Tunisia's manufacturers eye recovery
24 February 2017
Buoyed by rising levels of investment, Tunisia's industrial sector is gaining momentum, with the production of components for international automotive and aeronautics firms acting as key drivers of growth.
Tunisia’s industrial output had dipped slightly in recent years, to below pre-revolution levels. However, data from the Ministry of Industry and Trade shows that the sector attracted TD2.87bn (€1.18bn) worth of investment in the first 11 months of 2016, marking a 23.8% year-on-year (y-o-y) increase and fuelling hopes of a recovery.
Component production leads the way
Tunisia’s mechanical, electrical and electronic industries (MEEIs) delivered a particularly strong performance, obtaining the lion’s share of inflows. Investment in MEEIs reached TD572m (€235m) by the end of November, up 106.8% y-o-y. According to the country’s Foreign Investment Promotion Agency (FIPA), the segment’s average annual growth rate now exceeds 13%.
The country’s MEEI landscape is dominated by the manufacture of cables, transformers, electronic circuits and other mechanical parts for foreign firms operating primarily in the automotive and aeronautics sectors.
More than half of the capital invested in MEEIs comes from abroad, with foreign firms keen to make the most of Tunisia’s advantages, which include its proximity to the European market, a skilled workforce and comparatively low labour costs.
Tunisia is the second-largest manufacturer of automotive components in Africa, outperformed only by Morocco, according to the FIPA. Data compiled by the Tunisian Automotive Association puts the segment’s contribution to GDP at around 4% in recent years.
The sub-sector also has a strong international focus, with foreign-based firms making up half the 270 companies operating in the segment, while 180 businesses are entirely export driven.
Some well-established European manufacturers are looking to increase their footprint in the country. France’s Group PSA, which already imports materials to produce more than €250m worth of components annually in Tunisia, is scheduled to open a new pickup truck assembly unit in the country in 2018.
The industry is also attracting more Asian firms. Indian carmakers Mahindra and Tata Motors inaugurated assembly units in Tunisia in 2013 and 2015, respectively, while the Chinese bus manufacturer King Long plans to invest an estimated TD8m (€3m) in a similar venture this year.
According to Lamia Fourati, chief strategy officer at One Tech Holding, investors are becoming increasingly aware that Tunisia has the capacity and capabilities to serve as an industrial centre for international producers. “The Tunisian industrial sector has mastered just-in-time manufacturing, and, more broadly, acquired the necessary mindset to host an automobile manufacturer,” she told OBG.
The aerospace components segment is also performing strongly, sustained by the long-term presence of foreign aircraft components manufacturers such as Stelia Aerospace and Corse Composites Aéronautiques, who together employ around 1000 workers in Tunisia.
A third player, France’s Figeac Aéro, recently announced its acquisition of PECISS – a Tunisian industrial technology services company – to allow it to optimise its machining operations. Further to this, Figeac Aéro will expand it’s facility near Tunis by 30,000 sq metres to enable it to undertake heavy metal machining and non-destructive testing.
Speaking to the media in December, Ziad Ladhari, the minister of industry and trade, said transactions in the segment had increased 14-fold in the last decade to reach TD535m (€220m).
A stable force for exports
MEEIs now account for 45% of the country’s sales, having helped to push up the value of exports by 15.7% in 2016. The segment’s steady performance is expected to help balance revenue fluctuations in the more volatile raw materials industries.
Strong international sales across the MEEI segment could also help offset subdued performance from the textiles and clothing segments. Both fields have felt the weight of competition from Asia since the Multi-Fibre Arrangement expired in 2004, which put an end to the quota systems introduced under the initiative.
By 2016, Tunisia had slipped to ninth place on the list of suppliers of textiles to the EU, down from fifth in 2005. Textile exports have also dropped more broadly in recent years, although a rise in international sales of 8.3% in 2016 hints at a possible recovery.
Shoring up the sector
With manufacturing industries contributing 16.7% of GDP in 2015, the government has moved to provide them with stronger support. Key initiatives planned under the National Development Plan 2016-20 include the setting aside of 1315 ha for industrial zones and the rollout of a TD300m (€123m) export-oriented logistics cluster in the northern governorate of Zaghouan.
In addition, a new investment code aimed at easing processes for foreign investors is scheduled to come into force this year. The sector could also benefit from the lobbying efforts of the Tunisian Confederation of Industry, Trade and Handicrafts, which is calling for a widening in the scope of projects eligible for tax incentives. Currently, these are largely reserved for newly created industrial companies and not for existing firms looking to expand operations.
© Oxford Business Group 2017