Tunisia’s construction materials industry is reaping the benefits of the country’s location and trade deals, both of which serve to boost its exports to help meet increased demand from abroad. The cement sector is particularly dynamic, and has attracted several foreign firms, notably from Spain and Italy. However, the introduction of a new law that requires the majority of domestically produced cement to be kept for the internal market may act as a disincentive to others who have been looking to set up plants over the next few years.
Foreign cement manufacturers have been attracted to Tunisia because of its proximity to growing markets in the Mediterranean basin, and the relatively low cost of raw materials, with prices 20-30% below those elsewhere in the region. A free trade agreement with the European Union will come into full effect on industrial products at the beginning of this year, further increasing the opportunities for export.
Tunisia currently has seven cement plants, five of which have been privatized and are now owned by Italy’s Colacem, Spain’s Uniland and Prasa and Portuguese firms Cimpor and Secil. The remaining state-owned plants, in Bizerte and Oum El-Khélil are currently being prepared for privatization, and several local companies have announced interest. These seven plants produce almost 7 million tons of cement annually, of which 1.4 million tons were exported in 2006, up 11.7% from the previous year. Exports totaled $89 million that year, an increase of more than 40% on 2005, according to the Central Bank.
Since 2006, there have been 13 applications filed for the construction of new cement plants, including bids by Spain’s Lodos Secos and Aricam, as well as the Italian firm Italicimenti, which aimed to establish plants in Gafsa, Kairoun and Kef respectively. These three projects were given initial authorization but in the wake of new legislation, the provisional licenses have been withdrawn, pending a finalization of the law’s specific requirements.
In September, the government introduced a new investment code to govern the cement sector, in response to its recent rapid growth and growing domestic demand. The law stipulates that at least 70% of cement produced by a factory must be allocated to the Tunisian market. It also aims to reduce the amount of electricity used by the extremely energy-hungry plants.
The provisions are designed to ensure that domestic demand is met, at a time when construction is burgeoning and global costs for construction materials are soaring. Without these restrictions, it would be more profitable for the cement manufacturers to push as much as possible out into the more lucrative foreign markets. At home, demand is expected to grow on average 4.5% a year in the medium to long term, peaking at around 7% in 2013-14.
However, by putting what is essentially an export restriction on Tunisian cement plants, the authorities may be discouraging further development of the sector. The latest foreign firms seeking to enter the market are doing so partly because of the excellent access to European and North African markets Tunisia affords. While the FTA gives with one hand, the 70% requirement is arguably taking with the other. The law is to an extent a gamble that firms will find the Tunisian market lucrative enough to make it worth their while selling more than two-thirds of their product to local concerns. It will rely on the government offering an attractive regulatory and tax environment as well as a skilled, good value workforce.
