Tunisia - Memorandum on private investment

V RFTURN TO 1 MA-2 IREPORTS DES I FD1X.F. COPY Report No. MA-2 I WITHIN _ ONE WEEK j__ This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNAT'IONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION MEMORANDUM ON PRTVATE TNVESTME.NT ~TT\TTOT A 1 U1N.L.Li aniiuary 9, 196 Middle East and North Africa Department  CURRENCY EQUIVALENTS TTntil Septmber 28 1964 1 dinar = $2. 381 1 U. S. dollar = D 0. 420 Since September 28, 1964 1 dinar = $1. 905 1 U.. S dollar = D 0 525 1 million dollars = U.S. $1, 905, 000 1 million U. S. dollars = D 5Z5, 000  PRF.RATrny N!r) This memorandum on private investment in Tunisia was prepared in response to the interest expressed in the subject at the last meeting of the Consultative Group, which was held in Maich 1967. It was prepared by k1r. YMichael Payson from information gathered in Tunisia over the period June 14 to June 30, 1'367 and was updated on the basis of discussions with Tunisian officials and revised data obtained in October 1967.  CONTENTS Pagep No A. S,- ry and ronclusions ................... B.Trer.ds in P rivat- e InvestQ ,.wIn t, .~ 194n19 I^ 4- 1- L"l ~ ~ -~0~ Appra'sa' of Ca'rreni ncie to Ica *Fow of Domestic and Foreign Private Investment .................. D. Appraisal of Current Policies Tending to Discourage thne Fow of Private Capital .*. . . . . . . . . . . ... . 1 Table 1 Gross Fixed Capital Formation by Type of Investor, 1960- 1967 Table 2 Private Gross Fixed Capital Formation by Sector Table 3 Public Enterprise Gross Fixed Capital Formation by Sector Table 4 Public and Private Gross Fixed Capital Formation in Mining and Manufacturing Table 5 Total Investment in Projects approved by SNI during the last three-quarters of 1966 and the first quarter of 1967 Table 6 Transfers from Private Enterprises authorized by the Central Bank Annex I Policy Statements on the Roles of Public and Private Investment in Tunisia Annex II Sunmary Outline of Government Entry into Economic Enterprise Annex III Public Enterprises Annex IV Existing Incentives for Foreign Private Investments Annex V Proposed Revised Investment Code Annex VI Summary Outline of Principal Administrative Controls over Domestic and Foreign Private Investment Annex VII Markups in Textiles  PRIVATE INVESTMENT A. SUMMARY AND CONCLUSIONS (i) During the period 1960-1965 private investment in Tunisia de- clined significantly, while the government's influence in most fields of economic activity expanded steadily. The fall in the level of private investment was in part the result of increased uncertainty over the future of private economic activity during a period when the State was entering directly into industrial and commerical undertakings, sometimes by the nationalization of existing private firms, sometimes by negotia- ted purchase, and frequently by the direct or indirect establishment of new state enterprises. In part it reflected limited investment oppor- tunities in Tunisia relative to investment opportunities elsewhere as a result of the country's inherent economic disadvantages - a small domes- tic market and limited natural resources - an increasingly tight foreign exchange situation and a widespread system of administrative controls. (ii) In the recent past the direction of movement of aggregate pri- vate invp!stvient has c>anaed- RPvispd data fnr 1966 shnw a rise in both the level and share of private enterprise investment, due princi- np11v to a two-folrd innrpans in invRstm.Pnt in tomrism! and indicntions are that for 1967 last year's level will be exceeded, with the share of pnr;ate e=n+.terprise i flrA+t.TnPn+. in total gross f.dr1 cnapital fnr,vmn-tn rising even further. It is expected that improvement in the flow of priat -apta will _ntine ove t.z.e net e >--r. Thledgsc tor for both foreign and domestic private investment should be tourism, w'h;il private investment in manuifacturing will probably innresp it. a slower rate and, at least in the short run, will be realized in large part for replacement and expansion of xisting enterprises with new in- vestment opportunities arising principally in export oriented labor in- +e.r.a4'.r n,+4ir4+4nc e n. - Qre.n ;mr.,.+ e:iihs,+4 +ii+;n er +owAI Q A v5__ ._ v_, _ v_ V C.. _.. V A. vd _ U 5a' v _ UjJ viU v_L 'J_. A.. S9 Si * _ f.J V . v-Uv U, the long run outlook for minerals development and processing remains favrahble, prospec+s for the -'fY v.oni.za+ion of large n. nerals 4 nvrsc ments were uncertain in mid-1967. (iii) Apart from the treatment accorded to new investment a signifi- cantu e'ler,Aent' in th;e investrPleut, Clulkle w '.Ll UV t,.e suaccess ofL e_xistinJg private enterprises and the impact of government policy on their day to day operations. To the extent that they prosper it can be expected that private enterprise investment will increase cumulatively over the long run. The attractiveness of Tunisia for new foreign private invest- ment will depend ultimately on its ability to provide expanding markets) to maintain a stable, efficient administration, and to develop its ex- port potential vis-a-vis Europe.  -2- (iv) Since 1965 there has been growing evidence of the government.s dtermination to improve the climate for private investment. Institu- tinns for encrmrnaging the flnow of doimesti r annr foreign pnrivate nnitnI have been revitalized (the Societe Nationale d'Investissement) or newly established (the Tnvre+.ment P-r,m^t+A n Geer) The lel s rf I -_ .,. -- - ,- - _ ., - - - / **~.' the administration has become more favorable toward foreign and private invT os+nq sQ asasul of the gove rments ratificatin of t Convenh tionfor the Settlement of International Investment Disputes, its nego- tiatin o_ f -cor.pensa+ion- for naioalze fa. -ard, -n At z4c--e-pt-a-- 4- t - ~-' " c '.'e- -~LLJ ~~ LJ~. U JML 4