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Tunisia: Industry looking to rebound

Global Arab Network - - Adnan Kassar

Thursday, 15 September 2011 16:56

http://www.english.globalarabnetwork.com/images/stories/2010/Dec/tunisia_technology-intensive_Industry.jpg

Global Arab Network - With GDP edging back up, Tunisia’s industrial sector is looking to regain its momentum after social unrest earlier this year stalled expansion, but with the domestic economy recovering slowly and recession or revolt gripping some of their biggest export markets, local manufacturers may struggle to fill order books, at least in the short term,Global Arab Network reports according to Oxford Business Group.

Data released in August by the Central Bank of Tunisia show that the country’s economy is still in recession: GDP contracted by 3.3% in the first quarter of 2011, which coincided with the popular uprising that overthrew former President Zine El Abidine Ben Ali, and posted zero growth in the second quarter.

However, the African Development Bank (AfDB) predicts Tunisia will edge into positive territory in the second half of the year, with GDP forecasted to increase by a modest 0.4% to 0.7% for the year, down from 3.7% in 2010.

Industry has played an increasingly important role in the Tunisian economy in recent years, contributing around 34% of GDP, second only to the services sector, and employing some 32% of the national workforce. After tourism it has been the hardest hit sector of the economy in the recent slowdown.

According to recent data from the Agency to Promote Foreign Investment, the first six months of 2011 saw a 17.2% fall in foreign direct investment (FDI), with total inflow reaching TD775.3m ($563m) compared to TD936.6m ($681.3m) for the first half of 2010. While the tourism sector was the most affected, with investments slumping by 93%, Tunisia’s manufacturers also saw their own FDI diminish, with inbound investments down by 18%.

The sharp decline in the tourism industry will also have a flow-on effect for the manufacturing sector, with demand for services across the board likely dropping. Until confidence and foreign visitors begin returning, the decreased need for construction materials and reductions in tourism revenue will mean less money circulating in the economy, resulting in lower demand for manufactured goods.

However, while FDI may be down, overall investments in the industrial sector are rebounding, according to a report issued by the Ministry of Industry and Technology in mid-August. For the first seven months of 2011, industrial investments totalled TD1.96bn ($1.43bn), a 22.2% increase on the same period in 2010. The mechanical and electrical segment lead the way with a 49% rise, followed by agri-food industries, which recorded a 37.2% jump in capital spending. With FDI down, this strong industrial investment suggests that local businesses are regaining some faith in the economy.

With that said, there are still a number of obstacles that could slow industrial growth in the short to medium term. Moez Laabidi, a financial analyst and member of the central bank’s board of directors, has warned that the country’s economy is still not insulated from a global crisis. In a statement carried by Tunisie Soir on August 11 Laabidi said that Europe’s slowdown and subsequent austerity measures will likely result in a fall in demand for Tunisian exports.

Although Laabidi found some good news concerning the industrial sector, which stands to benefit from lower energy costs, he also advised manufacturers to step up efforts to develop new markets outside of Europe, such as those in Asia.

Also impacting local industries is the ongoing conflict in Libya. According to an AfDB study, Tunisian exports to Libya have fallen by 34%. The report again cites the manufacturing sector as being among those most affected. Although it appears the Libyan crisis may be in its final stages, it will take time for the situation to stabilise and for normal trade in Tunisian manufactured goods to resume.

Mustapha Kamel Nabli, the governor of the Central Bank of Tunisia, estimates that the conflict in Libya has cost Tunisia between $1bn and $2bn in lost trade and tourism revenue, but he also said he believed this would turn around within six months following the settlement of a peace agreement.

Nabli was also positive on the outlook for industry, saying in an interview with the Bloomberg news agency at the end of July that although the economy has a low growth rate, many of Tunisia’s industries were expanding and that “fundamentals continue to be strong”.

Tunisia’s industrial sector is hoping those fundamentals remain solid, considering they are the foundation on which recovery will be built as recession in Europe and instability in neighbouring Libya threaten to undermine the country’s efforts to move beyond its own political upheavals. (OBG)

Global Arab Network

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