Download 2015 Quarter 1 TUNISIAN SNAPSHOT

TUNISIAN
SNAPSHOT
2015 Quarter 1
Inflation - Consumer price index (CPI) inflation rose notably at the start of 2015. According to the National Institute of Statistics (INS), CPI inflation
accelerated from 4.8% y-o-y in December 2014 to 5.7% y-o-y in March. This increase was driven almost entirely by rising food price inflation. In fact,
inflation in this category accelerated from 4.2% y-o-y at the end of last year to 8% y-o-y in March, while non-food price inflation declined modestly. Related
to the increase in food prices, the sub-index for hotels and restaurant prices rose by 11.1% y-o-y in March.
Growth - Real GDP growth is forecast to accelerate from 2.3% in 2014 to 3% in 2015 owing to an uptick in manufacturing growth. Although the sector is still
under pressure, we expect growth to be higher than in 2014 as the improvement in the political environment will make conditions more conducive for
economic expansion and as strong olive oil production will boost the agri-processing sector. The phosphates sector is also expected to continue its gradual
recovery. Despite an expected stagnation in the tourism industry, the services sector is still expected to be the main contributor to overall real GDP growth.
National development plan - The Tunisian government has a Stand-by Arrangement (SBA) with the International Monetary Fund (IMF), which requires the
government to implement a range of reforms that will lay the foundations for sustainable economic growth. This includes reforms to strengthen the banking
sector, reduce fiscal risks by lowering energy subsidies, and improve monetary policy by removing caps on lending rates. In the banking sector, in particular,
there is an urgent need to recapitalise public banks and to establish an asset management company to resolve the bad debts.
OPPORTUNITIES
STRENGTHS
The government supports the development of renewable energies to reduce its
dependence on oil and gas imports. Tunisia will form part of the Desertec
Initiative.
Tourism industry has been hit hard by the uprising and the economic
slowdown in Europe, but long-term prospects are strong.
Proximity and free trade with the European Union (EU) means that companies
have access to a large market.
Well educated population – hence foreign investors have easy access to a
skilled pool of workers.
The economy is fairly competitive by African standards thanks to good
infrastructure, health and education.
Strong industrial sector, which has strong medium-term growth prospects on
the back of foreign investment.
The monetary authorities have managed to keep inflation relatively low for a
sustained period of time.
Relatively easy to do business; government has increasingly tried to attract
foreign investors.
VULNERABILITIES
WHAT IS BEING DONE?
Foreign direct investment (FDI) in the manufacturing sector will boost exports
Large structural trade deficit.
in the medium term. A lowering of energy subsidies will reduce the domestic
demand for fuel.
Uprising led to a sharp deterioration in the balance of payments and as a result Tunisia is receiving concessional loans and aid from the IMF and other
caused foreign exchange reserves to slump.
institutions to support its economic recovery.
Financial system is constrained by relatively weak asset quality; access to
Some banks will have to be restructured and/or recapitalised over the next few
financing is low for the private sector.
years, which will weigh on fiscal finances.
Corruption is widespread and constrains foreign investment.
Progress has been limited.
MEGA TRENDS
Population
10,937,521 (July 2014 est.); Age 15 - 64: 69%
Population growth rate (%)
0.92% (2014 est.)
Life expectancy at birth
Total population: 75.68 years; male: 73.6 years; female: 77.9 years (2014 est.)
HIV/AIDS
Adult prevalence rate: <0.1%; People living with HIV/AIDS: 3,431 (2013 est.)
Adult literacy rate (age 15 and over can read
Total population: 81.8%; male: 89.6%; female: 74.2% (2015 est.)
and write)
Urbanisation
Urban population: 66.5% of total population (2013); Urban population growth: 1.3% (2013)
Population below national poverty line
15.5% (2010 est.)
Unemployment rate
15.3% (2013 est.)
Employment (% of total)
Agriculture: 14.8%; Industry: 34.2%; Services: 50.6% ; Undeclared: 0.3% (2013 est.)
Labour participation rate (% of total
population ages 15+)
47.6% (2013)
Business languages
Arabic, French
Telephone & Internet users
Main lines in use: 1.02 million; Mobile cellular: 12.71 million; Internet users: 4.79 million (2013)
Sources: CIA World Factbook, World Bank, UNESCO, ITU, UNAIDS, INS & NKC Research
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Total
Corruption Perceptions Index 2014 (1 least, 175 most corrupt)
Doing Business 2015 (1 best, 189 worst)
Global Competitiveness 2014-15 (1 most, 144 least competitive)
Economic Freedom 2015 (1 most, 178 least free)
HDI Ranking 2013 (1 most, 187 least developed)
175
79
189
60
144
87
178
187
107
90
0
Source: NKC Research
Tunisia
20
40
60
80
100
120
140
160
180
200
Risk environment / Risk outlook
Sovereign Risk Ratings
S&P
Fitch
Moody’s
N/R
BB-/Stable
Ba3/Negative
Although it kept the rating unchanged at “BB-”, Fitch Ratings revised the outlook on Tunisia’s sovereign risk rating from negative to stable at the end of
March 2015. According to Fitch, the elections at the end of 2014 enabled the formation of a democratically-elected coalition government and “lay the ground
for better political stability in the country”. The rating agency noted, though, that the risk of social unrest and terrorist attacks remains significant. A secondary
reason for revising the outlook is that Fitch expects the budget deficit to narrow on the back of lower international oil prices and a gradual improvement in
economic growth. Fitch expects a recovery in the euro zone economy to “slightly spur activity in 2015”, but that this would be offset by the repercussions from
the recent terror attack at the Bardo Museum. Fitch projects real GDP growth of 2.7% this year, up from around 2.3% in 2014. In addition, the rating agency
expects the recapitalisation of Tunisia’s three highly vulnerable public banks to take place in 2015, but added that broader restructuring would be a long and
painful process. According to Fitch, Tunisia’s external finances are a key rating weakness, with the current account deficit widening to 8.9% of GDP in 2014,
and external debt levels being well above that of “BB”-rated peers. Moody’s Investors Service kept its rating unchanged at “Ba3” with a negative outlook in
June 2014. On the one hand, Moody’s noted that the domestic political climate has improved since the adoption of the constitution in January 2014 and the
appointment of the new interim government. On the other hand, the rating agency is concerned with “the fiscal and the external repercussions of the Arab
Spring and the loss of competitiveness over the past few years”. Moody’s further noted that it would consider revising the outlook to stable “if there is a
permanent reduction in political uncertainty, supported by a rebalancing in the fiscal and external accounts; and/or the implementation of the IMF-supported
reform programme fosters investment activity, restored access to credit and inclusive economic growth.” In contrast, it would downgrade the rating if there is
renewed political instability or a significant decrease in foreign exchange reserves.
Infrastructure
Diversity of
the Economy
Banking
Sector
Continuity
of Economic
Policy
GDP Growth
Key Balances
Good by African
standards
Good
Fragile
Deteriorated
after uprising
Weak due to
uprising and
euro zone
Large twin
deficits
Foreign
Investment
Socioeconomic
Development
Usually strong Medium to high
Forex
Reserves
Average
Daily Trading
Volume
1.02 million shares
($3.72m)
Stock Market
Listed Companies
Liquidity
Market Cap
Dominant Sector
Bourse de Tunis
75
Good by African
standards
$9bn
Banks
Capital Market
Development
Liquidity
Maturity Range
Municipal Bonds
Corporate Bonds
Yes
Well developed by
African standards
Tight after uprising
13 weeks to 15 years
No
Yes
Macro-economic overview
Activity in the tourism sector remains significantly less than before the Tunisian uprising. In 2014, tourist arrivals totalled 6.07 million, which is 12.1% less
than in 2010. On average, each tourist also spent 12.3% fewer nights in the country. The sharp decline in tourist nights was partially offset by a 10.3% increase
in average revenues per tourist night. Specifically, earnings per tourist night increased from $76.6 in 2010 to $84.5 in 2014, most likely because high inflation
made it impossible for hoteliers and restaurant owners to lower their prices. In 2013, for instance, The National quoted a hotelier in Tunis as saying: “Inflation
is going up, wages are going up, and we can’t afford to cut prices”. Indeed, the hotel and restaurants category in the CPI increased by an average of 6.7% p.a.
over the 2011-14 period; even after converting the index to dollars, it still increased by 2.3% p.a. over this period. The tourism industry was dealt another blow
in mid-2014 following a large terrorist attack in the Henchir Tella region on July 17, when jihadists killed 14 soldiers. In addition, heightened political
uncertainty in neighbouring Libya continues to add to the security risk. To make matters worse, Tunisia was hit by the deadliest terror attack in its history on
March 18 when three men fired into groups of tourists getting out of buses in front of the Bardo Museum, before chasing others into the building and holding
them hostage. For a few years already, we have considered a sensational attack in the capital at some point almost inevitable, given the regional terror
dynamics. However, the fact that it has now actually happened will mark the imaginations of potential tourists and will prompt many to prefer other
destinations seen as safer. In fact, The National reported on March 31 that seven cruise lines had dropped Tunisia from their itineraries and that reservations by
tourists had decreased by 60%.
Given the weak outlook for the tourism sector and the country’s large trade deficit, the current account deficit is forecast to remain wide, averaging 7.2% of
GDP in 2015-16. FDI is forecast to cover only a third of this shortfall, implying that external debt is likely to continue rising rapidly. We forecast that external
debt will reach 71.9% of GDP by the end of 2016, up from 60.6% of GDP at end-2014 and 50% of GDP before the uprising. Foreign exchange reserves will
also remain fairly low, with import cover at around 3.6 months in 2015-16. On the upside, much of Tunisia’s external debt has favourable terms and
multilateral organisations such as the IMF, the World Bank, and the European Union have also committed to providing concessional loans to Tunisia provided
that they make sufficient progress on important economic reforms.
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Economic Structure as % of GDP
2014 Estimate
Source: NKC Research
Agriculture/
GDP
8.7%
Service/GDP
62.9%
Industry/GDP
28.4%
The Tunisian economy is fairly well diversified, with a strong manufacturing sector and a sophisticated services sector; however, the uprising has had a
significantly negative impact on the economy. Although the economic situation is still very fragile, we expect the improvements made on the political front to
lead to gradual improvements in economic activity as well. The industrial sector accounts for 28% of GDP and consists mainly of manufacturing and
hydrocarbons. Tunisia has an established manufacturing industry, consisting mainly of textiles, food-processing, and mechanical & electrical equipment. The
services sector accounts for over 60% of GDP and has been the key driver of real GDP growth over the past decade. Tourism is a vital part of the services
sector, both in terms of employment and as a source of foreign exchange earnings. The telecommunications industry, which accounts for 8% of GDP, has
underpinned the expansion in economic growth over the past decade.
Real GDP Growth & Net FDI/GDP
5.0
4.0
Source: NKC Research
4.0
3.5
3.0
3.0
2.0
2.5
1.0
2.0
0.0
1.5
-1.0
1.0
-2.0
0.5
-3.0
0.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
GDP Growth (y-o-y, %) (lhs)
Net FDI/GDP (rhs)
Real GDP growth slowed from 2.4% in 2013 to 2.3% in 2014. Over the first three quarters of the year, the non-manufacturing industrial sector contracted by
3% y-o-y, due to a 9.3% y-o-y contraction in the oil and gas sector. Over the same period, manufacturing sector growth slowed to 0.7% y-o-y, from 1.4% in
2013. Contractions in oil refining and agri-processing activity were the main drags on the manufacturing sector. The services sector expanded by 3.7% y-o-y
over the same period. The main drivers were an 8.3% y-o-y increase in the telecoms industry and a 4.3% y-o-y increase in public services. Meanwhile, data
from the Foreign Investment Promotion Agency (FIPA) shows that FDI inflows decreased by 9.4% to just over $1bn in 2014. The political transformation has
destabilised Tunisia’s macroeconomic situation and weakened its economic growth prospects and, as a result, the country is currently significantly less
attractive for foreign investors than before the uprising. Furthermore, security risk also continues to play a role, as has been highlighted by the recent Bardo
attack. Another persistent issue is the current Investment Code, which is widely believed to be restricting investment. Delays in the adoption of the new Code
are partly responsible for the decline in FDI in 2014, as investors are waiting to see whether the new laws will be favourable for their investment plans.
Exports ($bn)
Imports ($bn, CIF)
2014E
2015F
2016F
Capital
Main Imports: % share of total
2014E
2015F
2016F
Capital
27.00
27.21
27.01
Energy
Other Consumer Goods
Agricultural goods
Other Intermediate
Energy
17.60
13.53
13.28
Other Consumer Goods
12.34
13.21
13.45
Agricultural goods
5.81
6.13
6.06
Main Exports: % share of total
2014E
2015F
2016F
Other Intermediate
25.16
26.22
26.43
Capital
18.86
19.71
20.23
Energy
13.23
9.41
9.13
Mining & Phosphates
5.66
5.84
6.00
Capital
Energy
Mining & Phosphates
0.0
Source: NKC Research
2.0
4.0
6.0
8.0
According to INS data, export earnings decreased by 1.8% to $16.8bn last year. The main contributors to this decline were agricultural and energy exports,
which decreased by 25.8% y-o-y and 14.5% y-o-y, respectively. The drop in agricultural exports was largely due to a collapse in olive oil exports, following a
sharp decline in olive production last season. Moreover, mining exports decreased by 7.2% due to a sharp drop in global phosphate prices. Mining export
volumes (mainly phosphates) increased by 10% to 3.2 million tonnes in 2014, thereby returning to 2010 levels; however, fertiliser export volumes were still
42% lower than in 2010. Tunisia’s import bill increased by 2% to $23.5bn in 2014. The main driver of this increase was energy imports, which rose by 4.8%
to $3bn. In turn, this was the result of a 51% increase in natural gas import volumes, which led to a 30% increase in the value of natural gas imports.
Meanwhile, agricultural imports declined by 7% on the back of an 11.5% decrease in cereal imports. With exports declining and imports rising, Tunisia’s trade
deficit widened from $5.9bn in 2013 to $6.7bn last year. Looking ahead, we expect the drop in international oil prices to allow for a decline in imports.
However, weak euro zone economic growth as well as an appreciation of the dinar against the euro over the past year will weigh on Tunisia’s manufacturing
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exports. On the other hand, mining exports are projected to increase by more than 10% and agricultural exports are forecast to increase by as much as 30% on
the back of an excellent olive harvest. Overall, the trade deficit is set to narrow to $5.9bn in 2015.
Current Account & Budget Balance
(% of GDP)
-2.0
0.0
-4.0
-2.0
-6.0
-4.0
-8.0
-6.0
Source: NKC Research
-10.0
-8.0
2009 2010 2011 2012 2013 2014E 2015F 2016F
Current Account/GDP (lhs)
Budget Balance/GDP (rhs)
The government managed to reduce recurrent fiscal expenditure slightly in 2014, largely thanks to a decrease of more than TD1bn in subsidies. The decline in
recurrent spending is a welcome development after it increased by an average of 19.1% p.a. over the previous three years. This gave the government scope to
increase capital spending by 8.8% (to TD4.78bn) last year. Overall, the budget deficit narrowed slightly from 4.6% of GDP in 2013 to 4.4% of GDP in 2014.
A further decline in subsidies is expected this year thanks to a significant decrease in international oil prices. According to the IMF, the government will also
contain the wage bill by freezing hiring – except for security forces, health and education – limiting the number of promotions, and keeping salary increases
below inflation. Despite these developments, we expect total fiscal spending to increase by 9.4% due to the high cost of recapitalising public banks. This will
push the budget deficit to 5.4% of GDP this year. However, with recapitalisation costs declining again in 2016, the budget deficit is forecast to narrow to 4%
of GDP in that year.
Average CPI (% change, y-o-y)
6.0
Source: NKC Research
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
2009
2010
2011
2012
2013 2014E 2015F 2016F
CPI inflation rose notably at the start of 2015, mainly due to an increase in food price inflation. One possible cause for the increase in food price inflation is
the sharp depreciation of the dinar against the US dollar. Although the euro zone is by far Tunisia’s biggest trade partner, the country does import most of its
food from outside Europe, and with the dinar having depreciated markedly against the dollar, the cost of various imported foods would have surged. Although
no recent wage data is available, it is also likely that a 6% increase in private sector minimum wages in July 2014 has contributed to the uptick in inflation.
According to the IMF, this will affect 300,000 private sector employees, which is around 11.6% of total private sector employment, as well as 600,000
retirees. This will therefore have a notable impact on domestic demand, and will therefore put upward pressure on inflation. Following this increase in
inflation, the real money market interest rate has retreated deeper into negative territory, falling to -1% in March. In December, the IMF “urged the authorities
to consider additional policy rate rises to keep core inflation stable and achieve positive real rates that would help stem depreciation pressures”.
CONTACT DETAILS
KPMG
NKC
NKC Independent Economists CC
Moncef Boussannouga Zammouri – designation is Partner
Tel +216 71 194 344
Email [email protected]
12 Cecilia Street Paarl, 7646, South Africa
P O Box 3020, Paarl, 7620
Tel: +27(0)21 863-6200
Fax: +27(0)21 863-2728
Email: [email protected]
GPS coordinates
S33°45.379'
E018°58.015'
The foregoing information is for general use only. NKC does not guarantee its accuracy or completeness nor does NKC assume any liability for any loss which may result from the reliance by any person upon
such information or opinions.
(Tunisia) © 2015 F.M.B.Z KPMG Tunisie S.A., société anonyme, membre du reseau KPMG constitué de cabinets indépendants adhérents de KPMG International Cooperative ("KPMG International"), une entité
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