Foreign Direct Investment

Linking FDI, Technology Development for Capacity Building & Strategic Competitiveness Mr. Abdessalem MANSOUR General Manager of FIPA-Tunisia FIPA Tunisia Colombo - Sri Lanka 15-17 October 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Content

Trilogy : FDI, Know-how and Competitiveness

The Tunisian Case :

Main features of Tunisia

Tunisia’s risk assessment

Legal & regulatory framework

Tunisian strategy for attracting FDI and Technology Transfer

Upgrading program in Tunisia

Insight into FIPA Tunisia

Oct. 15-17 , 2002 Foreign Investment Promotion Agency

The sought objective from attracting FDI’s is :

the strengthening of the countries’ competitiveness through the transfer of technology and know-how, and particularly the innovative projects

Why countries are looking for FDI ? Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Trilogy : FDI + Know-How + Competitiveness

FDI are an important vehicle for the transfer of Know-How

FDI & Know-How are intimately linked

FDI in high added value and innovative projects will lead to a high competitiveness level

The liberalization of FDI regimes

has gone far, and most countries now actively promote the inflow of FDI for both greenfield FDI and cross-border M&As.

Foreign Direct Investment Oct. 15-17 , 2002 Foreign Investment Promotion Agency

In various ways FDI affects resource flows and

investment in productive capacity

in host countries .

The flows of capital and income arising from the activities of

foreign affiliates also affect the balance of payments and the

allocation of benefits from foreign investment between host

countries and foreign investors.

Transforming and upgrading the technologies used in production and strengthening national technological capabilities to innovate, are major objectives of countries with respect to their development process .

The transfer of technology and its efficient application and dissemination are therefore some of the most important benefits sought by developing countries from FDI.

The MNCs tend to be leading innovators.

They are leading suppliers of technology to developing countries and economies in transition through FDI and other forms of transfer, such as licensing, minority joint ventures, subcontracting, strategic alliances or capital goods sales.

They can also stimulate the development of innovatory capacities in host economies , thereby supplementing technology dev. that takes place through R&D in domestic firms and publicly funded institutions.

Multinationals’ Role Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Positive spillover effects

competition with local firms , stimulating them to improve technological capabilities and raise productivity;

co-operation between affiliates and local suppliers and customers, stimulating technology spillovers to vertically linked firms and service providers;

labor mobility , particularly of highly trained personnel, from foreign affiliates to domestic firms,

proximity between foreign and local firms, leading to personal contact, reverse engineering, imitation and the formation of industrial clusters facilitating technological upgrading in host countries.

The Tunisian Case : the main features of Tunisia Oct. 15-17 , 2002 Foreign Investment Promotion Agency

A Strategic Location in the Euro-Mediterranean region Tunis - Valetta 1h 00 Tunis - Rome 1h 00 Tunis - Barcelona 1h 30 Tunis - Madrid 2h 00 Tunis - Paris 2h 15 Tunis - Frankfort 2h 30 Tunis - Brussels 2h 40 Tunis - London 2h 50 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Area 162 155 sq.km Population 9.6 million inhabitants Active population 32.6 % of total population Climate Mediterranean Time GMT + 1 Capital Tunis (1.8 million inhabitants) Currency Tunisian Dinar (TND) TND 1 = Euros 0.777 Basic Data 2001

GDP per capita

TND 2847.6

GNP

TND 28.9 billion

GDP Growth

5.2 %

Exports

TND 13.4 billion

Imports

TND 14.5 billion

Tourist Revenues

TND 2.245 billion

FDI

TND 685 million

4.5% per year since 1987 & 5.3% per year from 1997 & 2001 4.8% 4.7% GDP Growth (in Billion TND) 5.2% 4.9% 6.2% Oct. 15-17 , 2002 Foreign Investment Promotion Agency

GDP Breakdown in 2001 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

TND 13.4 billion i n 2001

Growth rate :

6.6% per year during the last four years 97 & 2001

Exports of goods & services contribute to

1/3 of the GDP growth

Exports of Goods and Services Oct. 15-17 , 2002 Foreign Investment Promotion Agency

A controlled inflation :

3% in average during the last four years 1997 & 2001

Inflation Rate Oct. 15-17 , 2002 Foreign Investment Promotion Agency

A budget deficit of 3% in average between 1997 & 2001 Budget Deficit Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Savings Rate (in % of GDP) Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Tunisia’s Risk Assessment Oct. 15-17 , 2002 Foreign Investment Promotion Agency

According to the Africa Competitiveness Report 2000 compiled by The World Economic Forum & Harvard Institute for International Development, Tunisia out of the 24 African countries surveyed , tops the competitiveness rankings. Competitiveness of the Tunisian Economy Tunisia is the most competitive country in Africa Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Skilled and Competitive Human Resources The Africa Competitiveness Report 2000 compiled by The World Economic Forum & Harvard Institute for International Development RANKS TUNISIA 1ST AFRICAN COUNTRY FOR ITS SKILLED HUMAN RESOURCES Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Standard & Poor ’s : BBB “2001”

Moody ’s : Baa3 //

IBCA-FITCH : BBB //

R & I (Japan) : BBB+ //

Standard & Poor’s rating, March 2002 The French Company of Insurance for Foreign Trade “ COFACE” granted Tunisia, A4, as a note in the short-term and a a fairly good risk as a quotation in the medium term. Country Risks 2002 The Investment Grade : has been granted to Tunisia since 1994 Tunisia ratings Romania Turkey India South Africa Thailand Malaysia Poland Hungary B B- BB BBB- BBB- BBB BBB+ A- Tunisia BBB Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Member to the GATT accords in 1990

Member to the WTO since 1995

Association Agreement with the European Union signed in 1995

Arab Free Trade Zone since 1998

Bilateral Free Trade Agreements with :

Morocco, Libya, Jordan & Egypt.

Openness and Integration of the Tunisian Economy into the World Economy Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Tunisia-EU Free Trade Agreement  Signature: July 1995  Entry in force: January 1st, 1996  Duration: Gradual implementation over a 12 years period  Free access of all industrial products MADE IN TUNISIA to EU (No quotas, No duties)  About 40% of European industrial products will be fully exempted from Customs duties by the end of the year 2000. Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Free Trade Agreements EGYPT Tunisia is a Gateway to the Middle East & African countries MOROCCO JORDAN Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Legal & Regulatory Framework Oct. 15-17 , 2002 Foreign Investment Promotion Agency

A Legal and Regulatory Framework  Investment is FREE  Simple procedures to set up a new company  FREE transfer of profits and capital  Possibility to be established in Economic Free Zones  Governmental support Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Full and Partial Tax Exemption Full exemption for 10 years 50% reduction starting from the 11th year for an unlimited period

Exports

Agriculture

Regional development

Exports

Regional development

Technology and Research & Development Legal Framework  Investments made by industrial, agricultural and fishing companies which, by means of a local integration effort, allow the control or the development of technology, or the improvement of productivity , are entitled to the State take over of totally or partly the expenses relating to staff training. Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Technology and Research & Development Legal Framework

 Investments made by companies in order to save energy are entitled to a specific premium:

a premium for carrying energy audits : TND 10,000

premium for carrying out demonstration projects: TND 50,000

premium for investments in the field of rational use of energy & renewable energies

 Investments aiming at saving energy, developing research, production and marketing of renewable energies and geothermics are entitled to

the reduction of customs duties to the rate of 10%,

the suspension of value added tax with respect to imported equipment and materials having no similar locally manufactured

the suspension of value added tax with respect to equipment and materials acquired locally.

 Investments made by research and development companies operating in the industrial and & agricultural and fishing sectors are entitled to :

the exemption from customs duties and taxes of equivalent effect

the suspension of value added tax and consumption duty with respect to

imported equipment having no similar locally manufactured and necessary

for carrying out those investments

the suspension of value added tax on locally manufactured equipment

a premium

Setting-up a Company One-Stop-Shop certified ISO 9002 - Private Limited Company “S.A.R.L.” 24 hours - Limited Liability Company “S.A.” 3 days

Exporting industrial companies : free points

Customs clearance procedures : simple

Customs formalities : within factories

- Individual Company 2 days Oct. 15-17 , 2002 Foreign Investment Promotion Agency

of which 2102 from the EU France: 943 Italy: 537 Germany: 266 Belgium: 212 Foreign Companies in Tunisia 2 449 818 348 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Average annual setting up :

1973 - 87 : 31 companies / year

FDI: Foreign Companies in Tunisia 2 449 818 348 During the year 2001 : 202 new companies have been incorporated Oct. 15-17 , 2002 Foreign Investment Promotion Agency

FDI Flows during 2001 Main countries (in %) - Including energy Oct. 15-17 , 2002 Foreign Investment Promotion Agency

The Tunisian Strategy For Attracting FDI and Technology Transfer Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Strategy to attract FDI

Faithful to its tradition, Tunisia followed a wise, pragmatic approach in attracting FDI in order to:

stimulate the economic growth,

transfer technology,

create jobs,

enhance development in remote areas,

and of course foster competitiveness.

The job creation

The qualification of the human resources in Tunisia recognized by the various international agencies is the fruit of a led effective policies, since the independence, in education and in training (1/4 of the State Budget).

It represents an important asset for Tunisia to attract FDI, mainly in technological fields such as ICT .

The increase of the exports

Exports constitute a fundamental element in the Tunisian economic policy.

Tunisia is a country which is expanding rapidly and in a need of foreign currencies to develop the economy.

It is evident that the foreign direct investments in technological fields and export-oriented are particularly encouraged.

The transfer of technology

Tunisia is strongly willing to attract FDI in “up-to-date technologies " to allow her to be more competitive on the international market.

Any investment assuring a transfer of know-how allowing to improve the productivity, benefits from particular advantages and incentives .

Strategy to attract FDI

The selected sectors for attracting FDI, are those in which Tunisia enjoys comparative advantages and of a high added value and belonging to high technological fields

Automotive components,

Electrical and electronic components,

Information & communication technologies

Textile and clothing

Packging

Agri-business

124 companies generating 16 000 jobs

33 of them are totally exporting companies,

20 of them are operating in the wire harnesses field.

50 of them manufacture OEM parts.

Production: MTND 557

Average annual growth rate (95-2000) : 18%

Wire harnesses : 54% (9th supplier to EU)

Exports : MTND 405

Imports : MTND 452

Main markets : Germany 52% , France: 24% , Italy: 10%

Car Components Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Availability of a skilled and competitive manpower

A quick adjustment to new technologies

6 schools for engineers and qualified technicians 1000 graduate per year Competitive & Highly Skilled Technicians and Engineers Reasons to Invest Oct. 15-17 , 2002 Foreign Investment Promotion Agency

(Wire Harnesses)

Lear Corporation

Delphi Packard Electric

DRÄEXLMAIER

LEONISCHE DRAHTWERKE (AG)

SYLEA (LABINAL Group)

Car Component Manufacturers in Tunisia Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Tunisia Comparative Advantage Tunisia Comparative Advantage Attraction to the Foreign Investor Exhaust systems Seat parts Plastic Components Rubber Components Electric components Shock absorbers Cables Engines Breaks Car body Oct. 15-17 , 2002 Foreign Investment Promotion Agency

S eat covers

Mechanical plastic connectors

Cable harnesses

Profitable Niches Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Unit costs of Production in EURO Product Seats: Seat covers: Unit: a set of seat covers for the 2 front seats and back seat Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Product: Plastic Components Mechanical plastic connectors Unit: 800 connectors (contents of a box for export) Unit costs of Production in EURO Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Product: Electri c/ Electroni c Com. C able Harnesse s Unit: a set of harnesses for the interior of a n medium length vehicle Unit costs of Production in EURO Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

213 companies generating 29 400 jobs.

( the electric sub-sector employs 70% of the total jobs)

91 wholly exporting companies

Production : MTND 1078 (2000)

Average annual growth rate (92-2000) : 12%

Exports : MTND 796 (2000)

Imports : MTND 1248 (2000)

Main markets : Germany 49%, France: 33%

Foreign companies : 101 of which 54 are 100% foreign

and 47 in partnership

Electric, Electronic & Household Industries Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Electronic Industry: companies’ breakdown by field Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Printed circuits

Connectors

Coils and Transformers

Passive components

Consumer electronics (TV)

Consumer electronics (Audio)

Equipment for Telecommunications

Product: Wire and Cables Electric cables of Connection Unit: a cable of connection (bipolar, 2 connectors, male and fem ale ) Unit costs of Production in EURO Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Product: Connectors E lectronic Interface Unit: electronic interface Unit costs of Production in EURO Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Product: Printed circuits Single face Printed circuits Cards for Domestic Use Unit: 1m2 of printed circuits card Unit costs of Production in EURO Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Investment evolution:

For 1992-1996 period : TND 862 million

For 1997-2001 period: TND 1500 million

A telecommunication infrastructure of

a good quality and in a constant progress

An average annual growth of : 17%

Information Technology Oct. 15-17 , 2002 Foreign Investment Promotion Agency

According to the UNDP report on Human Development 2001

Tunisia is ranked among the

Dynamic Users

of New Technologies in the

same category as

China, India, Brasil and South Africa

Human Development Source: UNDP report 2001 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

According to the UNDP report on Human Development 2001

the Technological Park of Tunis (El Gazella) is also among the 46 world centers

of Technological Innovation

Technological Park of Tunis Source: UNDP report 2001 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Integrated Call Centers “CRM : Customer Relationship

Management”

E-commerce between firms and implementing a network

business to business “B2B”

Computer engineering services, production and edition

of software in particular multimedia, data bases and

specialized business applications

Product: Software Development Software Development Center Unit: one man-day of a software engineer Unit costs of Production in EURO Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Produ c t: Call Cente r s Call Cent e rs Unit: one man-day of a call center employee Unit costs of Production in EURO Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

The World Summit on Information to be held in 2005. will be organized in TUNISIA Oct. 15-17 , 2002 Foreign Investment Promotion Agency

2087 companies / + 10 employees

1640 wholly exporting companies

252.000 jobs (56% of the manufacturing sector jobs)

6000 jobs are generated a year

Production MTND 4598

Added value 30%

Annual Investments MTND 188

Exports MTND 3264 ( 47% of the total manufacturing exports)

Imports MTND 2384 (Fabrics constitute 60% of imports)

Textile & Clothing Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Breakdown of Textile Companies by Sector Oct. 15-17 , 2002 Foreign Investment Promotion Agency

2nd supplier for external clothing to Italy 4th clothing supplier Tunisia’s Ranking 5th textile customer of the EU 1st clothing supplier for town trousers to the EU to EU Oct. 15-17 , 2002 Foreign Investment Promotion Agency

7 weeks Tunisia 10 weeks Central / Eastern Europe 12 weeks Latin America Time allocated for Garment Industry Source : L’Observatoire du Textile et de l’Habillement (France) Oct. 15-17 , 2002 Foreign Investment Promotion Agency

…… .. from subcontracting to project implementation……. BENETTON (Italy) Over 60 subcontractors in Tunisia (3500 jobs) Manufacturing Plant in 1995 Extension in progress  production and distribution base Success Stories Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Ready-to-wear clothing

Yarn production to meet the local demand

High quality ready-to-wear apparel

Fabric production for off-shore clothing companies

Hosiery development

Profitable Niches Investment Premium : 20% for weaving, spinning and dyeing activities Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Packaging

230 op e rati ng companies, wholly or partially export ing .

A know -how and a high quality level

76% of the total production: paper, paperboard and plastic packaging

Good potential of the Tunisian market: 10% growth per annum.

Manpower availab ility

20% State premium for recycling projects which require high technology levels

Produ c t: Corrugated Cardboard boxes Product Un it : order of 10 000 boxes Fefco 201, 400x300x300 mm Unit costs of Production in EURO Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Product: Moulded plastic Plastic Yoghourt pots: Unit: 1000 yoghourt pots of 125 grs Unit costs of Production in EURO Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Product: Pharmaceutical Packaging "Contract Packaging" of tablets and capsules : Unit: a box board in bulk containing 96 packages of blister strips Unit costs of Production in EURO Source: Comparative study of Competitiveness per Product: IDOM/BCI 2002 Oct. 15-17 , 2002 Foreign Investment Promotion Agency

The Upgrading Program in Tunisia Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Progress of the Upgrading Program About 2 278 Tunisian companies are involved in the Upgrading Program.  for a global cost of TND 2250 million  Granted premiums: TND 315 million - Foreign partners are participating in the capital of several of them (technology transfer, integration into their marketing networks). Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Partnerships and alliances

Subcontracting

Industrial and logistic platform for the region

Modernization within companies

Direct Investments : new enterprises, privatization, concessions...

Opportunities Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Insight into FIPA Tunisia Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Set up since 1995 under the supervision of the MCIIE. Staff : 70 , including 6 overseas representatives, namely in Paris, Brussels, London, Cologne Milan & Chicago. Foreign Investment Promotion Agency

Contribution to the image building of Tunisia abroad

Attraction of FDI to Tunisia

Awareness campaign & Contact of foreign companies

Supporting foreign investors during all the steps of their

projects’ implementation

Assistance to foreign companies established in Tunisia

Missions Oct. 15-17 , 2002 Foreign Investment Promotion Agency

Source : July-August 2001 issue of Corporate Location Magazine - Euromoney Group. http://www.investintunisia.com ranked in the 12th position among the top 50 IPA websites in the world . I

The Tunisian case

To sum up, I would say that :

the Tunisian experience in the field of attracting FDI, transfer of technology and know how can be considered as a successful example by other countries seeking for FDI and of course appropriate strategies to ensure the required transfer of know-how and technology in order to enable them to become more and more competitive.

Thank you for your attention... Oct. 15-17 , 2002 Foreign Investment Promotion Agency