investment proposals, and that cronyism or influence peddling had affected some investment decisions. The presence of former President Ben Ali's family members in key sectors of the economy, including banking, car imports, agriculture, food distribution, and media, was widely regarded as having come about solely due to nepotism and abuse of power. The perception that any successful business venture could be encroached upon by members of the ruling family apparently affected domestic investment rates during the Ben Ali era.

Anecdotal reports from the Tunisian business community and U.S. businesses with regional experience suggest that corruption exists, but is not as pervasive as that found in neighboring countries. Most U.S. investors report that corruption involving routine procedures for doing business (customs, transportation, and some routine bureaucratic practices) may exist, but does not pose a significant barrier to doing business in Tunisia. Transparency International’s (TI) Corruption Perceptions Index (CPI) gave Tunisia an overall score of 41, where 0 indicates a country is perceived as “highly corrupt” and 100 means it is perceived as “very clean.” Tunisia’s ranking among all countries listed on the CPI has steadily improved, indicating a decrease in perceived corruption: from 59 in 2010, to 73 in 2011 and 75 in 2012. At the regional level, Tunisia is ranked 9thamong MENA countries, before its direct competitor, Morocco (10), and its neighbors Algeria (11) and Libya (17).

Tunisia's penal code devotes 11 articles to defining and classifying corruption and to assigning corresponding penalties (including fines and imprisonment). Several other legal texts also address broader concepts of corruption including violations of the commercial or labor codes, which range from speculative financial practices to giving or accepting bribes. Detailed information on the application of these laws or their effectiveness in combating corruption is not publicly available. There are no statistics specific to corruption. After the departure of former President Ben Ali, the interim government created the Independent Commission to Investigate Corruption, which focused on abuses of power during the Ben Ali era. Before January 2011, the Tunisian Ministry of Commerce published information on cases involving the infringement of the commercial code, but these incidents generally covered relatively low-level abuses such as non-conforming labeling procedures, as well as price/supply speculation.

The government's recent efforts to combat corruption have concentrated on the seizure of assets belonging to former President Ben Ali's family members, ensuring that price controls are respected, enhancing commercial competition in the domestic market and harmonizing Tunisian laws with those of the European Union. The transition government has also created a commission to investigate corruption, which is working in tandem with the court system to bring to light corruption incidents during the Ben Ali era.

Since 1989, the public sector has been governed by a comprehensive law designed to regulate each phase of public procurement. The GOT also established the Higher Market Commission (CSM - Commission Supérieure des Marchés) to supervise the tender and award of major government contracts. The government publicly supports a policy of transparency and has called for it in the conduct of privatization operations. Public tenders require bidders to provide a sworn statement that they have not and will not, either themselves or through a third party, make any promises or give gifts with a view to influencing the outcome of the tender and realization of the project. Pursuant to the FCPA, the U.S. Government requires that American companies requesting U.S. government advocacy support with foreign states certify not to participate in corrupt practices.

Bilateral Investment Agreements

A Trade and Investment Framework Agreement (TIFA) between Tunisia and the United States was signed in 2002 and three TIFA Council meetings have taken place, most recently in March 2012. A Bilateral Investment Treaty (BIT) between Tunisia and the United States took effect in 1991. A 1985 treaty (and 1989 protocol) guarantees U.S. firms freedom from double taxation.

Tunisia has concluded bilateral trade agreements with approximately 81 countries, including its neighbors Libya and Algeria. In January 2008, Tunisia’s Association Agreement with the EU went into effect, eliminating tariffs on industrial goods with the eventual goal of creating a free trade zone between Tunisia and the EU member states. Tunisia is currently negotiating services and agriculture provisions with the EU after being approved for Advanced Partner status in November 2012. In addition, Tunisia is a signatory of the multilateral agreements with the Multilateral Investment Guarantee Agency (MIGA). Tunisia has signed the WTO Agreement, bilateral agreements with the Member States of the European Free Trade Association (EFTA), bilateral and multilateral agreements with Arab League members, and a bilateral agreement with Turkey.

OPIC and Other Investment Insurance Programs

OPIC is active in the Tunisian market and provides political risk insurance and other services to a variety of U.S. companies. OPIC has also designed a number of investment funds that include Tunisia. These funds, among other sectors, cover renewable energy, franchising, and small and medium enterprise development. OPIC supports private U.S. investment in Tunisia and has sponsored several reciprocal investment missions. The 1963 OPIC agreement with Tunisia was revised and signed in February 2004.

Labor

Tunisian labor is readily available. Tunisia has a labor force of approximately 3.9 million and a national literacy rate of about 78%. Around 90% of the work force under 35 is literate. The 2012 official unemployment rate is 17%. This figure reaches 25% to 35% among university graduates, although some experts believe it is as high as 40%. Nearly 27% of Tunisian women, many of them holding advanced degrees, are unemployed. The official employment rate does not count underemployment and does not disaggregate geographically, which would show a distortion favoring the coastal tourist regions over central and southern Tunisia. Unemployment is Tunisia's most pressing economic issue.

Nearly 80,000 new jobs must be created each year to keep unemployment at current levels. Sustained annual GDP growth of about 8-9% would be required in order to make significant inroads into chronic unemployment. The structure of the workforce has remained stable over the past 20 years (19% agriculture, 32% industry, and 49% commerce and services). Tunisia has been successful in developing the industrial sector and creating employment for low-skilled jobs, but has not been able to keep up with new educated entrants into the job market.

The right to form a labor union is protected by law. Currently, there are three national labor confederations: the oldest and largest is the General Union of Tunisian Workers (UGTT - Union Générale des Travailleurs Tunisiens) and the two new ones are the General Confederation of Tunisian Workers (CGTT – Confederation Générale des Travailleurs Tunisiens) and the Tunisian Labor Union (UTT – Union Tunisienne du Travail), created in May 2011. The 517,000-member UGTT claims about one third of the labor force as members, although more are covered by UGTT-negotiated contracts. Wages and working conditions are established through triennial collective bargaining agreements between the UGTT, the national employers’ association (UTICA - Union Tunisienne de l’Industrie, du Commerce et de l'Artisanat), and the GOT. These tripartite agreements set industry standards and generally apply to about 80% of the private sector labor force, whether or not individual companies are unionized.

Since the January 2011 change in government, labor groups have called for reform in labor laws and have increased demands on employers. The latest wage increase (6%) agreement was signed in December 2012 for the public and private sectors. In the meantime, an emboldened labor movement has increased its demands for private sector reforms. The private sector saw a proliferation of wildcat strikes in the first half 2011, but the labor movement’s approval of governments formed by Prime Minister Caïd Essebsi in 2011 and Prime Minister Jebali in 2012 appeared to reduce the momentum of such actions. However, as recently as December 2012, labor unrest was still an issue.

The official minimum monthly wage in the industrial sector is 259.47 TND (about US$167.4) for a 40 hour week and 301.8 TND (about US$194.7) for a 48 hour week.

Foreign Trade Zones/Free Trade Zones

Tunisia has two free trade zones, one in the north at Bizerte, and the other in the south at Zarzis. The land is state-owned, but the respective zones are managed by a private company. Companies established in the free trade zones, officially known as “Parcs d’Activités Economiques,” are exempt from most taxes and customs duties and benefit from special tax rates. Goods are allowed limited duty-free entry into Tunisia for transformation and re-export. Factories are considered bonded warehouses and have their own assigned customs personnel.

However, companies do not necessarily have to be located in one of the two designated free trade zones to operate with this type of business structure. In fact, the majority of offshore enterprises are situated in various parts of the country. Regulations are strict, and operators must comply with the Investment Code.

Foreign Direct Investment Statistics

Foreign direct investment inflows for the first eleven months of 2012 increased 29.2% compared to the same period in 2011, but decreased 9.2% compared to the same period in 2010 due to the political transition and Tunisia's downwardly-revised credit ratings by major agencies.

Total foreign investment during the first eleven months of 2012 was TND 1.887 billion (US$1.217 billion), which represents a 26.6% increase compared to the same period last year. This increase in foreign investment is the result of a 29.2%increase in foreign direct investment, TND 1.809 billion (US$1.167 billion) in 2012 up from TND 1.4 billion (US$900 million) in 2011, and a 13.7% decrease, in portfolio investment, TND 77.6 million (US$50 million) in 2012 down from TND89.9 million (US$58 million) in 2011. This timid increase of total foreign investment in 2012 is attributable to the slight improvement of the investment climate and security situation of the country compared to 2011,but is still below 2010 results; major economic sectors have registered lower FDI flows in 2012 than in 2010,such as tourism and real estate (-12%), industry (-20%), and energy (-6%). The only sector where FDI flows increased more than in 2010 is agriculture (+77%).

According to GOT statistics for2011, 3,102 foreign or joint capital companies are operational in Tunisia and employ 324,730 people. Foreign investments generate about one-third of exports and one-fifth of total employment. In recent years, however, FDI in real estate, infrastructure, and the energy sector has been a significant source of growth.

Tunisia’s largest single foreign investor is British Gas, which developed the Miskar offshore gas field (US$650 million) and is investing a further US$500 million for new development. The largest single foreign investment was Turkish company TAV's 550 million euro (US$792 million) construction of the Enfidha International Airport, which is operating on a 40-year concession. Major foreign presence in other key sectors includes telecommunications and electronics (Alcatel-Lucent, Lacroix Electronique, Sagem, Stream, Siemens, Thomson), pharmaceuticals (Sanofi Aventis, Pfizer) the automotive industry (Lear Corporation, Autoliv, Leoni, Valeo, Toyota Tsusho, Pirelli), food products (3 Suisses, Nestlé) and aeronautics (Zodiac Aerospace, Eurocast, SEA Latelec).

Major U.S. company presence in Tunisia includes: Citibank, Cisco, Coca-Cola, Crown Maghreb Can, Eurocast (a joint venture with Palmer), Hewlett-Packard, Johnson Controls, Lear Corporation, Microsoft, Pfizer, Sungard, and Stream. JAL Group, originally part of an Italian-owned group producing safety footwear for the export market, was recently purchased by U.S. investors and, with a staff of over 4,600, is now the largest U.S. employer in Tunisia.

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