Renewed efforts to reduce red tape and restrictions on investment in Tunisia

As part of efforts to develop the economy, the Tunisian authorities are keen to boost levels of investment, which stand at around 18.5% of GDP, well below the 30% witnessed in neighbouring Morocco. The country’s 2016-20 development plan requires total investment of TD125bn (€57.3bn) to be made in the coming five years. In order to facilitate this, the government is in the process of creating a new investment code. This will replace a 1993 investment promotion law that has become increasingly complicated as a result of amendments made to it over the years. The previous code has also given rise to a system of costly but inefficient investment incentives. According to a report by local brokerage MAC SA, such incentives cost the government around 8% of state revenues a year, without having achieved the goals of attracting investment and reducing unemployment. The latest draft was presented to parliament for review in February 2016, with a view to it being implemented in the first half of the year. To speed up its implementation, by-laws required to put its provisions into effect will be passed simultaneously with the law.

Major Planks

Key elements of the law include addressing red tape and restrictions on investment, including reducing requirements for licensing or prior authorisation that affect half of all economic activities, which between them account for around 75% of GDP. Another plank is the provision of additional incentives and tax advantages for investments in under-developed regions and in priority economic sectors, including tax exemptions of up to 10 years and grants to up to 30% of the cost of foreign-backed projects, to be provided by a new national investment fund, the Tunisian Investment Fund. In addition, the draft law also loosens restrictions on the repatriation of profits and local assets, which are subject to complex rules applied with wide discretion by the central bank, an issue the US State Department says is subject to frequent complaints from foreign investors.

Incentives

The code also looks to change the incentives for offshore firms, which export 70% or more of their output, and which as a result can be majority-owned by foreign investors. A joint commentary published by the French-Tunisian, German-Tunisian and Italian-Tunisian chambers of commerce in December 2015 noted that the draft law did not appear to offer any incentives or advantages to so-called “offshore” companies, which are a major employer and driver of foreign investment, and called on the authorities to abolish new taxes introduced for such firms in 2014. “The government is trying to sell the reforms by arguing that offshore companies will now have access to the local market, but in most cases local demand for what such firms are producing is small,” Martin Henkelmann, director-general of the German-Tunisian Chamber of Industry and Commerce, said, adding that foreign firms were concerned by the increased bureaucracy that could accompany a loss of their offshore status at least as much as the loss of incentives and tax advantages.

Feedback

Private sector feedback noted that the code could inadvertently contribute to a higher bureaucratic burden, given that the advantages to be accorded to new investments are not clearly outlined, and called for more precise criteria for projects to be supported by the Tunisian Investment Fund.

However, Tarek Cherif, president of CONECT Tunisia, said that the reforms were moving in the right direction. “The new code will simplify administrative procedures and provide good incentives for investments in the interior regions and in high-added-value sectors,” he told OBG, noting that the authorities had met frequently with the private sector while drafting the changes and had taken many suggestions on board. “The process of drawing it up has been quite lengthy but it is a once-in-a-generation change so it makes sense to take some time over it, and the reforms will respond to the country’s needs,” he said.