As the Eurozone economies begin to contract, companies are enacting an increasing number of cost-cutting measures, including outsourcing and offshoring, with Tunisia’s manufacturing sector an unexpected beneficiary. At a time when European companies are looking to reduce expenses, they are increasingly relying on North African countries such as Tunisia — with their large, educated workforces and cheaper operating costs — to supply technical expertise at a lower price.
For some major European firms, such as the aerospace group EADS — the parent company of Airbus — this year marks the first time production has been expanded outside the Eurozone. As part of a restructuring plan that seeks to save one billion euros by 2012, Airbus announced in September 2008 that it would build a components factory in Tunisia. “We are planning to produce basic parts in Tunisia, while research and production of more sophisticated parts and composites will be in Europe,” EADS spokeswoman Gaelle Pellerin was reported as saying. Work slated to be done in the $139 million factory includes sheet metal and surface processing for the assembly of fuselage components manufactured in France.
The factory express lane
The Airbus plant is just one part of Tunisia’s strategy to become a regional industrial hub. Since 2007 the Ministry of Industry, Energy and Small-and-Medium-Sized Enterprises has been working to implement an ambitious program to double exports between 2007 and 2016, from $10 billion to $21 billion. Mechanical, electric and electrical industries are expected to capture the lion’s share of this upward trend, as their share of industrial exports is set to increase from 25 percent to 46 percent between 2006 and 2012, making them the pillars of the country’s manufacturing industry. A significant number of new deals have already been signed in these segments, suggesting that a sharp rise in production is likely.
The ministry’s program was only recently launched but auto parts manufacturers and cable manufactures have already inked multiple agreements that will bring foreign direct investment (FDI) and jobs to Tunisia. In 2008 new projects helped turn cable manufacturing into a lucrative niche, including a $50 million investment from German group Draexlmaier to build a plant in Siliana, a $24 million commitment from Kromberg & Schubert to set up a company in Beja, South Korean firm Sewon’s $10 million factory in Kairouan and Sumito Electric Bordi Jetz’s operations in the Kef industrial zone, which will cost $3.5 million. In total, the four plants will create more than 13,000 jobs. These projects are still in the development phase but other plants are close to completion. For example, in early January 2009, a subsidiary of Japanese automotive supplier Yazaki announced that its $30 million automotive cable component plant in Gafsa would be operational by 2010 and create 2,500 jobs.
Besides aeronautic and automotive components, the government’s growth program calls for expansion in four other high-value sectors: textiles, footwear and leather, food processing and biotechnology.
The colors of success
These segments are proving popular areas of investment for European companies. Benetton, the Italian group, has been manufacturing textiles in Tunisia to export since 1995, but is now working to expand its presence. In 2008 alone, the company made more than $25.5 million in industrial investments, specifically aimed at building a new plant to produce cotton knits.
Commenting on the group’s decision, Alessandro Benetton, executive deputy chairman of Benetton Group, said “we think the success factors of Tunisia can be summarized in three words: stability, proximity and quality.” Tunisia’s expanding list of trade partners should help foster broader market access for its industrial exports. Free trade agreements (FTAs) within the region and with the EU offer enormous potential for the sector. The Agadir Agreement, a free trade agreement between Jordan, Morocco, Tunisia and Egypt, is designed to help countries meet the EU rules of origin more easily, with Agadir seen as a first step towards a broader Euro-Mediterranean free trade zone. While the trade and business links between the four Arab countries are not the strongest, with Moroccan and Tunisian companies encouraging trade with individual countries rather than inter-Maghreb trade, the partnership is still in its early stages and the agreement offers great potential by increasing access to EU and US markets for the member states.
Tunisia has also expanded its trade network through a number of other bilateral agreements, including FTAs with Libya and Turkey, and perhaps most significantly, an FTA with the European Free Trade Association (EFTA).
All of these factors should help Tunisia’s industrial sector weather the global financial storm. By offering a low-cost, high-quality alternative to European production, the country can maintain and even expand production and jobs over the coming years.
