Tunisia - Memorandum on the economic position

Report No. 767-TUN FILE Copy Memorandum on the Economic Position of Tunisia May 23, 1975 EMENA Region Country Programs Department II Not for Public Use Document of the International Bank for Reconstruction and Development This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS Currency Unit - Dinar = 1000 millimes Dinar per US dollar Period Exchange Rate 1/ Trade Conversion Factor 1964-1970 0.525 0.525 1971 0. L80 0.521 1972 0.480 0. 4t.4 1973 0.450 0.439 197)4 0.41 0 0.437 0.1420 o0.54 1974) 0 0.440 0.428 ) III 0.440 0.440 ) IV 0.410 0.424 January 1975 0.390 0.400 1/ End of period. 7/ Period average. Source: IMF, International Financial Statistics, April 1975  TABLE OF CONTENTS Page No. Introduction .......... .............................. 1 I. Development Objectives and Strategy ................. 1 II. Recent Economic Developments ........................ 2 (i) The growth and uses of resources .... ........... 2 (ii) The incentive framework for private investment.. 8 (iii) The external sector ............................ 11 (iv) Domestic resource mobilization ................. 14 III. Forecasts for 1975/76 .18 (i) Growth .19 (ii) Financial situation .20 (iii) Employment .22 ANNEX 1 - Developments in the Tourist Sector ANNEX 2 - Statistical Appendix This report is based on the findings of an economic mission, which visited Tunisia in November 1974, and on information received in April 1975. The mission was composed of Mr. F. Laporte (Chief) and Ms. S. Ruggeri (Economist/Loan Officer).   Page 1 of 2 pages COUNTRY DATA TUNISIA AREA: 164,150 Km2 POPULATION: 5.57 million (mid 1974) DENSITY: 33.9 per 1s2 Natural Growth Rate: 2.6 (1961-1972) 104.5 per Km2 of arable land Real Growth Rate: 2.0 (1961-1972) POPULATION CHARACTERISTICS (1970) DISTRIBUTION OF LAND OWNERSHIP (1970) 2 Crude Birth Rate (per 1,000) 38 % owned by top 10% of owners 23' Crude Death Rate (per 1,000) 14 % owned by smallest 10% of owners 0.5- Infant Mortality (per 1,000 live births) 106 INCOME DISTRIBUTION ACCESS TO ELECTRICITY %.of national income, highest quintile *. Percentage of housing units with electric lighting 24 (19606 lowest quintile *. Electric power consumption (Kwh per capita) 24c (1973' NUTRITION (1964-1966) ACCESS TO PIPED WATER Per capita calorie supply as % of requirements 94 Percent of occupied units with piped water 40 (1966' Per capita protein supply, total (grams per day) 63 Health (1971) EDUCATION Population per Physician 6.486 Adult Literacy Rate % 553/(I972) Population per hospital bed 400 Adjusted primary school enrollment ratio 107 (1968) GNP PER CAPITA IN 1974:-' US$ 489 GROSS NATIONAL PRODUCT IN 1974 ANNUAL RATE OF GROWTH (4, constant Prices) US$ Mln. 4 1961-66 1966-71 1972 1973 1974 GNP at Market Prices 3,112 100.0 3.9 5.9 18.1 1.F 10.6 Gross Domestic Investment 731 23.5 10.6 3.2 20.1 - 5.7 15.8 Gross National Saving / 663 21.3 13.3 14.3 23.5 -13.7 27.2 Current Account Balance - 68 - 2.2 . . Exports of Goods NFS 2/ 1,053 33-8 3.5 10.8 20.4 - 3.6 18.7 Imports of Goods NFS 1,096 35.2 3.3 4.4 16.1 1.0 12.6 OUTPUT. LABOR FORCE AND PRODUCTIVITY IN 1972 Value Added (at factor cost) Labor Force V. A. Per Worker US$ Mln. % Mln. % US$ 4 Agriculture 450 23.7 0.800J6 52.6 563 45.0 Industry 473 24.9 0.255 16.8 1,855 148.3 Services 978 51.4 0.332,, 21.8 2,946 235.5 Unemployed - - O.133 8.8 - - Total Average 1,901 100.0 1.520 100.0 1.251 100.0 GOVERNMENT FINANCE General Government Central Government (Dinar Mln.) % of GDP (Dinar Mln.) % of GDP 1974 1974 1971-73 1974 1974 1971-73 Current Receipts 395.0 28.5 25.0 346.1 25.0 21.4 Current Expenditure 294.6 21-3 21.0 244.3 17.6 17.1 Current Surplus 100.4 7.2 4.0 101.8 7.4 4.3 Capital Expenditures 156.9 11.3 7.9 109.4 7.9 5.8 External Assistance (net) 31.1 2.2 2.9 21.5 1.6 2.2 1/ IBRD estimate, excluding pastures and forests. 2 Covering 4.5 million ha of private land, excluding 0.8 million ha in public ownership, and 2.1 million ha of collective land. 2/ Over 15 years old. J The Per Capita GNP estimate is at current market prices, calculated by the same conversion as the World Bank Atlas. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 5/ Including terms of trade adjustment. J Residual, equivalent to approximately 420 thousand in full-time employment, the balance represents underemployment. 2 Male only.  Page 2 of 2 pages COUNTRY TUNISIA MONEY, CREDIT and PRICES 1966 1968 1970 12 1973 174 (Million Dinars outstanding end of period) Money and Quasi Money 186.6 224.0 259.4 368.6 443.8 568.3 Bank Credit to Public Sector 85.4 87.4 93.3 74.8 72.2 87.5 Bank Credit to Private Sector 178.9 223.1 255.7 331.6 397.0 519.5 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 33.7 35.8 34.7 35.3 39.7 41.0 General Price Index i/ 100.0 105.0 112.0 121.9 128.0 143.6 Retail Price Index 100.0 io5.6 111.0 120.0 125.2 130.8 Annual percentage changes in: General Price Index 1.7 0.7 3.3 3.0 2.3 12.2 Retail Price Index 3.9 2.5 1.1 2.2 4.3 4.5 Bank Credit to Public Sector 6.6 3.8 -1.1 -16.3 -3.7 21.2 Bank Credit to Private Sector 29.2 12.2 8.9 16.1 19.7 30.9 BALANCE OF PAYMENTS MERCHANDISE EXPORTS Average 1971-73 19?4 1971 1972 1973 1974 us$ Mln. # US$ Mln. (Millions US$) Exports of Goods, NFS 405 563 681 1.053 Olive Oil 68.1 21.2 132.8 17.5 Imports of Goods, NFS 439 588 746 1 096 Other Agric. and foodstuffs 52.2 16.3 58.8 7.7 Resource Gap (deficit = -) -34 -25 -65 -43 Crude Oil 94.5 26.3 267.9 35.2 Rock phosphate 23.0 7.2 89.9 11.8 Superphosphate 21.8 6.8 66.5 8.7 Interest Payments (net) -17 -19 -12 -11 Other mining and raw. materials 34.7 10.8 75.a 10.0 Workers' Remittances 43 62 94 100 Manufactured products 56.6 11.4 68.8 9.1 Other Factor Payments (net) -48 -66 -112 -123 Total 320.9 100.0 760.5 100.0 Net Transfers 16 6 - 9 Balance on Current Account -40 -42 -92 -68 EXTERNAL DEBT. DECEMBER 31, 1973 Direct Foreign Investment 24 32 54 55 US$ Mln. Net MLT Borrowing 74 65 73 73 Disbursements 123 139 144 148 Public Debt, Incl. guaranteedW 1,272 Amortization 49 74 71 75 Non-Guaranteed Private Debt Subtotal 98 97 127 128 Total outstanding and disbursedl/ 809 Capital Grants 35 37 43 43 Other Capital (net) -j -14 -2 -26 Increase in Reserves (+) 90 78 79 77 Gross Reserves (end year) 156 2495' 3516 4777 DEBT SERVICE RATIO Net Reserves (end year) 105 193' 28739- 19 1974 rBRD/IDA LENDING. April 30, 1975 (Million US$): In % of Exports of Goods, NFS 14.7 10.1 IERD IDA In % of Exports of Goods, NFS, and Workers Remittances 13.4 9.4 Outstanding and Disbursed 114.5. 47.1 Undisbursed 97,7 23.7 Outstanding inel. Undisbursed 212.2 70.8 j GDP price deflator 2/ Including undisbursed 3/ Excluding undisbursed / Calculated at the rate of 1.905 5/ Calculated at the rate of 2.08 6] Calculated at the rate of 2.27 / Calculated at the rate of 2.44 .. not available not applicable Country Programs Department II Europe, Middle East and North Africa Region May 23, 1975  Introduction 1. The purpose of the Basic Economic Report distributed at the end of 1974 was to assess the development potential of the Tunisian econoiny at the start of the Fourth Plan. The long-term forecasts in that report were re- vised before distribution to account for changes in the world economic situa- tion, particularly in regard to international prices, and their indicative value is essentially unchanged. The present memorandum is intended to pro- vide an analysis of the more recent development of Tunisia's economy, in relation to the objectives of the Fourth Plan, coupled with a more detailed study of the effects of changes in international prices. I. Development Objectives and Strategy 2. The chief objectives for the decade 1972-81, of whichi the Fourth Plan (1973-76) forms the first stage,-have been defined by the Government as follows: (a) an acceleration of growth through promotion of export industries; (b) absorption of underemployed manpower; (c) more equitable distribution of income from production; (d) maintenance of domestic and external financial stability. Among the main components of the strategy adopted are an increase in the proportion of investments devoted to directly productive projects and expansion of the role of private investment, both domestic and foreign. The growth target was set at 7 percent per year 1/ for the Fourth Plan period, as against the 4.7 percent achieved in 1962-71. This would allow a 7.6 per- cent increase in consunption and an average national savings rate of 19.6 percent of GDP. Fixed investment was to total D 1,1974 million (at 1972 prices) for the four years, an average of 24.5 percent of GDP. The rate of external financing of investment was projected at 23 percent. 3. Tunisia has been a net beneficiary of the rise in international prices in 1973 and 1974. The higher prices for its main commodity exports (petroleum, olive oil, phosphates and phosphate derivatives) have brought in additional external receipts. These have only partially been absorbed by the higher cost of imports, and the terms of trade have substantially improved. Government revenues have also been appreciably increased by the proceeds of customs duties and the receipts from Government participation in the oil and phosphate sectors. The external and domestic financial position of the coun- try has therefore been strengthened, and its growth potential and national saving capacity heightened. 4. The Tunisian economy has, however, felt the unfavorable impact of slower growth in the industrial countries, especially in Europe. The decline in the tourist sector in 1973 and 1974 became more marked, and emigration slackened. Moreover, foreign investment and industrial exports to the Common Market could be affected in the future by the economic slowdown in Europe. Nevertheless, Tunisia retains the advantage of a relatively low 1/ Calculated by the compound annual rate m.ethod. The method of calculation used in the Tunisian Plan gave 6.6 percent.  - 2 - labor cost to attract labor intensive processing industries. There are also increased development opportunities in the petrochemical and phosphate-based industries. 5. In the light of these developments, and on the occasion of the Ninth Congress of the Neo-Destour Party held in September 1974, the Tunisian authorities evaluated the results achieved under the Fourth Plan, while con- firming the Plan's main strategies and quantitative objectives. Special em- phasis was given to the need to accelerate the rate of investment, a larger part of which can now be financed from domestic resources, while maintaining external capital inflows at current levels. The 1975 economic budget, pub- lished in December 1974, was used to evaluate the preliminary results of the first half of the Fourth Plan, adjust forecasts for 1975 on the basis of recent developments, and propose corrective measures in the context of the Plan objectives and strategy. The budget is reviewed in part III below. II. Recent Economic Developments (i) The growth and uses of resources 6. GDP growth increased in real terms from 1.9 percent in 1973 to 10.5 percent in 1974. It therefore averaged about 6 percent for the firsc two years of the 1973-76 Plan, only slightly below the projected rate of 6.5 percent for those years, and is based on the exceptionally high level of 1972. The low GDP growth in 1973 was due primarily to a drop in agricultural production (which is still highly dependent on climatic conditions and the olive crop cycle), agro-indust.ries, and a decline in tourism. If these three sectors are excluded, the growth of the rest of the economy was 6.5 percent in 1973. The improvement in 1974 resulted from two main factors: (i) the expansion of certain export sectors -- agriculture (which gained from better weather), chemical and textile industries; and, mainly, (ii) the rise in ex- port receipts which boosted dometic income and consumption and investment de- mand, thus accelerating the activity of those sectors producing for the domestic market, with better utilization of production capacity. The net effect of the changes in external prices on the terms of trade and growth in 1974 is shown in Table 1. Compared with 1973, exports measured in terms of capacity to import increased in volume by 19 percent, and the gross domestic income (GDP plus the adjustment in the terms of trade) increased by 14 percent.  - 3 - Table 1: TRENDS IN MAIN ECONOMIC AGGREGATES, 1972-1974 Percent annual Percentage of Millions of Dinars increases at 1966 GDP at at 1966 constant prices constant prices current prices 1972 1973 1974 1973 1974 1972 1974 Gross domestic product 857 873 965 1.9 10.5 100 100 Terms of trade adjustment/i 3 7 38 - - - - Gross domestic income 860 880 1,003 2.3 13.9 - - Exports 228 216 217 -5.0 4.8 25.9 33.5 Exports, adjusted/2 231 223 265 -3.5 18.8 - - Imports 242 244 275 1.0 12.6 27.1 24.8 Resource gap, adjusted/3 11 21 10 - - 1.2 1.3 Private consumption 549 581 650 5.7 12.0 64.6 63.6 Public consumption 127 136 150 7.6 10.2 14.6 14.5 Investment 195 184 213 -5.6 11.6 21.9 23.2 (of which: fixed investment) (168) (184) (213) (9.5) (15.8) (18.9) (23.2) Domestic savings/3 184 163 203 -11.4 24.5 20.7 21.9 /1 Difference between import capacity of exports (exports at current prices deflated by the import price index) and exports at constant prices. /2 Import capacity of exports. /3 Including terms of trade adjustment. Source: Tables 2.1, 2.4. /. Fixed investment exceeded 23 percent of GDP in current terms in 1974, compared with an average of 19.5 percent for 1970-72. In real terms, investment increased by 9.5 percent in 1973 and nearly 16 percent in 1974. These figures are below Plan targets because of delays in executing certain projects, particularly the public projects in infrastructure and industry. Comparison of investment objectives and achievements at 1972 prices 1/ (Table 2) shows that total investment in 1973 and 1974 was about 20 percent short of Plan targets: 27 percent off for Government and public enterprises, and only 7 percent for private enterprise. With respect to public investment, the shortfall seems to be attributable to weaknesses in project preparation and 1/ 1972 prices for used here instead of the 1966 prices usually used as reference, because estimates of investment at constant 1966 prices for the period 1968-1974 were recently revised by the Ministry of Planning.  - 4 - execution capacity. There are also constraints in the capacity of the con- struction industry and the supply of capital goods. The Plan targets were relatively high -- nearly double the volume of investment under the preceding Plan (1969-1972); however, continuing important differences between target and actual figures might jeopardize the faster growth which could result from the additional resources available to Tunisia since the end of 1973. Table 2: GROSS FIXED CAPITAL FORMATION (millions of dinars; 1972 constant prices) 1973 1974 1972 Plan Actual Plan Actual Gross fixed capital formation 196.8 257.2 215.5 301.2 249.5 Government 46.0 53.0 41.8 69.4 57.1 Public and mixed enterprises 63.9 90.0 68.2 111.2 87.6 Private enterprises 60.9 81.6 77.5 83.4 76.5 Households 26.0 32.6 28.0 37.2 28.5 Source: Table 2.4; and IV Plan, Appendices, Table III-4. 8. The outlook for private investment is more promising, especially in manufacturing, where the Plan objectives were attained in real terms during 1973-1974; and in the petroleum sector, where they were exceeded (Table 3). Only private investments in tourism were much lower than forecist, because of the decline in the sector's activity. The policy to stimulate private investment -- and the delays in execution of public investment -- brought private investment's share to 45 percent of total investment; this share had been set at 40 percent in the Plan and is to be compared with 32 per- cent in 1962-1971. 9. With respect to the sectoral distribution of investments (Table 3), the targets for the first half of the Plan were attained in the mining and petroleum sector, largely because of the considerable private investments in petroleum, and approached in the transportation and telecommunications sector. The actual figures were well below the targets in the sectors of energy, tourism, housing, and infrastructure. The discrepancies between target and actual figures in manufacturing relate chiefly to investment by public and mixed enterprises. The targets for public investment in agriculture also were not attained.  - 5 - Table 3: SECTORAL DISTRIBUTION OF INVESTMENTS, 1973-1974 Millions of Dinars- Percentage 1972 constant prices- Distribution Plan Actual Plan Actual Agriculture 76.9 60.3 13.8 13.0 (of which private sector) (33.6) (32.5) (6.0) (7.0) Mining and petroleum 60.7 60.5 10.9 13.0 (of which private sector) (37.7) (44.4) (6.8) (9.6) Energy 44.2 30.8 7.9 6.6 Manufacturing industries 85.4 70.5 15.3 15.2 (of which private sector) (41.8) (41.3) (7-5) (8.9) Transport and communications 93.8 88.0 16.8 18.9 Tourism 52.2 35.8 9.3 7.7 (of which private sector) (46.0) (30.9) (8.2) (6.6) Housing 70.3 56.6 12.6 12.2 Commerce and services 9.0 8.3 1.6 1.8 Infrastructure 65.9 54.2 11.8 11.6 Total 558.4 465.0 100.0 100.0 /1 The overall deflator has been used to deflate sector investments. Source: 1975 Economic Budget, Appendices, Tables III; and IV Plan, Appendices, Tables III. 10. Investment costs increased nearly 30 percent from 1972 to 1974 be- cause of the higher cost of imported capital goods and the rise in construc- tion costs. This, however, should not hamper execution of the investlnent program, in view of the considerable increase in domestic financial resources and the foreign aid available. As a result of increased export earnings, na- tional savings exceeded 21 percent of GNP in 1974 -- compared with less than 18 percent in 1970-72 -- and financed over 90 percent of the investments. Public savings alone more than doubled, and far exceeded the amount of direct public investment (gross fixed capital formation excluding transfers to public enterprises). The savings targets for the first half of the Plan were slightly exceeded (20 percent of GNP in 1973-74 against a target of 19 percent). 11. The increase in savings was accomplished concurrently with a rapid rise in consumption 1/, which was 11.6 percent in real terms in 1974 (12 per- cent for private consumption, 10 percent for public consumption), and more than 19 percent in current value. Thus, since 1972, private consumption has increased in real terms an average of about 9 percent annually. With the rapid growth of the economy, imports in 1974 rose 12.6 percent in volume (+47 percent in current value), but for 1973 and 1974 the average annual increase was only 6.7 percent, well below the Plan's original forecast (14 percent p.a.). 1/ In the absence of a direct estimate in the national accounts, the in- crease in inventories in 1974 would be implicitly included in consumption.  12. Agricultural production, which decreased by 9 percent in 1973, went up 12 percent in 1974 (in terms of value added at constant prices). Excluding olives and grain harvests, other agricultural production grew by 6.5 percent in 1973 and by over 10 percent in 1974. The 1973 olive crop was much smaller than the exceptional 1972 crop. The 1974 crop rose to 650,000 tons as against an original forecast of 450,000 tons. Grain harvests remained below the 1972 level (1.1 million tons in 1974 against 1.2 million in 1972). The satisfac- tory progress of tree (excluding olives), fruit and vegetable crops (which are less dependent or: weather), livestock, and fisheries seems to be the result of a resurgence of private enterprise in the agricultural sector since 1970, measures such as liberalization of producer prices for a number of products, and improvements in supply of inputs and extension services. However, Tunisia must continue to import large quantities of foodstuffs, particularly cereals (280 thousand tons in 1973; 320 thousands in 1974). 13. The most active sector was industry (mining, petroleum, energy, manufacturing and construction), with an average yearly growth of 12 percent in real terms since 1972, in line with the Plan target. This overall growth figure, however, conceals differences between the various branches of indus- try. In the mining sector, production of rock phosphate, projected to decline from 3.5 million tons to 3 million tons in 1974, increased to 4 million tons as a result of a quadrupling of price between 1973 and 1974 that made it pos- sible to work poo-er seams. On the other hand, production of iron, lead and zinc continued to decline owing to depletion of reserves. Production of fluorspar decreased in 1974 and was far below Plan forecasts. The decline in crude oil production from the El Borma field was offset in 1974 by pro- duction from the new Ashtart offshore field in the Gulf of Gabes; the total volume produced was slightly over 4 million tons (1.1 million tons from Ashtart). A total of 3.1 million tons was exported while the rest was deli- vered to the Bizerte refinery at a preferential price ($4 per barrel). 14. Stimulated by incentives offered since 1971 under the new export- oriented policy and, in 1974, by the high level of domestic demand, manufactur- ing industry has grown rapidly. Its value added increased an average of 11 percent a year from 1972 to 1974. Excluding the food industries, where level of activity is closely tied to fluctuations in the olive crops, the rate was 19 percent a year (the annual rate in 1969-72 was 14 percent). Production of phosphoric acid by the new Gabes plant, which was slightly higher than forecast, and production of superphosphate, have become an important compo- nent of industrial exports with the doubling and trebling of prices they benefited from, respectively, in 1974. In addition to chemicals, the most dynamic branches were textiles (especially for export), wood, paper, and miscellaneous industries. However, textile industry growth is still below Plan targets because of delays in effecting planned investments, particularly in the spinning mills. The iron and steel industry and the mechanical and electrical industries have made only modest progress, despite the important development potential of the latter two, both for export and the domestic market. Production of construction materials is still short of Plan figures and Tunisia will have to continue to import large quantities of cement until the new Gabes cement plant begins operations in 1977.  - 7 - 15. The services sector as a whole advanced less than 1 percent in 1973 and about 5 percent in 1974 according to official data. However, the national accounts may somewhat underestimate the growth of commerce and other services, which together are shown as increasing only a little more than 10 percent in those two years (1973 and 1974), whereas in the same period the volume of private consumption rose by 18 percent and that of imports by 14 percent. The liberalization of commercial activities also contributed to the (often disorganized) development of the sector. Tourism, which had dropped 13 per- cent in 1973 (in terms of bed-nights), declined a further 4.2 percent in 1974, despite a recovery in the last months of the year. This decline was due both to external factors -- the energy crisis and monetary changes in Europe -- and internal factors relating particularly to basic infrastructure, the quality of services and the price level (See Annex I). Table 4: SECTORAL GROWTH OF GROSS DOMESTIC PRODUCT Percent annual increases at 1966 con- Percentage distribution tant prices at current prices 1973/72 1974/73 1972 1974 Agriculture and fisheries 9.1 11.9 23.7 21.4 Industry 4.9 19.3 24.8 32.0 Mining 3.4 77.7 1.1 4.8 Petroleum -5.7 4.0 4.7 4.6 Energy 23,.6 1.6 1.7 1.5 Manufacturing 1.2 20.9 10.6 13.0 Construction and public works 11.0 17.0 6.7 8.1 Services 0.7 5.4 38.3 33.0 Government wages and salaries 8.0 15,3 13.2 13.6 GDP at factor cost 0.7 11.7 100.0 100.0 Indirect taxes less subsidies 10.5 3.0 14.3 14.6 GDP at market prices 1.9 10.5 114.3 114.6 Source: Tables 2.2, 2.3. 16. In current prices, industry's share in GDP (at factor cost) rose from 25 percent in 1972 to 32 percent in 1974; manufacturing industry's share alone rose to 13 percent as a result of its rapid growth and price increases. Agriculture's contribution to GDP (21.4 percent) was below the record level of 1972, but more or less equivalent to the average for the three-year period 1970-72 (21.2 percent). The share of services fell from 38 percent in 1972 to 33 percent in 1974.  -8- (ii) The incentive framework for private investment 17. Significant progress has been made toward setting up a system to promote and encourage private investment. The provisions of the 1974 Invest- ment Code, enacted as a supplement to the 1972 Special Law in favor of export industries, are well conceived and in line with the country's economic prior- ities. This is particularly the case with respect to employment creation, regional decentralization, and exports. The Code instituted the principle of automatic concessions, 1/ and project approval now takes the form of a simple statement. However, there are numerous exceptions to this simplified proce- dure: these concern investments by non-residents, investments utilizing imports of used capital goods, investments in excess of D 250,000, and proj- ects in several important sectors in which the Government wishes to avoid creating excess capacity. 2/ 18. The Investment Promotion Agency (API), has as one of its numerous functions the examination of projects to determine their eligibility for con- cessions under the Investment Code and the 1972 Law. In 1974, API set up a "Project Follow-Up" Department to assist investors in project implementation and to ensure that eligibility criteria are met. A fund to provide financial assistance to small investors (FOPRODI), provided for in the Plan, is now being set up (Decree of August 16, 1974), and will be managed by the banks under API's supervision. The 1975 Economic Budget proposes to create a finan- cial institution which would promote partnerships between Tunisian and other Arab investors in the financing of export oriented industries. Lastly, the new agency for industrial estates (AFI) has started implementing a program to establish and equip 17 industrial zones, covering a total of 3,485 ha in five regions (Tunis, Sousse, Sfax, Gabes and Bizerte), of which 2,500 ha should be purchased and equipped by 1980. This program should solve the major problem, i.e., the shortage of land for project promoters. 19. API has also formed a study unit to collect all available pre- investment studies and make the