Lamia Boujnah Zribi
Ministry of Finance of Tunisia, The Minister
National Bank of Algeria, Governor
Ministry for Finance, Malta, The Minister
Ministry of Economy and Finance, Kingdom of Morocco, Director
World Bank, Vice President
1. Facilitating private investments and access to finance in Tunisia
Since 2011, Tunisia has undergone a political transition that is advancing positively, albeit slowly. Nevertheless, this has affected its economic situation. The economic situation in Tunisia has altered somewhat in recent years, for cyclical reasons, related to the transition that the country has undergone but also for structural reasons linked to particular economic malfunction.
For some time, Tunisia has witnessed a recovery in economic activity in certain sectors, and has begun work on a development policy for Tunisia. This will allow the country to get back on the path of growth and, in the medium term, to grasp more serious growth opportunities. This will be with the goal of meeting the various challenges that Tunisia faces, particularly unemployment. The country has a high unemployment rate, especially among young people and particularly university graduates. These challenges are also due to regional disparities in the country which experiences higher growth levels in the costal regions. All of these topics are incorporated in Tunisia’s development policies, and successfully addressing them will only be the result of an investment-focused effort, particularly private investment. This means that private investment, domestic and foreign in particular, must be the cornerstone of Tunisia’s development.
This is the reason why Tunisia is engaged in a significant programme of structural reforms to improve the investment environment. Having diagnosed the situation, the Tunisian government has realised that there are relevant medium-term factors that it needs to work on. One very important factor is security: Tunisia has been through a number of events, with acts of terrorism being the most significant, and these have hampered the investment environment. Addressing this issue is therefore crucial for investment. The polls show that restoring security and political stability is a determining factor in the current environment, as has been seen this morning, during the first session.
Social stability is also a determining factor for investment; social stability has been somewhat undermined during this period through increasingly large social demands, but the situation continues to stabilise and, lately, Tunisia has done more specific work on the country’s legal and regulatory framework. The framework that is now in place has been improving. Tunisia has adopted a new law on public/private partnership, because it has realised that the state, especially with its present day budget constraints, cannot meet all the demands it faces in terms of infrastructure and public utilities, especially in more remote areas. The private sector must therefore come to the state’s aid, and as such, Tunisia has put in place the right framework for projects involving public/private partnerships.
Tunisia has also introduced a new competition law, and above all a new investment code which simplifies the general investment framework. In addition, Tunisia has worked on sectoral policies, because it has also realised that it must identify key, high value added sectors that will draw the economy towards more strategic projects. Work has begun on simplifying administrative procedures, because all the polls show that the process of implementing investment is ‘tied up in red tape’.
Financing is also an important factor. Tunisia has worked on restructuring its banking sector, and, in particular, state-owned banks. The state has quite a large presence in the banking sector: 40% of banking assets are currently owned by the Tunisian state. The country has worked on restructuring these banks in order to open them up to private investors, initially institutional investors, and then worked on how to implement this. Work has begun on identifying sources of finance outside the banking sector, the financial markets, and, particularly, on improving diversification. A whole series of actions and discussions were carried out.
Today, Tunisia has a five year development plan into which all of these elements have been incorporated. The government intends to gradually move its implementation forward with infrastructure projects, and public/private partnership to take advantage of the the investment environment. This is a medium term undertaking, requiring great effort; the process has begun, and the first signs of an increase in investment levels have been the result. Tunisia is determined to move forward in this direction, and is convinced that the only source of growth – the only way to improve the country’s macroeconomic indicators and the prosperity it is seeking for its economy – is via investment and, particularly, private investment.
2. Promoting industrial development: the example of Morocco
Morocco has a strategic vision in relation to both investment in the private sector, and industrialisation in general. The country has set up a new development model, which evolved as a result of the international financial crisis; it was affected by this crisis, mainly through the channel of foreign demand for Morocco. This foreign demand declined during the global financial crisis, and more specifically due to the persistent weak growth in the Eurozone.
In view of these factors, Morocco adopted a new growth model that sought to address these key challenges from three main angles: how to position the Moroccan product in the global value chains, what factors this new growth should be based on, and what new trade opportunities exist for the Moroccan products as a result of the persistent crisis in the Eurozone.
To answer these three questions, with a view to the positioning of Moroccan products, the government began work by focusing on a number of high value-added sectors, and did an enormous amount of work on these. Initially, four areas were identified: the automotive industry, the aeronautical industry, electronics and offshoring. These four sectors were subjected to sectoral strategies that address all the difficulties and all of the demands of investors wishing to invest in these sectors, whether relating to regulatory issues, bureaucracy, financial, or property-related issues. All of the conditions that would allow the private sector to come and invest in these sectors were identified.
In relation to the second question, Morocco identified two basic comparative advantages: its geostrategic position and a skilled, cheap workforce. With regard to its strategic positioning, the country created a large number of logistics bases, notably large ports. With regard to labour, Morocco created universities offering training dedicated to the needs of each sector. With regard to the opening up and diversification of our markets, the country launched a far-reaching process in a quest for new partnerships, whether in India or in China, pursuing a ‘win win strategy’. After this ‘emerging’ strategy was adopted, Morocco made progress through an industrialization acceleration plan, which was launched in 2014 and which seeks to develop not only horizontal, but also vertical integration. An example of this would be a very important international investor going into partnership with local industry to promote the distribution of Morocco’s industrial fabric.
The following results have been seen: the automotive industry is currently experiencing high growth in Morocco, and has effectively become the leading export industry. Car production now exceeds 345,000 vehicles, compared with only 18,000 vehicles produced in 2003. Morocco has thus become the second vehicle manufacturer in Africa, after South Africa. The Renault brand is produced in Morocco, and the country is also working towards having Peugeot start operations there in 2019, with a planned capacity of 200,000 vehicles and 200,000 engines. Automotive industry exports increased by 17% per annum between 2008 and 2016; today, they are worth 55 billion dirhams, and represent the largest export sector. This sector has generated skilled workers, rising by 13% per annum in the period 2008-2015.
The aeronautical sector has benefited from the same strategy. This sector has welcomed the arrival of Airbus, Boeing and Bombardier, the world leaders in the field. In Morocco, the aeronautical sector achieved revenues of 9.2 billion dirhams in 2016 compared with 3.4 billion in 2008 i.e. annual growth of 12.5%. This dynamic also generated skilled workers, with the number rising by 11% per annum during this period. The industrial acceleration plan provides for an increase in industrial production in Morocco to 23% of GDP by 2020. Today, the figure stands at around 16%. The same approach was adopted for phosphates and other sectors. In Morocco, the phosphate industry is very well developed, and mostly produces phosphate derivatives, rather than the raw commodity.
The same approach has been taken with the Green Morocco Plan, which seeks to empower agriculture against bad weather. For example, in 2016, the country experienced a very severe drought, the worst drought in the last thirty years; cereal production declined by 70% in 2016, but value-added agriculture only declined by 10%. The same reduction in 2007 had resulted in a 24% decline in value-added agriculture, and in 1997, value-added agriculture went down by 45%. This demonstrates how important the Green Morocco plan is; it allows the country not only to modernise this sector, but also to empower it and make it less dependent on the weather.
Finally, the Kingdom of Morocco has launched a new strategy aimed at reducing the country’s dependence on oil. It is developing renewable energy, particularly solar energy, on a major scale. It predicts that by 2020, 42% of the country’s energy needs will be met by renewable energy, and estimates that this figure will be 52% by 2030. The first phase of the largest solar complex in the world – the Noor power plant in Ouarzazate – was launched in 2016. Today, Morocco is launching other phases of this programme. This industrial strategy is primarily based on the consolidation of the country’s macroeconomic framework, very important work on the business climate, and, of course, on the political stability enjoyed by the Kingdom of Morocco.
3. Opening the banking sector to more competition and developing financial markets: the Algerian experience
Each Maghreb country has its own characteristics and model, but they all face the same challenge: that of growth and development. Each country offers almost equal opportunities, but nonetheless presents some differences. The banking system in Algeria is experiencing gradual diversification and development. It has greatly diversified since Algeria called on the help of a panel of primarily international banks. A few years ago, it was dominated by six state owned banks that historically had their own specialities in the central system. Algeria has proceeded to deregulate these banks, to make them universal banks, and called for foreign capital. Today, there are now 20 banking institutions in Algeria, including six state owned banks and 14 private international banks; 10 financial institutions, including a private equity firm; and 23 insurance companies.
Algeria’s financial markets must develop, especially with the planned opening up of the capital of certain banks and industrial groups. The government has scheduled the privatisation of a state-owned bank, and possibly two state-owned banks which are considered less strategic but which are well established in retail banking, for all customer segments, especially SMEs/SMIs; this is a vehicle that has been selected by the government to diversify the economy. There is leasing and private equity, but currently shareholding structures reveal a preponderance of foreign capital. Foreign capital dominates, with ownership of 56% of banking shares.
Algeria has geographic diversity: 11 out of the 29 active funds are concentrated in the MENA region. European shareholders have holdings in four banks, including two financial institutions. Algeria contains a bank whose parent company is located in the United States; as such, the financial markets are diversifying and developing. However, there is a dichotomy between the two sectors: the public sector is smaller but owns more assets, representing close to 83% of assets. This is why the government today is able to put a certain number of banks up for sale, gradually, to allow these banks to become universal and especially to create mixed capital, whether belonging to Europeans or other nationalities. At the present time, Algeria’s proximity to Europe makes Algeria more attractive to European capital.
Algeria has a number of characteristics. It is an oil producing country; it has suffered as a result of the oil crisis, which has been going on for the last three years, but it has developed the capacity to be extraordinarily resilient, in that in the period 2001-2014, before the onset of the crisis, it previously accumulated significant domestic and foreign savings. These savings have allowed it not only to develop resilience, but also to maintain a growth rate of 3.7% in 2016, estimated to be 4% in 2017. Algeria also has exchange reserves of $114 billion, and insignificant borrowings, of the order of 2% of GDP; this gives the country a lot of ‘room for manoeuvre’. During this period of improvement, of all of the partners who invested in Algeria, either under the 51/49% rule or as part of direct foreign investment, those who came before 2009 were financed by Algerian banks, since indebtedness was not allowed at that time. This financing capacity still exists.
To overcome Algeria’s dependence on hydrocarbons, the country launched a new economic growth model with a view, mainly, to diversify business activity. The sectors targeted in this diversification are mainly agriculture, industry, tourism and renewable energy. For the last 10 years, Algeria has invested massively in industry, and today Algeria is self sufficient in cement, iron and steel and plans to set up car assembly lines. Five or six automotive brands that have been approved in the Algerian market are planning to assemble their cars in Algeria, and this will bring additional sub contracting into the economy. During the economic crisis, the banking sector remained very resilient.
4. There is a need to strengthen these Maghreb countries, as well as MENA countries in general, as these are the gateway of sub Saharan migration
It has been Malta that has brought the issue of boosting private investment in North Africa to the fore within ECOFIN. Malta believes this is an important issue, which is why it has included this session in Eurofi’s programme, and has also asked the five finance ministers of the Maghreb to join with European counterparts in a five plus five meeting on the fringe of the conference. This had already applied to foreign affairs, but now has been extended to the Ministries of Finance.
Over the three days of the Eurofi conference, there has been discussion of how to improve NPLs, the euro, the Capital and Markets Union and the Banking Union, and related topics. Sometimes, disruptive politics – such as Brexit and the election of Donald Trump – acts as a distraction, but this is the result of people being more bothered by terrorism and migration than, for instance, NPLs. These fears, or problems, need to be addressed: refugees are a result of war, and there are humanitarian conventions on how to treat them, but economic migration is a different issue. It is a result of significant income differences between the north and the south, and will continue until these differences are at least narrowed, if not closed.
Malta is more sensitive than other countries to what is happening in Libya, the Maghreb, and other places. They believe that, although the German initiative that hosted the G20 to talk about the compact with Africa was a good initiative, more should be done in the Mediterranean. The EIB is contributing to support the economic and social development of the Mediterranean partner countries under the Facility for Euro-Mediterranean Investment and Partnership (FEMIP), and the World Bank also mobilizes ressourcesin the region. The EBRD also has an extended mandate to work in North Africa.
North African countries are not the same as Central or Eastern European countries: there are similarities, but also a lot of dissimilarities. There is a need to strengthen these Maghreb countries, as well as MENA countries in general, as these are the gateway of sub-Saharan migration. Young people need to be offered hope, as, in many of these countries, youth unemployment stands at between 20% and 40%. When working in the European Union with ECOFIN, there is a need to ensure that the problem of migration is dealt with at its source, rather than trying to send large numbers of people back to their home countries. The speaker noted that they are very interested in this topic, and is very glad of the cooperation of the North African countries that have come to Malta.
Some of the problems related to lack of investment in North Africa are the same as those faced by the European Union, such as political instability. The Maghreb has other issues to a greater extent, such as corruption or lack of credit, but Malta wanted to draw the attention of the European Union to the fact that it is the closest to Africa of all the Member States, and for the EU to think seriously about this issue and coordinate its efforts. This has to be a cooperative effort, and with three large development banks and the EU itself involved, Malta wants these bodies to coordinate their efforts, monitor the issue more closely, and see progress being made.
5. Concluding remarks
The central issue in the debate has been the creation of employment for young people; this preoccupies not only countries south of the Mediterranean, but those north of the Mediterranean as well, and the five plus five.
One conclusion that can be drawn from the discussions is that employment will only be created by the private sector; there is general agreement that that is going to be the driver. A lot of the enterprises in Northern Africa are not showing the same dynamism that the World Bank sees elsewhere in terms of job creation: there are larger enterprises that are reasonably comfortable and relatively highly capital intensive, and younger enterprises that grow to be small and medium sized enterprises, but do not then replace other market participants, create jobs beyond a certain level, or grow beyond a certain size. This is not true to the same extent across all countries, but it is one of the issues that the World Bank is seeing.
This links to the banking sector, because the banking sector is often lending more to the larger enterprises that are well known and that have large collateral. In some cases, these are state owned enterprises, and it is therefore harder to get financing for small and medium sized enterprises and for young entrepreneurs. This is an area that development banks like the World Bank, the EBRD and the EIB work on and look at, and is one of the areas that they are discussing with the region’s governments, investing in these areas to create more employment.
A second area is the overall business environment. Promoting a good business environment in the Maghreb is vital to respond to the high level of unemployment, especially among the region’s young people and women. This is a delicate area, which needs to be carefully thought through: the goal is to have both political stability and the changes that need to be made to attract more investment. All of the governments involved have their own pace and their own history, and are all thinking through this issue. It requires a lot of investment, technical assistance, and a good dialogue and engagement with each of these governments, so that they come to a conclusion about what is necessary and what they should be doing next, and as they do so, they realise the benefits.
A third element is the education sector, and the linkages between the private sector and the education sector, which need to be strengthened. Often, the education sector bypasses the needs of the private sector, or employers’ needs change so quickly that the skills taught in schools and universities are no longer relevant. One of the phenomena that the World Bank sees in Northern Africa is that many of the unemployed are highly skilled or highly educated, but are not finding jobs. Bringing together and twinning the sectors that are producing with the education sector is very important. There has also been discussion of how the experiences of Eastern European nations and countries that are seeking to accede to the European Union, such as the Western Balkans, can be used to inform the dialogue further, and the ways in which Northern Africa can come closer to the plus five on the Southern Europe side and work together.
The Chair concluded the session by stating that they are sure that there are goods and services that they would like to buy from Tunisia, Algeria, Morocco, or Malta that they do not know about. There is on-going momentum in the Maghreb region, notably to improve the business environment and develop the banking sector, which should help create more open, thriving economies .Connecting economies via information technology and e commerce is a very powerful driver, and small companies in these countries could have access to not just the European market, but a global market, at an extremely low cost. The more connectivity there is between economies, linked to the capital markets, those who are doing good business can easily move and invest, not only domestically but internationally, and this represents an extremely powerful model and a wonderful opportunity for the Maghreb and other emerging countries.