What’s Preventing Foreign Direct Investment in Tunisia?

By Bernard Yaros | Feb 22 2012 Share on Linkedin Share on Facebook Share on Twitter Share on Google Share on pinterest Print

Tags: API ,Code d'Incitation d'Investissement ,Economic Recovery ,Europe ,FDI ,

Attracting foreign direct investment (FDI) in Tunisia has been an ongoing endeavor of the government, as it seeks to initiate economic recovery and increase employment. In 2011, FDI declined, and 153 foreign ventures departed the country.

Despite the tough economic circumstances facing North African nations, Tunisia still remains a profitable country for investors, said Majed Hadj'Ali, a legal advisor and founder of MH Avocats “ a law firm that provides legal support to businesses operating in Tunisia.

Its geographical proximity to Europe makes Tunisia an attractive site for establishing a business. Local labor and raw materials costs are also low due to a devalued Tunisian Dinar.

Domestic laws that protect investor rights also work to Tunisia's advantage, said Selim Kouidhi, a certified public accountant at KS Consulting, who works with both Tunisian and foreign businesses.  Furthermore, the Foreign Investment Promotion Agency (FIPA), a Tunisian government body, provides solutions to problems facing investors on an individual basis, added Kouidhi.

However, not all government policy is ideal for promoting investment. Many argue that the procedures for starting a business in Tunisia should be streamlined and the information made accessible and clear.

Any foreign investor wishing to register a business in Tunisia must first make a trip to the Agency of Industrial Promotion (API) to initiate the process for establishing a business. Unfortunately, API is a bureaucratic nightmare, said Kouidhi. Procedural information is not clear, and it takes several days to find one's way around the agency. In certain instances it has taken the API two months to grant authorization because it had to determine the area in which the potential business would work in, said Kouidhi.

According to Mondher Khanfir, Director General of Wiki Start Up, a business incubator for local entrepreneurs, the Code of Investment Incentives, a cornerstone article in the country's investor laws, needs to be reviewed totally in a way that could avoid such wasted deliberations.

Right now, the code is positivist in the sense that it only dictates the sectors in which FDI is allowable. In Tunisia, there are restrictions on foreign business ownership. For example, agrarian lands cannot be bought by foreigners entities nor can property in the old medina. Foreign investors can only purchase industrialized land. In some sectors, foreign businesses must include a certain level of Tunisian ownership.

According to Khanfir, a positivist angle in the code only creates more ambiguities as to where foreign ownership of land, labor, and property is legal. Khanfir argues that it should be more negativist, that is, stating exactly what sectors and areas are not open to foreign business ownership. Consequently, the process would be marred with fewer grey areas, said Khanfir.

Hadj'Ali goes further, arguing that there are not enough business lawyers and judges in the country that are knowledgeable of the intricacies of investment law and can help foreign businesses struggling in this respect.

Morocco, compared to Tunisia, is currently attracting a greater number of investors precisely because of more relaxed restrictions on foreign ownership, pointed out Hadj'Ali.  However, Abdelsattar Zaafrani, an international economic law specialist, warned against a total liberalization of investment regulations.  Morocco and Tunisia have almost the same approach to FDI, except that Tunisia demands the enforcement of safeguards guaranteeing the fundamental rights of the workforce, such as health care and reasonable working hours, highlighted Zaafrani. Although Morocco has more FDI on paper, the living standards of its workers are lower than those of their Tunisian counterparts, asserted Zaafrani.

What does Tunisia need to do in order to increase FDI?

A problem that both Hadj'Ali and Kouidhi highlighted was that big businesses receive preferential treatment by authorities over small-to medium-sized ones. Big businesses will usually bring machinery and raw materials with them as well as employ large numbers of local workers. However, smaller businesses in large numbers also bring know-how and develop local human resources, pointed out Hadj'Ali. If you're a big business, the government welcomes you. But the smaller ones don't have access to critical information, stated Hajd'Ali.  The government may be making a mistake in solely focusing on big-time investors and ignoring smaller ones. A big investor is just as important as a 100 small ones, who will provide around a 1000 jobs, said Kouidhi.

For Zaafrani, any solution to recuperating FDI must be pragmatic. Tunisians must show the world that they're competent and that the climate and land are good for investment.  Also, the hopeful political situation is an inducement and means for promotion.  Tunisia must be clear to potential investors what they can gain or lose from putting their money in Tunisia, said Zaafrani.

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    Foreign investors would not put their money in Tunisia or any other country, unless at a minimum the following conditions exist:

    1. The Rule of law will be applied consistently;
    2. Anti-Corruption laws are strictly enforced;
    3. I should not need a lawyer to just start an LLC or Corporation;
    4. Clarity and transparency in what a business is required to do or not to do in order to operate;
    5. Allowing import and export licenses to anyone who meets the requirements;
    6. Transfer of currency without delays;
    7. Getting rid of the French bureaucratic system that has blinded us since independence.
    8. Right to work law.
    9. Goverment investment in infrastructure.
    10. Most importantly TRAIN the college graduates for a real job.

    • Very good points, Afif. Of course, you have an entire industry built around “helping” foreign companies navigate these hurdles, including some very sharp and successful lawyers!

      • Ike,
        In some other countries you can form an LLC or incoporate within 1 hour after you pay about $75.
        Certainly, if you need an operating agreement because of several investors, in an LLC, or because of laws protecting minority shareholders in a corporation, or other laws concerning mergers and acquisitions, etc, then the services of a lawyer are essential.
        Note also that Jordan has a free trade agreement with the U.S., but not Tunisia.

  1. Dear Tunisien Collegue,
    Despite the lessons of history men could not stop war, conflict, abuse of power , inequiality mishandling of resources, environment etc. Because of lack long term planning,lack of educated prepared skilled team of visionist leaders to lead their country’s and fellow citizens to shining future. On the other hand developed countries with intelligent vision , hard work and due to the fortunate combination of physical, climatic,vastly superior technical,artistic culture with leading disciplined leaders they invested in education,and research. They divert their resources to virgin lands, under the sea, to health, to space, to research & development, PROTECT, promote entrepreneurship, innovative S.M.E.’s and to law and order.

  2. Dear Collegues Brothers and Sisters ,

    To attract foreign investors creating a investment/protection climate is


    Best Regards from Turkey
    Erol Yegin