Tunisia - Foreign investment

In 1972, an investment law provided special benefits to companies manufacturing commodities for export, a regulation that stimulated some foreign involvement, particularly in the textile industry. Incentives consisted of partial or total tax exemption for periods of 10–20 years, as well as exemption from customs and import duties on raw materials and equipment. A similar law that encouraged investment in industries producing for local markets was enacted in 1974 and amended in 1981; the statute required that such firms exhibit partial (in many cases majority) Tunisian ownership. A 1981 law offered incentives for investment in less-developed regions. Kuwait, Sa'udi Arabia, Qatar, the United Arab Emirates, and Algeria participated with Tunisia in development banks to channel Arab investment funds.

Tunisia's severe balance of payments crisis obliged the government to reverse many of its protectionist and socialist policies under structural adjustment programs supervised by the IMF and World Bank. A new investment code was passed in 1989 offering further tax and customs concessions to local as well as foreign investors, particularly in export-oriented enterprises. Tunisian law still prohibits ownership of land by non-Tunisians, although a special 40-year land lease system permits agricultural development by foreign companies. In January 1994 the government adopted an investment incentives law that, in conjunction with added provisions, offers tax reductions on reinvested profits and revenues, and optional depreciation schedules for production equipment. For companies that export at least 80% of their output, the incentives include a 10-year profits tax holiday, with a 50% reduction thereafter; full tax and duty exemptions on materials and services used in production; full tax exemption on reinvested profits and revenue; and duty-free import of capital goods that have no local equivalent. Large investments with high job creation may qualify to use state land virtually rent-free.

Foreign property is still at risk of expropriation by the Tunisian government and in 1995 an American company had property taken without compensation. The government also reserves the right to take property by eminent domain, in which case just compensation is offered. There remain many restrictions on foreign investment as the government pursues a gradualist approach, caught between pressure to liberalize from the IMF and the WTO, and a fear of igniting a popular uprising. Under the terms of its accession to the WTO (29 March 1995), Tunisia was obligated to relax restrictions on foreign participation in its information, telecommunications, and financial services industries by 2003.

The annual inflow of foreign direct investment (FDI) in Tunisia peaked at $778.8 in 2000, up from $368 million in 1999. The annual inflow has fallen since, caught in the global economic slowdown of 2001 and, in particular, the decline in FDI flows worldwide following the 11 September 2001 terrorist attacks in the United States. FDI inflow in Tunisia was $486 million in 2001 and $402 million in 2002.

As much as 75% of FDI in Tunisia has been in petroleum. Other important sectors are textiles, and mechanical and electrical industries. The telecommunications industry is ready for substantial growth. France is the largest investor with 38% of the total, followed by Italy, Germany, Belgium, Switzerland, and the United Kingdom.

Levels of portfolio investment, at about $51 million in 2000, remain small.