Making it Out of Africa

Posted on 14 Jun 2013

At a time when many UK manufacturers are considering moving production back to the motherland, other nations are leveraging their proximity to the growing markets of North Africa to find a cheap, and skilled, workforce and international knowhow. A model of “semi-relocation” seems to be prevalent here. Roberto Priolo reports from Tunis.

Speak to businessmen in Tunisia and you would swear the Revolution of 2010-2011 didn’t even happen. The demonstrations that eventually overthrew President Ben Ali and that represented the spark that ignited a wave of protests across the Arab world, the so-called Arab Spring, caused very little trouble to organisations operating in the nation. Some of them stopped production for a mere 24 hours, others never did.

Now that Ben Ali is in exile and his family’s assets (among which there were 500 organisations, from car dealerships to truck manufacturing companies) are given back to the people, also known as privatised, Tunisia can concentrate on what it’s been doing best for the past two decades – attracting foreign investment.

Tunisia is a small country with a small population (10 million); its workforce, however, is young and highly scholarised – something everybody gives Ben Ali and his predecessor Bourghiba credit for.

In 1994 a new tax code to attract FDI was introduced, that gives great incentive to organisations that start operations in Tunisia by not taxing any of the products they export (a company opening a manufacturing plant in Tunisia and exporting 100% of its output will not pay a dime for the first 10 years). However, the amount of products not leaving Tunisia are taxed at a rate of 30%.

The policy was successful: there are now 3,100 foreign companies in Tunisia (90% of them are exporting – the internal market is very small); 345,000 Tunisians are employed by foreign companies (15-20% of the active population); and FDI represents 5% of the country’s GDP. The devaluation of the Dinar has helped, too, by keeping salaries stable and therefore making Tunisia attractive to European companies looking for markets characterised by a lower cost of labour (a Tunisian salary is one fifth of the European average).

This has attracted many, especially from Italy, France and Germany, who take advantage of the country’s proximity to southern Europe (from most parts of Italy, Tunis is a short 50-minute flight away) and its fiscal regime.

Tunisia is investment-hungry and is trying to develop the most high value-added sectors, like mechatronics or IT. But to most foreign investors the country is a place to go to find cheap labour, a place to relocate the least complex parts of their manufacturing processes and use the higher margin that a cheap operation grants them to support the mother-company back home.

Noureddine Zekri, general director of Foreign Investment Promotion Agency (FIPA) explains: “We have created an improved business environment for foreign investors. We are gradually getting read of red tape to make it easier and quicker for them to create a company here. We don’t encourage big energy consumers to come – we subsidize energy – but those organisations that produce small components. What we find is that when you open a subsidiary here, that subsidiary supports the mother company back home.”

According to Mr Zekri, the Revolution was very different from the way it was depicted internationally by the media. In fact, the Arab Spring is offering Tunisia a range of new opportunities, mainly to export to its neighbours, Algeria and Lybia.

SERAF is an Italian company that specalises in metal printing, based near Rome, and decided to open a plant in Tunisia five years ago, growing from 5 to 160 people in meantime. The Tunisian operations are now the engine of the organisation: assembly activities that require lots of workers are here, while the “value-add activities and R&D are still in Italy,” to put it like general manager Roger Merolla. In five years, SERAF’s turnover in Tunisia grew 30 times – everything that is produced here is exported, to Egypt, Bulgaria, even Finland.

Salaries in the North African country are lower compared to China or Eastern Europe. Tax regulation will change in the next few weeks; however, it’s uncertain in which direction it will move. A 10% level of taxation on all production may be introduced.

But the element that will really determine Tunisia’s long term success as a destination for foreign investment and as the gateway to Africa is its population: young Tunisians are skilled, enthusiastic and entrepreneurial, and the country surely is relatively stable; secularism and a very high presence of women in the workforce also support the idea of Tunisia as a modern and safe marketplace; however, low salaries and inflation still affect too big a part of the population.