Romano Prodi’s visit with President Zine el Abidine Ben Ali in Tunis on October, 30, 2006 – one of the stops on his 20-day visit to North Africa and the Middle East – highlighted Italy’s growing interest in Tunisia as an investment destination.

Italy is the second largest source of foreign investment in the country, with almost 650 firms and an estimated $758 million of Foreign Direct Investment (FDI) so far, a figure that does not include the investment in the energy sector. It is estimated that more than 47,000 jobs have been created through Italian funds.

Just over half (56%) of all Italian investment in the country is accounted for by textile-related industries. There are roughly 320 Italian companies involved in textile, leather and shoe manufacturing, with a cumulated investment of roughly $204.6 million. Despite the end of the Multi-Fibre Agreement, Tunisia continues to attract Italian brands looking for high-quality production and finishing and quick restocking capabilities. Most recently, clothing giant Benetton announced plans for a new, 14,000m2 finishing plant, worth approximately $27.3 million. Benetton produces 21 million pieces per year in Tunisia, and its activity alone represents no less than 7,000 jobs.

Prominent presence

Mechanical and electrical manufacturing, particularly automotive components, is another important activity. There are 90 Italian companies active in this sector, and their cumulated investment is in excess of $166.7 million. Fiat, Piaggio, Iveco, among others, have production plants in the country.

The Italian involvement in banking is more of a mixed bag. In August 2005, Italian bank Monte dei Paschi di Siena pulled out of Tunisia by selling the 17% stake it had acquired in the recently-privatized Banque du Sud. SIMEST, however, has recently acquired shares of Banque Internationale Arabe de Tunisie (2%), in which Gruppo San Paolo IMI also has a 5.61% stake. Banca del Popolo is the latest of the Italian banks that have opened representative offices in Tunisia.

Meanwhile, Italy’s presence in service industries is limited. Only $1.13 million has been invested in the sector so far, and only a handful of companies operate in the country – mainly consultancies. Nevertheless, Tunisia has the potential to woo Italian service companies contemplating outsourcing. There is already one Italian call centre operator in the country, and observers anticipate more activity in this segment. Teleperformance, the biggest call-centre operator in the country, is currently recruiting Italian-speaking employees.

But the most ambitious project to date is an energy deal. The Tunisian government is pushing hard for a mega-project estimated to cost more than $1,28 billion that would interconnect both countries through an underwater electrical cable.

The Tunisian side would like to see the project begin as early as 2007. This would entail installing a gas-powered electrical plant in El Haouaria, on the northern tip of Cap Bon (which is just 87 miles away from Sicily). As a joint venture, it would produce 1,200 MW of electricity, of which 800 would be exported to Italy, and 400 sold locally. The cable, with a capacity of 1,000MW, would provide some room for growth in exports to the Italy.

The project would allow Italy to secure alternative energy supplies – the 2005 “gas war” between Russia and Ukraine, and recent power cuts have shed light on Europe’s energy vulnerability. For Tunisia, it would provide significant cash inflows and would allow it to even the trade balance with Italy.

However, despite the political enthusiasm surrounding the project, it might take some time to effectively kick-start. The Italian side is still conducting technical and financial feasibility studies, according to some observers. The cable’s cost, that by some estimates could cost up to $350 million, is a major hurdle that will have to be lifted.

Morocco’s small and medium enterprises (SMEs) have recently benefited from the growing interest of financiers and the increasing emphasis on the link between corporate governance and terms of credit.

In November 2006, an awareness-raising campaign was launched on financing and corporate governance for SMEs. The program is a joint initiative of the Central Bank (Bank Al-Maghrib), the Banking Association (GPBM), the Agency for the Promotion of SMEs (ANPME) and the Investment Guaranty Agency (CCG).

Aimed at promoting best practice in the cooperation between SMEs and the banking sector, the campaign comes amid a flurry of workshops meant to address funding problems.

“The goal of this operation is to loosen the structural constraints that hinder the activities of SMEs,” noted Abdellatif Jouahri, the governor of Bank Al-Maghrib.

The predominance of SMEs in the agro-industrial, construction, tourism, high-tech and chemical sectors has made the matter all the more pressing. Indeed, SMEs represent 99.6% of companies operating in these areas, employing 55% of labor.

Many SMEs are still facing high costs for credit as well as generic funding programs, which are not tailored to their needs. Large banks charge between a 5.5% and 6.5% interest rate, while the market interest rate for SME loans varies between 8% and 13%, substantially above rates offered to larger companies.

Promising partnership

The issues of transparency and corporate governance are accountable for these shortcomings, as well as the lack of guarantees and reliable information about SMEs.

In response, the central bank has initiated a number of programs to improve transparency and the free flow of information, as well as to encourage commercial banks to extend their services to SMEs.

“We admit that the execution of special programs for SMEs is slow,” noted Jouahri. “This is due to, among other issues, the harmonization of financial information, the normalization of accounting information and the setting up of a ratings system for a better analysis of credit risk by banks.”

Commercial banks, such as Groupe Banque Populaire, BMCE and BMCI, currently offer financing services to SMEs. Following the trend, on November 28, Attijariwafa Bank, the largest private bank in Morocco, initiated a partnership with ANPME.

Companies will benefit from tailor-made financial services, technical assistance and capacity-building. While the ANPME can take up to 90% of the cost of the technical assistance plan, Attijariwafa will provide services for the restructuring and consolidation of debt as well as loans at a lower interest rate. Many similar programs form the nexus between SMEs’ funding needs and best practice at the level of corporate governance for most Moroccan companies.

“We have created a network of more than 25 business centers dedicated to these companies, satisfying the need for proximity demanded by our SME clients, as well as their financing and financial management needs,” said Boubker Jai, director general of Attijariwafa bank. “Given that the economy includes a number of SMEs that are not necessarily well-structured, we owe it to ourselves to do more and act as real advisors.”

The strategy is thus to integrate the relationship between banks and SMEs into a partnership with promises of greater transparency on the part of SMEs and more straightforward access to credit offered by banks. The business association, the Confederation Générale des Entreprises du Maroc (CGEM), emphasized the advisory role of banks in this process.

Campaign in high gear

“We want the project to be guaranteed itself and that the bank insures rapid responses to all the needs of SMEs as well as playing an advisory and assistance role,” explained Khalid Benjelloun, president of the CGEM.

On November 23 and 24, corporate governance featured high on the agenda of the Organization for Economic Cooperation and Development’s (OECD) working session. In preparation for a general code of corporate governance for Moroccan enterprises, including SMEs, the session brought together personalities from the public and private sectors.

Alexander Bohmer, coordinator of the MENA-OECD Investment Program, said, “On one hand, the availability of traditional bank financing to SMEs remains a burning question for Morocco, particularly in light of Basel II requirements by local and foreign banks. On the other hand, the growth in alternative sources of finance such as private equity, which is in line with a similar trend in some OECD countries, represents a positive development for Moroccan SMEs.”

The high-profile campaign has focused on assisting SMEs within the Moroccan economy. With an increasing number of SMEs listed on the Casablanca stock exchange, investors and policy makers are becoming aware of the needs of unlisted SMEs.

Egypt has become, after South Africa, the largest market for foreign direct investment (FDI) on the African continent. Though the total capital inflow may be low by global standards, it is on the rise and the trend is tipped to continue for the foreseeable future.

From a mere $700 million in the 2000/01 financial year, FDI rose to $6.1 billion for the year ending June 30, representing just under 5.8% of GDP. With a further $8 billion expected to enter the Egyptian market from overseas in the current financial year, South Africa could see itself relegated to second place as the continent’s premier FDI destination.

While at least some of the sharp rise in FDI can be put down to the increasing pace of the government’s privatization program, a well that will one day dry up, this is not the only factor in Egypt becoming a favored destination for investors.

The government of Prime Minister Ahmed Nazif has passed a raft of legislation since coming to office in 2004 aimed at streamlining investment procedures, opening up the economy and instilling confidence. Though the process is nowhere near complete, which the government acknowledges, the increase in FDI indicates that overseas investors are taking notice.

Just as significant as the pro-investment stance of the government has been the shift away from Egypt’s energy sector, that traditional magnet for foreign investment in the country. This reflects both a broadening of the economy’s base and recognition that there will come a time when the long time mainstay of energy will be exhausted.

Steady rise

In the last financial year, overseas investments in Egypt’s petroleum sector accounted for 30% of all FDI, down from 65.1% the previous year. By contrast, FDI in non-petroleum sectors of the economy topped $4.28 billion in the 2005/06 financial year, a year on year rise of some 214%. Better still for Egypt was the fact that a full 54.78% of these investments came in the form of newly established companies or capital issue increases in existing operations.

Almost as positive for the long-term outlook was the relatively low level of FDI represented by the sales of companies and productive assets to foreign investors, which came in at 905.7 million or 14.82% of the annualized total. Given that this figure included receipts from the privatization process, it is clear that foreign capital is being attracted to Egypt not by some fire sale of state-owned enterprises, but by the potential that the country possesses.

Interestingly, one other component, the 2005/06 FDI figures for investment in real estate, remained steady at just 0.42% of the total. While much of the overseas investment in neighboring countries is being driven by capital inflow into the property market, with the member states of the Gulf Cooperation Council (GCC) being the largest single source, Egypt is obviously going down a different path – that of business investment.

Another change in the complexion of FDI in Egypt is where these funds are coming from. While both the Middle East and Europe remain significant investors in the country’s economy, both Egypt’s government and the burgeoning private sector have been actively looking further afield in the search for foreign capital.

With the opening of its markets to investment, and with the advantages the country possesses in terms of location, sitting astride trades routes to Europe, Africa and the Middle East, Egypt has been promoting itself as the ideal destination for investors from Asia, with China being the most recent target.

In September, a deal was struck that will see a joint Sino-Egyptian factory established to cater for the textile, footwear and pharmaceutical industries. The same month, Citic Group, China’s biggest state-run company, announced it was to invest $800 million in an aluminum smelter in Egypt. The two countries also agreed to boost bilateral trade to $5 billion in the coming years, bringing it to the same level that  Egypt currently enjoys with the US.