Report No. 2666WN P Tunisia i o'S Review of the Electrcal and Mechanical Industries June 4, 1980 Regional Projects Department IDF Division Europe, Middle East and North Africa Region FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT Currency Unit = Tunisian Dinar (TD) US$1.00 = TD 0.40 TD 1.00 = US$2.50 ABBREVIATIONS AND ACRONYMS API Agence de Promotion des Investissements BDET Banque de Developpement Economique de Tunisie CEPEX Centre de Promotion des Exportations CNEI Centre National d'Etudes Industrielles FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY TUNISIA REVIEW OF THE ELECTRICAL AND MECHANICAL INDUSTRIES Table of Contents Page No. Summary and Conclusions ....................................... i-x PART A. MANUFACTURING IN TUNISIA CHAPTER I: GROWTH AND STRUCTURE OF MANUFACTURING. 1 Growth of Manufacturing. 1 Foreign Trade and Final Demand for Industrial Products. 3 Foreign Investments. 4 Factor Allocation. 4 Productivity Trends. 5 Subsectorial Priorities. 7 CHAPTER II: INSTITUTIONAL AND POLICY FRAMEWORK .... .......... 10 Manufacturing Economic Framework and Policy Issues . ...................... .......... 10 Project Identification, Preparation and Implementation ........ ........................ 12 Development of Small-Scale Industry .... ......... 13 PART B. THE ELECTRICAL AND MECHANICAL INDUSTRIES (EMIs) CHAPTER III: STRUCTURE AND CHARACTERISTICS OF THE EMIs ....... 15 Introduction .................................... 15 Growth Trends and Structural Patterns .... ....... 15 Demand and Foreign Trade for EMI Products ........ 18 Labor Productivity and Labor Demand-Supply Structure ..................................... 20 Production Patterns and Performance .... ......... 22 This report is based on the findings of a World Bank mission that visited Tunisia between February and March 1979 at the request of the Tunisian Government to review recent developments and prospects for the electrical and mechanical industries. The mission consisted of Mr. Francois Ettori (Chief of Mission), Miss Khanh Nguyen (Industrial Economist), and Messrs. Franco Batzella (Project Officer), Werner Schelzig (Country Economist), Hans Reichelt (Loan Officer), Michel Cognet (Financial Analyst), Harbaksh Sethi (Mechanical Engineer) and Seiffedine Bennaceur (Consultant, Electrical Engineer). I This document has a restricted distribution and may be used by recipients only in the performance of their oMcial duties. lts contents may not otherwise be disclosed without World Bank authorization. Table of Contents (Continued) Page No. CHAPTER IV: MECHANICAL INDUSTRIES ........................... 23 General Patterns and Issues ..................... 23 Issues, Prospects and Recommendations for Mechanical Industries .......... .. ............. 25 1. Steel Fabrication and Platework .... ....... 25 2. Ship Repair ............................... 25 3. Mechanical Works .......................... 26 4. Mechanical and Metal Intermediate Products ................................ 27 5. The Foundry Operations .................... 27 6. Metal Products ............................ 29 7. Automotive and Related Industry .... ....... 29 CHAPTER V: ELECTRICAL INDUSTRIES .32 General Patterns and Issues .32 Issues, Prospects and Recommendations for Electrical Industries .33 CHAPTER VI: SMALL-SCALE EMIs ................................ 38 Characteristics and Performance .... ............. 38 Development Issues and Prospects .... ............ 39 Specific Recommendations for Small EMIs .... ..... 40 PART C. MEDIUM-TERM MEASURES AND LONG-TERM STRATEGY CHAPTER VII: MEDIUM-TERM DEVELOPMENT APPROACH FOR THE EMIs ... 42 Medium-term Objectives .......................... 42 Medium-term Investment Program .... .............. 42 Medium-term Recommendations ..................... 45 CHAPTER VIII: A SUGGESTED APPROACH FOR DEVELOPING A STRATEGY FOR EMIs ........................................ 48 Long-term Objectives ...... ...................... 48 Prerequisites ........ ........................... 49 Design of the Strategy ...... .................... 49 Selection Criteria ....... ....................... 50 Table of Contents (Continued) Page No. ANNEXES I. TUNISIA INDUSTRIAL SECTOR ............... ............... 52 II. METAL WORKING AND MECHANICAL INDUSTRIES ............ ... 57 Steel .... ....................... ................. 60 Foundries ............... ............................ 64 Steel Fabrication and Platework .................... 69 Transport Equipment ......... . . ............- .. ..... . . ..... 72 Mechanical Works ............. ................ ... 78 Metal Products ......... .............................. 83 Shipbuilding and Shiprepair .... ..... .ooo.o..o...... 87 III. SMALL-SCALE INDUSTRIES IN THE EMIs ............ ..... ....... 91 STATISTICAL APPENDICES I TUNISIA REVIEW OF THE ELECTRICAL AND MECHANICAL INDUSTRIES SUMMARY AND CONCLUSIONS Past Performance i. The Electrical and Mechanical Industries (EMIs) in Tunisia were practically non-existent twenty years ago. The EMIs sector received one-third of total manufacturing investment during the 1960s and 11.5% on average during 1970-78. The large investments of the 1960s, mainly in the public sector, established a core of basic industries (steel mill, foundries). Growth of the sector was rapid during the 60s, but slowed down in the 70s. The sector remains small, representing 1.6% of GDP in 1978, and 14.5% of value added in manufacturing. EMIs contributed 13.5% to employment creation in manufacturing during 1970-1978, and they currently represent 2.2% of the total employment and 10.8% of manufacturing employment in the country. The sector is largely inward-oriented. Exports of EMI goods peaked at $40 million in 1974, repre- senting 10% of manufactured exports and 4.5% of total exports. Subsequently they declined due largely to diminishing surpluses of lead and steel primary products (the subsector's major traditional exports) but their growth resumed in 1978 with the emergence of exports of electrical goods. EMIs enterprises are largely in the public sector. Public and semi-public enterprises account for most of the sector's large enterprises, and for about one-third of the sector's employment; they generate some two-thirds of the sector ts output. ii. After 1970, there was a concentration of public investment and new enterprises in assembly industries with lower investment costs per worker. These were import-substituting industries for consumer durable goods (auto- mobiles, household appliances). Assembly industries rely primarily on imported components. Consequently the growth of value added and of labor productivity slowed down, averaging respectively 8.8% and 1.7% per annum during 1970-78; the global productivity of factors has not increased since 1973. The shift towards assembly industries has also led to insufficient sectorial integration and development and increasing pressures on the balance of payments because of growing imports of EMI intermediate and equipment goods. The ratio of value added to output decreased from over 30% in 1969/1970 to 26.5% in 1978, and the share of EMI goods in total imports increased from 35% in 1970 to 47% in 1978. A comparison with the industrialization pattern of similar countries indicates that EMIs are the most under-developed of Tunisia's manufacturing subsectors, thereby introducing in the structure of manufacturing an undesirable distortion which inhibit them from participating effectively in the country's industrialization process (Chapter I and Annex I). Priority of the Sector iii. The major reasons for the modest development of EMIs are their intrinsic complexity, ti'e earlier existence of opportunities for the rapid - ii - development of simpler or resource-based industries (textiles/clothing for exports, construction materials to meet a booming internal market, phosphate derivatives), and institutional and policy constraints. The continued rapid expansion of other major industrial subsectors is no longer possible because of market and resource constraints. Export outlets for textiles/clothing and phosphate products are becoming limited; local resources for food products and chemicals (other than phosphates) are insufficient or uncertain; and the output of construction materials will soon largely meet domestic demand. Further growth in the imports of EMI goods could impose a heavy burden on the balance of payments and constrain the expansion of the overall manufacturing sector; it is therefore necessary to develop a well-balanced EMI sector that can provide standard intermediate and equipment goods. For these reasons the Government intends to give priority to EMIs. Potential and Prospects iv. Tunisia has a comparative advantage in selected EMI production lines. The country has a labor force with relatively low wages and of increasing competence and quality; it is relatively close to and has preferential access to EEC and Middle East markets; and it has liberal policies towards foreign investment. On the other hand, the domestic market is small. To exploit its potential fully, Tunisia thus has to export. The potential for exports has already been harnessed in some areas by foreign enterprises (assembly of electronic and electro-mechanical goods and components) as well as by some local firms (electrical transformers, ship repair, cutlery). But exports can be expanded further; a review of the export-oriented firms assembling elec- trical and electronic products could identify new electrical hardwares and components that could be integrated into exported and local end-products. v. There is also a potential for further efficient import-substitution of intermediate and capital goods with simple or intermediate technologies. Local enterprises manufacturing these goods have generally selected, and efficiently operated, labor-intensive technologies and have been competitive with European imports despite the small-scale of their operations and the penalizing indirect taxes levied on their local inputs. A first group of intermediate and capital goods identified for efficient import-substitution are those with domestic markets that are large enough to sustain economic operations; this group comprises, among others, ferrous castings, industrial boilers and furnaces, steel structures, agricultural implements, small earth- moving and construction equipment (dumpers, cement mixers), simple lifting and hoisting machinery (cranes, small industrial trucks), pumps and compressors, railroad freight cars, medium power electric motors and transformers, simple equipment for electric distribution and telephone (switchgears, switchboards). Some of these goods, in particular electro-mechanical machinery and heavy structures, also have established or potential export markets in neighboring Mediterranean countries where Tunisia's geographical proximity constitutes an advantage. The imports of these products totalled about D 100 million (US$250 million) in 1977; about D 55 million of these imports could be produced locally over the next few years. This represents currently 16% of total imports of EMI goods and 9% of the total imports of manufactured goods. - iii - vi. A second group of goods with potential for development comprises some capital goods with a small domestic market. Efficient development in this area requires export outlets to absorb 30% to 50% of production. Only foreign partners can provide the necessary know-how in this category which includes mainly power engines, their components and parts, and some derived products (automotive agricultural machinery, tractors). Imports of all these products amounted to D 13.7 million (US$34 million) in 1977. The production of these goods at competitive prices depends essentially on the specific arrangements to be negotiated with foreign partners for export markets and would, if successfully achieved, entail a marked improvement in intrasectorial integration. 1/ vii. Local manufacturing of consumer end-products based on assembly operations is generally uncompetitive, weakly integrated in the sector and not labor-intensive, due to the inter-related disincentives resulting from protec- tion and price control policies. Most enterprises manufacturing mechanical and electrical end-products should strive for higher efficiency and capacity utilization before expanding production or opening new production lines. However, some selected end-products such as hand tools, selected automobile accessories, mechanical and electrical hardware, sanitary fittings and small household electric appliances could be produced, and partly exported, at competitive prices under technical licensing arrangements with foreign asso- ciates which would provide know-how and market outlets in an approach similar to the one presently in existence for exports of cutlery. viii. Further development of small scale industries (SSIs) in the EMI sector depends on the scope of intra-sectorial integration. Small EMIs with good technical and managerial know-how could play a significant role in supporting and complementing the larger industries and should shift their orientation from competition with large firms towards three general areas: (a) production of special goods and services for local needs; (b) produc- tion of selected intermediate goods and subcontracting work for large firms; and (c) maintenance/servicing of consumer goods and simple machinery. Typical activities relating to these three areas are respectively small foundries, small specialized machine shops and steel structure/platework enterprises, and standard machining and repair workshops. Medium-Term Investment Program ix. The lack of a long-term development strategy for the EMIs has resulted in an insufficient number of clearly identified project necessary to meet planned investment targets. The investment program for the sector for the period 1979-82 comprises 22 identified projects for a total investment of D 105 million (US$262 million), of which D 88 million have been allocated to 1/ For example machined castings can be integrated into the engines, and the latter can in turn be integrated into the production of major items of the first group identified for local production (pumps and compressors, small earth-moving and construction equipment, lifting and hoisting machinery). - iv - 15 projects for import-substitution. The economic efficiency of these 15 projects is unclear or depends crucially on the success of negotiations with foreign partners for complementary exports. Ten other projects, suggested by the mission for further investigation with a focus on the efficient import- substitution of capital goods by the private or semi-public 1/ sector, could add D 33 million to the EMI investments during 1980-1983. x. The combined investment program of D 138 million (US$345 million) comprises four broad groups of projects: 4 projects primarily oriented to exports, accounting for 10% of total investments; 10 projects designed to substitute efficiently for imports and representing 20% of investments; 6 other import-substituting projects (including a diesel engines project for a cost of D 36 million) requiring complementary export outlets conditional on finding foreign partners, and accounting for 40% of the investment program; and 12 projects of unclear or doubtful efficiency. A major share (62%) of this investment program would be undertaken by the private or semi-public sector. The first two groups comprise two sizeable projects for the expansion and modernization of a foundry and ship repair yard, which are prima facie suitable for external financing, subject to further feasibility studies and to adequate coordination and technical preparation; they would require a total investment of D 16.5 million (US$41 million) over three years. The success of these projects, as well as of the others in the investment program, would be conditional on the removal of the main sector constraints, and on the implementation of the priority measures recommended in para. xvi. General Constraints and Issues in Manufacturing xi. Before the potential developments outlined above can be fully exploited, various constraints will have to be removed. Some of these are specific to the EMIs while others are more general in nature and affect the whole manufacturing sector. The development of the manufacturing sector is affected essentially by productivity and efficiency problems due to two major sets of sectoral constraints. The first set, external to the enterprises, originates from the inadequacy of the policy and institutional framework to promote higher factor productivity and efficiency, to encourage export com- petitiveness and orientation, and to generate efficient sectoral strategies. The second set, related to the first one, is largely internal to the enter- prises and results from the weak design and management of production opera- tions (product-mix; scarcity of firm specialization and sectoral integration, capacity planning and capital intensity, labor productivity). xii. In spite of some corrective measures taken during the 1973-76 Plan, the present economic framework still relies on a complex array of administrative 1/ Public or semi-public entities would be the major market for some of these equipment goods (electrical machinery, telephone equipment). Corresponding projects could be private, with a minority participation of the major customer. - v - controls, with mixed effects on the growth of the manufacturing sector. Although applied with greater flexibility intended to liberalize the market and restore competition, a fairly cumbersome price control system remains in existence. In particular, price controls, of a cost-plus-type combined with high protection, do not encourage enterprises manufacturing end-products (including the end-products of the EMIs) for the local market to increase efficiency and expand exports. Given the small size of the domestic market, the achievement of economies of scale depend crucially on Tunisia's ability to increase export, in particular by diversifying its outlets outside the EEC where the entry of new Mediterranean countries represents a substantial threat to Tunisian traditional exports (olive oil, textiles). However, the incentive framework for export-oriented production (Law 1972-38) does not provide incentives for increasing the competitiveness of export prices and for identify- ing new markets for new products with substantial local value-added. New measures are needed to promote more aggressive marketing schemes abroad and to encourage the backward integration of firms producing goods with export potential, such as selected mechanical and electrical goods. Finally, the weakness of the development strategies outlined for some manufacturing sub- sectors (in particular for the EMIs) and the resulting low institutional capacity for identification and preparation of projects have not ensured coordination and consistency in the projects and investment programs approved, despite the pervasiveness of public controls on resource allocation and of administrative procedures in project approval. The institutions involved in project preparation (CNEI) and project promotion need to expand the number of their technical staff and/or improve the effectiveness of their organization to contribute more constructively to the design and preparation of projects. xiii. The biases of the incentives framework and the weaknesses of the planning mechanisms have contributed to the issues and difficulties prevailing at the firms' level. Despite the important and increasingly expensive invest- ments made for modernization and expansion in manufacturing, labor productivity in the sector has remained on average quite low compared to European countries and to some other Mediterranean developing countries. It has probably declined in the public manufacturing sector during 1973-1977, where a significant share of workers seem to be employed for social reasons. The biases of the Investment Code (Law 1974-74) favoring large enterprises irrespective of their efficiency have resulted at times in substantial excess capacity in several subsectors (including some EMI subsectors), insufficient specialization of product-mix and excessive horizontal and vertical integration within large and medium firms, which are encouraged to expand their overall size rather than resorting to subcontracting to SSIs when this is economically appropriate. The latter shortcoming has affected particularly the EMIs, which have failed to achieve their key role in the industrialization process of providing the necessary linkages between the manufacture of parts and of end-products. Constraints and Issues in the EMIs xiv. The general constraints on manufacturing affecting particularly the EMIs are primarily: (a) the structure of protection favoring consumer end- product manufacturing; (b) the structure of indirect taxation penalizing the - vi - production of intermediate and capital goods and hampering their competitive- ness and the possibility of increasing their domestic value added, especially through the integration of locally produced intermediate goods into exportable goods; (c) the weakness of incentives and institutional support for establish- ing partnerships or associations with foreign firms; and (d) the shortcomings of the mechanisms and institutions in charge of planning strategies and project identification/preparation. The main issues and constraints specific to the EMI sector are: (i) the insufficient product standardization and the excessive diversification of product-mix resulting from small domestic markets and hampering the exploitation of economies of scale in many production lines; (ii) the scarcity of specialized machinery and the low productivity of labor relatively to Europe and other competitors in some developing countries; and (iii) the low or irregular quality of products, in particular castings and machined products. These specific constraints and the general constraint (a) above affect more particularly the production lines requiring complementary exports to sustain economically viable production. The general constraints (b), (c) and (d) affect all projects and production lines of the EMI sector. xv. The supply of skilled labor could be a major constraint for the future development of EMIs. The level of skills in the EMI labor force has been so far adequate for existing production lines which are generally equipped with standard machinery. However, the present labor force is not sufficiently qualified to fully exploit the potential of EMIs. 1/ The need to enter more complex activities in the production of intermediate and capital goods will entail a greater recourse to specialized machinery. A substantial effort in training should be undertaken to remove the main constraint arising from the shortage of specialized mechanical workers and production engineers (paras. 3.12 and 3.13). Summary of Recommendations and Priorities xvi. Short and medium-term measures are recommended in Chapter VIII to assist in removing the constraints and address the issues outlined above. The implementation of these measures would increase the efficiency of the EMI sector and lay down the basis for the preparation and implementation of a long-term strategy for the EMIs. All this entails, in order of importance, the following: (a) the Government, on the initiative of the Ministry of Industry, should revise the chapters of the protection and indirect taxation systems affecting the EMIs, with a view to remove the negative protection on intermediate and capital goods industries and to induce cost reductions through lower protection in the firms producing EMI end-products; 1/ The present trend of some firms to by-pass the shortage of highly quali- fied labor by using very modern automated machinery (numerical control machines) is not economically efficient given Tunisia's labor cost advantage. - vii - (b) it should also revise the objectives of the Investment Codes to encourage EMI enterprises and investors to export, create employment at lower cost, seek partnerships with foreign associates for know-how, improve quality, specialize, and intensify inter/intra sectoral linkages between local and export-oriented firms; (c) The Ministry of Industry should sponsor the creation of a Sectoral Task Force (STF) for EMIs for purposes of coordinating the efforts of all agencies involved in EMI development. The STF should include representatives from the Ministry of Industry, Ministry of Planning, API, CNEI, CEPEX AND BDET. 1/ The STF should guide and monitor the preparatory studies required (i) to draw the long-term strategy of the sector; (ii) to identify new production lines with a comparative advantage and export potential, (iii) to prepare "strategic" public projects and (iv) to encourage the participation of foreign partners with know how and access to foreign markets in Tunisian ventures; (d) in support to the new objectives of the Investment Codes for EMIs, the Ministry of Industry, with the STF's coopera- tion, should establish a "Technological Center" for the mechanical industries to be in charge of standardization, quality control and technological assistance (in techno- logical choice and adaptation of equipment and production processes, operations management, selection of foreign associates etc.); (e) the STF should also review the guidelines governing the respective objectives and functions of the public and private enterprises. xvii. Moreover, detailed recommendations specific to each subsector of the EMIs are made to help rationalize and strengthen ongoing activities and identify and prepare new high priority projects. The major specific recom- mendations are, in order of importance: Projects Preparation (a) SOCOMENA (the shipyard company) in coordination with the STF should prepare a comprehensive feasibility study and a long-term investment program for the ship repair yard; 1/ API = Agence de Promotion des Investissements CNEI = Centre National d'Etudes Industrielles CEPEX = Centre de Promotion des Exportations BDET = Banque de Developpement Economique de Tunisie. - viii - (b) the STF in cooperation with the two major foundries (SOFOMECA and FONDERIES REUNIES) should obtain external assistance to assess in detail the possibilities of efficient substitution for imports of castings, and prepare feasibility studies and planning schedules for each foundry's expansion; (c) on the basis of the results from (b), the Ministry of Industry should authorize the expansion of SOFOMECA to 10,000 tpy capacity (the expansion of the second one remaining conditional on the implementation of the mechanical complex for diesel engines); (d) all the members of the STF should cooperate to under- take feasibilities studies of the projects contemplated for the fabrication of automobile accessories, and initiate identification and selection of foreign asso- ciates for know-how and complementary export outlets; (e) API should, during the review and approval of EMI projects, focus on the quality of production organiza- tion, the technical capabilities of project sponsors, and the content of cooperation agreements with foreign partners (especially for electrical/electronic proj- ects) with respect to possibilities of adaptation and improvement of technology and production processes; (f) the authorities, and STF in particular, should develop information channels on: (i) products of local suppliers and exporting-enterprises of Law 1972-38; and (ii) technological changes in other countries, especially for electrical/electronic industries; Consolidation of Ongoing Activities (g) CNEI should undertake a survey of the steel structure and platework subsector, in order to rationalize pro- duction, avoid duplications and excess capacities, and identify new production lines requiring little addi- tional investments; (h) the Ministry of Industry, CNEI and CEPEX should review the mechanical works subsector, with the same objec- tives as (g) above; (i) all members of the STF should cooperate in a survey of the automotive industry subsector, and make recom- mendations for the rationalization of the product-mix, the standardization of parts and accessories, the desirable level of local integration, and examine possibilities for exports of parts produced in Tunisia; - ix - (j) STF, in particular CNEI and API, should reassess the future demand for dump and container trucks and the viability of the contemplated projects for expanding production in this field; (k) the STF, preferably through the "Groupement" of mecharical industries, should explore the possibility of coordinaced centralized procurement of primary and intermediate inputs for EMIs (steel, electronic components); Promotion of SSIs in the Sector (1) the Ministry of Industry should create a special admin- istrative unit responsible for coordinating the con- ception and implementation of policies affecting SSI development; (m) the Ministry of Finance, in coordination with the Central Bank, the principal financial institutions, the Ministry of Industry and API, should 1/ study ways and means to supplement the existing financial assistance program with: (i) a regulatory monetary mechanism which would encourage banks to increase their lending to SSIs; and (ii) a guarantee scheme which would offer an insurance-type coverage for the bank loans to SSIs; (n) API and possibly CNEI should expand the scope of their existing technical assistance programs to give special emphasis to quality monitoring, subcontracting promotion, provision of EMI-specific extension services and organi- zation of centralized procurement; and (o) API should study the possibilities for joint ventures between Tunisian SSIs and foreign partners in the production and exports of selected metal products. xviii. In order to ensure that local producers are successful in export of mechanical and electrical goods, it is necessary that: 1/ As agreed upon in principles during the ongoing preparation of the SSI project to be financed by the Bank. - effective incentives and institutional assistance be given to enterprises to acquire technological know-how from foreign associates or partners and to improve production quality; - marketing and promotion programs of the institutions involved in exports development (CEPEX, OCT, UTICA) be coordinated and extended through a substantial strengthening of these institutions, possibly under the sponsorship of the Ministry of Industry or API; and - adequate transport facilities or arrangements with regular schedules and competitive rates be established for exports. xix. These recommendations for the short and medium-term need to be complemented with a more basic effort to initiate shortly the preparation, by the Ministries of Industry and Plan, of a long-term strategy for the develop- ment of EMIs in the 1980s. This strategy should focus on the identification and development of export-oriented industries where Tunisia now has, or can develop, a comparative advantage (Chapter VIII). PART A: MANUFACTURING IN TUNISIA CHAPTER I. STRUCTURE AND GROWTH OF MANUFACTURING Growth of Mar facturing 1.01 Historically a nation of farmers, artisans and traders, Tunisia has had little experience in manufacturing industries, with the exception of food processing (flour mills and olive oil), construction materials, artisanal textiles (rugs, caftans), and recently phosphate processing. Tunisian planners have singled out manufacturing as a major vehicle for economic development and employment creation, because of the country's employment problems and its relatively poor endowment with natural resources. During the 1960s, Tunisia followed import-substitution policies, which established a first basis of industrialization, but became quickly constrained by the small domestic market. This strategy contributed little to employment creation due mainly to the capital intensity of the dominant public investment projects (phosphate chemicals, steel mill, spinning/weaving mills). After 1969, economic objec- tives were shifted away from inward looking strategies to export-orientation, and the private sector was assigned a more important role in the new strategy; the successive Plans of the 1970s put more emphasis on the sector. The growth of manufacturing accelerated from 6.4% p.a. in real terms during the 1960s to 9.7% p.a. during 1970-78 (Table 1.01). The structural changes accompanying the growth of manufacturing have reflected the shift from import-substitution to export promotion. The export-oriented textile and clothing sector has become the leading sector in relative gains, while food processing lost'its dominance, due mainly to the weak performance of agriculture. 1.02 The Tunisian manufacturing sector comprises many small enterprises. The most recent industrial census of 1976 reports some 1575 manufacturing firms with five or more workers in that year, of which 25% had more than 50 workers. Information on small workshops with less than five workers is scant; in the Tunis Governorate where more than half of the census establishments are located, small workshops in quasi-manufacturing activities (clothing, mechanical repairs, furniture, shoe-making) totalled 3,640 in 1976. - 2 - Table 1.01: MANUFACTURING COMPOSITION AND GROWTH (in %) Share in Contribution Value Added Real Growth Rate to GDP Growth 1961 1969 1978 1962-69 1970-78 in 1970-78 Food Processing 71 39 29 - 1.4 7.8 8.5 Textiles, leather 5 19 23 20.5 12.7 8.7 Mechanical/electrical 6 14 15 18.0 8.8 1.5 Construction Materials 7 9 11 10.8 10.4 1.2 Chemicals 6 9 10 14.0 9.7 1.1 Others (wood,paper, ...) 4 10 12 17.8 10.7 1.4 Total Manufacturing 100 100 100 6.4 9.7 12.4 Manufacturing V.A. as % of GDP (at factor cost) 7.7 9.7 11.0 4.2* 8.2* Manufacturing employ- ment as % of Total Employment 9.0 16.3 20.3 *- GDP real growth rate Source: Appendixes I.1 and I.2. 1.03 The public sector has played a predominant role in investment in the large enterprises, in particular in construction materials (cement plants), chemicals (fertilizers and petroleum refinery) and in the electrical and mechanical industries (EMIs). The share of the public sector in manufacturing investment declined from 86% in the 1960s to 47% during the 1973-76 Plan, following the 1969 reorientation of economic policies, but it has remained well above 50% in the subsectors mentioned above. By 1976, the share of the public enterprises in total manufacturing employment was 17%, reaching two- thirds in chemical industries and one-third in construction materials and EMIs (Table 1.02). - 3 - Table 1.02: SHARE OF PUBLIC SECTOR IN MANUFACTURING INVESTMENT AND EMPLOYMENT As % of Total Investment in As % of Total Subsector 1961-68 1969-72 1973-76 Employment 1976 Food Processing 79 66 28 19 Textiles, leather 88 35 16 10 EMIs 94 67 51 34 Construction Materials 93 80 73 31 Chemicals 59 88 65 62 Others 76 71 15 12 Total Manufacturing 86 67 47 17 Source: Appendixes 1.3 and I.4. Foreign Trade and Final Demand for Industrial Products 1.04 Since the reorientation of manufacturing to exports, the share of exports in total manufacturing output has experienced an upward trend, from 18% in 1969 to 23% in 1978. The export-promotion policies had their major effect on the textiles and clothing industries which became the predominant exporting manufacturing subsector, with 41% of its production exported in 1978. Textiles exports grew (in current prices) by 45% p.a. on average during the 1970s; their growth slowed down in 1978 to 8% because of market problems in the EEC, and is likely to remain moderate in future. Setbacks in the foreign markets for olive oil and phosphate derivatives reduced the growth and prospects for exports of these products. The patterns of foreign trade and total demand of manufactured products were: Table 1.03: PRODUCTION, DEMAND AND FOREIGN TRADE OF MANUFACTURES Exports as % Composition Output, as % of Composition Subsector of Output of Exports Domestic Demand of Demand 1972 1976 1978 1978 1972 1976 1977 1977 Food Industries 29 18 14 24 119 104 100 24 Textiles, leather 13 26 41 41 80 85 94 17 EMIs 18 11 12 7 31 24 24 36 Construction Materials 9 2 2 - 80 56 57 6 Chemicals 44 54 56 25 79 82 88 8 Others 12 8 7 3 63 52 50 9 Total Mfanufacturing 24 21 23 100 79 65 63 100 Manufactured Exports, as % of Total Exports 57 44 47 Source: Appendixes I.5 and I.6. - 4 - 1.05 Due to the rapid growth of domestic demand for manufactures, an increasing share of this demand had to be met by imports, particularly for construction materials and EMI goods (Appendix I.7). While large public investments in construction materials have permitted domestic production to increase sharply (in 1977, imports of construction materials declined to 5% of total manufactured imports), the production of the EMI subsector was increasingly unable to meet the demand resulting from the acceleration of investment during the 1970s. The imports of EMI goods increased from 35% of total imports in 1970 to 46% in 1978, and accounted for 55% of the increase of manufactured imports between those years. With an elasticity of total demand for EMI goods to Gross Fixed Investment greater than 1 (see Appendix I.8) and Investment growing at some 14% p.a., imports of EMI goods have put an increasing pressure on the balance of payments. However, the review of the EMI subsector (see Chapters III and IV) indicates substantial potential for efficient import-substitution. Foreign Investment 1.06 The Export-Promotion Law 1972-38 provided substantial fiscal incen- tives and trade facilities to domestic and foreign firms looking for advan- tageous labor conditions and foreign exchange regulations; it has attracted increasing amounts of foreign direct investment in industry (Appendix I.9). During 1973-1976, some D 50 million (70% of which in joint ventures or foreign- owned) were invested in 240 projects representing 18% of total manufacturing investment and creating 18,500 jobs (30% of total employment creation in manufacturing), essentially in clothing and some in EMIs. The investment cost per job created was lower than in the rest of the manufacturing sector (Appendix I.10). The activities of these "offshore" companies have generally consisted of processing imported raw materials and parts and exporting finished goods, and have significantly contributed to the country's exports (D 26 million net exports in 1977, equivalent to 6.5% of total exports - see Appendix I.11). Moreover, new "offshore" firms have begun to diversify, away from textile and clothing, into assembly of electronics and electrical items for which export markets in The Federal Republic of Germany and The Netherlands have emerged and appear promising (see Chapters III and V). However, foreign investments now appear to be levelling off, following the slow-down of economic growth in OECD countries. Factor Allocation 1.07 Manufacturing increased its share in total fixed capital formation, from 11.5% in the early 1970s to 18% during 1973-76 and 21% during 1977-78. Its share of total employment creation increased from 20% in the early 1970s to 37% during 1973-76 and 46% during 1977-78. The average cost per job created in manufacturing decreased during the 1973-76 Plan, but has shown a tendency to increase in recent years, in parallel with the share of the public sector in the total manufacturing investment. - 5 - Table 1.04: INVESTMENT AND EMPLOYMENT CREATION IN MANUFACTURING (in percent) 1969-1972 1973-1976 1977-1978 Cost/ Cost/ Cost/ Share in Job Share in Job Share in Job Employ- /1 Employ- /1 Employ- /1 ment ment ment Invest- Crea- Invest- Crea- Invest- Crea- Subsector ment tion ment tion ment tion Food Industries 17 10 6.6 21 11 4.5 17 14 4.3 Textiles, leather 21 44 1.4 16 51 0.9 7 34 0.9 EMIs 14 18 3.1 11 11 2.5 11 15 2.5 Construction Materials 8 7 3.7 29 11 5.9 43 16 10.9 Chemicals 21 10 7.4 16 5 11.1 18 5 15.7 Others 19 11 6.1 7 11 1.5 4 16 1.0 Manufacturing 100 100 3.3 100 100 2.7 100 100 3.4 Manufacturing, as % of Total Economy 11.6 19.8 50 18.2 36.9 45 20.9 45.9 43 Share of Public Sector in Manufacturing Investment 67.3 46.6 68.4 /1 In thousand dinars at constant 1972 prices. Source: Appendixes I.12 and I.13. Public investment has concentrated on capital-intensive industries (cement plants and chemicals) in an effort to build-up a core of heavy industries and to respond to the booming demand in construction. The major role in clothing and light food industries was taken up by the foreign and private sectors after 1972; due to the nature of activities promoted in these subsectors, investment cost per job has remained low in these subsectors. Productivity Trends 1.08 The sectorial pattern of factor productivity in manufacturing is summarized in Table 1.05 displaying the growth during 1970-1972 and 1973-1977 of value added per worker, average net capital stock per worker and employment in each manufacturing subsector. -6- Table 1.05: FACTOR ALLOCATION AND PERFORMANCE IN MANUFACTURING 1972 Indices (1969 = 100) 1977 Indices (1972 = 100) Total Total V.A. Capital Factor V.A. Capital Factor per per Produc- per per Produc- Worker Worker Labor tivity /1 Worker Worker Labor tivity /1 Food Industries 152 95 110 158 64 84 160 73 Textiles, leather 138 125 105 124 157 106 129 153 EMIs 124 99 113 123 91 95 146 97 Construction Materials 111 106 106 105 107 248 161 63 Chemicals 110 126 151 96 66 112 181 62 Others 134 145 107 111 109 102 136 108 Manufacturing 142 114 107 132 99 123 137 88 /1 Ratio of V.A. index to a weighted average of capital stock and labor indices, for each subsector. Source: Appendix 1.14. The manufacturing sector on the whole shows a deterioration of the total factor productivity after 1972/1973. The regular increases of the capital intensity in the sector (+4.3% p.a. on average during 1969-1977) did not yield commensurate increases in the sector's average value added per worker during 1973-1977. 1/ Textiles and "others" are the only subsectors where the total factor productivity of factors continued to increase after 1972. In EMIs, the slight decline of the total factor productivity was the result of a diminishing capital intensity (capital stock per worker). There is an apparent decline of the marginal productivity of capital after 1972, at least as reflected by the high level of the 1973-1977 incremental capital-output ratio (ICOR), which averaged 5 for the sector (Appendix I.15). 1.09 The productivity of labor decreased after 1973 as well. The large capital investments of 1973-1977 should have brought about a commensurate increase in value added per worker (at factor cost). In fact, value added per worker increased only marginally in 1973-1977, compared to a 12.4% p.a. increase in real terms during 1970-1972 (Appendix I.16). It averaged $1,800 in 1978, which is low compared to other mediterranean LDCs. Value added per work decreased markedly in food industries and chemicals; in construction 1/ Capital and labor in the sector increased during 1973-1977 by 69% and 37% respectively while output increased by only 36%. By contrast, the 1970-1972 increases in capital and labor (+22% and +7% respectively) yielded higher increases in output (+52%). - 7 - materials, it increased only by 2.5% p.a. despite a 20% p.a. average increase in capital intensity. A substantial share of workers in public enterprises (mainly in chemicals and construction materials) may have been employed for social rather than productive reasons. Despite the drop in labor productivity, unit wages increased during 1973-1978 by some 190-205% in nominal terms and by 24 to 34% in real terms, most of the increase taking place after 1975 (Appendix 1.17). The competitiveness of labor relatively to Europe has generally been maintained in private (especially foreign) manufacturing; but it has deterio- rated comparatively to other LDCs, especially in the construction materials and chemical industries. 1.10 The performance of the manufacturing sector shows a mixed picture. Growth, investment and employment creation during the 1970s were impressive in quantitative terms. Overall productivity was almost maintained in EMIs, and increased markedly in textiles--the leading subsector in terms of growth, employment creation and factor efficiency. The subsectors mainly responsible for the drop of average productivity in the sector were construction materials (excessive maturation period of projects and capital accumulation), food industries (excessive labor relatively to the insufficient supply of raw materials due to poor agricultural crops after 1975), and chemicals (large investments made at a time of depression in the world market for phosphate derivatives). Finally, the relative growth of manufacturing exports did not take off as expected, mainly because of insufficient diversification from traditional exports (olive oil, phosphate fertilizers) which were in lesser demand from abroad. The problem of Tunisian manufacturing is essentially a productivity and efficiency problem, due in some part to policy and incentive issues constraining the sector (see Chapter II). Subsectorial Priorities 1.11 Ranking manufacturing subsectors according to six major indicators of their past performance confirms that textiles have been the leading sub- sector on most accounts, followed by the EMIs which have performed adequately without major shortcoming (Appendix I.18). 1/ The continuation of a rapid expansion of several major subsectors is becoming increasingly constrained by market and resource considerations. Opportunities for further growth of textiles/clothing exports to the EEC are diminishing. The present depression in the world price and demand for phosphate derivatives calls for prudent expansion plans in phosphates. Local resources are scarce for the production of other chemicals, 2/ and the development of food industries and food exports 1/ The six performance indicators are: value added per worker, ICOR, investment cost per job, labor intensity (Man-Years per million D output), marginal export/output ratio, and import-substitution potential (imports as % domestic demand). An overall indicator combining these six indi- cators with equal weights ranks textiles first, followed by EMIs, "others" (paper, wood, cork, etc.), chemicals, food industries, and finally construction materials. 2/ Prospects for the development of production of nitrogen fertilizers based on the Algerian and Miskar natural gas are still quite uncertain. - 8 - requires as a prerequisite substantial improvements in the productivity of the agricultural sector. The boom in the internal market for construction materials is likely to slow down soon, and domestic production capacity will soon meet the demand. On the other hand, substantial opportunities for efficient import-substitution in the EMIs have been neglected, and the develop- ment of EMIs has lagged behind that of manufacturing overall. The major reasons for this lag have been the intrinsic complexity of EMIs, the focus on past opportunities for a rapid expansion of simple or resource-based industries, and several institutional and policy constraints. 1.12 A comparative analysis of the production patterns in the six major manufacturing subsectors for Tunisia with the production patterns of a group of 32 countries similar to Tunisia in population size, income level and manufacturing orientation 1/ shows that the actual value-added shares (as percent of GDP) of total manufacturing as well as of each subsector in 1968, 1973, 1976 and 1977 are consistently below the normal values predicted for the corresponding years by the analysis. As presented in Table 1.06, these results suggest that Tunisia's industrialization has remained well below its "statistical potential", the conitribution of each manufacturing subsector (except chemicals and petrochemicals) to GDP being smaller than would be expected by the country's size and level of development. Moreover, the worsening trend in the variance between actual and expected EMIs shares suggests that the EMIs remain the most underdeveloped manufacturing subsector, contributing most to the lag of the manufacturing sector. Further growth in the imports of EMI goods could impose a heavy burden on the balance of payments (para. 1.05) and constrain the expansion of the overall manufacturing sector. To avoid this, it is necessary for Tunisia to develop a well-balanced EMI sector that can efficiently produce standard intermediate and equipment goods. For these reasons the Government intends to give priority to the development of EhlIs. 1/ Application of the results of the World Bank Research Project "Patterns of Industrial Development" (RPO 671-05). See Annex I. - 9 - Table 1.06: ANALYSIS OF ACTUAL AND "NORMAL" STRUCTURE OF MANUFACTURING VALUE ADDED FOR TUNISIA - 1968, 1973, 1977 1968 1973 1977 Subsector Norm /1 Variance /2 Norm /1 Variance /2 Norm /1 Variance /2 Food Industries 27.2 +13.6 23.3 + 9.4 20.9 + 5.4 Textiles, Leather 19.1 - 6.3 19.2 + 0.1 18.6 + 6.0 EMI's 17.6 - 5.7 21.3 - 8.8 23.7 -10.7 Construction Materials 6.9 + 1.5 6.5 + 0.3 6.0 + 3.0 Chemicals, Rubber, Petrochemicals 15.7 + 1.0 15.7 + 3.9 16.5 + 0.1 Wood, Paper, Misc. 13.5 - 4.1 14.0 - 4.9 14.3 - 3.8 Total Manufacturing 100.0 - 100.0 - 100.0 - Manufacturing Share in GDP (%) 17.0 - 6.8 20.5 - 9.2 22.5 -11.0 /1 "Normal" shares expected for Tunisia's size and level of development. /2 Difference between actual and "normal" predicted sectorial shares. Source: Annex I. - 10 - CHAPTER II: POLICY AND INSTITUTIONAL FRAMEWORK Manufacturing Economic Framework and Policy Issues 2.01 The objective of the 1973-1976 Plan to emphasize manufacturing as a major source of growth and of employment creation was supported by two important pieces of legislation: Law 1972-38 aiming at encouraging foreign investors (para. 1.06), and Law 1974-74 providing incentives for investment and employment creation by domestic investors. The detailed description of the corresponding incentive framework for private investment is given in the 1974 Basic Economic Report (No. 274a-TUN), the 1975 Updating Memorandum (No. 767-TUN) and the BDET VII Appraisal Report (No. 1734b-TUN), and is summarized in Appendix II.1. The following paragraphs will focus on the major short- comings in the incentive framework. 2.02 The Investment Codes had a large beneficial impact on the initiative of the private sector. However, some distortions, inefficiencies and negative secondary effects have emerged in recent years and constrained the liberaliza- tion and development of the manufacturing sector. The major issues affecting the sector, as identified by the mission, are: - increasing capital intensity of development projects promoted by the 1974 Law; - little specialization within enterprises and weak linkages between enterprises; - weak incentives in the 1972 Law for investigating new export markets and increasing local value added through backward integration; - inadequate incentives and policy framework (pricing, tariffs) for increasing competitiveness and efficiency; and - weak institutional capacity for industrial planning and project identification/preparation. 2.03 Although Law 1974-74 was intended to encourage employment creation, it failed in this objective because the fiscal exemptions granted by the Law to domestic investors are related to the absolute number of jobs, 1/ without regard to the cost efficiency of production nor to the capital intensity of the project. This has encouraged investors to add to the core of their projects secondary production lines with under-utilized equipment and high operating costs, and to employ more workers than necessary. This basic shortcoming, combined with other policy issues (pricing and protection - see paragraph 2.05), has contributed to undue capital intensity, excess capacity 1/ Exemptions range from 40% of taxable income in the case of projects creating between 10 and 20 jobs, to 90% of taxable income for projects creating over 150 jobs. No exemptions are granted to projects creating less than 10 jobs; this excludes many SSIs from the benefits of the Law. - 11 - and operational inefficiencies at the firm level. The tendency of firms to aim at the maximum expansion of their size, even when economically inefficient, in order to take full advantage of the tax exemptions permitted by the law, has contributed to constraining the specialization of firms and product-mix, the development of inter-enterprise subcontracting and linkages, and the substitution of local inputs for imports. The too rigid application of the fiscal provisions of the Law 1/ and the lack of quality standards have com- pounded these problems. The introduction in the Investment Codes of special incentives for lower investment costs per job created and for increased sectorial integration, particularly through a simplified indirect tax system, would help to overcome these shortcomings. Further work will be needed to identify these special incentives. 2.04 Law 1972-38 has been quite successful in attracting foreign investors for export-oriented production. Though this was not its expressed objective, it also largely contributed to employment creation in manufacturing (30% during 1973-1976). However, the foreign markets have remained so far limited to the foreign firms' marketing networks and remain dependent on those firms' existence and expansion strategies. In this sense, the Law has promoted foreign exporting firms rather than fostered the development of new export markets for Tunisian firms. This shortcoming, and the weak incentives of Law 1974-74 for exports by local enterprises, have contributed to the slow diversi- fication of foreign markets and to the weakness of Tunisia's export outlets. The net foreign exchange inflows generated by enterprises benefitting from Law 1972-38 have been less than expected, due to the low value added generated locally by these enterprises and the lack of backward integration of their assembly operations. Studies are needed to work out new incentives correcting these shortcomings. Strengthening the various institutions active in export promotion (API, CEPEX, OCT) and improving cooperation between them are also essential. 2.05 The protection structure is mainly characterized by low or negative effective rates of protection (ERPs) for exporting activities (between -100% and 25% on average), high ERPs (averaging between 70 and 95%) for import- substitution activities and, within the latter, by higher protection for final and/or consumption goods than for intermediate and equipment goods. This protection pattern, and the price control procedures (of a cost-plus-type) which allow investors sizeable returns (20% p.a. generally) on their own funds, have made the domestic market a more profitable and less risky outlet than exports and have not encouraged local firms to increase the efficiency and export-orientation of their activities. 1/ It is practically impossible to obtain the legally specified exemption from the production tax on a locally produced good sold to an export- oriented firm, or conversely to purchase from such a firm a good for domestic usage; in both cases, it is easier and cheaper to import goods which are otherwise produced in the country. - 12 - 2.06 The 1974 Investment Code induced a provision granting special incentives for regionally decentralized projects, so as to reduce the great concentration of industries in the North East and Tunis. However, these incentives (Appendix II.2) were specified and enforced only by mid-1977, due to administrative delays. Their effect on regionalization has so far been moderate, but more time is needed to assess the efficiency of these incentives. Project Identification, Preparation and Implementation 2.07 Three major constraints hampering the development of industry in Tunisia are (i) the complex, and sometimes uncoordinated, administrative procedures and institutions regulating industrial activity; (ii) the limited capacity to identify and execute investment projects, particularly in the public sector; and (iii) the weakness of long-term development strategies for some subsectors, in particular EMIs. The overall and subsectorial investment targets defined by both the Ministry of Planning and the specialized planning commissions are not supported by a sufficient number of concrete projects; projects "identified" in the 1977-81 Plan represented only two-thirds of planned manufacturing investment. These projects, some of which are still at a very early stage of preparation, are to be undertaken mainly by the public sector. The private sector, which ;s to account for the remainder, has "ot been given clear priorities or directions to follow. The authorities, aware of these constraints, have begun to focus their attention on how to improve project identification, preparation and implementation. The public sector agencies in charge of this function will enlarge their number of technically qualified and experienced staff over a long period of time. Meanwhile, the Plan has suggested the creation of sectorial "Groupements" 1/ to be responsible for the preparation and implementation of public sector projects. Although this would enhance intra-sectorial coordination, the "Groupements" will still be subject to the problem of scarcity of qualified staff; furthermore, they will not be in a position to identify the inter-sectorial priorities required for long-term development planning. 2.08 With respect to projects in the private sector, which are expected to play the most important role in employment creation, the need is to reduce administrative red tape to expedite project implementation, and to strengthen the institutions and agencies which provide assistance to private investors in the identification and execution of their projects. The principal focus of intervention of Agence de Promotion des Investissements (API) is the granting of official approval of projects. Only recently has API started to equip itself to provide technical assistance during the preparation/execution phase, especially for small-scale industries unable to obtain technical assistance from other sources. The public Centre National d'Etudes Industrielles (CNEI) should identify projects on the basis of sector studies, but this has not yet materialized; CNEI's intention to establish a "bank of projects" for private investors to choose from will be difficult to implement without a substantial 1/ For the chemical industries, construction materials, textiles and EMIs. - 13 - strengthening of CNEI's staff, particularly through foreign technical assis- tance. The Employers Association "Union Tunisienne de l'Industrie, du Commerce et de l'Artisanat" (UTICA) has provided entrepreneurs with some sectorial information and investment guidance, but much remains to be done. The rudi- mentary "extension and advisory" service also set up by UTICA to assist project promoters in understanding the procedures for obtaining the Govern- ment's and the financial institution's approval of projects has been valuable, but largely insufficient in volume to meet the needs. Development of Small-Scale Industry 2.09 During 1973-1976, small-scale industries (SSIs) I/ represented about 75% of all Tunisian manufacturing enterprises, although they accounted only for 22% of employment, 19% of investment and 14.5% of value added in the sector. The development of SSIs has been restricted by two major sets of constraints. The first set is internal to the SSIs and hinges around the related issues of output quality, price and timely delivery. Removal of these constraints will require: (a) substantial upgrading of the production tech- niques of SSIs through financial assistance for selected modernization of equipment in order to achieve higher overall productivity and quality, and (b) improvement in management of production operations (product-mix, input procure- ment, labor skills, production organization) through technical assistance in order to increase labor productivity and reduce production costs. 2.10 The second set of constraints stems essentially from the lack of concrete and coordinated support at the policy and institutional levels for the development of SSIs. At present, SSIs in Tunisia operate within a system of incentives biased towards large and modern enterprises and an institutional framework of dispersed responsibility for their assistance. In effect, the fiscal exemptions of the Investment Code 1974-74 exclude the smallest firms (with less than 10 workers) and are lower for SSIs than for larger firms; moreover these exemptions are not related to investment costs nor to the type of technology. The concessions granted by Law 1972-38 to exporting frims are mostly benefitting foreign investors. The laws do not encourage local sub- contracting which would promote the creation of specialized SSIs. In addition, responsibility for the various regulations and policies affecting SSIs rests with several government institutions 2/; lack of coordination and of unified policies has hampered the development of consistent regulations and inte- grated programs in support of SSIs. This institutional fragmentation also has led to serious inefficiencies due to duplication and to inertia in some agencies. Moreover, there is no specific provision to encourage recourse to small local suppliers in current practices for procurement of supplies by public agencies and enterprises. Finally, the financial assistance provided to 1/ SSIs are defined here to be small enterprises employing less than 50 workers. 2/ Directorate of Industry; Ministry of Finance; Ministry of Social Affairs; API; Office de l'Emploi. - 14 - SSIs by the Government-funded FOPRODI scheme is limited essentially to supple- menting SSI equity funds for project financing; however, with the exception of smallest projects (i.e. investments lower than D 75,000, which are entitled also to subsidized credits from FOPRODI), there is no provision to facilitate SSIs' access to bank credit, although it is generally recognized that banks are reluctant to lend to SSIs, especially newly established ones, because of the inadequacy of their track-records and available collaterals. 2.11 Removal of this set of institutional constraints will require the establishment of specific policies to promote and assist the development of SSIs. The most important measures needed are: (a) provision of incentives and technical assistance schemes to help existing and new SSIs; (b) provisions to facilitate SSIs' access to bank credit by: (i) the Central Bank adopting monetary regulations encouraging or leading both commercial and develop- ment banks to increase substantially their lending to SSIs; and (ii) the Ministry of Finance creating a guarantee scheme to supplement, with a credit-insurance coverage, the collaterals which SSIs can offer to lenders, especially in those cases when the absence of valid real estate titles prevents the inscription of mortgages on SSIs' land and buildings; (c) provision of incentives to promote subcontracting between small and large firms and between foreign and local firms and to encourage public procurement of supplies from small firms in order to estab- lish a more closely integrated industrial structure; (d) standardization of products at the final and intermediate stages, establishment of qualitv norms and quality control, and quality monitoring in SSIs by assisting them in meeting the quality norms; (e) organization of group-procurement of imported raw materials in order to reduce purchasing costs and the need for large inventories; and (f) organization of special extension services and training programs to develop and modernize the technical skills of the "middle level" workers in small EMIs. - 15 - PART B: THE ELECTRICAL AND MECHANICAL INDUSTRIES CHAPTER III: STRUCTURE AND CHARACTERISTICS OF EMIs Introduction 3.01 Engineering (electrical and mechanical) industries, which usually grow around the core of power, transportation and manufacturing activities, defy simple definition. From the standpoint of products, they can be defined as providing the design, development and fabrication technology for most man-made products. Their inherent heterogeneous character makes the problems of the engineering industries among the most complex ones in manufacturing. Engineering industries lie also at the heart of the industrialization process, by establishing a crucial link between the end-product assembly industries and the supplier industries manufacturing a wide variety of components and sub- assemblies 1/, and the key role of the engineering industry in any industrial development strategy is to provide and strengthen the link between the manufac- ture of parts and end-products. The underdeveloped state of engineering and supplier industries in developing countries has generally been a critical constraint to their industrialization process. Growth Trends and Structural Patterns 3.02 As reported in Chapter I, the development of the Electrical and Mechanical Industries (EMIs) in Tunisia lagged behind that of the country's manufacturing sector and overall economy. Development of EMIs has taken place principally in import substituting assembly industries (most of them public) providing end-products for the local market. Table 3.01 summarizes the structure and growth pattern of Tunisian EMIs: 1/ In countries with advanced engineering industry, the final processing and assembly typically account for 20-30% of the value of an end-product, with 70-80% going to the supplier industries where engineering exercises most of its activity. - 16 - Table 3.01: OUTPUT AND GROWTH OF EMIS Gross Output Growth Rate 1972 1978 % p.a. EMI Subsector D Mlns. % D Mlns. % (real terms) Mechanical Industries Capital goods 4.7 11.6 15.1 12.1 11.3 Intermediate goods 21.1 52.1 49.5 39.8 5.7 End-products 8.1 20.0 31.6 25.4 15.0 Total Mechanical Industries 33.9 83.7 96.2 77.3 9.1 Electrical Industries Capital/Intermediate goods 3.8 9.4 16.1 13.0 16.6 End-products 2.8 6.9 12.1 9.7 17.0 Total Electrical Industries 6.6 16.3 28.2 22.7 16.8 TOTAL EMIs Output 40.5 100.0 124.4 100.0 10.5 TOTAL EMI Value Added 12.9 33.1 Value Added/Output, in % 31.9 26.6 Source: Appendix III.1. 3.03 Tunisia has so far entered a few selected production lines of EMIs, namely: - the El Fouledh public steel mill, established in 1965 to process local iron ore, and producing about 150,000 t.p.a. of construction bars, wire rods and cables; - the assembly of automobile vehicles (cars, trucks, buses) by the Societe Tunisienne d'Industries Automobiles (STIA) located in Sousse with capacity and present production respectively at 11,000 and 7,000 units p.a.; - the smelting and refining of local lead, mainly for exports, by the PENAROYA foundry; - the production of pig iron and steel castings dominated by the two public enterprises SOFOMECA and FONDERIES REUNIES accounting for about 90% of the country's capacity and production of 11,000 and 7,000 t.p.a. respectively; - 17 - - the production of general hardware and simple end-products (hand-tools, cutlery, fasteners, sanitary fittings) by the public Ateliers Mecaniques du Sahel (AMS) created in 1961 and located in Sousse; - the heavy maintenance and repair of ships by the public Societe Tunisienne de Constructions et de Reparations Mecaniques et Navales (SOCOMENA), established in 1963 in the premises of the former foreign arsenal in Menzel Bourguiba, which can accommodate annually about 120 ships up to 60,000 DWT each; - the assembly of household appliances (stoves, refrigerators), dominated by the public enterprise LE CONFORT; - the manufacturing of electrical transformers and electrical motors by the semi-public company Societe Anonyme de Con- structions Electro-Mecaniques (SACEM) created in 1966 in Menzel-Bourguiba; - the assembly of small diesel engines (for agricultural and marine applications) by The Societe Tunisienne des Moteurs (SOTUMO), a public company in Menzel-Bourguiba; - steel structures and heavy platework, with a total capacity of 50,000 t.p.a. and a current production of about 30,000 t.p.a. scattered over a large number of private companies, generally small; - the assembly of radio and TV sets by local private enter- prises for the domestic market, and recently the assembly of electronic components and consumer goods by some 16 foreign enterprises established under the Law 1972-38 for exports; and - a variety of small production lines in private enterprises for miscellaneous, generally intermediate products (car batteries, spark plugs, automobile lights, electrical cables and wires). The most important EMI subsector presently absent from Tunisia's industrial structure is the manufacture of non-electrical machinery (subsector 382 in the International Standard Industrial Classification--see Appendix III.2); Tunisia has not entered this subsector, due essentially to the high level of the technological requirements of this subsector and its intrinsic complexity. 3.04 In addition to the prominent enterprises mentioned above, the EMI sector in Tunisia includes numerous small scale enterprises (SSIs) and small workshops. The Industrial Census of 1976 reports some 260 establishments with 5 or more workers in EMIs, of which 72 (28%) have more than 50 workers. These - 18 - 260 establishments employed some 18,840 workers; there were in addition 8,720 workers employed in 1976 by some 705 SSIs and small workshops with less than 5 workers. Table 3.02 summaries the structure of EMI enterprises: Table 3.02: STRUCTURE OF EMIs - 1976 Size of Enterprise Less 100 (Number of workers) than 20 20 to 50 50 to 100 and more All Number of enterprises 830 /1 63 32 40 965 Employment 9,990 1,980 2,200 13,390 27,560 Value Added (D Million) /2 4.39 1.43 1.34 16.51 23.67 Value Added/Worker (Index) 41 69 58 118 100 Wages, as % of Value Added 56 53 68 46 48 /1 Including SSIs and small workshops with less than 5 workers, estimated to total 705. /2 V.A. of manufacturing activities only, excluding trade activities. Source: 1976 Industrial Census and Mission estimates. The 13 public enterprises with 50% or more Government ownership are large firms with more than 100 workers each; they contributed in 1976 some 50 to 60% to the total EMfI Value Added in manufacturing activities. Final Demand and Foreign Trade for EMI Products 3.05 Imports of EMIs goods increased rapidly in the 1970s to meet a substantial upsurge in domestic demand for capital and machinery (para. 1.05). The share of demand met by the local production decreased markedly in the sector, except for major consumer goods (automobiles, household electric appliances, TV and radio sets) for which local production increased rapidly as a result of the priorities and investments of the public sector (see Table 3.03). - 19 - Table 3.03: PRODUCTION, DEMAND AND FOREIGN TRADE OF EMIS PRODUCTS (in percent) Structure of Demand Growth Production ns % of Demand 1972 1978 Rate 1972 1976 1978 (% p.a.) Mechanical Goods Capital Goods 35 40 18.8 11 6 7 Intermediate Goods 28 26 14.5 58 42 37 Consumer Goods 21 16 10.1 31 36 44 Sub-Total Mech. Goods 84 82 15.5 32 24 24 Electrical Goods Capital/Intermediate Goods 10 13 20.1 31 24 24 Consumer Goods 6 5 11.7 43 28 61 Sub-Total Elec. Goods 16 18 17.5 35 26 33 Total EMIs 100 100 15.9 32 24 25 Source: Appendix III.3. 3.06 Imports of mechanical capital goods represented in 1977 close to half the total of EMI imports (Appendix III.4). The major components were: earth moving/drilling machinery, lifting and hoisting equipment, mining equipment, machinery for textiles and clothing industries, and engines (Appendix III-5). The bulk of imported intermediate mechanical goods, representing one-fourth of the total of EMI imports, consisted mainly of iron and steel primary products (bars, profiles, sheets, plates, coils, pipes) totalling in 1977 about 300,000 tons, of which some 12,000 tons were iron/steel castings. Imports of consumer end-products consisted primarily of built-up cars and CKD/ SKD 1/ components and parts for automobile assembly. The most important imports of electrical products have been switchboard/switchgear apparatus and other transmission and distribution equipment, electric and electronic compo- nents and parts for radios and television, electric cables and wires, electric generators and large motors, and telephone sets (see Appendix III.6). 3.07 Tunisia's traditional metallurgic exports have been refined lead and simple lead products which have varied during the 1970s between 15 and 25 thousands tons a year, representing some 35 to 42% of total EMI exports. Exports of iron and steel products (construction rods and steel from El Fouledh principally, and iron/steel castings) peaked at 15,000 t in 1973 and have fallen to no more than 2,000 t in 1977. They represented 45 to 55% of EIu exports between 1969 and 1974 but only 10% at present (Appendix III.7). These exports declined because domestic markets for steel have absorbed an increasing share of local production and the needs of export markets for 1/ CKD/SKD: Completely/Semi Knock-Down components. - 20 - castings became more complex. 1/ As a result, the share of exports in the output of mechanical industries dropped from one-third in 1970-74 to one-tenth at present. In contrast, the exports of electrical and electronic products increased significantly after 1974 and presently account for almost one-fifth of the total production of electrical goods and one-third of total EMI exports. 3.08 An emerging and promising shift in the structure and nature of EMI exports came from the assembly in Tunisia of electric and electronic products by export-oriented enterprises (Law 1972-38) using imported components and exporting to the EEC (mainly U.K., Netherlands, Federal Republic of Germany). Their production (radio and TV sets and parts, small switchboards, electric cables and wires, measure and control instruments, hi-fi components and watches) totalled D 1.1 million in 1977 (Appendix III.8), representing some 20% of manufactured EMI exports (excluding lead metal). These exports were mainly from 16 enterprises established under Law 1972-38, of which 7 were specialized in assembling electronic components. These 16 firms employed 2,170 workers, representing 6.5% of total EMIs employment (Appendix III.9); this illustrates the impact of Law 1972-38 on employment creation. Labor Productivity and Labor Demand-Supply Structure 3.09 Labor productivity in EMIs (measured by value added per worker) has fluctuated substantially between D 450 and D 650 (in constant prices) during the period 1969-1978, but has followed an upward trend with an average increase of 1.7% p.a. in real terms. This upward trend reflects in part an improvement in the skills of the labor force. The annual industrial surveys indicate that the share of technicians and foremen rose from 5.7% in 1969 to about 7% in 1977 and that the proportion of unqualified labor and apprentices decreased from 37% to 20% (see Table 3.04). Table 3.04: SKILLS OF EMI LABOR FORCE (in % of Total Labor Force) Manage- Techni- Skilled & Unqualified Admin- Year ment /1 cians & Semi Skilled Labor and istrative Staff--- Engineers Foremen Workers Apprentices Personnel 1968 2.3 3.2 5.7 39.7 37.1 12.1 1972 -----4.4----- 6.8 47.5 29.4 11.9 1976 2.5 1.5 7.0 /3 59.6 /2 19.3 10.1 /1 Management staff includes a substantial proportion of engineers. /2 Estimated to include about 25% of semi-skilled labor. /3 Includes probably some 2% for technicians. Source: 1968, 1972 and 1976 Industrial Surveys, Survey of EMI labor force (OTTEEFP-1977), and mission estimates. 1/ Local production of castings could not follow the increasing requirements of quality and technology (spheroidal iron); moreover, increased market and price competition in Europe displaced Tunisian exports. Finally, transport facilities to other ldc's where Tunisia used to export were dis- continued. - 21 - 3.10 In broad terms, the 1/7 ratio between supervisory staff (including foremen) and direct production labor appears adequate in comparison with other countries. 1/ However, the proportion of skilled/specialized labor seems low relative to that of semi-skilled and unskilled labor (34 and 45% respec- tively); similarly, the proportion of production engineers (1.5%) does not seem commensurate with the number of technicians and foremen. The mission's general assessment made during plant visits confirms that specialized skilled labor, and to a lesser extent middle-level engineers and technicians, are in short supply in the sector. 3.11 Tunisian authorities have been aware of the need to further improve the skills of the EMI labor force, and have developed training facilities at all levels in the formal education system and the vocational training schemes. The total annual output of training facilities in Tunisia amounts to about 14,100 workers p.a. 2/ as follows: Table 3.05: ANNUAL OUTPUT OF MANPOWER TRAINED IN EMIS SKILLS (Numbers) Mech- Auto- Elect- Total as % of anical motive rical TOTAL 1976 Labor Qualification Trades Mechanics Trades Force Engineers 5-10 - 25-50 30-60 /1 8-16 Technicians 100 155 30 285 ) Foremen 450 - 380 830 54 (46) Skilled Labor 415 1260 360 2035 23 (9) Semi-skilled Labor 3490 1735 2230 7455 62 (47) In-Job Apprentices 1620 1450 380 3450 TOTAL 6075 4600 3415 14100 51 (34) /1 Excluding engineers trained abroad for which information was not obtained. ( ): Excluding automotive mechanics. Source: OTTEEFP, Statistiques Education Nationale. 3.12 Work skills required in EMIs are also needed by many other economic sectors. The demographic census shows that the total number of Tunisian workers in possession of skills needed in EMIs is 2.5 times the labor force of 1/ The proportion of engineers and technicians alone in the labor force of EMIs in developed and semi-developed countries ranges normally between 6 and 9%. 2/ Excluding a substantial part of the graduates from the Vocational Training schemes of the formal education system; these graduates, totalling about 5,000 in 1978 for EMI trades, have had difficulties to find a job in the industrial firms which consider their training inadequate. - 22 - the EMI sector alone. Given the high demand for these same skills in other sectors, it is likely that EMI industries will be able to obtain the services of no more than half of the graduates of vocational schools and training programs meeting EMIs skill requirements. Under these circumstances, the development of a well-balanced labor force in the EMI sector would require the training of a larger number of workers skilled in EWE-related trades, and in particular the doubling of the number of electrical specialists being trained. An alternative way to meet EMI's projected need of skilled workers would be to divert to jobs in the EMI sector a substantial number of existing automotive mechanics, and to reconvert their skills toward mechanical and electrical trades. 3.13 The second major constraint to the development of the EMI sector and its diversification into more complex activities (intermediate and capital goods) may well be the availability of engineers, given in particular the need to increase the productivity of the EMI labor force. 1/ Taking into account the needs of other manufacturing sectors for electrical and mechanical engineers and the present supply of such engineers from domestic and foreign schools, the long-term growth rate for the sector may be limited to 8-10% p.a. in real terms unless an additional effort is undertaken to increase the number of electrical and mechanical engineers. Production Patterns and Performance 3.14 The heterogeneity of the sector, the variety of each subsector's characteristics and performance, and the weak data base make it difficult to draw general conclusions with respect to the performance and potential of the sector. The analysis of a selected sample of enterprises visited by the mission, however, has allowed it to review the operating modes and constraints of each EMI subsector, and to identify some constraints affecting the whole sector as well as the production lines where Tunisia could have an advantage in import-substitution and/or export promotion. The mechanical industries will be examined first in Chapter IV followed by the electrical and electronic industries in Chapter V. The sub-sector's SSIs will be treated separately in Chapter VI because the problems of SSIs are generally of a special nature, and depend more frequently on their size than on the subsector in which they operate. 1/ International comparative studies indicate that, as a rule of thumb, there is in the EMI sector an elasticity of about 1 between the produc- tivity of the overall labor force of the sector and the share of engineers in the labor force. Thus the number of engineers should increase at the same rate as the sector's output, whatever the increase in labor produc- tivity may be. - 23 - CHAPTER IV: MECHANICAL INDUSTRIES General Patterns and Issues 4.01 A detailed review and analysis of the 7 major subsecto-s of Tunisia's mechanical industries is given in Annex II. The following paragraphs will focus on the salient points and patterns emerging from this review and provide an overall perspective of the mechanical industries' operations and prospects. Table 4.01 summarizes the structure of production costs and prices of the major products manufactured by twelve mechanical enterprises in Tunisia. This information and the mission's findings from plant visits highlight three major patterns: (i) mechanical industries rely on imported inputs and generally show a low degree of intra-sectorial integration; (ii) the production lines with higher labor intensity are generally less protected, more competitive with European imports, and less burdened by taxes and duties; and (iii) utilization of capacities is generally low. 4.02 The manufacturing of end-products in Tunisia relies significantly on assembling imported inputs, with little integration and complementarity between intermediate and end-product manufacturing. Moreover, the low content of labor (5 to 15% of output value) and the substantial amount of duties and taxes on inputs (20 to 25% of output value) have resulted in uncompetitive prices. To protect domestic production, substantial import duties had to be imposed on imported end-products which are also manufactured in Tunisia (30% and above, and up to 160% for automobiles). Other factors inhibiting price competitiveness have been the low degree of capacity utilization (about two-thirds) and the small size of firms because of the size of the domestic market. 4.03 Prices of intermediate and capital goods (except assembled engines) are generally 10 to 30% above European FOB prices and appear more competitive than end-products. Several factors may account for this. First the tech- nologies used are more labor-intensive and make greater use of Tunisia's labor cost advantage; labor cost represents 20 to 45% of output value, and up to 63% in ship repair. Second these technologies rely less on imports and more on local products, which entails a smaller payment of taxes and duties on inputs (5 to 13% of output value). Finally, the low protection given in practice to local intermediate and capital goods, which are in competition with similar imports 1/, constitutes an effective incentive to choose appropriate tech- nologies and to operate efficiently. However, it should be noted that prices in these production lines could be further reduced through a revision of the tariff and tax structures designed to reduce the amount of taxes embodied in products entering investments. 1/ These imports are allowed to enter free of duties in all investments agreed upon by API under the Investment Codes. TABLE 4.01: STRUCTURE OF COSTS AND PRICES IN SELECTED MECHANICAL INDUSTRIES - 1977 (in percent) Capital Goods Intermediate Goods End-Products Non-Assembly Assembly Machine Automotive Activities 1/ Activities 2/ Foundries Job Metal Products 3/ Industry 4/ Imported Materials 16-24 5/ 60 7-26 5/ 20 42-51 5/ 30-50 5/ Local Materials and 24-35 6 28-32 38 8-16 14-24 Services Indirect Taxes/Duties 10-13 23 6-13 9 17-25 20-24 Labor 23-63 6 24-44 31 6-15 8-10 Capital Returns 10-21 5 8-12 3 6-15 4-15 Ex-Factory Price 100 100 100 100 100 100 V.AlOutput 48-59 34 42-65 43 38-49 36-45 1 Ex Factory Price/ FOB European Price 90-120 155 120/130 110/120 110-140 160-200 X Nominal Protection 50(4) 6/ 46 15(4) 6/ 40 21-27 51-160 Net Protection 7/ [-l0,+l0] +32 [+7,+20] [+l,+l0] [+13,+23) 8/ (+40,+761 Source: Appendix IV-1 1/ These are essentially steel structure/plateworks and shiprepair enterprises. 2/ These are engine assembly activities. 3/ They comprise: steel pipes, metal containers, cutlery, hardware productions. 4/ They comprise: auto assembly and truck components enterprises. 5/ It is noted that these values are actual data applicable only for the firms visited by the mission. They do not therefore represent a range of values for the activities in question. 6/ Figures in brackets refer to the level of protection for equipment and intermediate goods entering authorized investments. 7/ Net protection defined as ex-factory/european price minus 1 minus indirect taxes and duties. 8/ Except for cutlery/hardware which operates with a net protection of -10%. - 25 - Issues, Prospects and Recommendations for Mechanical Industries 4.04 Steel Fabrication and Platework has been a growing subsector of the mechanical capital goods. Existing capacity, totalling 50,000 tpy and operating on average at about 60%, is sufficient to meet traditional domestic requirements up to 1985. Locally produced equipment has little protection against imports, but it incorporates duties and taxes on imported inputs representing 7-8% of total price, and therefore is penalized by a de facto negative protection. Despite this and other disadvantages related to procure- ment of steel products 1/, local products have a reasonable quality and competitive prices relative to European imports, due to the lower overall cost of labor (one-third of the European average) which more than offsets the fiscal disadvantages and the lower productivity of labor (about half that in Europe). The equipment used in Tunisian steel work activities is sometimes of advanced technology (numerical control machines), perhaps to compensate for the scarcity of highly specialized labor capable of performing complex manual operations on simpler machines. The subsector priority objective over the next years should be to improve the utilization of existing capacities, with marginal complementary investments when necessary to enlarge the product mix, and develop subcontracting links and exchanges of experience with foreign suppliers for the domestic market and possibly for neighboring North African and Middle East markets. To achieve this, the mission recommends that a comprehensive study of the subsector be undertaken by CNEI to (i) survey existing production facilities and make recommendations for rationalizing production; (ii) assess future domestic market requirements and imports; (iii) revise existing incentives to encourage foreign suppliers to subcontract to local firms on the local market and possibly on neighboring markets in the longer run; and (iv) identify on the basis of a detailed review of Tunisian imports (Appendix IV.2) 2/ new product lines requiring little additional investment, such as industrial boilers and furnaces, steel structures for cranes and other lifting equipment for the domestic market. In addition, the possibility of organizing coordinated central procurement of primary steel imports on behalf of interested small and medium firms should also be explored, preferably through the "Groupement" of mechanical industries. 4.05 Ship-repair is based on SOCOMENA's facilities for vessels up to 60,000 dwt. Its prime location on the Mediterranean Basin, the low level of wages (which account for 50-60% of costs in this activity), the compre- hensiveness of its services, and the availability of infrastructure and equipment at low cost have enabled SOCOMENA to enter successfully in the international market. SOCOHIENA is investing heavily in training its labor 1/ Because of the small size and heterogeneity of requirements and orders, prices of steel products are 10-15% higher than international prices and enterprises maintain large costly inventories. 2/ Appendix IV.2 is given for illustrative purposes mainly. The recommended review of imports should be based on detailed statistics of imports classified into subcategories at a more disaggregated level than those available to the mission. - 26 - force, and in acquiring highly skilled labor; however, it will also need to renew and modernize gradually some of its old equipment. The company's best strategy is to undertake modernization investments in line with the building up of the experience of its work force, and of its reputation in the market. The mission recommends that consultants be hired by SOCOMENA to study its existing facilities, to investigate its market opportunities and requirements, to formulate a long-term investment program and to prepare the necessary technical feasibility studies. 4.06 Mechanical Works (fabrication and maintenance of capital goods and of their components and parts) in Tunisia are at a very early stage of development, and scattered over a number of relatively small specialized firms and of workshops in larger enterprises. The main mechanical operations in existence are machining and assembly, with generally too many common machines and too few specialized ones. Other activities are mainly the assembly of small diesel engines for irrigation pumps and fishing boats (SOTRIO) and of pumps and compressors, combined with the machining of some simple parts based on local castings. The share of labor cost in output value is generally low (5 to 10%), except in specialized machining enterprises where it is up to 30%7 Machining enterprises are operating competitively without protection; they could develop further their activities in closer integration with the other mechanical industries for specialized jobbing work. The lack of sectorial integration, by restricting the size of the domestic market for machined parts, has been the most serious constraint on the development and the viability of these activities. 4.07 Within the group of simple technology capital goods currently being imported (Appendix III-5) there are two categories that offer potential for developing existing and new product lines. First, there are goods for which the domestic market is large enough to sustain economic operations; this category includes industrial boilers and furnaces ($5.8 million imports p.a.), agricultural implements ($4 million imports p.a.), simple earth-moving equip- ment and lifting/hoisting machinery ($33 million imports p.a. for each) and pumps and compressors ($9 million imports p.a.). The second category comprises mainly engines and their components and parts ($25 million imports p.a.), for which the insufficient domestic market must be complemented by exports (between 30 and 50% of production). In this case, foreign partners can provide an entry into foreign markets and the necessary know-how. 4.08 The Tunisian authorities are now trying to develop the second category, with the expansion of the existing SOTUMO plant and the envisaged creation, with a foreign partner, of a major "mechanical complex" at a cost of about $86 million. The complex would produce some 6250 diesel engines, 2200 tractors and 700 agricultural machines for the domestic market. A commitment by the foreign partners to ensure a substantial amount of exports is necessary for the economic viability of these two projects because only higher volumes of production would justify economically the local production of final products as well as of the parts and components (machined castings) to be integrated therein. The outcome of ongoing negotiations with the foreign partners is crucial for other projects as well. The production of engines at competitive prices could lead to a substantial increase in the intra-sectorial integration - 27 - by incorporating such engines in the production of the major items identified in the first category (pumps and compressors, small earth moving and lifting/ hoisting equipment; see para. 4.07). If negotiations for the export of engines are unsuccessful and these projects are nevertheless implemented, the output would need high protection (between 50 and 70%) and the present objec- tives to develop and achieve substantial economic integration within the sector 1/ would be jeopardized. 4.09 The mission recommends that a study of the mechanical fabrication activities be undertaken by CNEI and CEPEX with the following objectives: (i) to carry out an inventory and review of existing capacity and assess the domestic market; (ii) to recommend investments for modernizing and expanding existing machine shops for maintenance and repair work of industrial equipment; (iii) to identify on the basis of a detailed review of imports (Appendix IV.2) new product lines for the domestic (and possibly foreign) markets, such as agricultural implements, pumps and compressors, small earth-moving and con- struction equipment (cement mixers), solar water heaters, lifting/hoisting machinery; and (iv) to recommend revisions or additions to the incentive system encouraging partnerships serving both the domestic and foreign markets. With respect to the mechanical complex, a project team of engineers and economists (hired from abroad if necessary) with experience in production of diesel engines should be established by the Government and BDET to conduct or resume the negotiations with the foreign partners on the exports arrangements. 4.10 Mechanical and Metal Intermediate Products form the most important activity of EMIs, comprising the steel mill, the iron/steel and lead foundries, and the production of some major metal products (pipes, cans, parts and hardware). The steel mill of El Fouledh covers 70% of the domestic demand for primary non-flat products (construction rods/bars, profiles, wires); the consumption of flat products (fully imported) represents only 20% of the total demand for primary steel products, given the early stage of development of other EMI subsectors. Demand for flat products is not expected to reach a level which would justify a new project in the near future, and the best strategy is therefore to import flat products at the lowest price, possibly through a central procurement body. 2/ A project for a direct reduction steel mill with a capacity of 400,000 tpy 3/ has been shelved temporarily until the local market expands. 4.11 The foundry operations, contributing only 3% to total EMI output, are weakly integrated within the whole EMI subsector and need particular 1/ Integration of machined castings into engines, and of the latter into equipment goods which will remain subject to full competition with imports and will thus have to be produced at competitive prices. 2/ See Footnote 1 of para. 4.04. 3/ The size is reasonable, and the technology appropriate in view of the likely availability of gas to Tunisia at a relatively low price. - 28 - attention if they are to become, as they should, a backbone of the develop- ment of EMIs. Tunisian foundries, dominated by two public enterprises which account for 90% of the national capacity and output of castings, produce low grade simple castings of iron and steel in small series for varied uses on the domestic market (construction sector, mines, cement and railways, EMIs). Raw materials, which account for 25-50% of the value of output, are largely imported, including pig iron. 1/ The cost of labor, representing 25-40% of the value of output, is low by European standards, but labor productivity is equally low due to old equipment and technical inefficiencies. Low grade iron castings for the construction sector are produced at competitive prices, but better grade or steel castings are up to 20% more costly than European imports. Imported castings used in capital goods for approved investments pay a 3% custom duty compared to the 6-12% paid by local foundries in taxes and duties on their imported inputs. Thus, because of the price and quality advantages of imports, Tunisian industries have not favored the purchase of more local castings, and production has stagnated at about 6000 tpy, representing on average 65% of capacity. Besides the limited size of the domestic market, another constraint on the development of the foundry subsector has been that local firms have found it difficult to adapt to new casting technologies (spheroidal iron) and to substitute further for imports of spare parts and semi-finished products which have amounted to about 12,000 tpy. 4.12 Tunisian foundries need to invest about D 11 million in modernizing their plants, improve sand quality, improve their management and labor skills through training, increase the rate of utilization and use foreign technical assistance. Labor productivity could then be increased, quality standards improved, production costs lowered to 85-90% of European costs; and, in the longer run, production oriented towards exports. 2/ Given the present trend of transferring foundries from developed to developing countries, geographical proximity to Europe gives Tunisia a potential advantage for the export of heavy items, provided that adequate transport facilities are established. With investments to modernize and foreign advice, local production could reach some 20,000 tpy by 1982-1983, including 6,000 t which would substitute for castings presently imported and 4,000 t of automobile castings linked to the implementation of the mechanical complex for diesel engines and tractors (see para. 4.08). The additional capacity requirement of 10,000 tpy capacity would justify the expansion of the two major foundries which could then be brought to an efficient size. Taking into account the recent decisions of the Tunisian authorities with respect to the distribution of production and tasks in the two foundries, and in order to ensure an efficient scale of operations in each foundry, the mission recommends that external assistance be obtained to prepare 1/ El Fouledh pig iron cannot be used by foundries, because of its chemical content and unsuitable physical characteristics. 2/ SOFOMECA used to export during 1972-1976 more than 1,000 tons of iron and steel castings p.a. to other North African countries and to France under subcontracting arrangements. - 29 - a study with a view to assess: (i) the demand of castings of various types (including spheroidal iron) in the consuming industries; (ii) the possibilities of efficient substitution for presently imported castings 1/; (iii) the possibilities of exports to EEC and neighbor countries; (iv) the facilities of SOFOMECA and the investment program required for its modernization and new product mix; (v) the planning of production transfers and of expansion in each foundry; and (vi) the concrete measures necessary to encourage and protect the subsector. The mission recommends that SOFOMECA be expanded to 10,000 tpy in a first phase; the second major foundry should be expanded only if and when the mechanical complex is implemented. 4.13 The Metal Products currently manufactured in Tunisia (tubes and pipes, cans and containers, general hardware, hand tools) are characterized by the heterogeneity of products and their similar manufacturing operations (forging, forming, pressing, stamping). The degree of backward integration in this subsector has remained quite low so far (see Table 4.01). The subsector is dominated by three large enterprises. The first two, producing cans and tubes/pipes for the domestic market only, invested in highly automated equip- ment on the mistaken assumption that the high efficiency of automated opera- tions would compensate for the uneconomic size of their markets. This resulted in an excessive capacity, an inappropriately low share of labor in output value (6 to 10% only), uncompetitive prices and a level of protection of 20 to 30%. These industries should delay their present expansion plans and increase/ adapt capacity utilization in line with the growth of their domestic markets. The third major firm (AMS), on the other hand, has taken advantage of available cheap labor in its major production lines (hand tools, hardware, fittings, fasteners, cutlery) which seem to be competitive with imported goods. In particular, cutlery is produced under a technical license with a foreign firm which supplies know-how and equipment and purchases a large part of the production for export at very competitive prices. This successful approach, which allows Tunisia to compensate for its lack of marketing organization and market name abroad, should be adopted for the other metal products (hand tools, hardwares, sanitary fittings). These products have been imported by the EEC in increasing quantities in recent years (Appendix IV.3) and could be produced in Tunisia by export-oriented SSIs under Law 1972-38. 2/ 4.14 The Automotive and related Industries, which constitute the major EMI subsector producing mechanical end-products, has been growing quite rapidly since 1972, due to an expansion of capacity to meet the demand on the heavily protected domestic market, and now represents more than 20% of the 1/ The market study should select for detailed review all imports of cast- ings and parts with a unit value lower than a level corresponding to the technologies and know-how within the reach of local foundries and machining shops in the next few years. In Appendix IV.2 this level was set at D I per kilogram, for illustrative purposes. 2/ Two such enterprises producing hand tools and other metal products have already been established by foreign firms. - 30 - EMI's output. The subsector is centered on STIA which assembles various types of cars, buses, and trucks, and on SICAME which assembles components for trucks, trailers and other industrial vehicles; the degree of domestic inte- gration in assembly of new vehicle fleet has been low. The automotive acces- sories industries (batteries, brakes, lamps and lights) have been producing essentially spare parts for the existing vehicle fleet (about 200,000 units) rather than inputs for STIA and SICAME. Due to serious problems affecting the subsector (excessive diversification of product mix, inefficient organization and management and low utilization of capacities--see Chapter IV of Annex II), productivity has remained low, and costs of production have been up to 50% higher than in Europe, thus necessitating the high degree of protection enjoyed by the subsector. The excessive diversification of production in small runs has also discouraged any effort in engineering adaptation and standardization of parts and components for possible local production; the major inputs (CKD and SKD kits) and most parts and accessories continue to be imported, and value added at international prices is probably very small. The subsector urgently needs, before implementation of the planned expansion, that clear objectives and strategies be defined with respect to the rationalization and consolidation of the subsector's activities, to the standardization of its product-mix, and to the possibilities of exports of local parts in compen- sation for imports of CKD/SKD kits. Rationalization of the product mix and agreements with foreign partners to assure the export of part of the Tunisian production would facilitate the establishment of joint ventures for domestic production, at reasonably competitive prices, of accessories such as rims, shock absorbers, mufflers, wipers, filters, break pedals and drums, horns, radiators, and possibly starters and carburetors. 4.15 The mission's specific recommendations are for CNEI, in cooperation with API, CEPEX and BDET, to: (a) undertake a study of the automotive industry with a view to define objectives and make recommendations with respect to: rationalizing and standardizing the product mix; quality control of local parts and accessories; integra- tion rates at the factory and sector levels; engineering adaptation; and export possibilities for local parts under special agreements with the suppliers of imported CKD/SKD kits; (b) review the demand projections for dump and container trucks and reassess the justification and viability of the contemplated expansion of the truck assembly plant; (c) undertake feasibility studies of the proposed proj- ects for the fabrication of automobile accessories such as rims, shock absorbers, filters, horns, mufflers, and begin to identify foreign partners to provide know-how and foster exports; (d) review the needs for assistance to the automotive industry in modern processes and technology, rational- ization methods and production organization; - 31 - (e) study the possibility to create small enterprises with European partners providing know-how and marketing organization for the production and exports of metal products such as agricultural and mechanical hand tools, hardwares, sanitary fittings. This study should identify the potential markets in the EEC on the basis of a review (at a finely disaggregate level) of the statistics of EEC imports of EMI products from developing countries; 1/ and (f) explore, preferably through the "Groupement" of the mechanical industries, the possibility of establishing a procedure for central procurement of primary steel imports. 1/ These statistics indicate that EEC imports of metal tools and metal products have been growing rapidly in the recent years (Appendix IV.3). - 32 - CHAPTER V: ELECTRICAL INDUSTRIES General Patterns and Issues 5.01 Table 5.01 summarizes the structure of production costs and prices of the main electrical products manufactured by ten enterprises in Tunisia. It highlights the following characteristics of electrical industries: (i) the heavy reliance on imported inputs and components (accounting for 60 to 80% of output value) and the quasi-total absence of intrasectorial integration (see item "Local Materials" in Table 5.01); (ii) the generally low domestic value added which essentially represents direct labor cost and reflects the predominance of assembly activities; and (iii) the weight of indirect taxes and duties on production lines with higher domestic value added due to their use of heavily taxed domestic inputs. It should be noted also that large electro-mechanical capital goods have production characteristics similar to mechanical capital goods, while electronic and small electro-mechanical goods are characterized by different production patterns, essentially the assembly of imported semi-finished inputs. - 33 - Table 5.01: STRUCTURE OF COSTS AND PRICES IN SELECTED ELECTRICAL INDUSTRIES - 1977 (in percent) Consumer Durables Small Large Household Capital Intermediate Household Appliances & TV/Radio Cost Item Goods Goods /1 Appliances Transformers Assembly Imported Materials 27 50-62 /3 40 81 /2 73-87 /2 /3 Local Materials and Services 16 ( 21 ( ( 5-23 ( 2 1-6 ( ( Indirect Taxes 22 ( 23 ( Labor 19 5-11 5 8 4-8 Capital Returns 16 10-28 11 9 8-15 Ex-Factory Price 100 100 100 100 100 VA./Output 57 15-37 39 18 12-23 Ex-factory Price/ European FOB Price 100/110 90-120 110 125 120-130 Net Protection /4 [-22,-12] n.a. -13 n.a. n.a. /1 These include Cables/Wires, Batteries, Electric Meters. /2 These figures probably include also indirect taxes. /3 See footnote /5 of Table 4.01. /4 See footnote /7 of Table 4.01. Source: Appendix V.1. Issues, Prospects and Recommendations for Electrical Industries 5.02 Similar to mechanical industries, the firms producing electrical capital goods in Tunisia (transformers and small motors) and large household appliances have practically no protection. They pay substantial duties and taxes on their imported and local inputs, and the prices of the major output (transformers) are fully competitive on the domestic and neighboring markets (where most of its sale contracts to public utilities are obtained through international competitive bidding). The advantages of the enterprise produc- ing transformers are geographical proximity and the lower cost of labor (which accounts for 20% of output value, compared to 25-45% in developed countries in this type of industry where electrical winding cannot be fully automated and requires substantial amounts of labor). With the assistance of its foreign partners, the industry has acquired a good level of labor skill and know-how, - 34 - and now plans: to expand its capacity for further exports, to enter new tech- nologies (Aluminum winding), to manufacture higher power equipment, 1/ and to open new production lines for switchboards and switchgears. The development of exports from this industry with established potential will depend on market investigations and opportunities, and also on the availability of adequate transportation facilities and services for the heavy equipment it produces. 5.03 Other existing electrical industries have labor costs ranging between 5 and 10% of output value (as compared to 20 to 30% in similar indus- tries in developed countries), and the share of value added in output ranges generally from 15 to 30%. One industry (automobile battery manufacturing) is based on a domestic resource (lead), and all others rely heavily on imported materials and components. Imported inputs and components are generally expensive by international standards for reasons similar to those applying to steel products. 2/ The organization of production is generally characterized by weak coordination of workshops and poor lay-outs, and by the absence of initiatives to adapt and improve the technological schemes and production processes initially provided by the equipment or license suppliers or the foreign partners. Their output prices are 10 to 30% above European prices, despite the labor cost advantage, due largely to the inefficiencies in produc- tion organization and component procurement. 5.04 Little information is available on the sixteen export-oriented electrical industry firms benefitting from Law 1972-38, which were attracted by Tunisia's comparative advantages (geographical proximity to Europe, trade facilities and agreements with the EEC, favorable social climate for investors, and lower cost of labor). These firms operate fully under foreign licenses and processes and they restrict their activities generally to mere assembly of imported components supplied by parent companies for the fabrication of intermediate and end-products (cables, electronic components, radios and TV sets) destined to captive markets in Europe. There is little local integra- tion of their activities. In effect, because of their contractual arrange- ments with parent companies, these firms do not purchase electro-mechanical hardware from local manufacturers. Furthermore, the rigid application of the fiscal provisions of the law regulating the exchange of goods and services between resident and off-shore companies tends to discourage them from selling locally part of their production of intermediate goods. 3/ Nevertheless, these firms have clearly demonstrated that Tunisian labor constitutes an 1/ The mission recommends that the industry expand its capabilities for motors up to 38 kw and transformers up to 10 and 20 MVA (2 MVA presently). 2/ Lack of information on suppliers, small size and heterogeneity of require- ments and orders, purchase of expensive CKD kits ready for assembly. 3/ It seems that part of their exported production of electronic components is reimported back to Tunisia, through complex channels, at higher prices to the resident enterprises. - 35 - advantage in producing electronic goods at competitive prices 1/ provided that efficient technologies, procurement policies and production organizations are put into effect. Their experience should be reviewed and followed by Tunisian manufacturers. 5.05 Electrical industries employ a high proportion of labor and an insufficient proportion of commercial staff and of engineers and technicians (5% on average), despite the increasing availability of such staff in Tunisia. Protection and pricing policies for end-products do not encourage domestic enterprises to enlarge their market to diversify beyond assembly activities, or make simple adaptations and improvements to their processes and products. However, some new local enterprises (in TV assembly) have initiated or are envisaging basic Research and Development (R and D) to develop their own designs, improve product quality and establish their brand name and market image. This trend could be encouraged by adequate fiscal incentives. 5.06 The contribution of electrical industries to the development of EMIs could be expanded and complemented in the next years by some new projects or plant extensions; a number of these projects were identified in a preliminary way by the mission on the basis of the domestic and exports market potential. These projects, which require further study, should preferably be implemented under various forms of foreign assistance and cooperation. Their basic characteristics are summarized in Table 5.02. 1/ Typically in Europe, the share of labor in output value is about 40%, and that of direct labor in total labor is 70-80%. The cost of labor in Tunisia allows well-managed enterprises with labor productivity similar to that in Europe to reduce total production costs by 15 to 25%. - 36 - Table 5.02: CHARACTERISTICS OF SUGGESTED PROJECTS IN ELECTRICAL INDUSTRIES Market Output Invest. (D=domestic) Foreign A Description (D Millions) Employment (Ex-exports) Assist. 1 - Electrical Capital Goods Motors 38 kw (poly/mono-phased) 2 0.5 300 D+Ex LTPC Transformers 10 and 20 MVA n.a. n.a. n.a. D+Ex Lc. Switchgear/boards equipment 10 2 900 D mainly LTPC/JV Lifts and other lifting equipment ----------To be studied (feasibility)---------- 2 - Electrical Consumer Goods Electrical Hardwares /2 (by 5 SSIs) 10 2 1,300 D+Ex TA/LTPC Small household appliances /3 0.5 0.1 50 D mainly T.A. 3 - Electronic Capital Goods Telephone Equipment (receivers first, switchboards later) 6 2.5 400 D mainly LTPC 4 - Electronic Intermediate Goods Diversify production of existing enterprises through integration of local accessories /4 ----Comparative Advantages - To be studied----- /1 Forms of Foreign Assistance: Lc:License; JV:Joint Venture; TA:Technical Assistance; LTPC:Long-term Production Cooperation. /2 Switches, circuit breakers, fuses, plugs, /3 Hair dryers, coffee grinders, ... Production of 50,000 to 100,000 units p.a. The project would require a strict organization of operations and full integration from winding to assembling. /4 Antennas, printed circuits, cooling boards, casings, small transformers, resistors, fuses, switches. 5.07 The mission's specific recommendations for the electrical industries are as follows: - 37 - Procurement matters: (a) disseminate information on products of local suppliers and exporting enterprises benefitting from Law 1972-38; (b) review and adjust downwards the taxes and duties levied on inputs going into capital goods, as well as the protection on consumer products (paras. 5.02 and 5.03); (c) explore the possibility for creating small channels of central procurement of electronic components from abroad, specialized by type of products; and (d) revise the fiscal provisions to facilitate the exchange of goods and services between resident and export enterprises. Foreign technology and investments: (e) encourage technology transfers from export firms under Law 1972-38, in particular by undertaking a study (by API preferably) and their technologies, procurement methods and production organizations; (f) encourage specifically joint ventures providing techno- logical integration and transfer and possibly arrangements with the foreign partners for the export of part of their production; and (g) encourage the introduction in all partnership contracts of long-term production cooperation arrangements. Research and Development: (h) develop information channels on technological changes in other countries; and (i) encourage through appropriate incentives (mainly fiscal) creation within enterprises of study and development units to work in liaison with the Universities and Engineering Schools and their laboratories. Preparation of Projects: (j) focus, especially for API, during review and approval of projects, on the quality of production organizations, the technical capabilities of project sponsors, and the con- tent of cooperation agreements with foreign partners regarding possibilities to adapt and improve technological schemes and production processes. - 38 - CHAPTER VI: SMALL-SCALE EMIS 6.01 A detailed review and analysis of the SSIs in the EMI sector is given in Annex III. The following paragraphs focus on the salient points and patterns emerging from this review, and underline the major issues affecting the sector's SSIs. General Characteristics and Performance 6.02 SSIs employing under 50 workers and small workshops constitute a major source of employment in the EMI sector (43% of total labor force). SSIs are especially active in mechanical works and metal products, where they account for more than half of the employment and one-third of value added. Despite the very diversified nature of their product mix, small EMIs can be classified, on the basis of their functions, as follows: Group a: consists of SSIs producing intermediate and end- products that are also manufactured by larger firms. These SSIs are mostly found in steel structures and platework, principally producing and/or servicing on order. Their production methods are artisanal, with generally traditional or archaic equipment and only occasionally with any modern machinery. Group b: consists of SSIs producing standard intermediate or finished goods such as simple castings and electrical goods as well as small metal products (nails, nuts and bolts, screens, locks, cutlery). These SSIs operate with modern equipment and technology, except for some foundries which are of artisan type and work generally on order to meet localized demand for spare parts. Group c: SSIs producing in small series capital goods of a relatively complex nature for specific local uses. These firms are found mainly in mechanical works, ranging from machining and/or assembling simple agricultural implements (plows, pumps) to produc- tion of small construction equipment (wheel barrows, small dumpers, concrete mixers). They operate with a mixture of traditional and modern technologies. 6.03 Most of the small EMIs are equipped with old, often fully amortized, machinery which is generally underutilized; (operating rates average 50% in many production lines). They have little access to institutional finance for modernization or to technical assistance in the selection of appropriate technologies or product-mix. The small firms show high degrees of vertical and/or horizontal integration at the firm level, as each entrepreneur strives for self-sufficiency or attempts to enlarge his operation by diversifying - 39 - excessively his production lines. The analysis of the actual allocation and use of production factors in the sector (see Attachment 3 of Annex III) indicates that the production processes in small EMIs have remained labor intensive with low labor productivity; value added per worker in SSIs has been on average 60% of that in large EMIs. However, the productivity is high in some specialized firms of type (c) (small shipyards for fis} ng boats in particular) and some well equipped firms manufacturing metal products. 6.04 Small EMIs are generally facing serious marketing problems, due to the small size of the local market. Other reasons are their inability to produce at a quality and prices and with delivery dates that meet customers requirements. As a result there are few subcontracting relationships with large enterprises. 1/ Nevertheless, some SSIs of type (c) producing on order to cater to specific local needs have acquired their own markets based on their reputation for good and reliable work. 6.05 Prices of most small EMIs' end-products are markedly higher than those of similar imports, due to the low productivity of labor and capital and the excessive prices paid by small EMIs for their raw materials, because of the small quantities involved and the mark-ups by the intermediate agents and the local wholesale traders. Raw materials (mainly steel products) account for an unduly high proportion (50 to 70%) of production costs. Labor, essen- tially composed of unskilled or semi-skilled workers, is paid 25 to 50% less than in large firms, and labor costs as a result represent only 10 to 25% of total production costs, leaving little room for a reduction of costs if productivity is not increased. Finally, small EMIs are technically backward with the result that the engineering adaptation and the project standardiza- tion necessary for economies of scale and quality monitoring have not been undertaken. Development Issues and Prospects 6.06 The small size of the local markets and the lack of tradition among Tunisian entrepreneurs in EMIs which require technical and managerial know-how tend to limit the scope for growth in small EMIs in particular in standard production lines for simple end-products (group b of para. 6.02). Nevertheless, small EMIs with low overhead costs and flexibility of operations have the potential to play a significant role in supporting and complementing the larger industries' activities and have better prospects with manufacturing/ assembling more complex intermediate goods and special products or services to cater to localized needs. Accordingly, small EMIs should shift their activi- ties towards four general areas: (a) production of selected end-products and of intermediate inputs for larger firms; (b) production of specialized goods for local needs.; (c) subcontracting work for larger firms; and (d) maintenance! servicing of consumer goods and of simple equipment. The subsectors where 1/ As reported in para. 4.02, large enterprises also have tended to prefer self-sufficiency in production and to over-integrate at the firm's level. - 40 - small EMIs could contribute most in the above four general areas are the metal and electrical products (provided that firms in these activities do not over-diversify and can find partners for technological transfer), and the automotive related industries (provided that standardization of parts and components and rationalization of product-mix at the national level are adopted--see paras. 4.14 and 4.15). In mechanical works, SSIs can subcontract for accuracy-machining of mechanical parts on universal machines; in steel structures and platework, SSIs have an advantage only for custom-order works (up to one ton weight) and the production of small tanks. Small foundries have an advantage in special custom-order work for local clients (spare parts for renewal or replacement). 6.07 The following specific product lines are considered by the mission to be most promising for small EMIs, subject to removal of the constraints identified in paras. 2.09 and 2.10. (a) Automotive related industries: production of filter, brakes, wipers, rims, shock absorbers, horns; (b) Metal Products: cutlery, agricultural and mechanic small/ hand tools, small tubing structures, sanitary fittings, metallic furniture, door/window frames; (c) Mechanical-electrical activities: machining of intermediate goods, parts, components, and jobbing work for their main- tenance and repair; fabrication of small transformers, switchboards, fixed resistors and condensors, of small mechanical-electrical household appliances such as mixer, coffee grinder, fans, etc., and of small simple agricultural equipment specialized to suit local needs (e.g. special pumps); (d) Steel structure and plateworks: general maintenance/ service works, construction of small containers, boilers, special order structures (e.g. rolling doors), railings, road guards; and (e) Foundry: general maintenance/service works, production of special foundry pieces, and of spare parts. Specific Recommendations for Small EMIs 6.08 In addition to the adjustments to the policy and incentives frame- works required from the Government to remove existing biases in favor of large scale enterprises and to encourage the development and promotion of SSIs (para. 2.11), the mission recommends that technical assistance to small EMIs should give special emphasis to: - quality monitoring, by helping establish quality standards; - assisting SSIs to meet these standards, and advising them on quality monitoring procedures in coordination with the Technological Center proposed in para. 7.07(e); - 41 - promotion of subcontracting between small and large firms and between local and foreign firms, by helping SSIs which have satisfactorily upgraded the quality of their products, obtain and negotiate subcontracts and carry out orders with respect to prices and timely delivery; organization of special extension services and training programs for EMIs' middle level workers to develop and modernize their technical skills; and organization of group-procurement of raw materials (imported steel for mechanical industries) and imported components (electrical industries). - 42 - PART C. MEDIUM-TERM MEASURES AND LONG-TERM STRATEGY CHAPTER VII: MEDIUM-TERM DEVELOPMENT APPROACH FOR THE EMIs Medium-term Objectives 7.01 The comparative advantage of EMIs lie in Tunisia's relatively low cost of labor, a labor force of increasing competence and quality, proximity and preferential access to EEC, and liberal policies toward foreign investment. The EMIs principal constraint is, however, the limited size of the domestic market for their products. The EMI's development depends therefore on the following production/market orientations: (a) more efficient import-substitution for intermediate and capital goods of simple or intermediate technology; (b) import-substitution with some dependence on export mar- kets (through buy-back arrangements with foreign partners) for selected capital goods; and (c) primarily export-orientation for a selected group of EMI products. A strategy based on the simultaneous development of these orientations will be needed to generate a demand of sufficient size to allow more efficient and competitive production. Medium-term Investment Program 7.02 There is at present, however, no official development strategy for the EMIs. This lacuna has resulted in the lack of clearly defined and integrated investment program for the EMIs, which, coupled with the limited capacity of the institutional framework to identify and prepare projects, has made it difficult to identify a sufficient number of concrete projects to meet the investment targets set in the Plan (see paras. 2.07 and 2.08). Because of lack of coordination between the various Tunisian institutions involved in the EMI sector, there does not exist a single official list of projects "in the pipeline" (i.e. under preparation and implementation) that is exhaustive. The mission estimates that the ongoing investment program for EMIIs during the period 1979-1982 consists of 22 identified projects, mainly in the public and semi-public sectors, for a total investment of D 105 million, including D 51 million for automobile and engine assembly activities (Appendix VII.1 for details). In addition, the mission has identified some 10 produc- tion lines and projects which it suggests for further investigation. These suggested projects, which could be added to the list of identified projects after further feasibility studies, would represent an additional investment of about D 33 million over the period 1980-1983. The distribution of these projects and investments by major subsectors of the EMIs is listed in Table 7.01. - 43 - Table 7.01: INVESTMENT PROGRAM FOR EMIs DURING 1979-1983 Number of Projects Investment (D Millions) Identified Suggested Identified Suggested I. Mechanical Capital Goods 5 4 45.0 /1 15.0 Intermediate Goods 4 1 15.2 2.5 End-Products 5 1 23.2 /2 5.0 Total Mechanical Industries 14 6 83.4 22.5 II. Electrical Capital/Intermediate 6 3 16.9 8.5 End-Products 2 1 4.9 2.0 Total Electrical Industries 8 4 21.8 10.5 TOTAL EMIs 22 10 105.2 33.0 Total (combined programs) 32 138.2 /1 Including D 36 million for the "mechanical complex" (para. 2.17). 12 Including D 15 million for the expansion of the automobile assembly. Source: Appendix VII.1. 7.03 The above investment program can be related to the production objectives stated in para. 7.01 as follows in Table 7.02: - 44 - Table 7.02: CATEGORIES OF EMI INVESTMENT PROJECTS IN THE PIPELINE /1 Identified Suggested Total Project Orientation- No. D Million No. D Million No. D Million % 1) Efficient Import-substitution 4 9.0 6 18.5 10 27.5 20 2) Import-substitution with some dependence on export markets 3 47.3 3 9.5 6 56.8 41 3) Primarily export- oriented 3 8.0 1 5.0 4 13.0 9 4) Others 12 40.9 _ - 12 40.9 30 22 105.2 10 33.0 32 138.2 100 /1 Classification based on mission's assessment from field visits. Source: Appendix VII.1 Thus, based on the mission's preliminary assessment on the basis of field visits, there appears that ten projects out of the 22 identified projects could fit into the proposed development strategy for EMIs in Tunisia. This would represent 61 percent of the total identified investments. 7.04 Out of the 12 "Others" projects, four projects (D 22 million) appear difficult to justify economically (expansion of automobile and motor assembly lines, expansion of production lines for cans and electric cables), and six other projects (D 16.5 million) require solid technical preparation and feasibility studies to establish firmly their market and economic justifi- cation (expansion of production lines for automobile batteries and household appliances; new projects for aluminum packing and fabrication of vehicle axles, batteries and motor filters). Furthermore, the implementation of two projects (the mechanical complex and the associated foundry) totalling D 45 million should be contingent on the outcome of negotiations with the foreign partners of the diesel engines project to assure the exportation of part of the new plant's production (see para. 4.08). Pending supporting feasibility studies and adequate technical preparation, the remaining ten already identi- fied projects may be considered prima facie as bankable projects. Of these, four would substitute for imports, three would produce partly for the domestic market and partly for exports, while three would be primarily export-oriented. 7.05 The ten projects suggested by the mission focus mainly on capital goods where Tunisia's competitiveness, efficiency and potential are higher than in end-products. They consist of the following: - 45 - in mechanical capital goods oriented toward import- substi- tution: optimising investment in existing facilities in steel structure and platework (including fabrication of boilers, steel structures for cranes and other lifting equipment), fabrication of pumps and compressors, expansion of facilities for railroad freight cars, accelerated moderni- zation and expansion of SOCOMENA's shipyards (see paras. 4.05 to 4.07); in other mechanical goods: fabrication of various automobile accessories for the domestic market (see para. 4.14); - diversification and modernization of hardware production lines oriented for exports (see para. 4.13); and - in electrical capital goods: fabrication of larger electric motors, fabrication of switchboards/gear and distribution equipment, assembly of telephone switchboards (see para. 5.06). The first two of these projects, would be based on the domestic and export markets while the third would be based only on the domestic market. Medium-term Recommendations 7.06 The brief review of the major subsectors of the mechanical and electrical industries made above indicates that some of these subsectors offer potential and opportunities for further development on the domestic and export markets. However, the structure and operations of these subsectors need to be further studied and rationalized before their potential and investment oppor- tunities can be harnessed. A long-term strategy for the development of the Electrical and Mechanical Industries is needed, and its elaboration may require several years. Chapter VIII proposes a possible approach to work out an appropriate strategy. Meanwhile, various short and medium-term measures need to be studied and implemented. 7.07 The design and preparation of a long-term strategy for the mechanical industries must be based on institutional and policy measures designed to increase the efficiency of the subsector. In addition to the recommendations specific to each EMI subsector discussed in Chapter IV, V and VI, the mission's general recommendations in this respect are as follows: (a) revise the tariffs and the indirect tax structure affecting the EMIs, on the basis of studies (in particular of the effective protection in the EMI subsector), aiming at lowering the protection enjoyed by firms producing EMI end-products and at eliminating the negative protection on industries producing intermediate and capital goods; (b) enforce more flexibly the regulations of the Investment Codes for local and foreign investors (Laws 74-74 and 72-38) regarding the taxes and duties levied on inputs going into export goods; - 46 - (c) revise the objectives of these codes to encourage actively EMI enterprises and investors to: - seek partnerships with foreign firms and identify export markets (Law 72-38 enterprises) or look for export oppor- tunities (resident enterprises); - specialize in labor-intensive processes and avoid excessive vertical and horizontal integration at the enterprise's level; - intensify inter/intra-sectorial linkages, in particular between local and export-oriented firms and between public and private firms; - undertake maintenance investments and works system- atically; and - implement commitments for employment creation as specified in the approval documents. (d) Create a Sectorial Task Force (STF) 1/ for: - coordination of the activities and resources of all institutions; - preparation of the long-term strategy and identifica- tion of production lines with export potential; - vigorous prospecting for foreign markets and partners; - preparation of strategic public projects; and - study of the subsectorian recommendations proposed in Chapters IV, V and VI. (e) study and prepare the creation of a "Technological Center" for the mechanical industries with the aim of overcoming the weak- nesses in engineering adaptation and in standardization and quality control which are a serious handicap for the develop- ment of efficient operations and inter-enterprise linkages. This "Technological Center" should gradually fulfill the following functions: - establishment of norms and standards for Tunisian products; 1/ To be composed of representatives from the Ministry of Industry, Ministry of Planning, API, CNEI, BDET, Centre de Promotion des Exportations (CEPEX). - 47 - - quality control for local mechanical products; and - provision of technical assistance in technological choice and adaptation of equipment and production processes, operations organization and management, and identification and selection of foreign partners. 7.08 The preparation and implementation of these recommendations and studies will require substantial strengthening of the resources of the institu- tions which the mission proposes should constitute the STF, in particular CNEI, CEPEX and BDET. Provided that additional assistance (foreign experts and consultants, UNIDO) are made available to these institutions, most of the subsectorial tasks recommended in Chapter IV could be tentatively allocated to the STF participants, as follows: - study of steel structure and platework subsector (para. 4.04) = CNEI; - study of the mechanical works subsector (para. 4.09) = CNEI and CEPEX; - study of transport constraints on exports of heavy materials such as castings (para. 4.12) = CEPEX; - study of the automotive industry (para. 4.15(a) and (b)) = CNEI; - feasibility study of projects for fabrication of auto- mobile accessories (para. 4.15(c)) = CNEI, CEPEX, API and BDET; - study of possibilities for creation of small metal pro- ducts joint ventures with European partners (para. 4.15(e)) = CNEI and API. - 48 - CHAPTER VIII: A SUGGESTED APPROACH FOR DEVELOPING A STRATEGY FOR EMIs Long-term Objectives 8.01 The structure of the international economy gives to developing countries an advantage in one broad family of industries where the major determinant of the total cost is the labor cost. These industries produce multiple products composed of standard items and requiring stable and easily adaptable technologies and large amounts of unskilled and semi-skilled labor; they generally comprise textiles, shoes, household appliances and automotive accessories. Tunisia has entered successfully some of these industries (tex- tiles, shoes). However, given the erosion of its labor cost advantage rela- tive to some other developing countries, the small size of its market and the increasing skill of its labor force, long-term prospects for further development in this first family of industries are becoming less promising for Tunisia. 8.02 A second family of industries where middle income developing coun- tries such as Tunisia have an advantage is characterized by: (a) multiple finished products fabricated in moderate quantities with little or no standardization; (b) flexible technologies and equipment easily adaptable to various specific demands and customers require- ments; (c) qualified and versatile labor; and (d) predominance of quality, timely delivery, flexibility in production objectives. Typical industries of this second family are specialized mechanical shops, machine tools, engineering and consulting firms. Mechanical and electrical industries of simple or intermediate technology would fit well in the indus- trialization strategy for Tunisia as being tailored to the country's resource and market constraints, to the increasing skills of its labor force, to its existing industrial base, its potential in selected production lines, and to the difficulties and constraints in more complex technology transfers. 8.03 The development of heterogeneous and relatively complex industries such as EMIs requires a careful elaboration of long-term subsectorial prior- ities. The subsectorial strategies should focus on the identification of products or production lines that capitalize on the country's geographical proximity to the EEC and Middle East markets, and its relatively cheap and competent labor. Three interrelated objectives should determine the sector's strategy and priorities: (a) import-substitution of simple intermediate and capital goods to reduce the pressure on the balance of payments; - 49 - (b) exporting of selected products, to create sizeable employment opportunities; and (c) development of a set of well-structured and integrated projects generating substantial backward and forward linkages on the local economy ("industrialization" objective). Prerequisites 8.04 The policy and incentive frameworks should ensure, as prerequisites to the successful achievement of the above objectives, that: (a) necessary raw materials and inputs be obtained locally or imported at reasonably competitive costs; (b) product quality and labor productivity be achieved at levels comparable to those in competing countries; and (c) local enterprises and institutions be open to technical assistance and capital inflows from foreign firms. Implementation of the recommendations made in Chapters IV through VII for short and medium-term measures is expected to meet these prerequisites. Recommended adjustments in the protection and indirect taxation structures would meet prerequisite (a), the creation of a Technological Institute would cater to (b), and revisions of the Investment Codes to (c). Design of the Strategy 8.05 The following sequential procedure is suggested for the planning institutions and the proposed Sectoral Task Force (STF) in selecting and designing the components of the long-term development strategy for the EMIs: (a) establish an exhaustive but realistic list of viable production lines characterized by a substantial labor content and a moderate requirement of skilled labor 1/; (b) assess the technological feasibility of manufacturing these products in Tunisia; (c) forecast the size and prospects of the domestic and export markets for these products; 1/ Two simple criteria requiring little expertise could be: the share of labor cost in total production cost in developed countries (at least 20%); the proportion of skilled labor in total labor required (at most 40%). - 50 - (d) establish criteria for ranking and making a final selec- tion of the viable production lines, and select priority groups of products and projects; (e) identify the foreign markets, establish preliminary com- mercial links, identify and attract foreign partners when necessary, and finalize the projects and their product-mix and specifications; and (f) work out programs of feasibility studies and implementa- tion schedules for the selected groups of products and projects. Appendix VIII.1 proposes a preliminary tentative list of viable production lines for consideration at the first step (a) in the above process. These lines include the items identified in Chapters IV through VI for further review and study. Selection Criteria 8.06 A crucial step in the procedure suggested above is the ranking and final selection of groups of production lines (step d). The set of criteria used for this purpose should combine and balance the varied and sometimes conflicting benefits expected from various projects and reflect the indus- trialization and export objectives of the country's long-term strategy. The following list of criteria is given for illustrative purposes as a starting point: Criteria supporting the broader industrialization objective: (a) potential of the production line for the development of supporting industries (supplying parts, components, sub- assemblies); (b) local value added generated by the production line; (c) compatibility of the technology of the production line with Tunisia's capabilities and potential; (d) potential for fostering skills, technologies and new policies beneficial to other production lines or sub- sectors; and (e) potential of the production line for the development of forward industries producing end-items. Criteria supporting the export objective: (f) labor intensity of production lines (as a measure of the potential cost advantage); - 51 - (g) prospects for exports to developed countries 1/; (h) size and growth prospects of the domestic market to support production for exports; (i) prospects for exports to developing countries of the region; and (j) possibilities of partnership with foreign firms, when necessary, to provide technological assistance, quality control management and marketing services abroad. 1/ Based in particular on a detailed review of trade statistics and imports of EMI products by developed countries. Cf. Appendix IV.3. A N N E X E S - 52 - ANNEX I Page 1 of 5 TUNISIA INDUSTRIAL STRUCTURE (Estimates of "Normal" Production Shares for Tunisia) 1. The production shares of the primary, industry and services sector, as well as those of the manufacturing sector and its subsec- rs, can be estimated on the basis of cross-country regression equations, such as those developed by the Chenery and Syrquin study 1/ and by the World Bank Research Project "Patterns of Industrial Development" (RPO 671-05). The analytical results of the latter study were applied for estimating a "normal" production pattern for the Tunisian economy. 2/ 2. In the "Patterns" project, the value added share of a sector (or subsector) is regressed as a function of various explanatory variables such as per capita-GNP, population, manufactured exports/GNP, primary exports/GNP. Predicted shares are then estimated for aggregate sectors and disaggregate manufacturing subsectors. In the aggregate analysis, GDP is divided into three sectors: (i) primary, consisting of agriculture and mining; (ii) industry, consisting of manufacturing and construction; and (iii) services, estimated as GDP minus (primary + industry). In the disaggregate analysis, the manufacturing sector is divided into the 13 traditional subsectors of the International Standard Industrial Classification. 3. The analysis of the "Patterns" research project is based on a sample of 98 countries (given in Table 1) which is divided first into large (L) and small (S) countries (a population of 15 million in 1970 is the cut-off point), and then divided into manufacturing (M) and primary (P) orientation according to the trade indices. Of the various regression equations estimated by the "Patterns" project, the following basic regression equation relating to the SM countries is likely to provide the "best" results for Tunisia. S = a + a L.Y + a2(L.Y)2 + a3 L.N. + a L.EP + a L.EM where S = share of the value added in a sector or subsector as % of GDP, Y = per capita GNP at 1970 US$, N = population in thousand, EP = primary exports as % of GNP, and EM = manufactured exports as % of GNP. ("L." in front of each variable denotes natural logarithm) The basic regression results for the sample of 32 SM countries are given in Table 2. 1/ Chenery and Syrquin: Patterns of Development 1950-1970 (World Bank, 1975). 2/ Application of "Patterns" Project for predicting Production Shares for Tunisia - World Bank Memorandum of Mr. V. Prakash - May 16, 1979. - 53 - ANNEX I Page 2 of 5 4. The "normal" production shares predicted by the regression equations do not represent by themselves the "likely" structure of Tunisia in any given year. They simply indicate a likely structure of an average SM country with the specified values of Tunisia for per capita income, population and other variables. That is, they only show an intercountry average pattern and need to be adjusted for any year by the likely deviations for Tunisia from the average pattern. The results for Tunisia are given in Table 3 which displays the normal production shares for 1968, 1973, 1976 and 1977, as well as the residuals (differences between actual and predicted sectorial shares). One should note that the actual share of total manufacturing as well as of each subsector have been consistently below the predicted value in all the years, as summarized in the Table below: ESTIMATED NORMAL PRODUCTION SHARES AND RESIDUALS FOR TUNISIA 1968, 1973, 1977 (in % of GDP) 1968 1973 1977 Subsector Norm Residual Norm Residual Norm Residual Food Industries 4.70 -0.57 4.95 -1.24 4.89 -1.86 Textiles, leather 3.30 -2.01 4.08 -1.89 4.35 -1.51 Basic Metals 0.35 n.a. 0.70 n.a. 0.84 n.a. Metal Products 2.70 n.a. 3.82 n.a. 4.72 n.a. (Sub-Total EMIs) (3.05) -1.85 (4.52) -3.11 (5.56) -4.06 Construction Materials 1.20 -0.34 1.38 -0.61 1.41 -0.37 Chemicals, rubber, petrochemicals 2.72 -1.03 3.30 -1.08 3.88 -1.96 Wood, paper, mis- cellaneous 2.34 -1.39 2.97 -1.94 3.35 -2.15 Total Manufacturing 16.95 -6.82 20.47 -9.15 22.54 -11.01 Source: Table 3 It indicates that the degree of industrialization and development of manu- facturing in Tunisia do not measure up to the country's underlying economic strength. - 54 - ANNEX I Page 3 of 5 Table 1 List of Countries in Aggregate and Disaggregate (Full) Country Samples CC NAME OF COUNTRY CC NAME OF COUNTRY CC NAME OF COUNTRY 4 Af_-:nistan SM 372 Ireland SP 702 Singapore SM 12 Algeria SP 376 Israel SM 706 Somalia SM 24 Angola SM 380 Itly LM 710 South Africa LM 32 Argentina LP 384 Ivory Coast SP 36 Australia SP 388 Jamaica SP 724 Spain LM 40 Austria SM 392 Japan LM 736 Sudan SP 56 Belgium SM 400 Jordan SM 752 Sweden SM 68 Bolivia SP 404 Kenya SM 76 Brazil LP 410 Korea Republic SP 760 Syrian Arab Republic SP 104 Burna LP 764 Thailand LM 116 Khmer Republic SP 422 Lebanon SM 768 Togo SP 120 Cameroon SM 780 Trinidad and Tobago SM 124 Canada LP 430 Liberia SP 788 Tunisia SM 144 Sri Lanka SP 434 Libyan Arab Republic SP 792 Turkey LP 148 Chad SM 450 Malagasy Republic SM 800 Uganda SP 152 Chile SM 454 Malawi SP 818 Egypt Arab Republic LM 158 China Republic of SM 458 Malaysia SP 826 United Kingdom LM 170 Colombia LP 466 Mali SP 834 Tanzania SM 178 Congo Peoples Republic SM 478 Mauritania SP 840 United States of 180 Zaire IM 484 Mexico LP America LP 854 Upper Volta SM 188 Costa Rica SP 504 Morocco SP 858 Uruguay SP 204 Dahomey SM 508 Mozambique SP 862 Venezuela SP 208 Denmark SP 214 Dominican Republic SP 528 Netherlands SM 890 Yugoslavia LM 218 Ecuador SP 894 Zambia SM 222 El Salvador SM 558 Nicaragua SP 230 Ethiopia LP 562 Niger SP 246 Finland SM 566 Nigeria LP 250 France LM 578 Norway SM 280 Germany Federal 586 Pakistan LM Republic LM 288 Ghana SP 590 Panama SM 300 Greece SP 596 Papua New Guinea SP 320 Guatemala SP 600 Paraguay SP 332 Haiti SM 604 Peru SP 340 Honduras SP 608 Philippines LP 344 Hong Kong SM 620 Portugal SM 356 India LM 646 Rwanda SP 360 Indonesia LP 682 Saudi Arabia SP 364 Iran LP 686 Senegal SP 368 Iraq SP 694 Sierra Leone SM Note: Countries underlined are also included in the disaggregate sample. CC 3-digit U.N. Country Code L Large Countries (population in 1970: above 15 million) S Small Countries (population in 1970: between 1 and 15 million) M Manufacturing oriented/resource poor P Primary oriented/resource rich ANNEX I - 55 - Page 4 of 5 Table 2. Crosscountry Regression Coefficients: Semi-Log, 1963-74 2.21 Small Manufactured Export Oriented Countries (SM) Meana/ No. of - 2 2 1 Sector/Sub-Sector Const. L.Y (L.Y) L.N L.EP L.EM R S.E.E of Y Obs. Disaggregate TOTMFG -175.169 36.868 -2.410 7.195 0.417 -0.510 0.778 4.251 741 239 (-13.236) 10.744 -9.226 15.717 1.029 -1.826 FOOD (Early) -15.751 5.265 -0.398 0.478 -0.059 -0.336 0.137 1.340 741 239 -3.775 4.867 -4.835 3.314 -0.461 -3.819 TEXTL (Early) -41.455 9.571 -0.734 1.629 -0.257 -0.221 0.470 1.266 777 229 -9.105 8.139 -8.336 11.241 -2.048 -1.969 CLOTH (Middle) -11.527 2.979 -0.211 0.287 0.022 -0.090 0.470 0.372 765 218 -9.512 9.437 -8.747 6.730 0.587 -3.510 LETHR (Middle) -8.496 1.965 -0.155 0.324 0.002 -0.023 0.394 0.310 733 205 -8.270 7.421 -7.647 8.938 0.064 -1.030 CHEM (Middle) -35.527 8.386. - .622 1.084 0.482 0.137 0.459 1.104 768 234 -9.305 8.581 -8.426 8.664 4.473 1.794 RUBER (Middle) -5.550 1.553 - .115 .045 0.128 .089 0.429 0.233 760 201 -5.588 6.222 -6.185 1.486 5.229 4.805 MINERT. (MIdd1p) _11 619 1 466 -_.25? n229 -0.219 -0.099 0.449 0.487 741 239 -7.658 8.816 -8.428 4.369 -4.721 -3.104 WOOD (Late) -4.334 0.927 -0.038 0.134 0.026 -0.045 0.405 0.553 741 239 -2.520 2.079 -1.124 2.249 0.501 -1.249 PAPER (Late) -4.898 0.387 0.020 0.304 0.061 -0.140 0.352 0.826 793 231 -1.538 0.476 0.333 3.128 0.750 -2.451 PRINTG (Late) -0.289 -0.159 0.046 -0.031 0.236 -0.010 0.727 0.291 753 214 -0.297 -0.625 2.364 -0.960 8.315 -0.444 BSMET (Late) -15.547 2.806 -0.161 0.733 -0.431 -0.021 0.370 1.229 908 214 -3.024 2.083 -1.601 5.136 -3.623 -0.214 METAL (Late) -40.818 5.224 -0.211 2.354 0.327 0.141 0.772 1.758 753 235 -7.031 3.459 -1.852 12.254 1.933 1.026 MISC (Late) -9.302 2.538 -0.182 0.162 0.039 -0.042 0.294 0.450 713 220 -6.428 6.753 -6.395 3.195 0.877 -1.190 Aggregate PRIMARY 177.941 -34.935 1.871 -1.115 -1.967 0.547 0.672 8.991 505 463 10.389 -7.528 5.123 -1.760 -3.308 1.475 INDUSTRY -109.652 22.203 -1.237 5.736 -1.451 0.277 0.715 6.120 505 463 -9.406 7.029 -4.976 13.295 -3.585 1.096 SERVICES 31.708 12.732 -0.634 -4.620 3.418 -0.824 0.381 7.908 505 463 2.105 3.119 -1.975 -8.288 6.536 -2.526 a/ Y ranges from $67 to 4,524 in Disaggregate and $63 to 4,524 in Aggregate Sample. b/ Number of countries is 9 in Disaggregate and 32 in Aggregate Sample. Table 3 Estimated Normal Production Shares and Residuals for Tunisia 1963, 1968 and 1973 /a Mean /b 1963 1968 1973 1976 /c 1977____ Residual Norm Residual Norm Residual Norm Residual Norm Norm Residual Disaggregate TOTFG -8.42 15.45 -8.05 16.95 -6.82 20.47 -9.15 22.38 22.54 -11.01 FOOD -1.60 4.62 -1.18 4.70 -0.76 4.95 -2.56 4.96 4.89 -1.86 TEXTL -1.26 1.81 -1.42 2.04 -1.24 2.54 -1.36 2.68 2.69 CLOTH -0.51 0.82 -0.65 0.89 -0.47 1.08 -0.43 1.17 1.16 -1.51 LETHR -0.30 0.32 -0.28 0.37 -0.29 0.46 -0.33 0.49 0.50 CHEM -0.86 2.11 -1.05 2.39 -0.80 2.90 -0.80 3.30 3.35 -1.96 RUBER -0.23 0.33 -0.23 0.40 -0.28 0.51 0.53 MINERL -0.32 1.16 -0.43 1.20 -0.34 1.38 -0.61 1.41 1.41 -0.37 WOOD -0.57 0.74 -0.59 0.79 -0.58 0.95 -0.60 1.05 1.05 PAPER -0.30 0.35 -0.33 0.43 -0.27 0.64 -0.48 0.74 0.72 -2.15 1 PRINTG -0.31 0.46 -0.35 0.51 -0.32 0.62 -0.33 0.76 0.75 k BSMET -0.10 0.25 -0.14 0.35 0.10 0.70 -0.22 0.79 0.84 -. METAL -2.01 2.20 -1.14 2.70 -2.28 3.82 -2.75 4.60 4.72 MISC -0.47 0.55 -0.45 0.61 -0.51 0.76 -0.49 0.83 0.83 Aggregate PRIMARY -0.61 29.09 -0.66 27.77 -1.84 23.63 5.40 20.98 21.00 INDUSTRY -4.71 20.56 -4.38 21.63 -4.40 24.62 -7.48 26.11 26.55 SERVICES 5.32 50.35 5.04 50.60 6.24 51.75 2.08 52.91 52.46 /a The data base relate to 1963-73 in the disaggregate, and to 1961-74 in the aggregate analysis. /b The residuals are defined as (actual minus norm)/GDP (%). /c Based on the following data for 1976 and 1977: Y N EP EM (1970US$) (000) (%GNP) (%GNP) 1976 439 5737 12.41 5.59 00 1977 447 5892 11.69 7.28 o 0 - 57 - ANNEX II T U N I S I A METAL WORKING AND MECHANICAL INDUSTRIES - 58 - TUNISIA MECHANICAL SUBSECTOR TABLE OF CONTENTS Page No. I. STEEL . ............................................ 60 A. Foreword ............ , . ....... 60 B. Overall Supply and demand of Steel Products 60 C. Supply of Steel Products for Mechanical industries .61 D. Existing Production Facilities, Situation vis-a-vis Raw Materials and Competitiveness. 61 E. Future Development and Recommendations ........ 62 II. FOUNDRIES ........... ............................... 64 A. Introduction ........ .......................... 64 B. Production and Capacity Utilization .... ....... 64 C. Product-mix, Market and Protection .... ........ 65 D. Production Inputs, Cost Competitiveness ....... 66 E. Future Development and Recommendations ........ 67 III. STEEL FABRICATION AND PLATE WORK .................... 69 A. Overall Capacity and Production .... ........... 69 B. Product-mix, Markets and Production .... ....... 69 C. Production Inputs, Competitiveness and Financial Situation ...... .................. 70 D. Future Development and Recommendations ........ 71 IV. TRANSPORT EQUIPMENT ................... 72 A. Introduction ........ .......................... 72 B. Production and Capacity ..... .................. 72 C. Product-mix, Market and Protection .... ........ 74 D. Production Inputs, Cost Competitiveness ....... 75 E. Future Development and Recommendations ....... 75 V. MECHANICAL WORKS ....... ............................ 78 A. Definition .. 78 B. Existing Capacity and Production .78 C. Pzuduction Inputs, Performances, Constraints and Potentialities .79 D. Future Projects .80 E. Outline of Crucial Institutional . Recommendations. 82 - 59 - TABLE OF CONTENTS (Continued) Page No. VI. METAL PRODUCTS .. ................................. 83 A. Introduction ........ ....................... 83 B. Product-mix, Production and Inputs .... ...... 83 C. Market, Protection and Cost Competitiveness . 85 D. Future Developments and Recommendations ..... 86 VII. SHIPBUILDING AND SHIPREPAIR ...... ................ 87 A. Introduction ......... ....................... 87 B. Capacity and Facilities ...... ............... 87 C. Cost Structure and Competitiveness .... ...... 88 D. Future Development ....... ................... 88 ANNEXES 1 Summary of main indicators of the firms visited ANNEX II - 60 - Page 1 of 30 I. STEEL A. Foreword 1.01 The steel industry is not usually considered as part of the mechanical industries. However, given the importance of steel products as inputs to mechani- cal industries, the steel sector could not be ignored. The following paragraphs provide some insight into the steel sector without attempting to be as deep and detailed as would result from a sector review. B. Overall Supply and Demand of Steel Products in Tunisia 1.02 The present situation of production, imports, exports and consumption of steel products in Tunisia is summarized in the table below. Steel Products - 1978 Production, Imports, Exports and Consumption (000 tpy) Production imports Exports Consumption Non Flat Products Merchant and rein- forcing Bars 108 34 n.s 142 Profiles 1/ - 30 n.s 30 Wire rods 39 - n.s 39 Sub-total 147 64 211 Flat Products Sheets - 9 n.s 9 Plates - 48 n.s 48 Sub-total 57 57 Total steel products 147 121 268 1/ does not include 10,000 tons in the form of assembled steel structures Source: TUNISIA: El Foulehd and import statistics 1.03 As can be seen from above, the local steel production accounts for 55% of the domestic market requirements and 70% of the requirements in non flat products. Steel consumption is heavily oriented towards non-flat products which are used in the construction industry. Flat products consumption is still at a very low level, given the early stage of development of the Tunisian industry. ANNEX II Page 2 of 30 - 61 - C. Supply of Steel Products for the Mechanical Industries 1.04 Except for merchant bars produced locally, steel products consumed by the mechanical industry are imported. They include flat products as well as some non flat products such as profiles. Foreign procurement is organized by each enterprise separately based on import licences with annual quotas. A committee comprising importing firms can,on request, give advice on the technical aspects of imports. Steel imports are also handled by agents who supply small scale enterprises. Because of the small quantities involved and the lack of standar- dization in the requirements, FOB prices obtained for steel imports are an average 10 to 15% above international levels. For the same reasons, enterprises consuming steel products keep large and costly inventories, equivalent to between 5 and 10 months of requirements. Freight, handling charges and import duties add about 20% to the FOB prices and the agent's commission when he is involved, another 40%. As a first contribution towards rationalizing the import of steel products, Tunis Acier has undertaken a DT 5 million investment in cutting,shearing, slitting and roll forming lines to meet the specific requirements (on size, format, etc.) of the local market, including the production of profiles out of imported steel plates. The investment, which will have a capacity of processing 150,000 tpy of imported steel products, is due for commissioning in mid 1979. In principle, the project is good. However, it has been over-designed in view of the domestic market requirements (about 70,000 tons). D. Existing Production Facilities, Situation vis-a-vis Raw Materials and Competitiveness 1.05 Steel is produced in Tunisia by the El Foulehd plant located at Menzel Bourguiba, on the bay of Bizerte. The plant was built in 1965 based on the con- ventional process (blast and open-hearth furnaces) and with a capacity of 135,000 tpy of liquid steel. More recently, a 30,000 tpy electric furnace was added, using scrap as the main feed. The present capacity and production of the various facilities are summarized in the table below: El Foulehd Steelworks: 1978 Capacity and Production (000 tpy) Capacity Production Capacity Utilization % Blast Furnace 140 138 98 Open Hearth Furnace 135 131 97 Electric Furnace 30 29 96 Bar Mill 100 108 108 Wire Rod Mill 70 39 55 Wire drawn machines 20 14 70 Fabrication shop 10 4 40 Source: El Fouledh ANNEX II Page 3 of 30 - 62 - 1.06 The El Foulehd plant produces primarily reinforcing bars for the construction industry and to a lesser extent wire rods and cables for various applications. The plant also includes a shop for metallic structures (para 3.02). Except for the wire rod mill, the wire drawn machine and fabrication shops, the major facilities now operate close as above capacity. 1.07 Iron ore is processed from local mines at Djerissa and Sejnan close to the Algerian border. The ore is rather poor in quality (54% Fe) and it contains a high level of magnesium, which makes the pig iron impossible to be used by the foundry industry. The price of local iron ore at the plant's gate is about 25% than the present international price, including adequate provision for freight charges, say from Mauritania. Based on the present rate of produc- tion, the iron ore mines are expected to be depleted over a 10 year period. Coking coal is imported at the prevailing international price. The steel and iron scrap is at present purchased locally. 1.08 By international standards, the El Foulehd plant is very small and it does not benefit from the economies of scale, typical in the steel industry. For this reason and to a lesser extent, due to the high cost of iron ore supplies, the plant has experienced financial difficulties, in spite of the protection it has benefited on the domestic market. As the plant becomes older, the weight of depreciation and financial charges in production costs decreases and output prices can be set at somewhat lower levels in real terms. At present, ex-factory prices are about 20% higher than international prices. E. Future Development and Recommendations 1.09 Domestic consumption of flat products is not expected to reach in the near future a level which would justify an investment in steel production. Hot strip mills, which produce flat products, are now built with a capacity of 1,0 million tpy. In comparison, present consumption of steel sheets, plates, and coils does not exceed 60,000 tpy in Tunisia. The priority is therefore to import flat steel products at the lowest price. Given the present inefficiencies with respect to imports (para 1.04), it is recommended to explore the possibility of offering to interested firms a procedure of central procurement. 1.10 As far as non flat products are concerned, several projects are being planned by the Tunisian authorities. First, the capacity of the El Foulehd steelworks will be increased from 170,000 to 200,000 and then 220,000 tpy of finished products, through balancing the existing facilities and expansion of the furnaces and mills. The additional capacity will be for the production of reinforcing bars (25,000 tpy), of wire rods (5,000 tpy), and of small steel products which are currently imported. The project costs are estimated at million DT 3.5 (US$8.8 million) and completion is expected by 1982. Second, the pre-feasibility has been studied for a new steel plant based on the direct reduction process, usually employed in countries with availability of cheap sources of fuel. The project would have a capacity of 400,000 tpy and would produce primarily reinforcing bars. It would be implemented in two steps, with a cost estimated at DT 100 million (US$250 million). The project concept was ANNEX II Page 4 of 30 - 63 - developed based on market projections which assumed that consumption of reinforcing bars would grow by 16% per annum, from 170,000 tons in 1976 to 668,000 tons in 1986. In fact, consumption declined to about 150,000 tons in 1978. issuming a 9% annual growth rate in line with projections for the construction industry to which it is related, consumption of reinforcing bars would not exceed 275,000 tons in 1985, compared to an installed capacity of 125,000 tpy, including the 25,000 tpy to be installed by 1982. Even under more optimistic market assumptions, it would seem difficult to justify a 400,000 tpy investment, although this is a reasonable size for a direct reduction plant producing non flat products. In view of the large amounts of financing required and of the market constraints, the project appears to have been shelved, at least temporarily. Instead, some consideration is given to installing electric furnaces of a smaller size, using scrap as the main feed. Worldwise, electric steel plants have been operating at profit in the last three years, due to the low prices of scrap. However, scrap prices are highly volatile and, at present, they are increasing rapidly. Taking into account the likelihood that in future, gas will be available in Tunisia at a cheap price, either from Algeria or from the Miskar fields, the direct reduction process appears to be the appropriate technology for Tunisia. However, the market should develop first and this might imply that it is waited another five years before making any investment decision. ANNEX II Page 5 of 30 - 64 - II. FOUNDRIES A. Introduction 2.01 A contribution of only 3% of the output from the foundry subsector in the mechanical and electrical manufacturing industries reflects the low degree of national integration of this subsector in the whole sector and being a backbone of an industrial development, this subsector needs special attention to increase its integration with the local industries. B. Production and Capacity Utilization 2.02. The foundry subsector is being dominated by the two public enterprises SOFOMECA (Societe de Fonderies et de Mecaniques) and FONDERIES REUNIES both located in Tunis. They provide for about 90% of the national capacity and production of castings. Besides these two foundries there are other small scale foundries including one associated with the ship repair facilities of SOCOMENA (Societe Tunisienne de Constructions et de Reparations Mecaniques et Navales), located at Menzel-Bourgiba, about 60 Km north of Tunis. The three mentioned foundries have an industrial character whereas the others could be regarded as handicraft foundries. Total employment by foundries is estimated at about 1000. The capacity and production of these foundries are given below: TUNISIA: CAPACITY AND PRODUCTION OF CASTINGS (tons per year) Capacit_y Production 1978 Iron Steel Non-Ferrous Iron Steel Non-Ferrous SOFOMECA 3,500 2,000 - 2,800 1,000 - FONDERIES REUNIES 4,000 - 300 2,300 - 200 SOCOMENA 1,000 - - 500 -- Others 1/ 500 - - 500 - - Total 9,000 2,000 300 6,100 1,000 200 1/ Estimated Source: Mission estimates and plant accounts 2.03 Since 1973 the production of castings in Tunisia has been around 6,000 tons per year of which about 75% are iron castings and the rest mainly steel castings. The stagnation of production and the present low utilization of the capacity to the extent of 65% is due to various factors: (i) the low degree of integration of the foundry subsector in the overall industrial growth, (ii) limited capacity of automotive and machine building industry as well as constrution machinery in Tunisia, (iii) sharp cost competitiveness and decline ANNEX II Page 6 of 30 - 65 - in export markets; (iv} lack of adaptation to the new techinical devaIr- pnaents in casting technology by the Tunisian foundries; (v) difficz'ities in producing higher qualities of castings; (vi) lack of import -_>stitution of castings due to quality requirements and price comparison; a,ia (vii) commer- cial constraints in marketing. C. Product-mix, Market and Protection 2.04 Tunisian foundries produce iron, steel and non-ferrous (mainly brass) low grade and simple type of castings in small series for a wide range of appli- cations. These castings are used either for further processing or as semi- finished items. The main consuming industries are: i) sewage, water and sanitary systems in construction industry with items like water meter body, taps, fittings, valves, bathtubs, flushes, manholes cover, street gratings, radiators etc. accounting for about 50% of the total production; ii) mines and cement industry with components like grinding balls, crushers, linings, bolts with a production share of about 13%; iii) railway equipment with parts like brake blocks, couplings, fasteners, tension rods with a production proportion of about 17% and iv) electrical and mechanical industries like automotive, diesel engines, agricultural with parts like brake drums, supports, flywheels, casings, pumps, counterweights, discs, motors, with production share of about 20%. 2.05 The castings produced by the Tunisian foundries are sold mainly on the domestic market. Under a subcontracting arrangement, SOFOMECA supplied some castings to Berliet in France. In addition, SOFOMECA has also been successful in exporting castings to Algeria, Libya and Morocco. During the years 1973-76, about 1,000-1,500 tons per year of iron and steel castings were exported to these countries, but now the exports have declined due to increased price competition, technical requirements, quality and transport problems. SOFOMECA had been able to export about 50-60% of its steel casting production during 1972-76, but the percentage is reduced to only 10%, the decline being mainly due to the change in requirements of replacing the steel casting through Spheroidal iron, a technology which SOFOMECA perhaps has not been able to adapt to, 2.06 In addition to the local supply of casting through the three foundries, a substantial demand of castings is met through imports of 8-10.000 tons per year (excluding pipes) which could be classified into two groups: First, there are castings used as spare parts in various industries. Such castings will be imported in future too and are uneconomical to be produced in Tunisia as,the local delivery time is too long due to technical preparation process; the local price is too high due to limited quantity; and the requirements of consuming industries are irregular due to non-systematically preventive maintenance of casting consuming equipment. Second,there are castings used as raw materials and semi-finished product. The classification of imported castings being: construction sector 40%; mines, railway and cement industry 10%; electrical and mechanical industries 20%; spare parts and miscellaneous 30%. ANNEX II Page 7 of 30 - 66 - 2.07 Considering the composition of imports and local production, the Tunisian present consumption of castings is: construction sector 40%; mines, cement and railways 15%; electrical and mechanical industries 20% and spare parts and miscellaneous 25%. This structure substantiates the fact that the Tunisian electrical and mechanical industries have to be developed tremendously so as to allow a larger integration and development of Tunisian foundries. Given the improvement in casting production techniques, availability of technical assistance and entrepreneurship of importers to obtain castings locally,50-60% of the imported castings could be substituted through local production. Lack of these efforts could be derived from the fact that at time of mission's visit the steel foundry df SOFOMECA was not working due to shortage of orders. 2.08 The lack of initiative of importers of castings as well as the hesi- tation of the suppliers for the homologation of casting may also be due to the fact that the foundry subsector is not protected. The import of castings is not subjected to any control or regulation. Duties and taxes with a weight of 15% on the imported castings are practically the same as those contained in the local manufactured production. In addition, the castings used as equipment goods can be imported with a nominal tax of 3%. Although the local manufacturers are also exempted from taxes in similar circumstances, they still have to pay taxes and duties on the imported raw materials, equivalent to about 8% of the value of castings. Hence there is an advantage to the foreign suppliers, thus dis- couraging local production. The local importers explain their decision to purchase foreign castings on basis of better quality and prices. Examples are however available that with the initiative and entrepreneurship of the importers like SOTUMO (Societe Tunisienne des Moteurs), manufacturer of low horsepower diesel engines, imported castings could be replaced through local production. Production Inputs, Cost Competitiveness 2.09 The principal raw materials include iron and steel scrap, pig iron, coke and sand representing about 30-50% of output value. Tunisia is not entirely self-sufficient in iron scrap and it imports about half of its requirements. Steel scrap which was formally available from the domestic market would have to be imported in the future due to expansion plans of El Foulehd. The price of local iron and steel scrap is practically half of international price as a result of national price control system. The use of locally produced pig iron is limited to about 10% of consumption due to its chemical contents. Its price is also below the international level. The rest of pig iron requirements are imported internationally. These raw material give the Tunisian foundries a slight marginal advantage in the production cost of castings in comparison with their European counterparts as far as costs of these raw materials are concerned. The quality of local available sand is much below standard resulting to poor surface finish and low quality of castings. To achieve better casting results, it is urgently needed that improved sand sites are investigated. According to SOFOMECA and FONDERIES REUNIES, efforts are being made to identify improved quality of sand and technical assistance in this field seems desirable. ANNEX II Page 8 of 30 - 67 - 2.10 'he average cost of labor including the social charges, which accounts to about 25-40% of output value, is about 30% that of its European foundries. With such X Low labor input, a foundry should be able to have a better cost competitiveness but this advantage is however offset by the Tunisian foundries as they are not running efficiently technically due to old equipment, insufficient production and material flow and handling of various production processing resulting to low productivity of the companies. The major Tunisian foundries are at present bringing out an output of about 6.5 - 7.5 tons of castings per employee which is about one third as compared with European standards. The foundry skill is achieved through training "on job" in each individual company and one of the lacking point seems to be in the acquirement of skill in new technical and technological methods in the casting field and it is recommended that through an institutional support the latest developments in the field of casting technologies are adapted in the Tunisian foundry industry. 2.11 The type of castings produced in Tunisia could be regarded as low graded castings and the quality for the traditional castings for construction sector is acceptable. The price of these castings which occupy about 50% of Tunisian production could be regarded as competitive.l/Better graded castings are up to 20% more costly than compared with European prices.l/Assuming new investments for plant modernisation, better quality of sand, improved production management asd skill, availability of technical assistance and cooperation and better utilisation of capacity the labor productivity could surely be increased resulting to better quality standard and cost competitiveness. E. Future Developments and Recommendation 2.12 As a key to the backward linkage between the manufacturing and assembling industries, the development of the foundry subsector depends to a large extent on the overall growth of the electrical and mechanical industries in Tunisia. The local production of castings at present is estimated to increase to about 21.000 tons per year by 1982. The projection of requirement is based on following plans: First, the traditional castings for construction and general engineering produced locally at present are assumed to grow at an annual rate of 8% in line with past experience. Second, the domestic market for railways is p-esently limited to brake blocks and couplings. An increased demand for iron and steel castings is growing to result from a project to produce 200 wagons per year in Tunisia. SOFOMECA has already ordered the machine for the manufacture of parts and the production is expected to start in May 1979. Third, the development of casting. ,arket for automotive industry is linked with the implementation of a project for manufacture of diesel engines and tractors, planned to consume about 4000 tons per year of castings. Finally, about 50% of the castings imported at present are assumed to be substituted through the domestic production. 2.13 The projected production of 21,000 in 1982 justifies the expansion of the existing capacities which are no doubt very small in size by international standards. An expansion would definitely bring an advantage of economies of scale. I/ Traditional low-graded castings: 600-800 $/T, for 550-700 $/T FOB Europ. Better Pyraded castings: 850-1250 $/T, for 700-950 $/T Europ. ANNEX II Page 9 of 30 - 68 - With respect to the development strategy for the foundry subsector, the Tunisian authorities have planned FONDERIES REUNIES to produce the local automotive castings, including those for the mechanical complex producing diesel engines and tractors, and to transfer its present productions to SOFOMECA. In order to bring both foundries to an economic size, it is recommended to undertake a technico-economic study which should assess: (i) the demand of castings of various types (including spheroidal iron) in the consuming industries; (ii) the possibilities of efficient substitution for presently imported castings; (iii) the possibilities of exports to EEC and neighbor countries; (iv) SOFONECA's facilities and the investment costs required for its modernization and expansion; (v) the planning of production transfers and expansion in each foundry; and (vi) the concrete measures necessary to encourage and protect the subsector. 2.14 Parallel to the modernization of the foundries, it is essential that technical assistance should be explored for operational and processing methods of production; identification of sites for better quality of sand and for the training of labor in European foundries. For the development of a strategy for exports, it is recommended that sub-contracting arrangements with European foundries and trading companies should be build up or extended and assistance should be specially forthcoming from the public institution like CEPEX. After the implementation of investments, improvement is operational and technical aspects of production and with technical assistance Tunisia can certainly possess production cost advantage of 10-15% as compared to European countries. ANNEX II Page 10 of 30 - 69 - III. STEEL FABRICATION AND PLATEWORK A. Overall Capacity and Production 3.01 Steel fabrication and plate work is one important sub- sector among the IMME in Tunisia. It accounts for about 75% of the value added by the IMME. Over the recent years, it has been very active; according to API, out of 500 projects approved in the IMME, 200 (40%) were for steel fabrication and plate work. However, in the absence of a comprehensive study covering major aspects of the subsector, new investments do not appear to have been planned with a view to maximizing the utilization of existing capacities. As a result, present production facilities are now operating well below capacity. Based on tentative estimates received from discussions during the visits, the subsector would have a capacity of 50,000 tpy, and a current production not exceeding 30,000 tpy. 3.02. Production is scattered over a large number of small enterprises. However, three medium size companies, SGI, SAMMI, both located in the Tunis area, and El Foulehd in Menzel Bougurba dominate the subsector with their production accounting for more than 50% of that of the subsector. Another medium size firm, Ateliers Mecaniques de Gabes is planned to enter into pro- duction by the end of 1979, with the purpose of servicing the south region of Tunisia, and in particular, the Gabes industrial area. The four firms were visited and the findings and recommendations outlined in this section are largely based upon these visits. B. Product-mix, Markets and Protection 3.03 The major products manufactured in the subsector include: steel structures for industrial buildings, electrification towers for the power company, containers and vessels for the chemical, petroleum and gas industries, and some equipment (grinders, piping work etc.) for the construction industry. All thicknesses of steel and plate work are produced, but within a maximum of 40 mm. The upper range of thickness grades is available from the larger companies (SGI, SAMMI), whereas the lower range is available from small scale firms. 3.04 The steel fabrication and platework industry is entirely geared towards the local market. Yet, imports amount to about 10,000 tpy (DT 5 million or US$ 12.5 million) and they account for 25% of the domestic market require- ments. Imports are composed of items not currently manufactured in Tunisia, such as boilers, heavy pressure vessels, cranes, furnaces etc. There are also imports competing with the local industry. In theory, the protection of the local industry is significant, with the weight of taxation on the value of imports being 35% compared to 15% on the value of locally manufactured products. In fact, for all authorized investments, equipment goods that most of the sub- ANNEX II Page 11 of 30 - 70 - sector's output qualifies for, can be imported without restriction and free from duties and taxes, except for the 3% custom administration tax. Although local producers are also exempted from the production tax in case of equipment sales for authorized investments, they still incurr duties and taxes on their production inputs. These are estimated to account for 8% of the value of pro- duction whereas the custom administration tax on imported equipments does not exceed 3%. There is, therefore, an advantage given to foreign supplies which does not encourage them to subcontract locally. 3.05 In the absence of a market study, only rough assumptions can be made as to the future development of the local market. For the purpose of this report, it has been assumed that the growth of the domestic market for steel and platework would follow that of industrial investments, i.e. about 5% per annum. On this basis, the domestic market would grow from 40,000 tpy in 1978 to 55,000 tpy in 1985. As for export prospects, given the bulkiness of most structural and platework and given the rather low level of technology incorpo- rated in Tunisian production, they are out of limited nature. However, after some experience has developped between foreign and Tunisian suppliers on the domestic market, it could be found as an advantage to extend this cooperation to neighbouring North African and Middle East markets where industrial invest- ments are expected to remain at high 1,petls. In addition, it would be worth- while to investigate export market opportunities for some specific product lines, such as aluminium doors or window frames which incorporate a high percentage of labor and which have a high final value. C. Production Inputs, Competitiveness and Financial Situation of Operating Companies 3.06 Raw materials and labor are the two major inputs in steel fabrica- tion and platework and they account respectively for 30 to 35% and 25 to 35% of the value of output. As for capital charges, including profit, their share does not exceed 15 to 20%. Except for El Fouledh,which under a Danish licence, uses its own produced round bars for steel fabrication, steel products, the main input materials, are imported and procurement is organized by each enter- prise separately. Because of the small quantities involved and the lack of standardization in the requirements, prices obtained for steel sheets and plates are 10 to 15% higher than the international FOB price and enterprises keep large and costly inventories, equivalent to 8 to 10 months of consumption. Labor appears to be about half as productive (man hour per unit of production) as in industrialized countries, but this is more than compensated by the lower level of wages and social charges combined (about one third of European labor costs), Equipment is modern and well maintained. However, in some instances, excessively capital intensive technology is being employed, leading to large under utilization of equipment. 3.07 All in all, the subsector appears very competitive with reasonable product quality. Output prices, excluding taxes are between -5 and 5 per cent under or above FOB European prices.l/With these prices, large and established firms are in a sound financial position, whereas small or new firms were reported 1/ Steel structures: 850-1100 $/T, for 800-1000 $/T FOB Europ. Platework: 990-1700 $/T, for 950-1500 $/T FOB Europ. ANNEX II Page 12 of 30 - 71 - to be in finarncial trouble, as their capacities are largely under-utilized due to market constraints. In concept, basic conditions are met for the sub- sector to be vriable. First, the nature of steel fabrication and platework allows smal: r medium scale operations which are particularly suited to the size of the Tunisian market. Second, steel and platework incorporates a high percentage of labor for which Tunisian has a competitive advantage. Third, the local industry is not protected from foreign competition. On the contrary, in many instances, an advantage is given to foreign suppliers (para 3.04). Provided investments are properly planned, the steel fabrication and platework in Tunisia should contribute positively to the industrial development. D. Future Development and Recommendations 3.08 As disc-ssed earlier and based on rough assumptions, the domestic market for standard steel fabrication and platework is estimated at 55,000 tons by 1985, including 14,000 tons of those products which are now being imported. In contrast, present production capacity is estimated at 60,000 tpy, not including 6,000 tpy available from Ateliers Mecaniques de Gabes, starting by the end of 1979. The priority over the next five years is therefore towards a better utilization of existing capacities. In this context, it is recommended to undertake a comprehensive study of the subsector covering such areas as existing production facilities, present and future domestic market requirements, imports, export prospects for specific products and fiscal policies in so far as they apply to the subsector. The study should aim at (i) identifying product lines, such as boilers, cranes, furnaces which could be manufactured in Tunisia with little additinnal investments (DT 5 million or US$ 12.5 million); (ii) identify specific products (i.e aluminium door and window frames) for which Tunisia would be well placed to export; (iii) rationalizing existing facilities and productions whenever necessary, and (iv) revising the incentive system to encourage foreign suppliers to subcontract to Tunisian firms on the local market and possibly,in the long run, on neighboring markets. ANNEX II Page 13 of 30 - 72 - IV. TRANSPORT EQUIPMENT A. Introduction 4.01 In Tunisia, the transport equipment subsector includes only two but major industries, the automotive and related industry and the ship building and repairs. Other transport equipment like locomotive, railway coaches, wagons etc. are practically entirely imported in the country. Ship building and repairs is dealt separately in chapterVII. The automotive and related industry has acquired an important position among the electrical and mechanical industries, as in the past six years about 70 projects with a total investment of about 50 million USS$ with a job creation of about 2000 have been approved. About half of them are in or on way to production. With a share of about 21% of the total output of electrical and mechanical industries, this subsector con- tributes, due to its assembling character, only about 15% of the employment of this sector. B. Production and Capacity 4.02 The automotive industry is principally centered on STIA (Societe Tunisienne d'Industrie Automobile) a public owned automobile vehicle assembling plant located at Sousse, 120 km south of Tunis and employing about 1450 people. As for the automotive related industry producing transport equipment for cons- truction, industrial and agricultural sector, a private enterprise SICAME (Societe Industrielle de Carosserie Automobile et Materiel Elevateur) situated in Tunis and employing about 200 people has a dominating position. These two major firms are supported by a number of smaller companies producing automotive accessories. The mission's findings are based on the visits to the plants of STIA and SICAME. 4.03 STIA assembles trucks, buses and cars from the imported CKD and SKD Kits. Since its creation in 1952, it has been expanding its facilities both in quantity and product diversification. The present production and capacity are as follows: TUNISIA: AUTOMOBILE VEHICLE INDUSTRY 1978 (Number of Units) Capacity Production Buses 400 200 Cars 4,000 2,900 Pick-up 6,000 3,500 Trucks 800 700 11,200 7,300 Source: STIA ANNEX II Page 14 of 30 - 73 - Though the rate of production growth since 1973 has been quite high (over 25% per annum), the low utilization of the plant seem'. 'o be a result of poor and inefficient production organization and management, as well as of restrictive policy of the Tunisian Government for the imports of automobile vehicles combined with high protection in terms of duties and taxes. 4.04. The automotive related industry assembles or produces dump trucks for construction work, truck containers for industries, refuse vehicles for public utilities, trailers for agricultural and metallic plateforms for general application. The capacity and production of this equipment is as follows: TUNISIA: OTHER TRANSPORT EQUIPMENT (Number of Units) Capacity Production 1978 Dump and container trucks 600 1/ 425 Agricultural trailers 2,500 2,000 1/ Estimated The major contribution towards the assembly of dump and container trucks is from SICAME which accounts for about 70% of the national production. For the manufacture of the agricultural trailers and platforms there are seven other companies, each producing 200-500 units per year. 4.05 The growth of production of automotive accessories is attributed primarily to the increase in demand of spare parts for the existing automobile park (about 200,000 units) and secondarily to the increase in production of new vehicles in STIA. Ten different companies in Tunisia producing automotive accessories and components could be classified in four different branches: (i) rubber products; (ii) electro-mechanical components; (iii) lining units and (iv) castings and machinery parts. The total output of the major automotive accessories manufacturing industries had an annual increase of over 15% in the last 8 years as against 10% in electrical and mechanical industries, this in spite of the fact that the consumption of automotive accessories by STIA accounts for only about 20% of total output. Capacity and production of some of the main automotive accessories are given below: TUNISIA: AUTOMOTIVE ACCESSORIES INDUSTRY Capacity Production 1977 Batteries (Nos.) 220.000 155.000 Sprark Plugs/Ignition (Nos.) 220.000 60.000 Tires (Nos.) 220.000 180.000 Lamps/Light (No. of sets) 60.000 42.000 Brake Linings Tons) 300 100 Source: API ANNEX II Page 15 of 30 - 74 - C. Product-mix, Market and Protection 4.06 Under an agreement with different automobile manufacturers of Europe, mainly France, STIA's assembly program consists of: (i) four models of cars in the range of 3-9 HP from three different manufacturers of which Citroen has a major share of about 85%, (ii) three models of pick-up, Station Wagons in range of 3-8 HP from three producers, Peugeot occupying a share of about 80%, (iii) nine models of trucks in range of 76-260 HP from three suppliers and (iv) five different models of buses in range of 152-190 HP. Among the different models of automobiles, the Citroen car accounts for about 20% and the Peugeot pick-up for about 50% of STIA's total production. The multiple models of vehicles produced in Tunisia reflect the failure of standardization due to lack of a strategy on automotive industry in the initial years. This has resulted in: no engineering adaptation, higher production costs, increased capital investment, less possibility of local integration and last but not least, enormous problems in after sales service. The duties and taxes on imported cars are about 100% higher than contained in local manufac- tured cars. Such high protection of the Tunisian automobile production hab largely contributed to the developing of inefficient operations. 4.07 The production of the automobile vehicles is completely for the local market and it covers about 60% of the demand of trucks and pick-ups, 35% of that of cars and 55% of that of buses. Exports for neighboring countries would certainly increase the efficiency of the plant but any possibility of exporting to Morocco, Algeria, Lybia seems to be quite less as these countries have their own assembly plants. 4.08 The trucks assembled by STIA are used as transporters by SICAME and equipped with special attachments like different buckets with capacity up to 14 m3, container vessels with capacity up to 35000 litres for transport of liquid and pulvers and refuse containers of various capacities. As in the case of trucks the diversified product-mix needs here also standardization. This applies equally to different kinds of trailers and plateforms. The local pro- duction of such transport equipment is geared only towards domestic market where it enjoys equally good protection against the import of this equipment. The domestic production of dump and container trucks meets about 85% of the local demand and that of trailers and platform satisfies completely the local consump- tion. 4.09 Of the total domestic consumption of automotive accessories for new vehicles as well as for maintenance of the existing automobile park in Tunisia, the local automotive industries contribute to only about 20% whereas the rest is imported. An increase of local share is handicapped due to diversified product requirements and various technical problems. So far the contribution ANNEX II Page 16 of 30 - 75 - of the manufacturers is only towards the local market, primarily for spare parts and se&ondarily for STIA's assembly plant, but exports could become possible un&d-_- art agreement of subcontracting with the suppliers of the licence. D. Production Inputs, Cost Competitiveness 4.10 The principal inputs for the automobile production include imported kits in CKD and SKD condition, imported and local automotive accessories, steel and aluminium sheets and profile, and labor. In case of automobile vehicles, the percentage of the imported parts has reduced constantly over the past years and is at present about 50% of the output value. The kits are purchased in series consis-ing of about 100 vehicles and due to change in the model as well as the suppller from one series to another, it is hardly encouraging to under- take any efforts in engineering adaptation for the development of the local production in seeKing rationalization and cost reduction as well as in improving production organization. This is at present the fundamental drawback of the Tunisian automobile industry and it is urgently recommended that a long term strategy on product-mix, growth of subsector, local integration and engineering adaptation should be developed. The local inputs like tires, batteries, linings etc. contribute only about 8-9% of the output value. Other parts like steel and aluminium sheets and profiles have to be imported completely. The proportion of total materials in automobile industry is about 75% of the output value and about 55% in the automotive related industry. 4.11 Labor accounts for a major proportion of the added value but only for about 8-10% of the output value in the whole subsector. The equipment installed in plant is modern but in addition to the skill of the available labor the pro- ductivity depends on production organization and capability of the management. Due to poor production organization and inefficient management the STIA plant does not appear to be fully utilized in its technical capabilities thus resulting in low productivity of labor as compared to similar European assembly lines. Labor productivity is lower by approximately 50%, as illustrated by the high level of man-hours per vehicle: over 100 hours per car or pick-up; 250 hours per truck; and 2,500 hours per bus assembled in STIA. It is recommended that opportunities should be provided to the production managers and foremen to acquire necessary training and experience in engineering and production management. 4.12 As a result of the various inputs and factors discussed above, the cost of production, excluding effects of taxes is in Tunisia up to 50% higher in comparison to European prices. The higher degree of protection (duties and taxes being 50-160%on imported finished equipment) gives the Tunisian transport equipment industry a comfortable position to market their product and make the plants profitably operated.l/ E. Future Developments and Recommendations 4.13 C-lnsidering past developments and in the absence of any future strategy regarding the automotive industry, API (Agence de Promotion des Investissements) has produced a study on the existing automobile park, present situation and future demand proj ection of the automotive sector. Based on discussions during the I/ Standard car: 12,500 $, compared to 6,000 $ FOB Europ. Dump truck 1.2T: 3,700 $, compared to 2,500 $ FOB Europ. 5T: 16,000$, compared to 10,000 $ FOB Europ. ANNEX II Page 17 of 30 - 76 - mission's visit, the demand of automobile vehicles is estimated an follows: TUNISIA: PROJECTED DEMAND FOR AUTOMOBILES 1985 (Number of Units) Buses 500 Cars and Stations Wagons, Pick-Ups 17.500 Trucks 2.500 20.500 To meei future demand, STIA is building a new plant covering a total area of 260.000 m , about 3 km away from the present STIA's site. The invest- ment cost is to be about US$ 40 million. The new plant is to come in production in two phases: the first phase with a covered area of about 26.000 m2 and a capacity of 15.000 vehicles per year is planned to go in production in 1981, and the second phase with an additional covered area of about 10.000 m2 and an additional capacity of 5.000 vehicles per year should start production in 1983. The present facilities will be used for the manufacture of buses and trucks. The question as to what product-mix should be manufactured in the future is not clear at present although construction work of the new plant has already started. Secondly, the rate of internal integration is to be kept the same in the new unit, though production of some items, like seats, plastic products could be obtained from a subcontracting firm thus encouraging the intra-sectorial linkages. The mission stressed that it is extremely essential that a strategy considering stan- dardization and rationalization of product-mix, homologation of products, engineering adaptation, factory and national rate of integration, possibility of exporting the local produced automotive parts in compensation for the imported CKD and SKD kits should be developed before any further step is taken as these factors lay the foundation of a nation's automotive industry. 4.14. The increase in demand of automobile will certainly give a boost to further growth of the automotive accessories. On the basis of the above planning, projection of some of items already being manufactured in Tunisia is as follows: TUNISIA: PROJECTION DEMAND OF AUTOMOTIVE ACCESSORIES 1985 Tires (Nos.) 580.000 Batteries (Nos.) 300.000 Brake Linings (Tons) 280 Source: API ANNEX II Page 18 of 30 - 77 - In addition to various items already being produced in Tunisia, there are a number of additional components like filters, brake pedals, carbu- rators, grills, radiators, starters, shock absorbers, rims, ' caps, brake drums, mufflers, wipers which could be produced in partnership which could provide know-how and export possibilities. BDET (Banque de Developpement Economique de la Tunisie) has projects in planning for some of the items like rims, shock absorbers, air filters, tires, horns which seem justified. However, feasibility studies determining the size, scope and economies of these projects should be taken. 4.15. The expansion of the automotive related industry producing dump and container trucks is already in implementation through the extension of SICAME's plant and the present local capacity of 600 units will reach to 900 units in 1981. On the basis of the development of construction, public works and industrial sector in vth plan, a demand of 1900 units in 1981 has been estimated by BDET which seems to be on high side. It is recommended that a study should review this industry to undertake further steps for the expansion if the demand projections are correct. The present capacity of 2500 units of agricultural and plateforms seems to satisfy fully the demand of about 2400 units in 1981. 4.16 As already emphasized at various other places of this report, assis- tance to different enterprises of the subsector in modern production processes and technology, rationalization methods and production organization is necessary to increase the physical productivity of the Tunisian cheap labor thus producing equipment and accessories at much more competitive prices. To increase further the degree of competitiveness and efficiency of plants, it is also essential that the present duty and tariff structure should be revised downwards for final products as well as imported input. ANNEX II Page 19 of 30 - 78 - V. MECHANICAL WORKS A. Definition 5.01 The mechanical subsector includes the manufacture, maintenance and repair of equipment goods (construction, agricultural, mining, industrial etc.) as well as of the intermediate goods entering into the manufacture of equipment goods (engines, various parts and components etc.). Small tools and implements are not under mechanical industries. They are dealt in the metal products chapter. B. Existing Capacity and Production 5.02 Mechanical industries in Tunisia are at a very early stage of deve- lopment and their contribution to the IMME's sector has been so far marginal. Production capacities are scattered over a number of small firms and a clear presentation of the subsector is difficult to make in the absence of an overall study. Based on the information obtained during field visits, existing capaci- ties and production would be as follows: 5.0q.Engines: Small engines (German Hatz and Swedish Bukh models) are being produced by SOTUMO, a state owned company located at Menzel Bourguiba. SOTUMO's plant has a capacity to assemble 7,500 engines per annum. However, due to market constraints, production does not exceed at present 4,400 engines. 90% of the engines are produced in the range of 3.6 to 11 HP, mostly for agricultural applications. The remaining 10% are in the range of 14 to 100 HP for marine applications. SOTUMO's operations are marginal, being limited to assembling, with not more than 90 persons employed. 5.04YPumps, Compressors and Hydraulic Cylinders. The production of pumps and compressors in Tunisia appears to be limited and only small firms are engaged in this activity. No information is available on existing capacities and pro- duction. SICAME, the leading manufacturer of truck containers has created a subsidiary, Hydromeca, to specialize in the production of hydraulic cylinders. The investment, estimated at DT2.4 imillion (US$ 6.0 iillion) is almost completed and production is expected to start in 1979. The plant, will have an annual capacity of 10.000 hydraulic cylinders and will employ about 100 people. However, the domestic market is not expected to take more than 5000 units per annum. To ensure the viability of operations, negotiations are under way with the licencor (Marrel from France) to export about half the production. 5. 05Parts, Equipment Maintenance and Repair. Several enterprises are engaged in the machinery of parts and in the maintenance and repair of industrial equipment. Rectif, a privately owned enterprise, is at present the leading firm. Yet it is small, with 90 people employed and with old aged equipment. Rectif's facilities include two workshops, one for the reconditioning of truck engines and the other, for the machinery of parts for various industries. At present, Rectif's largest ANNEX II Page 20 of 30 - 79 - client is SOTUMO, for which it does the machinery of a number of parts, based on some cases on castings obtained from SOFOMECA. The foundries themselves have their own machine shop. With 40 people, SOFOMECA does the machining of such parts as hydraulic valves, elbow fittings, railway wheels and brake drums. With 30 people, Fonderies Reunies does the machining of water meters, valves and water fittings. As discussed in the chapter on steel and platework, Ateliers de Constructions Metalliques et de Mecaniques de Gabes (ACMG) is supposed to start operations in 1979. ACMG will operate a most modern machine shop. In this shop, they will do maintenance work for industrial facilities, primarily in the Gabes area. SOCOMENA, the ship repair enterprise is also occasionally doing repair work for large industrial equipment. A synopsis of existing machinery capacities and capacity utilization is given below: TUNISIA: MACHINERY CAPACITIES AND CAPACITY UTILIZATION Capacity (number of Capacity Utilization 1/ hours per year) 1/ (%) Rectif 80.000 90 SOFOMECA 60.000 60 Fonderies Reunies 45.000 70 ACMG 50.000 - SOCOMENA 20.000 20 Others n.s. - 1/ Estimated by the mission based on field visits. The "other" category shown in the table above includes small scale firms as well as repair shops integrated in steel, mining, chemical textile and other industrial plants. There is no information available in Tunisia on these facilities. C. Production Inputs, Performances, Constraints and Potentialities 5.06. The main operations performed in the mechanical subsector are machinery and assembling. The share of raw materials in production costs varies considerably depending upon the type of industry and the level of integration. This also applies to labor whose share in production costs varies from 5 to 10% for assembling operations (for example SOTUMO) up to 30% for machinery operations (for example Rectif). The availability of cheap labor in Tunisia is an advantage for the development of the mechanical industries, but it is not sufficient. In fact, the viability of machinery operations, and to a lesser extent, of assembling operations depends on three major factors; the size of the market, the degree of ANNEX II Page 21 of 30 - 80 - know-how and the availability of skilled labor. With respect to these factors, mechanical industries, as defined earlier, can be divided into four categories: First, there are simple technology equipment goods such as pumps, various mechanical parts, for which the domestic market may be large enough to sustain economic operations. Tunisia is now starting to build up a force of skilled labor and provided domestic or foreign assistance is available to firms in technology, production process and methods, production of these product lines should be viable. Second, there are equipment goods of simple or intermediate technology for which the domestic market exists but is not large enough to justify an investment. This is now the case of SOTUMO whose viability is main- tained through protection from foreign competition. The price of its engine is, excluding the impact of taxes, about 30% higher than international levels.l/ This will also be the case of Hydromeca (hydraulic cylinder)and the diesel engine projects, if they limit themselves to meeting domestic requirements. For these product lines, the domestic market must be complemented by exports opportunities (between 30 and 50% of production) that only foreign partners can provide together with the necessary know-how. As discussed in detail under chapter III the Tunisian entrepreneurs are not provided with any incentives to export part of their production. Third, there is the jobbing work for maintenance and repair of industrial equipment. This type of work is usually performed on universal machines which are not designed for large production series. Firms like Rectif are operating competitively without needing protection.2/ The low productivity of labor is more than compensated by the low wage level and the prices charged by Rectif, excluding the impact of taxes, is in line with those charged in Europe. This should also be the case of Ateliers de Construction Metalliques et Mecaniques de Gabes, when it starts production. Finally, there are equipment goods whose technology is very advanced and sophisticated machine tools, textile machinery for which the domestic market is so small that most of the production would have to be exported. For these product lines, production possibilities in Tunisia are very remote at present. D. Future Projects Mechanical Complex Project 5.07 The idea of a mechanical complex project has been discussed in Tunisia for at least two years. A concrete project proposal has now been submitted by BDET, in partnership with KHD (Klockner Humboldt Deutz). KHD is a well known German diesel engine manufacturer with a wide experience in developing countries. With employed people, the project would produce 6,250 diesel of various types (3,4,5, and 8 cylinders), 2,200 tractors and 700 agricultural machines. The project would start with the assembly of engine based on knocked down components supplied from KHD, then would develop by steps, including in later phases the local manufacturing of parts so as to achieve an integration rate of about 52% for the engines, 65% for the tractors and 41 to 52% for the agricultural equip- ments by the 5th year from the beginning. Castings would be supplied outside the project, by Fonderies Reunies (para 2.13). Investment costs are estimated by BDET at DT 36 million (US$ 86 million) over three phases, including DT 7 million (US$ 17 million) for working capital, but excluding provisions for interest 1/ Prices of engines: 350-575 TD/unit (including taxes), for 190-290 TD/unit FOB Europ. 2/ 9-10 $/hour, as compared to 20 $/hour in Europ. ANNEX II Page 22 of 30 - 81 - during construction and price contingencies. In the capital cost estimates, it has also been assumed that no infrastructure would be required. BDET envisages a financing plan with 40% equity and 60% debt. KHD would be prepared to parti- cipate in the equity up to 25% and arrange the participation of a German Bank (DEG) up to 10%. The majority of the share capital (65%) would be held by BDET and Tunisian private investors. Loans are being sought from various sources including German and Arab banks, suppliers' credit and IFC which is closely following up the project. The Government has now approved the project concept and negotiations are underway with KHD. 5.08 The project as it is formulated now raises a fundamental issue. Based on an annual program of 6.250 engines to be produced with one shift and taking into account the range of models to be produced and the rates of integra- tion to be achieved, the project is unlikely to be economical. Most diesel engine plants in industrialized countries work on a two shift basis with higher production volumes. According to the marketing study, it is unlikely that the domestic market could take, in the foreseeable future, significant higher pro- duciton volume than presently proposed to be supplied from the project. The Tunisian authorities are aware of this issue and they are seeking compensation arrangements with KHD in the form of either exports of fully assembled Tunisian make engines through KHD sale network or purchase of Tunisian made components by KHD. At present, there is very little incentive for KHD to accept Tunisian's demands. On the one hand, they are the only partner with whom negotiations are being held. On the other hand the project in its present formulation appears financially attractive as it would benefit from protection, with output prices set at more than 70% above the CIF cost of fully assembled engines imported from Germany. Other issues are also related to the degree of integration. Similarly, the viability of machining in Tunisia imported forge parts (such as crankshafts, rods etc.) and of forging these same parts in Tunisia at a later stage appears doubtful. The equipments required for these operations are expensive, and their deletion could reduce final project cost substantially. 5.09 At present, the objective for all parties is to prepare a project which will eventually be financially and economically viable. In this respect, several suggestions can be made. First, although BDET has been very active and professional in promoting the project, there is a need to set up a project team, composed of qualified engineers and economists with experience in diesel engine production. In the absence of this type of production in Tunisia, foreign assis- tance could be obtained from individuals based on one or two year contracts. Second, it should be made clear to the foreign partner that the protection granted to the project on the domestic market will be marginal and temporary, say 10 to 20% gradually phased out after 5 years. This should be made as an argument in negotiations with the technical partner in order to emphasize the necessity of export arrangements. The project size and scope as well as all the financial calculations should be all made on this basis. Third, if it appears rapidly that the present partner is not ready to offer adequate compensation arrangements, discussions with other potential partners should be initiated. ANNEX II Page 23 of 30 - 82 - SOTUMO's Prolects 5.10 SOTUMO is at present considering two project ideas. The first project, with an investment cost of DT 0,5 milliorUS$ 1,3 million) would be a machine shop to produce engine parts for assembling on the existing lines at Menzel Bourguiba. As discussed earlier, the present assembling operations are somewhat inefficient (para 5,0G3and this raises some doubts about the viability of further integration, taking also into account the low level of production series necessitated by the domestic market. It would be essential to justify a project of this kind that a significant share of production is exported. SOTUMO is actually negotiating with Hatz export possibilities and arrangements. Depending on the outcome of these negotiations, a feasibility study could be undertaken. 5.11 The other project would be for the production of about 30,000 moped engines, with 70% integration. Investment costs have been preliminary estimated at DT 1.5 (US$ 3.8 million), which appears very low. In concept, the project idea is good, but a market and feasibility study have still to be undertaken to demonstrate its viability. Other Project Ideas 5.12 As discussed earlier, the information available on the mechanical sub- sector is very fragmented. There is a need to do the inventory and the review of the existing capacities and to study their market potential. These studies shiould lead to the identification of new project ideas, including modernization and expansion of existing machine shops and investments for new product lines. In this context, the studies should in particular focus on such products as pumps, and compressors (para 5,04),for which Tunisia imported in 1977 the equi- valent of US$ 25 million and on maintenance and repair work for industrial equipment (para 5,05). E. Outline of Crucial Institutional Recommendations 5.13 Institutional recommendations are presented in detail in chapter II However, those which are crucial to the mechanical subsector are outlined as follows. As discussed earlier, mechanical industries in Tunisia have experienced so far very little development with a major drive towards the domestic market. However, the domestic market which can justify further production investment is very limited. The future development of the mechanical industries in Tunisia therefore telies primarily on finding export opportunities to complement the domestic market and on obtaining adequate know-how. In this context, it is essential (i) to revise the incentive system so as fo favor partnerships serving both the domestic and foreign markets and (ii) to create or reinforce institutions providing Tunisian entrepreneurs with assistance and guidance in such areas as project preparation, technology, know-how and production methods. ANNEX II Page 24 of 30 - 83 - VI. METAL PRODUCTS A. Introduction 6.01 This subsector includes a wide variety of products like cutlery, hand tools (agricultural and mechanical), general hardware, furniture and fixtures of metal, structural metal products like frames, fabricated metal products like nails, nuts, bolts, tin containers, utensils. These products represent the first phase in the transfer of technology for a developing country, mainly aiming at import substitution in the initial stages. The group of these Lidustries are of a heterogenousnature, only their common manu- facturing operations like hot forging, cold forming, pressing, bending or stamping of metallic sheets, bars or rods give them a homogeneous character, in spite of the fact that the technologies involved for various products are also somewhat different. The subsector accounts for about 15% of the output value, with the same share for employment, among the electrical and mechanical industries. The development of this subsector, however, depends upon the degree of integration, both backward and forward. There are at present over 60 establishments in this subsector located mainly in the region of Tunis, Sousse, Bizerte and Sfax. Most of the companies are small scale units but three large enterprises, Ateliers Mecaniques du Sahel (AMS) at Sousse, about 220 km south of Tunis, Societe Tunisienne d'Emballages Metallique (STUMETAL) and Societe des Industries Metallurgiques (SIMET) both located in Tunis dominate this subsector. Information available in this subsector is very limited, the review and assessment is mainly based on these enterprises which the mission visited. B. Product-mix, Production and Inputs 6.02 Tin containers are being manufactured by STUMETAL, employing at present about 700 people, was created in 1965 as a joint venture with the French company CARNAUD. CARNAUD contributes to 37% of share capital and provides tech- nical know-how in all areas. Two metallic packing industries are STUMETAL's iaajor clients; (i) the preserve of food products like fruits, vegetables, fish, halwa, olive oil, juice, beer, etc. (85% of production) and (ii) packing of industrial items like paints, varnishes, petroleum products (oil, grease), gum, printing ink, insecticides etc.(15% of production). The range of containers produced is extremely wide, consisting of about 80 different type of cans and boxes with contents ranging from 250 grms or 0.3 litre to 20 kg or 20 litres, respectively. With present capacity of 22,000 to 25,000 tons per year the production over the last three years has been as follows: ANNEX II Page 25 of 30 - 84 - TUNISIA: TIN CONTAINER PRODUCTION (tons per year) 1976 1977 1978 Food Products 10.100 11.500 13.700 Industrial Products 1.900 2.100 2.300 Total 12.000 13.600 16.000 The production of tin containers is directly related to the agricultural pro- duction. In spite of inter-annual and seasonable fluctuations, the production of tin containers has increased since 1971 at an average rate of about 9% per year. 6.03 The principal inputs in the production of tin containers are raw materials and labor. This industry is fairly well labor intensive, if appro- priate equipment and technology is selected. Due to lack of labor in Europe fully automatic production lines have been installed there. This approach has been adopted in Tunisia and is certainly questionable in this country. STUMETAL has recently been relocated and expanded at an investment of about US$10.0 million. Facilities include about 20 production lines (3 for printing of sheets, 10 for can's cover and 8 for cans). Such an equipment is likely to reduce the present share of labor which constitutes about 14% of the sales, Further it requires professional labor skill in the setting-up, maintenance and repairs of its complicated technical and control systems, which is lacking in Tunisia. The major raw material tin accounts for about 70% of the output value. It is entirely imported in the form of sheets or strips. 6.04 The quality of the product (appearance of tins, water tightness, soldering of seams, resistance of material) is still to be improved. The major problemswhich this industry is likely to continue to face are: (i) under- utilization of some of its capital intensive production lines which are unadjusted to a seasonable, fluctuating and over-diversified demand; (ii) technical problems in the resetting of the transfer lines due to change in demand of the size of containers; and (iii) substitution of tin through other materials (plastic, aluminium). 6.05 Steel tubes manufactured in Tunisia vary from 0.5 to 4" diameter and are used primarily in the structural and construction industry. Production is dominated by the private enterprise SINET which employs about 100 people. SIMET is replacing its existing production lines through an equipment with a higher degree of automation. This will increase the capacity from the present 12.000 tpy to 25.000 tpy, the production in 1978 being 7.000 tpy. One of the ANNEX II Page 26 of 30 - 85 - common features among the Tunisian enterprises is to decide further expansion of their plants even if their existing facilities are operating well below capacity. It is hence essential that the appropriate autho-4ties should approve a project for expansion only if the existing capacities are utilized to the maximum extent possible. 6.06 In the production of steel tubes the major inputs raw materials and labor account for 65% and 6% of the value of output respectively. Steel strips of thickness up to 3 mm are the main input material and they are imported completely. The percentage of labor in the value of output will decrease further as a result of the new equipment replacing some of the formerly manual operations like cutting and threading of tubes. The major manual operations left now include galvanization and cleaning of tubes, inspection, maintenance and repair of the equipment. 6.07 The production of a diversified range of products with about 80 items like agricultural hand tools (pickaxes, shovels, hoes, teeth forks, nippers, hammers), hardware (locks, hinges, joints), mechanicalhand tools (wrenches, spanners, pliers), sanitary and bath fittings, electric items (plugs, switches, circuit knobs), fasteners (Bolts, nuts and screws) and cutlery is dominated by the public sector enterprise, AMS. With the main objective of achieving a high degree of import substitution in maximum possible number of products, this company was created in 1961 with the technical assis- tance of the Polish Export Institution CEKOP. The various product lines possessing different manufacturing technologies should be technically in separate production units and their integration in one existing unit should be reviewed so as to rationalize product programs. This could likely lead to creation of new profit centers or of small and medium sized enterprises. In addition to AMS there are a number of small units manufacturing such products in other regions of Tunisia. The production figures for the product lines are not available but from the information collected during the field visits, it is estimated that about 1100 people are employed in the production of these items with a total output value of approximately US$ 15 million, of which the AMS contributes about 65%. The production of these items, with appropriate selection of technology and equipment, is labor intensive (about 15-20% of output value) and Tunisia, having the advantage of cheap labor, is in good position to explore the possibilities of developing these product lines. The share of raw material is about 65% of output value and its consumption is met entirely through imports. C. Market, Protection and Cost Competitiveness 6.08 The total production of tin containers is geared towards the local consumption. However, about 15% of tins are indirectly exported through the sale of conserved food products. In case of industrial uses,the local pro- duction satisfies about 80-85% of the local demand. The local production is protected fairly well. Duties and taxes amount to about 27% on the finished products, and the price level of the local production is about 120%(excluding the impact of taxes and duties) to that of European FOB price.l/To improve the efficiency of the local industry with respect to productivity, cost and quality and to allow international competition, it is recommended that the tariff structure should be revised. 1/ 1100-1250 $/T, as compared to 850-900 $/T FOB Europ. ANNEX II Page 27 of 30 - 86 - 6.09 Considering the technical equipment installed for manufacture of steel tubes in Tunisia, this industry should be equally competitive with the European manufacturer but due to homologation of prices in Tunisia the price level is about 130% (including about 20% taxes and duties) as compared to prevailing FOB European prices. Import of steel tubes in the manufactured dimension range is levied with about 20% taxes and duties. The justification of protection through homologation of prices and restriction of imports should be reviewed. 6.10 Except for cutlery the production of all other products mentioned in para 6.07 of this chapter are for the local market. Total figures of local capacity and production are not available but the statistical data shows that the domestic demand of various products is also met through imports. The local prices seem to be somewhat competitive as compared to imported goods on which duties and taxes of about 15-20% are levied. Cutlery is a special case with a significant part of production being exported to Italy. This has become possible under an agreement of technical assistance with an Italian firm who has supplied know-how and equipment. With the main advantage of Tunisia's cheap labor the cutlery items are exported to the Italian firms at 35-50% less than the domestic prices. D. Future Developments and Recommendations 6.11 The demand for tin containers in Tunisia as estimated by two public institutions API and CNET is expected to be in the range of 17.000- 20.000 tons per year in 1981 and 23.000-30.000 tons per year in 1986. API, estimating the present domestic capacity at only 13.000 tpy as against the actual existing capacity of 20.000 tpy, recommends the creation of a new enter- prises to produce 10.000 tons per year of tins in the initial stage. The new plant could be expanded later. During the mission's visit STUMETAL indicated its intentions to also expand its activities further to manufacture cans and tins for industrial use. In the light of (i) contradicting estimates for future demand; (ii) the present difficulties experienced by the existing plant with respect to product quality, material procurement and organizational functioning; (iii) the development of the packing industry and its technological changes and (iv) the product-mix required for food conservation as well as for industrial application, it is recommended: the present installed capacity should be utilized fully in 3 shifts, changes in the growth of packing industry should be thoroughly studied and discussed before any expansion or new unit is approved. 6.12 With the selection of proper technology and equipment, the metal products industry is labor intensive. Tunisia has built up a labor force with the grade of technology required for the production of such products. The increasing local demand can be met. However, to export such products, Tunisia does not possess an international sales organization and traditional name as manufacturer of metal products. The possibility of exporting such products is through a foreign collaboration. This approach has brought good results in the export of cutlery products. It could be followed for other products like hard tools, electrical and mechanical hardwares, sanitary fitting. Imports of these products in European Community Countries has been increasing over the recent years and provided a priority is attached towards seeking a potential European partners with technical know-how and marketing organization, a number of small enterprises could be feasible in Tunisia. ANNEX II Page 28 of 30 - 87 - VII. SHIPBUILDING AND SHIPREPAIR A. Introduction 7.01 In Tunisia there is a number of yards for the construction of small fishing boats to meet the local market requirementg. Some foreign firms have also established under the 72-72 law to manufacture and export sailing boats to European markets. However, shipyards of this type are not included in the IMME, as they perform mainly wood and carpentry type of work. Ship- building and repair is being dealt in this chapter in so far as it involves metal working or machining operations, mostly for cargo, passenger and mili- tary vessels. 'unisia is not engaged in building vessels of this kind, but it has important facilities for their maintenance and repair. The following paragraphs deal with SOCOMENA, the owner and operator of these facilities. There are also repair shops for small fishing boats, for which no information was available. B. SOCOMENA's Capacity and Facilities 7.02 SOCOMENA was created in 1963 as a state owned company to substi- tute the former French military arsenal of Sidi Abdellah. With a work force of about 700, SOCOMENA is located in Menzel Bougurba on the Bizerte bay, a prime location in view of the ongoing traffic between Europe and the Middle East. SOCOMENA's facilities include four dry docks which can accommodate vessels up to 60,000 DWT, repair quays of about 1000 meter length and an important industrial infrastructure (foundry, machine, boiler, woodwork and electrical shops). Most of the installations are old and have not been renewed. 7.03 Based on the existing infrastructure and equipment, SOCOMENA has a capacity to repair about 120 ships per annum. Starting from almost zero capa- city utilization four years ago, SOCOMENA's management has succeeded to gradually bring the number of ship repaired to 65 in 1978, out of which more than 80% are from foreign origin. SOCOMENA expects that within two or three years, full capacity will be reached. 7.04 Services provided by SOCOMENA are comprehensive. They include all mechanical, electrical, carpenting, welding, painting and testing work for stan- dard inspection as well as for repair of wrecked vessels. Outside ship repair, SOCOMENA occasionally performs maintenance work for heavy industrial machinery and equipment (cement, steel etc.). ANNEX II Page 29 of 30 - 88 - C. Cost Structure and Competitiveness 7.05. Ship repair is a service rather than an industrial activity, with a high labor content. In SOCOMENA's cost structure, labor accounts for about 60%. It is at the same time SOCOMENA's main advantage and also its main cons- traint. Among competing countries for shiprepair (Malta, Portugal, France, Italy, Yougoslavia, Greece and to a lesser extent northern Europe), Tunisia is probably the country with the cheapest wages. On the other hand, the type of work performed in ship repair yards necessitates highly skilled and specialized labor, difficult to find in Tunisia. SOCOMENA is investing heavily in training its labor force, but the results of such policy are being obtained only gradually. 7.06 Capital charges, related to infrastructure and equipment, are usually after labor the next item in importance in the cost structure of ship yards. However, in the case of SOCOMENA, capital charges are very low as the company's assets were inherited from the years of colonization and as invest- ments were not renewed due to financial difficulties. The availability of infrastructure and equipment at no cost has, no doubt, been an advantage for SOCOMENA in the early years of its operations. However, it is important that the existing equipment is gradually renewed. 7.07 SOCOMENA and prices are subject to international competition. Compared to prices offered by competing ship yards, SOCOMENA's prices are attractive as the firm needs to establish itself on the market.l/ With the prevailing prices, SOCOMENA's operations are now breaking even and it is expected that they will become profitable as the capacity continues to build up and the labor force gains experience and productivity. D. Future Development 7.08 Worldwide, the ship building industry is in a difficult situation, due to a limited market potentialities and intense competition. In these circumstances and taking into account the high technology requirements of this industry, there is no prospect at present for Tunisia to establish a ship- building industry, except for the construction of fishing or sailing boats as now undertaken. 7.09 Although closely related to shipbuilding, shiprepair is a different activity, of the service type and with a high labor content. SOCOMENA's prime location on the Mediterranean Basin, the low level of wages paid in Tunisia and the existence of an infrastructure inherited from the years of colonization are important advantages for the development of SOCOMENA. On the other hand, the constraints SOCOMENA is facing, relate to the lack of qualifications of its labor and to the hazards of the shiprepair market. Given these constraints, the best strategy for SOCOMENA is to expand gradually based on the progressive build up of its work force experience and of its reputation on the market. 1/ 6-7.5 $/hour, for 15 $/hour in Europ. ANNEX II Page 30 of 30 - 89 - 7.10 SOCOMENA has an investment program to renew some of its equipment (about DT 2.5 million in 1979) and to expand further. The expansion project which is still at the early planning stage, would consist in the enlargement of the existing dry dock to accommodate ships with a capacity ui 120,000 DWT and also in the modernization of the various workshops. No investment cost estimates has been prepared. In view of SOCOMENA's development potential, the company and investment program deserves to be studied thoroughly. In this respect, experienced consultants should be hired to review SOCOMENA's existing facilities and to investigate its market opportunities and require- ments. This study should lead to the formulation of long term investment program and to the preparation of feasibility studies. A similar study should be undertaken for the repair of small fishing boats. TUNISIA N- 0CAN7 27lNW5TRIS StEKARY OF r'A;iN 7fiDWTOES S5ettr VUeDIS str-ot-re -nd Plts Wiok Tra-sport ?ssesnl l Mtal Products Ship te9eir N.e. 5sa00A PobtLete ReceSs. SDI SASH! SICA16 STIA 500121 Sa50 ST AMS STUI3,TAL SbCUS City T-n1. TSu usts Tuotnis Tntsi Sousee Tunis MnsI El n. uri, bas Sse Tunis anest bourg. Ouse--hip Tublit Publit ri t-. PrLte Private S-tPili iPrivate SInblec Privet. icetic uoblis Polis Produre Irus and Steel Iron nete Osti Lrily tou l- Prierily Truk Aotomtsilu tesine Pepairs tlsel IsEgines Welded steel rasers Metallic Ship rpair -stilr toeq ftr pareleo Steet un3teinera Aac_Dli"B + mcsinary fbs Agrisyltutst CentMies & OstIcsI led. Structures enotsceclsry, Capacity 1976 5,5DD Toe 4,Z00 Toss 10,000 Tone 6,500 Tons 1200 No. 11,000 No. 120.000 tour. 7.500 No, .c000 Tote 1.000.000 25.000 Tune 120 No. Pr-du'ties t97b 3,800 Tees 2,500 Tone 6,500 Tn S 3.300 Tot 8a lto, 7,30D Io. 95,00D Sours 4.400 No. tS.OOO Tone 750.000 16.200 Thu 80 No. CePuolty utilleation (23 69 63 65 62 67 66 60 59 60 75 65 67 huster of Employ-o 560 320 450 370 187 1,450 s0 90 10Z 700 500 700 FTINANCZAt S.les (11 000-t977) 2.030 2,430 3,422 1,679 2,444 23,148 472 2,288 2,658 3,987 8,098 1,466 Au '% of Solos - xportt 3 4 - - - - - 8 0 - s0 - s5tclsls 27 52 32 26 35 76 50 86 65 66 7t 23 -Labor 44 24 20 30 10 8 31 6 6 15 14 64 D-prstio.& PrtvltioSIt S 3 7 4 8 1 3 3 3 3 3 3 -DStite 6 T.ee 9 7 5 4 9 4 6 5 4 - NtPFrofit 0 6 11 5 4 Z (1) I 12 4 1 (7) tut worth 1035 961 1 803 865 1,303 2,932 566 254 976 1,222 1,561 317 Not Pied Aute.. 1,551 394 2,242 764 1,479 3,443 336 84 352 1,419 4.106 266 .It Profit ss of e Worth O 15 20 9 a 16 0 a 32 14 7 (33) @ Subt Oqoity Rltes 45:5S 14:66 32:68 12 BB 36,64 62s38 5:95 30:70 11:89 44:56 60:40 60:40 crurrtt ROtet 1.2 1.7 1.2 1.1 1.3 1.3 1.1 1.2 2.4 1.5 1.2 1.4 Invt.refs (lhnuMbr of susuths) - Rnv Mutetiels 13.0 1.5 8,3 10.5 5.3 5.4 5.5 2,6 5.0 1.8 3.4 13.6 - Fitlshd Produ-ts 2.4 .1 n. . 1.5 1.5 .5 1.2 0.5 1.9 .2 n.e PR7Ce3 AND TAXES -Tuetelas dotrtit price s a a of Turnpfesn FoB Ptice if 120-130 -------- ------- o110-120-- , 160 200 110-120 155 130 130-14a 90-100 - Dstis 4 T-e Ote=luded is Tunielen 31 5/ drunetle price- -----4- I-1- 19 50 8 25 19 19 - - Irper tues en flutiebd prOdsuCta 7* 4' 51 4/ 51 160 40 46 21 27 ONOIOII AM3 9771RE 7NM717'RT S Typo Of Itvsuttnt Ret-ec-t it-rnuLos eso Steel praueos itl - 1)Sxtnsslos of present 1)Meehine shop to 7fpn1rn end Aotoortvu eettles (stullrgi) eftilitlee Eposion - produce perts - lenovel Just sohiuvod rehsbilltius 2501ut fur ununfeturt 2)P1ent t nutuf-c- 4.3 eliltist UT icren ln ships Of byhrals-ul sytun bar npud enginco leuslnut end qrsp.ety fee n s .pa ity of 60.000 to 120,009 Futort proj_nt industrial rio bote.. A-eroo Cupuolty 8-10.000 8-1.000 120,000 toIs - 2) 10,90 Me. 20.000 f23 30.000 Nu, Ouployetot A.. n.s 114 2) 100 1,500 o,u lsveetRunt tout (MO 090) 2.000 9.00o 2,2 1) 520 15,000 1) 300 1.000 1.5 2.4 2) 2) 2000 ipl-ntstlon period 1980-1992 19B0-1982 1977-1979 1) 1979-1979 1979-19R4 1) 1990-1962 1979-81 1991-1983 1986-1963 2) 1977-t979 2) 1961-1983 1V Aittocr rxeor V Corr .poodisg to p-odocto -arofoctured by the Compooy 3 0 for oqulyrors d.csso--ed to -uthor d --- 4/ 4 for squipesot d-ct-Ludtd to -ucthori-d i-vestmonts 1odustr.l- Pro-o-ts Dp-rttt-- April 1979 ANNEX III SMALL-SCALE INDUSTRIES IN THE ELECTRICAL-MECHANICAL SECTOR - 91 - ANNEX III Page 1 of 17 TUNISIA SMALL-SCALE INDUSTRIES IN THE ELECTRICAL-MECHANICAL SECTOR Foreword. In the absence of a structured base of J-f.ormation about small-scale industries, this report is based on the limited surveys that are available and on the observations made during field visits to small-scale electrical-mechanical firms in Tunisia. Characteristics of the 14 firms visited are given in Attachment 1. Role of SSI in the Sector 1. According to the 1976 Industrial Census, 92% of all electrical- mechanical industries (EMI) in Tunisia is small-scale, employing under 50 workers. Eighty-six percent of these small-scale industries (SSIs) are essen- tially composed of very small, almost artisanal, production units employing less than 20 workers. Small electrical-mechanical industries are generally labor-intensive as they account for some 43% of the sector employment. Their labor productivity level is, however, very low compared to the larger firms as they contribute only 24% to the sector total value-added and gross output. As the firm size gets smaller, this pattern worsens; firms with under 20 workers account for 36% of the sectoral employment but merely for some 18% of the value added and gross output. Subsectoral Distribution 2. Table 1 below shows the distribution of small EMIs by sub-branch activities. SSIs are active in all electrical-mechanical activities although Table 1: SUB-SECTORAL DISTRIBUTION AND CONTRIBUTION OF SMALL EMI's SSI Enterprises SSI Employment SSI Value Added Total Share in Total Share in Total Share in SabectLo/a (No.) Subsector (No.) Subsector D'OOO Subsector Basic Metals 2 50% 67 2% 230 4% Foundries, Platework, Electrical Industries 245 89% 3,503 36% 805 24% Mechanical Works 425 95% 5,409 62% 2,150 32% Metal Products 190 93% 2,553 55% 1,615 33% Shipyards 32 86% 435 26% 980 31% Total 894 92% 11,967 43% 5,780 24% /a See definition of subsectors in Attachment 2. Source: 1976 Industrial Census and mission estimates. - 92 - ANNEX III Page 2 of 17 their relative importance is more strongly observed in three sub-branches: foundries, plateworks and electrical industries (with a share of 36% in sub- branch employment and 24% in value added), mechanical works (with a share of 62% in employment and 32% in value added) and metal products (with a share of 55% in employment and 33% in value added). Ownership and Entrepreneurial Ability 3. The predominant form of ownership in all small EMIs is the single or family proprietorship. The typical owner is a self-made man who started as an apprentice/worker in a shop/firm or as a merchant who used to trade the goods he is now producing. He has little formal education but has acquired a few basic technical skills from working experience or from some specialized training courses at local technical schools. Although owners appear resource- ful and hardworking, their strong commercial background coupled with their poor level of technical base have resulted in a strong profit motivation but a general lack of technical-innovative instinct among SSI's. (E.g. why spend money trying to innovate or redesign a product when one can earn large pro- fits, thanks to protection, by just assembling imported component?) There is thus a tendency to shy away from new ideas which may involve possibilities of risk and higher costs. Production Infrastructure 4. Small EMIs generally show a tendency to overbuild their plants, especially if they have moved into industrial zones. Designs have been carried out with limited help of industrial specialists and the results, in many cases, are relatively expensive buildings combined with serious problems of layout, leading to inefficient organization of the production process. Production Technology and Product Mix 5. Just as for SSIs in other sectors, the EMIs' technology varies greatly between sizes and within sizes. In effect, production methods of small EMIs are based on a mixture of very modern machinery and of traditional, almost archaic equipment. Modern technology is mostly found in the activities of electrical, mechanical works and metal products. This relatively high machine power when confronted with the limited market of the small enter- prises in these sub-branches has resulted in a serious problem of under- utilization of capital: in effect, their operating rate averages only about 50% of full production capacity. 6. This excessive capacity results from one or all of the following inter-related factors: (a) Over equipment within the firm as the small industrialist strives for self-sufficiency in his production process, in the illusion of maximizing profits for himself; - 93 - ANNEX III Page 3 of 17 (b) high degree of duplication of certain basic universal machinery among firms within a given sub-branch as each small entrepreneur attempts to diversify his production lines, which often amounts to simply copying other success- ful projects already existing; (c) given (a) and (b) above, the limited size of the local market(s) inevitably leads to serious underutilization of capital; (d) a general taste for more and more machine which may not be of immediate use to the industrialist so that he finds himself in the end with equipment excessive to his needs; and (e) a lack of access to sound selection procedures which leads him to choose equipment unappropriate/unsuitable to his needs. 7. The high degree of vertical and horizontal integration ((a) and (b)) within each firm resulted in a highly diversified product mix. Unfortunately, however, there has been little initiative for engineering adaptation and stand- ardization in the design of the products, parts or components fabricated, as small EMIs suffer from a lack of proper technical background and from disecon- omies of scale either in the existing production lines or in the "research" to identify new production lines. 8. In view of the very diversified nature of the small EMIs operations, a functional classification (based on visits made in the field) of their prod- uct mix may be made as follows: - Group a: SSIs producing semi-final and final goods which are also manufactured by larger sized firms. They are mostly found in the activities of steel structure and plate works, producing and/or servicing basically on order. Their produc- tion level is still artisanal with generally traditional, archaic production methods, although there is occasional modernization of the equipment; - Group b: SSIs producing intermediate finished goods of rela- tively standardized and straightforward nature such as simple foundry and electrical goods as well as small metal products like nails, nuts/bolts, metallic screens, locks, cutlery, etc. They produce in small series and have modern equipment/ technology, with the exception perhaps of a few small foundries where production remains considerably artisanal in method and custom-made in orientation, essentially to meet demand for spare parts; - Group c: SSIs producing in small series final goods whose nature is relatively more complex and specific to local demand. They are mainly in mechanical works, ranging from - 94 - ANNEX III Page 4 of 17 machining and/or assembling simple agricultural equipment (ploughs, pumps, etc.) to production of small construction equipment (wheelbarrows, small dumpers, etc.). They are characterized by a mixture of old and new technology. In most cases, small EMIs are equipped with a relatively large amount of obsolete or archaic machinery. This results simultaneously in underutiliza- tion of capacities and in under-capitalization relatively to large firms, the latter factor leading in turn to a low productivity of labor in small EMIs (see Attachment 3). Production Inputs and Cost Competitiveness 9. Steel products, the major input for EMIs, small and large alike, are imported. They include flat steel sheets as well as non-flat products such as "profiles". Steel procurement for small EMIs is generally handled by local traders. Because of the small quantities involved, because of the lack of standardization in the requirements and because of the mark-ups at the inter- mediary agents' level, prices for steel inputs paid by small EMIs are very high and fluctuate widely according to market demand and supply situations. In view of these reasons and of the long waiting periods involved with order- ing new purchases, small EMIs often suffer from shortage of materials for pro- duction as most of them cannot always afford to keep large and costly inven- tories. Other steel inputs such as wire rods, cables and iron/scrap metals, are produced and/or purchased locally. Selected small finished input compo- nents (e.g. nails, wire, etc.) are procured from local manufacturers as obligated by import restriction laws. However, a host of other semi-finished and finished items (e.g. special precision nuts/bolts, plastic wheel component for water meters, etc.) are also imported. While most entrepreneurs acknowl- edged that most of these components could very well be supplied locally, they claim that the unreliable quality of the locally produced items mitigate against this possibility. Furthermore, the small quantities demanded tend to result in higher cost of production, and consequently in selling prices that are two or three times higher than for the good quality imported components. In the cost structure, the raw materials share varies considerably with the mix and degree of integration/diversification of the firm's operations. It does account, however, for a major proportion of total production costs, estimated at about 50-70% from field observations (para. 24 d, e). Labor inputs represent an average of 10 to 30% of production costs, and is essen- tially composed of unskilled or semi-skilled workers (para. 23). 10. At present, there seems to be good profitability in small electrical- mechanical operations. Discussions with small industrialists visited in the field indicate a 20% net profit on fixed assets as the normal rate of return envisaged for a new project in selected activities. This should reflect some- what the cost competitiveness of small operations, as it does to some extent for production units in Group (a) where product quality is reasonable but capacities are underutilized due to market constraints. In reality, it is possible because of the restrictions in imports of selected locally produced goods and because of the existing system of price controls which in practice only acts to fix firm's profit margins at certain level deemed reasonable on ANNEX III Page 5-of 17 the basis of production costs. The lack of coordination/effectiveness in this monitoring of input and output prices and in the protection against foreign goods has caused, however, financial problems for most small EMIs, especially in Groups (a) and (c). This lack of coordination has also allowed local pro- ducers to fix higher prices for their components, which has the counter- productive effect of discouraging utilization of locally produced goods whose imports are not restricted by law (para. 9). Marketing and Subcontracting 11. Small EMIs catering to specific local demands and producing on order, such as the ones in Groups (a) and (c), seem to have acquired their own, although limited, market based on their tradition of good and reliable work. Generally, small EMIs are facing some serious marketing problems due to the limited size of the Tunisian demand, in spite of heavy restrictions on imports of certain locally produced items. Some firms have their own marketing outlet. Most, however, sell through wholesalers and other middlemen who can take advantage of local producers, for example by simply using them as last resort inventories in order to avoid having to incur costly inventories themselves. 12. Subcontracting relationships are of limited scope. Thus, ancillary production for larger enterprise or work on commission is only a supplementary activity. The main explanations for this absence of inter-industrial linkages are: (a) tendency for larger enterprises to prefer self-sufficiency in production and over-integrate at the firm's level; (b) inability of small EMIs to produce in series with quality, specifications and time delays consistent with requirements of larger enterprises; (c) high prices of locally produced components produced by SSIs; and (d) lack of market transparency and information on who produces what. 13. In view of the relative importance of the Tunisian public sector participation in production and services, it is surprising that there is no structured channel for Government procurement from small producers. In effect, very few small EKIs have succeeded in securing Government orders. Investment 14. Data based on fixed assets for small EMIs are not available, with the exception of the yearly investment statistics reported in the Industrial Censuses. An indication of the investment pattern in the small EMIs compared to SSIs in other sectors may be obtained from the 103 projects, with total investment cost of D 250,000 or under, financed by FOPRODI in 1978. As seen in Table 2, small EMIs' investment intensity averaged at about D 5,500 per job created, which is slightly above the average unit investment cost - 96 - ANNEX III Paqe 6 of 17 for SSIs in all sectors as well as the Bank's eligibility criteria for labor intensive projects (D 5,100 in 1978 prices). This confirms the relative under-capitalization of small EMIs (Attachment 3) and points to their labor intensity characteristics and the potential role they may play in the employ- ment generation objective set by the Government for the industrial sector. Tabie 2: SUBSECTORAL DISTRIBUTION OF FOPRODI PROJECTS IN 1978 No. of Investment Subsector FOPRODI Projects Investment Employment per job (in Dinars) Electrical-Mechanical 19 18% D 2,766,600 506 5,467 Textile/Leather 10 10% D 533,750 208 2,566 Building Materials 15 15% D 4,378,800 626 6,994 Foodstuffs 34 33% D 4,381,510 722 6,068 Construction/ Public Works 6 6% D 621,035 490 1,267 Miscellaneous Mfg. /a 19 18% D 2,581,547 446 5,788 Total 103 100% D15,263,242 2,998 5,091 /a Of which 6 projects are in general mechanical works/services. Source: FOPRODI, 1978. Finance 15. Just as SSIs in other subsectors, lack of access to institutional finance, particularly for very small sizes, is a very important constraint to the potential growth and development of the small EMIs. In view of the reluc- tance of the small firms to disclose information on their financial position and of the limited experience of commercial banks dealing with small entre- preneurs, it is difficult to ascertain the exact dimensions of the problem. 16. Discussions with entrepreneurs reveal that projects (new investment or expansion of existing units) are usually financed by borrowing from family/ friends or by ploughing back profits. Those firms which reported financial constraints emphasized inadequate financing of working capital. Some small EMIs, in fact, have been able to operate only thanks to a system of advance payment from their customers. The combination of uncertain raw material supplies (para. 10) and lack of working capital puts small EMIs at the mercy of seasonal market fluctuations. 17. In 1974, in an effort to promote SSIs, the government created the FOPRODI (Fonds de Promotion et de Decentralization Industrielle), a budget financed fund intended to give financial assistance to small industrial projects, especially those located outside of Tunis. It is administered ANNEX III - 97 - Page 7 of 17 through participating banks which are expected to complete the financial plan for FOPRODI-assisted projects with loans made out of their own regular re- sources. Since it became operative in December 1976 until December 1978, 226 projects with total investments of D 26,787 million have been approved under FOPRODI. About 24% of this total investment were financed with FOPRODI funds. Sectoral statistics for 1978 alone show that small EMI investments which are assisted by FOPRODI represent only 16% of the total investment in the ENI sector. Thus small EMIs in particular are still faced with difficulties in gaining access to banking credit, compared to other borrowers. In effect, commercial banks remain generally uninterested by small EMI financing because they perceive the risk involved in SSI as excessive and because they feel that there is already too much duplication of activities in the sector (para. 6(b)). Institutional Support 18. Small EMIs suffered from the same lack of institutional support as SSIs in other sectors. In effect, dispersed institutional responsibility toward SSIs and a system of incentives biased towards large scale modern enterprises are the characteristics of the policy framework for SSIs in Tunisia. There has been nevertheless, increasing attention given to SSIs in terms of finan- cial and technical assistance in the last two Plans. However, SSIs benefits from policy instruments such as fiscal incentives remain constrained by the biases contained in the general criteria of eligibility for investment benefits. 19. As recognized by the Tunisian authorities themselves, SSIs do not fit into the standard incentive scheme (Law 1974-74). In effect, one preliminary condition to benefit from incentives is to set up a firm creating at least 10 new permanent jobs, thus eliminating the bulk of small workshops. Another condition is that 30% of investment must be financed from the investor's own resources, which is not always easy for a small industrialist presenting proj- ects costing more than D 75,000. In addition, income tax exemption increases with employment, irrespective of investment amount as shown below: Table 3: INCOME TAX EXEMPTIONS OF LAW 1974-74 Category Number of New Permanent Jobs Rate of Exemption A 10 - 20 40 B 21 - 50 60 C 51 - 100 70 D 101 - 150 80 E 151 and above 90 The concept is thus to give consideration to employment creation but the smallest firms are excluded and firms emloying 10 to 50 people receive less concessions than larger firms. In other words, tax exemption is not related to investment per added working place and the choice of technology is not to be influenced. ANNEX III Page 8 of 17 - 98 - 20. Location of plants outside Tunis is encouraged through one extra year of tax exemption, grants for infrastructure work and subsidies on the interest rate for specific risk capital loans, to complement the owner's equity. Encouragements toward decentralization apply, in theory, to small and medium firms, but the smallest firms with up to 9 working pl. f's are again excluded. The law 1972-38 provides special incentives for export-oriented enterprises such as total or partial tax exemption for up to twenty years, exemption from customs duties on imported equipment and intermediate goods, exemption from turnover taxes on purchases from domestic sources, and the right granted to non-resident investors to dispose of the proceeds of their exports. These concessions promote foreign enterprises without, however, encouraging local subcontracting and local linkages which could promote small enterprises. Finally, in the procurement of supplies by government agencies, there is no indication of specific efforts to promote supplies from small firms. 21. While it can be argued that small workshops can generally evade tax payments more easily than large firms, such evasion is partially due to their inability to maintain a good accounting system and is often an encouragement against implementing such a system. The only real tax incentive for SSIs in Tunisia is the exemption of registration tax (taxe a l'enregistrement), and some thought is now being given by Government authorities to the possibility of reducing income tax rates for SSIs. 22. Responsibility for implementation of various administrative regu- lations and policies affecting SSIs rests with several different government institutions (e.g. Directorate of Industries, Ministry of the Economy; A.P.I.; Office de l'Emploi, Ministry of Social Affairs; Ministry of Finance; etc.). Lack of communication and of unified criteria among these agencies has ham- pered the development of consistent regulations and integrated programs in support of SSIs. This institutional fragmentation also has led to serious inefficiencies due to duplication of actions, competition among some agencies as well as inertia in some others. At present, there is a country-wide system of technical assistance to SSIs recently set-up within API to help small entrepreneurs with project identification (in cooperation with CNEI), prepara- tion and implementation. In addition, a small SSI unit is also found in BDET. Although this is a good start, it is still too early to make an assessment of its effectiveness at this time. Development Constraints and Needs 23. There are at present two major sets of constraints to the develop- ment of small EMIs. One is internal to the small production units themselves and involves the inter-related issues of output quality, price and reliability in delivery. Improvement in these production aspects will require: a) up- grading of production techniques through selective modernization of equipment in order to achieve the quality needed for subcontracting first and exports at a later stage; and b) improvement in management of production operations (e.g. selection of product mix, procurement of raw materials, labor skills, production organization), in order to increase efficiency and reduce produc- tion costs. Recommendation of specific actions to be taken for the promotion of SSIs in general and small EMIs particular are found in paras. 25, 26. ANNEX III Page 9 of 17 24. The other set of constraints is essentially the lack of concrete institutional support at the government level for the development of small EMIs (and SSIs in general). Although exogeneous to the firm, their resolu- tions will be necessary to complement and enhance the actions taken at the firm level. These involve the establishment of specific polV ies to promote and assist the development of small EMIs in Tunisia. The most important measures needed are: (a) provision of incentives and technical/financial assistance schemes to help existing and to encourage new SSIs; (b) provision of incentives to promote subcontracting between larger and small firms and to encourage government procurement of supplies from small firms in order to establish a more integrated industrial structure; (c) standardization of products at the final as well as intermediate levels in order to establish quality norms and facilitate quality control; (d) organization of group- procurement of raw materials which need to be imported in order to reduce purchasing costs and needs for large inventories; and (e) strengthening of local suppliers' industries in order to achieve greater overall competitive- ness and efficiency. Recommendation of a suitable institutional framework are given in para. 27. Development Program for Small EMIs and SSIs 25. The financial assistance program should provide SSIs with a special source of credit for investments and permanent working capital, and should also include a guarantee scheme to offer an insurance-type coverage for the poorer SSIs which cannot meet the high collateral requirements from the sponsoring commercial banks. The technical assistance scheme should cover the following aspects: (a) promotion of entrepreneurship and assistance at pre- investment stage by helping the entrepreneurs, both pros- pective and established, to formulate bankable projects through preparation of regional surveys, feasibility reports, etc...; (b) technical counselling regarding the selection and utiliza- tion of materials/equipments, production planning and control, etc...; (c) counselling for the improvement of design, quality and standards of products; (d) management counselling regarding financial planning, accounting practices, organizational structure, personnel practices, etc...; (e) marketing assistance regarding price mark-ups, adver- tising methods, marketing channels; (f) promotion of subcontracting between large and small indus- tries by dissemination of information by the Technical Assistance Unit; and - 100 - ANNEX III Page 10 of 17 (g) establishment of public common service facilities (until these can operate commercially) such as toolroom, testing/ quality control laboratory, leasing of specialized equip- ment, repair workshops. 26. Most of these functions enumerated above have already been fulfilled by the technical assistance scheme established under the Bank's existing and oncoming SSI projects, namely, (a), (b), (d) and (e). While this program is a good start and has covered a lot of ground, the development of small EMIs in specific will require the following emphasis: (i) promotion of subcontracting between small and large scale firms, by providing information on subcontracting oppor- tunities, bringing together supply and demand, facilitating the negotiation of contracts and helping the SSIs to carry out the orders, mostly regarding the achievement of good product quality, timely delivery and reasonable prices, all of which are prerequisites for the contribution of SSIs to the production of large industries. Other activities may include subcontractors' fairs in which parts and components required by large industries are exhibited and ancillary industrial estates set up for small contractors, usually in the vicinity of the larger firms. These actions will serve to reinforce the Government's SSI subcontracting policies proposed in para. 24(b); (ii) quality monitoring by helping establish a system of pre- determined standards (based on international/national specifi- cations), assisting the SSIs to meet them, and advising them on quality monitoring procedures such as testing sampling techniques, control charts, etc... The use of mobile vans with machinery and equipment should also be envisaged for promotional actions, training and demonstrations, and servic- ing in scattered locations. Of relevance to this feature is the recommendation to the Ministry of Industry to create a "Technological Institute" for industrial quality control; and (iii) organization of special extension services/training programs (in technical schools as well as apprenticeships in enter- prises already in operations) to develop, modernize and formalize the technical skills of the EMI's "middle level" workers. 27. Under present conditions, there is a need to establish an effective system of coordination and cooperation (or of division of labor) to maximize the combined contributions of the various institutions interested/involved in SSI development (CNEI, API, UTItA, te~chnical institutes, business and manage- ment schools, quality control laboratories, etc...). However, to maximize the effectiveness and efficiency of the above technical and financial assistance programs, there will be a need for an institutional arrangement more appro- priate and integrated than the one existing for the FOPRODI scheme. While ANNEX III Page 11 of 17 - 101 - several alternatives of institutional scheme may be possible, the most suit- able and practical set-up in the Tunisian environment seems to make use of the commercial banks as financial intermediaries and to group the technical assistance and guarantee schemes under the same umbrella forming an autonomous agency located under the aegis of the Ministry of Industry. This combination of functions appears to be most logical as it should help simplify loan processing procedures and allow for smoother project preparation and faster project execution. In effect, it would allow unification of the sectorial criteria used in the SSI project appraisal and approval. Furthermore, it would coordinate under one single roof the SSI investment promotion function and would become a centralized operational counterpart for SSIs outside the Government. The establishment of this agency would essentially involve the expansion and formalization of the existing SSI structure created within API under the Bank's SSI pilot project. The execution of the financial assistance scheme will continue to rely on the already existing financial institutions. Development Prospects for Small EMIs 28. The small size of the local market and the lack of tradition in an industry requiring technical and managerial know-how and skilled work force tend to limit the scope for growth (exports and import substitution) in Tunisian small electrical-mechanical industries. Nevertheless, small-scale EMIs may have the potential to play a role in selected areas, provided that the constraints and needs discussed in paras. 23 and 24 are met. Undeniably, it would be still difficult for small EMIs to compete effectively with their larger counterparts in Tunisia and especially foreign firms abroad with respect to the production of equipment goods. They should have better prospects with electrical-mechanical intermediate and selected consumer's goods (para. 29). However, the small domestic market and the existing excess capacities tend to mitigate against further growth in many standard, simple production lines (e.g. small hardware goods). It is therefore necessary that Tunisian small EMIs now turn their focus toward manufacturing/assembling of more complex intermediate goods and of special products/services to cater to localized needs. Indeed, equipped with assets such as low overhead costs, flexibility and convenience of operations, small scale EMIs can play a significant role in the development of the sector by supporting and complementing the activities of the larger industries. Accordingly, the prospects for development of small scale EMIs in Tunisia are found to be strongest in four general orientations: (a) production of selected consumer goods and of intermediate inputs for other firms; (b) sub-contracting work for larger industries; (c) production of special characteristics goods for local needs; and (d) maintenance/servicing of consumer goods and simple selected equipment. ANNEX III Page 12 of 17 - 102 - 29. More specifically, small EMIs could contribute the most to three production activities: a) the automotive related industries, provided that there is standardization of these parts and components at the national level and that the firm's product mix is appropriately chosen to allow efficient utilization of their equipment/capacity; b) the metal products industries; and c) electrical products, provided that the firms in these two activities do not over-diversify and can find appropriate technical partners for technology transfer and especially, for market arrangement for their output. 30. Small EMIs should also play an important subcontracting role in the mechanical activities where they can do accuracy-machining of mechanical parts utilizing universal machines rather than precision/specialized equipment. (This potential could be enhanced by a diesel engine and tractor project currently being prepared, but is conditional on the degree of integration to be chosen for the project.) Small EMIs/equipment could be maintained at full utilization with complementary servicing works on parts and components etc... for replacement purposes. 31. In the field of steel structure and plateworks, the future potential of small EMIs is lessened by diseconomies of scale and by existing general excess capacities, with the exception, naturally, for custom-order/works with up to one ton weight and/or for production of items of smaller sizes, e.g. containers of up to 400 kg weight. The advantage of small units in the foundry activity rests essentially on their ability to service localized needs and cater to special, custom-order works in view of the small but flexible size of their operations. Recommendations of product lines for small EMIs 32. In summary, the following specific product lines are considered to be most promising, subject to resolution of the constraints as identified in paras. 23 and 24: (a) Automotive related industries: production of filter, brakes, wipers, rims, shock absorbers, horns; (b) Metal Products: cutlery, agricultural and mechanic small hand tools, small tubing structures, sanitary fittings, metallic furniture, door/window frames; (c) Mechanical-electrical activities: machining of intermediate goods, parts, components, and jobbing work for their main- tenance and repair; fabrication of small transformers, switchboards, fixed resistors and condensors, of small mechanical-electrical household appliances such as mixer, coffee grinder, fans, etc... and of small simple agricul- tural equipment specialized to suit local needs (e.g. special pumps); ANNEX III - 103 - Page 13 of 17 (d) Steel structure and plateworks: general maintenance/service works, construction of small containers, boilers, etc..., of special order structures (rolling doors, etc...) of railings, road guards, etc... (e) Foundry: general maintenance/service works, production of special characteristic foundry pieces e.g. man-hole cover, and of spare parts for other industries. BASIC CHARACTERISTICS OF SSI. VISiIT 11 TUV751A S. Stilt ...odoti0 O..r *-. p .- Pr-d-ct ion Ptod..tto 0p-r.tLos Croth 3.t. Xgi- 4)oi Qociftd 10t.1 EMtot V.t00 lAbor Cot hoiuiti fri.. 'to.g/Addittnool dictdltooo C-.r.1 or Crotior 9M... of r. 0--r.hip t-oclton Atliity CoP °ity R.1. ( C)or t.r y.r T.fl.w Io d ;.7.tt Prd. VW.1. o Prod. Co t tlot. In . 1 . kpI.y"I nt Pror_on Prodothci P tin r 19/7 ArIc. -Pdo-tri c. Ti. Pn ..C 707 7 607 67 - 111 - _ _ PtOs*utis tn (.p,t.l (Mn C-iniMtVio 5 01 601 fL ...tcl1 100,O0O 0) Arto) Mapur S07 D0fffllti.. lOdt t( ) (77-78) 1950 AL.1.1- d4 C-.t. ?nti-t. Tol. St-Il n Hital lqo.. t Sarootiri. (.oi M. olq... Gr1il. Ciiuio) 36.5t n i 2 4 12 _ 6B n.. 70.000 V 7 Ho-i.# nid (Copitil 1.15l.. XIt. (5975) Isc-issl 20.000 31 1967 *10 Fri-cie If..t Ht.10 Set1.- 20t (C. 0 DrIli dg e7 (77-7 5) 10 25 60 (i2 3 2 14 2 I; n _ ) 19619 04 D P'rloi. 8f0 n itu C 6 *1;_) 75.0e0 1979-80 - t E.dt-..l r Slosh (u Osrto 0 mt.lmtlt 1975 SACA4 P1.1.C St.. St-& ftrti MOot IjOOOt _ 2 60 - I n . (CoPilol * 0 tOo.to1.swOOt (9 150,000 5) 1904 JADOUSSI ot Pricoto Sf.. Aulrt tolirOl 20-lOt (Copitni * Tool. (1977.78) 10,000 D) PI-. lv 4 is 22 - 301 n - 1977 SiAm Pti0.1 Sft.. 652 - 2 IS IS - 211 - - - - - 1947 Fvodr.L Ptt0.1. Toil. F.undry - k - 2 n 10 (C.pilot. C i.tinn 20,000 D) 1976 CbooMiret P.Itr. Tonl. Iil 502 - 2 10 12 - I Tonh.t.no.. So; Ip... Allo-.d 1970 H-noSiot-r. Pro.t. Ti. d 1.tr.d. - 681 - 5 20 - 7- - .Oltd nn ( top-rts *oi0o. allov d) 1978 PoFd.rt. B.ndti./ PrcitV. Sn... Foondry bra.. Still . - 3 - 60 .50000 19_0 7 64t... for SCAD 5t/24WM tr1.1 (t full p-dc f1tlot f (topIlal- &ls8i- iO$.5 opiltlio ptifi i.. 75.000 P) At/Sh *(olnit d by 3964 c O.o...C Pric-to To.i. BoOboo. - 31 - 2 15 -351 1.65- fcopl-l * %..tiofl (0.Illy 00) 50.000 Di .41 S.. t 2971 *STlq0AII Prto-t. Tuot. n 0. d t 602 - 6 * 0 - 70 1978 ^StHAC trti0. T.iti tiil Stood I PC... -f _ 2 20 22 - _ O for *400 t -t (1978) (1978) (1 Hi.*lb.rrn.. I ito.~ ~ ~~ ~ ~ ~~~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~ ANrEA III Attachment 2 - 105 - Page 15 of 17 COMPOSITION OF EMI SUBSECTORS 1. Basic M.-tals Steel mill, pig iron, iron bars and rods Lead Metal and Primary Products 2. Foundries, Platework, Electrical Industries Pig Iron/Steel Foundries and castings Steel structures and platework Steel containers Agricultural equipment All Electrical Industries 3. Mechanical Works and Repairs Automobile Assembly Truck Implements and assembly 4. Metal Products Hand Tools Bolts and Nuts, springs, screens General Hardwares, locks and keys Non-electric stoves Aluminum structures (door and window frames) Metal furniture and fixtures 5. Shipyards and Repairs - 106 - ANNEX III Attachment 3 Page 16 of 17 ALLOCATION AND USE OF PRODUCTION FACTORS IN TUNISIAN EMIs 1. Production Function in Tunisian Electrical and Mechanical Industries The data available on value added, employment and capital stock in manufacturing have made it possible to adjust, on 1969-1977 time series for the EMI sector, a production function of the Cobb-Douglas form Y = A.KO.L, with the following values for the parameters: d = 0.466, andt = 0.534. In a market economy where the relative factor prices would reflect correctly the relative scarcities of factors and where the entrepreneurs would allocate correctly the production factors according to prices, the shares of value added going to capital and to labor would be equal too( and A respectively, as indicated in the appended note. 2. Actual Allocation and Use of Production Factors The actual share b (a) of value added going to labor (capital) may differ from 4 (V) in some segments of the manufacturing enterprises, and the ratio b is shown (see appended note) to represent the ratio between the actual and7the correct intensity of labor and can thus be considered as an efficiency indicator of the use and intensity of labor in the production process. The data available from the 1976 Industrial Survey permit to compute the share b separately for enterprises of different sizes, and in particular for SSIs. The following table summarizes the corresponding values for the ratio b. Efficiency Indicator b/d of the Use of Labor in EMIs Size of Enterprise SSIs [50+] (No. of workers) [5-20] [20-50] Total (MLIs) TOTAL Sub-Sector: Basic Metals - 0.56 0.56 1.17 1.14 Foundries, Platework, Electrical 1.17 1.39 1.34 0.99 1.02 Mechanical Works 1.01 1.05 1.03 0.56 0.61 Metal Products 1.16 0.63 0.71 0.97 0.92 Shipyards 0.79 1.67 1.03 1.00 1.00 EMIs Overall 1.05 1.00 1.01 0.89 0.90 These indicators suggest that SSIs in general, and in particular those with less than 20 workers, have allocated to labor a higher share of their surplus than warranted by the marginal productivity of labor. Since this share reflects the intensity of the use of labor for the prevailing relative prices of production factors, it suggests also that SSIs have tended to be under- capitalized, as compared in particular to the larger industries, with the result that the value added per worker in the SSIs has been relatively low as indicated in the following table: ANNEX III - 107 - Attachment 3 Page 17 of 17 Index of Value Added per Worker (Sectorial average = 100) Size of Enterprise Total [50+] (No. of workers) [5-20] [20-50) SSIs 'MLIs) Overall Sub-Sector: Basic Metals - 192.0 192.0 98.0 100 Foundries, Platework, Electrical 50.8 67.9 63.2 107.4 100 Mechanical Works 30.9 41.9 35.8 121.7 100 Metal Products 29.0 100.5 74.0 109.3 100 Shipyards 137.2 29.6 69.0 103.1 100 EMIs Overall 41.0 68.7 57.9 109.0 100 Source: 1976 Industrial Survey The high value added per worker achieved in SSIs of the basic metals and shipyards are due to a high intensity of capital (b/4< 1) coupled with an efficient use of the capital. On the other hand, in the metal products, SSIs with 20 to 50 workers have intensively used capital (indicator bl4) but have not reached a level of productivity commensurate with the capital intensity. In all other cases, SSIs have been under-capitalized with a resulting low productivity of labor; an effort of financial assistance for equipment modern- ization and upgrading seems necessary, along with the technical assistance required to ensure an efficient use of the modern equipment. STATISTICAL APPENDICES - 108 - Appendix I.1/ Appendice 1.1 TUNISIA - GROWTH OF VALUE ADDED/ TUNISIE - CROISSANCE DU PIB (in percent based on levels in constant prices) (en pourcentages, sur la base des valeurs aux prix constants) 1962-1969 1970-1978 Contribution to Contribution to Growth Rate/ GDP Growth/ Growth Rate/ GDP Growth/ Taux de Contribution A Taux de Contribution a Croissance croissance PIB Croissance croissance PIB (per annum) (per annum) Agriculture 0.2 0.7 10.8 16.0 Agriculture Mining 17.3 14.9 3.4 2.3 Industries extractives Electricity and Water 13.6 4.6 8.5 1.9 Enerpie et eau Manufacturing 6.4 13.2 9.7 12.4 Industries manufacturi6res Food processing - 1.4 - 1.5 7.8 3.5 IuLdustries agricoles et Food processing ~~~~~~~~~~~~~~~~a1irer~taires Textiles, leather 20.5 4.8 12.7 3.6 Textile/confection Mechanical/electrical 18.0 3.5 8.8 1.5 Ilectriques Construction materials 10.8 1.9 10.4 1.2 Materiaux de construction Chemicals 14.0 2.1 9.7 1.2 Chimie caoutchouc Other 17.8 2.4 10.7 1.4 Divers Construction 5.1 11.0 9.3 9.2 B8tinrent et T.P. Services 4.1 55.6 8.7 58.2 Services GDP at factor cost 4.2 100.0 8.2 100.0 PIB aux couts facteurs Source: Ministry of Planning/ !inistOre du rlan - 109 - Appendix 1.2/ Appendice I.2 TUNISIA - SECTORAL SHARES IN GDP/ TUNISIE - DISTRIBUTION DU PIB PAR SECTEI'R (in percent based on levels in current prices) (en pourcentages, sur la base des valeurs aux prix courants) 1961 1969 1976 1978 Agriculture 23.7 17.2 20.6 18.1 AgricuLlture Mining 2.1 6.0 7.9 7.7 Industries extrectives Electricity and Water 1.2 2.0 1.7 1.7 Energie et eau Manufacturing 7.7 10.0 10.6 11.0 Industries manufacturieres Food processing 5.5 3.9 3.7 3.2 Industries agricoles et alimentaires Textiles, leather 0.4 1.9 2.7 2.6 Textile, confection EMIs 0.5 1.4 1.5 1.6 IME Construction materials 0.6 0.9 0.9 1.3 Matiriaux de construction Chemicals 0.4 0.9 0.7 1.0 Chimie caoutchouc Other 0.8 1.0 1.2 1.3 Divers Construction 7.2 8.6 9.8 10.5 Bgtiment et T.P. Services 58.1 56.2 49.4 51.0 Services GDP at factor cost 100.0 100.0 100.0 100.0 PIB aux couts facteurs Structure of Manufacturing (%)/ Structure des Industries Manufacturigres ( 1975 Tunisia - 1976 Korea Mexico Brazil Turkey Sai Food Processing 34.7 21.2 22.7 17.1 32.6 13.5 Industries agricoles et alimentaires Textiles/leather 25.8 22.0 10.0 13.2 19.9 15.7 Textile, confection EMIs 13.6 21.0 33.7 32.0 18.9 31.0 IMEs Construction Materials 8.1 5.6 5.2 5.9 4.0 8.4 Mat5riaux de ponstruction Chemicals 6.4 21.8 18.0 18.8 20.6 19.1 Chimie - caoutchOuc Others 11.4 8.4 10.4 13.0 4.0 12.3 Divers TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 Total TUNISIA - INVESTMENT BY AGENT TUNISIE - INVESTISSEMENTS PAR AGENTS (in millions of dinars, at current prices) (en millions de dinars, aux prix courants) 1969 1970 1971 1972 1973 1974 1975 1976 t977 1978 Administration 54.0 42.7 40.7 46.1 45.4 65.4 76.8 92.2 121.8 137.9 Administration Public enterprises 39.7 48.1 65.9 77.1 76.0 96.5 165.2 227.0 306.2 361.3 Entreprises publiques Private enterprises 35.1 38.8 44.2 65.0 88.8 110.3 137.9 144.1 t25.5 137.8 Entreprises privies Households 19.2 21.9 21.8 26.0 27.4 43.3 70.7 86.7 91.5 113.0 Menagea Total Investment 148.0 151.5 172.6 214.2 237.6 315.5 450.6 550.0 645.0 750.0 Investissement total Public sector 93.7 90.8 106.6 123.2 121.4 161.9 242.0 319.2 428.0 499.2 Par le secteur public Private sector 54.3 60.7 66.0 91.0 116.2 153.6 208.6 230.8 217.0 250.8 Par le secteur prive Investment by enterprises 74.8 86.9 110.1 142.1 164.8 206.8 303.1 371.1 431.7 499.t Investiasements des entreprisea of which in manufacturing 16.0 17.8 29.9 25.7 33.4 S8.5 83.5 83.7 126.2 164.9 dont: industries manufacturiresa - public 10.8 10.9 14.1 12.6 13.6 23.7 34.3 45.9 81.0 118.2 - publiques - private 5.2 6.9 5.8 13.1 19.8 34,8 49.2 47.8 45.2 46.7 - prlvees of which in mechanical and electrical industries 2.0 2.3 3.5 3.4 4.6 8.6 6.5 10.9 14.8 17.1 dont; IHEs - public 1.0 1.7 2.8 1.9 2.6 5.1 1.6 5.1 . 3 10.1 - publiques - private 1.0 0.6 0.7 1.5 2.0 3.5 4.9 5.8 6.5 7.0 - privies Source: Ministry of Planning/ 3t Ministere du Plan 0.0 - 111 - Appendix I.4/ Appendice 1.4 TUNISIA - PUBLIC INVESTMENT IN MANUFACTURING/ TUNISIE - INVESTISSEMENTS PUBLICS DANS LES INDUSTRIES MANUFACTURIERES (as Z of total) (en X du total des investissements) 1961-68 1969-72 1973-76 1977-78 Food Processing 79 66 28 40 alimentaires Textiles, leather 88 35 16 18 Textile, confection EMIs 94 67 51 58 IMEs Construction Materials 93 80 73 86 Materiaux de construction Chemicals 59 88 65 92 Chimie - caoutchouc Others 76 71 15 21 Divers Total Manufacturing 86 67 47 68 Industries manufacturieres totales PUBLIC EMPLOYMENT IN MANUFACTURING/ EMPLOI DANS LES INDUSTRIES MANUFACTURIERES PUBLIQUES Z Total Subsector/ 1976 ('000) % du total du sous-secteur Food Processing 4.1 18.6 Industries agricoles et alimertatreq Textiles, leather 16.6 10.4 Textile, confection EMIs 9.4 34.1 IMEs Construction Materials 6.9 30.3 Materiaux de construction Chemicals 4.4 61.9 Chimie - caoutchouc Others 4.0 12.2 Divers Total Manufacturing 45.4 16.7 Industries manufacturieres totales Source: Ministry of Planning/Ministere du Plan Budget Economique 1979 TUNISIA - EXPORTS OF GOODS, FOBt TUNISIE - EXPORTATIONS EN VALEUR, FOB (in millions of dinars at current prices) (IMillions de Dinars; aux prix courants) 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 Agricultural products 9.5 11.4 11.7 11.8 14.4 12.6 15.1 15.6 20.8 24.0 Prodults agricolas Mining products 13.4 18.5 18.0 15.2 15.0 51.5 50.1 29.6 26.9 25.3 Produits miniers Energy 22.7 26.1 31.9 41.2 53.6 142.7 150.6 143.2 166.7 181.8 Prodults p8trcliers Manufacturing 43.6 42.8 55.6 92.3 95.8 190.9 129.8 149.9 187.6 207.9 Produits manufactures Food processing 20.6 18.3 30.8 58.2 44.7 88.0 53.3 54.2 41.7 47.9 Industries agricoles et alimentaires Construction materials 1.6 1.2 1.0 1.4 1.1 1.5 0.9 0.5 0.5 0.9 MAtgriaux de construction Mechanical and Electrical products 6.3 9.2 4.9 7.3 12.6 17.3 8.8 9.8 10.9 14.9 Produits m8caniques et electriques Chemicals 8.7 8.9 9.7 12.8 18.0 51.9 32.6 35.5 47.0 51.3 Chixsie caoutchouc Textiles 1.7 2.0 4.3 8.4 11.3 22.0 27.2 43.3 77.2 83.2 Textile 4 Others 4.7 3.2 4.9 4.2 8.1 10.2 7.0 6.6 10.3 9.7 Divers Total Exports 89.2 98.8 117.2 160.5 178.8 397.7 345.6 338.3 402.0 439.0 Exportations totales Manufactured Exports, as % of Total 48.9 43.3 47.4 57.5 53.6 48.0 37.6 44.3 46.7 47.4 Produits manufactures, en % du total Source: Ministry of Planning/ Minist8re du Plan v.. es X4 u 113ll - Appendix 1.6/ TUNISIA - PRODUCTION, DEMAND AND FOREIGN TRADE Appendice I.6 TUNISIE - PRODUCTION, DEMANDE ET ECHANGES EXTERIEURS 1976 (MD) 1977 (MD) Local Local Produc- Demand/ Produc- Demand/ tion/ Exports/ Demande tion! Demande Sous-secteur/ Produc- Expor- Imports/ Inte- Produc- Exports/ Imports/ Inte- Sous-secteur tion tations Imports rieure tion Exports Imports rieure Fcod Industries 294.0 54.2 43.6 283.4 287.4 41.7 42.9 288.6 Industries agricoles et alimentaires Textiles/Leather 169.4 43.3 73.9 200.0 199.0 77.2 90.3 212.1 Textileset confection Const. Materials 29.0 0.5 23.4 51.9 40.2 0.5 31.4 71.1 Materiaux de construction EMIs 86.4 9.8 287.6 364.2 107.9 10.9 343.6 440.6 DYEs Chemicals 66.0 35.5 50.4 80.9 80.9 47.0 58.2 92.1 Chimie caoutchouc Others 51.3 4.0 51.2 98.5 57.1 4.3 61.5 114.3 Divers TOTAL 696.1 147.3 530.1 1078.9 772.5 181.6 627.9 1218.8 TOTAL Total Country 338.3 656.7 402.0 782.4 Total National Imports/Exports ----------------------------------------------------__-----------------------__--------------------------------------------------- Production, as % Domestic Demand/ Marginal Propensity to Production, en Z Demande Exports, as % Production/ Exports (1977/72), in %/ Sub-sector/ Interieure Exports, en % Production Propension marginale A Sous-secteur 1972 1974 1976 1977 1972 1976 1977 1978 exporter (1977172), en % Food Indust. 119 115 104 100 29.0 18.4 14.5 14.3 -18.6 Industries agricoles et alimentaires Text./Leather 80 80 85 94 13.0 25.6 38.8 40.8 +50.9 Textiles et confection Const. Mat 80 55 56 57 9.2 1.7 1.2 1.6 - 3.6 Materiaux de construction EMIs 31 30 24 24 18.3 11.3 10.1 12.0 + 5.3 IMEs Chemicals 79 105 82 88 43.7 53.8 58.1 55.8 +66.3 Chimie caoutchouc Others 63 S1 52 50 11.8 7.8 7.5 7.4 + 4.3 Divers TOTAL 79 74 65 63 24.3 21.2 23.5 23.1 +22.7 TOTAL Total Manufacturing Exports, Total Exports Manufactures en as % Total Exports 57.5 44.3 46.7 47.3 % Total Exports Total Manufactured Imports, Total Imports Yanufactures en as % of Total Imports 83.4 82.8 81.4 n.a. % Total Imports EMI Imports, as % of Total Imports: 40.8 43.8 43.9 46.5 Imports IME en % Total Imports Source: Ministry of Planning/M1inistere du Plan TUNISIA - IMPORTS OF GOODS BY SECTOR, CIF TUNISIE - IMPOITATIONS EN VAIEUR, CIF (in millions uof dinarsat current prices) (en millions de dinars aux prix courants) 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 Agriculture 22.1 25.6 20.6 21.1 29.1 41.6 40.9 44.0 60.1 Produits agricoles Energy 5.7 6.7 6.9 17.9 23.3 56.9 56.3 73.0 85.1 Energie Manufacturing 120.0 135.5 163.4 195.9 233.6 390.2 475.6 539.7 637.2 Produite manufacturEs Foodiprocessing 14.5 18.2 19.4 25.7 27.1 55.0 65.4 43.6 42.9 Industries agricoles et alimentaires Construction material 2.9 3.1 3.0 5.3 7.6 16.9 18.8 23.4 31.4 Mat6riaux de construction Chemical industry 20.3 20.2 25.0 29.1 33.1 65.6 71.2 73.8 88.8 Industrie chimique Textiles 14,2 16.3 16.9 23.9 27.9 47.6 52.5 73.9 90.3 Textiles Mechanical and electrical 50.7 59.2 76.7 95.8 116.6 165,4 243.0 287.6 343.6 400.9 Produits mecaniques et electriques H Other 17.4 18.5 22.4 16.1 21.3 39.7 24.7 37.4 40.2 Divers Total imports (CIF) 147.8 167.8 190.9 234.9 286.0 488.7 572.8 656.7 782.4 863.0 Importations Totales Manufacturing imports as 7 of Total 81.2 80.8 85.6 83.4 81.7 79.8 83.0 82.2 81.4 n.a. Imports ManufactuirEs, en % Total Imports EMT imports, as 2 of Total 34.3 35.3 40.2 40.8 40.8 33.8 42.4 43.8 43.9 46.5 Imports IME, en Z Total Imports Source! Ministry of Planning / Ministere du Plan 0 aXx - 115 - Appendix I.8/ Appendice T.8 TUNISIA - INVESTMENTS AND IMPORTS OF EMI GOODS TUNISIE - INVESTISSEMENTS ET IMPORTATIONS DE PRODUITS DES PIE 1973 1974 1975 1976 1977 1978 1. Gross Fixed Investments 237 316 461 570 645 750 Formation brute de capital (TD Millions) Fixe (FBCF) (TD Millions) 2. Imports of EMI Goods 117 165 243 293 339 401 Importations de produits des IME (TD Millions) (TD Millions) 3. Domestic Demand for EMIs 150 210 305 374 431 510 Demande int6rieure pour produits (TD Millions) IME (TD Millions) Growth Rate of 1 (X) 33.3 45.9 23.6 13.2 16.3 Taux de croissance de 1 (%) Growth Rate of 2 (%) 41.0 47.3 20.5 15.7 18.3 Taux de croissance de 2 (%) Growth Rate of 3 (%) 39.9 45.2 22.6 15.2 18.3 Taux de croissance de 3 (X) ( …--------- 1.08… ) Elasticity EMI Imports/Investments 1.23 1.03 0.87 1.19 1.12 Elasticite Imports IME/F8CF Elasticity EMI Demand/Investments 1.20 0.98 0.96 1.15 1.12 Elasticite Demande IME/FBCF ------ 1.07---- Source: National Accounts of Tunisia/Comptes Nationaux de la Tunisie Appendix 1.7/Appendice I.7 TtNISIA - DIRECT FOREIGN INVESTMENT BY SECTOR TUNISIE - INVESTISSEMENTS ETRANGERS, PAR SECTEUR (in millions of dinars, at current prices) (:en millions de dinars, aux prix courants) TOTAL 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1972-78 % Petroleum Industry 6.2 6.6 10.5 14.0 22.9 22.2 22.1 43.8 31.1 29.0 185.1 77 Industrie petroliare Manufacturing -- -- -- 1.6 1.9 -- 2.4 5.4 9.0 1o.o 30.3 12 Industries manufacturieres Tourism 2.1 2.5 2.0 -- -- -- -- -- -- -- -- Tourisme Financial Institutions -- 1.2 -- -- 1.0 0.7 2.0 1.6 -- 1.0 6.3 3 Institutions financiares Others 2.2 -- -- -- -- -- 0.9 1.5 13.4 4.0 19.8 8 Autres I TOTAL 10.5 10.3 12.5 15.6 25.8 22.9 27.4 52.3 53.5 44.0 241.5 100 TOTAL Source: Ministry of Planning/ Ministare du Plan ox 41- 1-4. '0 TUNISIA - PROJECT IMPLEMENTATION UNDER LAW 72-38 (1973-76) TUNISIE - REALISATION DES PROJETS DANS LE CADRE DE LA LOI 1972-38 (1973-76) (investment in millions in dinars, numbers of employment) (investissements en millions de dinars, nombre d'emplols) Number of projects/ Investment/Investissements Employment/Emplois Nombre de projets Investment Ratio in Ratio in Ratio in Per Job Percent/ Percent/ Percent/ (D'OOO)/ Taux Taux Taux Investisse- Approved/ Realized/ de rEali- Approved/ Realized/ de reali- Approved/ Realized/ de reali- ment par AgrE8s R6alis6s % sation (%) PrEvus REalisEs % sation (E) Agr6s REalisEs Z sation (%) Emploi WDO00) By Nationality Par NationalitE Tunisian 18.00 14.43 29 80.1 4,341 1,937 10 44.6 62 42 18 67.7 7.45 Tunisien Mixed 56.15 24.84 49 44.2 17,087 8,929 48 52.3 133 81 34 60.9 2.78 Conjoints Foreign 63.76 10.92 22 17.1 21,415 7,671 42 35.8 171 116 48 67.8 1.42 Etranger - TOTAL 137.91 50.19 100 36.4 42,843 18,537 100 43.3 366 239 100 65.3 2.71 TOTAL By Sector Par Secteur Food Industries 5.56 0.57 1 876 742 4 6 4 2 0.77 I.A.A. Textiles, leather 67.84 24.14 48 33,984 15,801 85 258 184 77 1.53 Textiles, confection EMIs 36.46 2.47 5 4,511 780 4 49 25 10 3.16 ItEs Construction Materials 0.30 - - 80 - - 2 - - - MatEriaux de construction > :> mm Chemicals 22.17 21.34 43 552 473 3 10 7 3 45.11 Chimie caoutchouc 0 0 Others 5.57 1.67 3 2.840 741 4 41 19 8 2.26 Divers m TOTAL 137.91 50.19 100 42,843 18,537 100 366 239 100 2.71 TOTAL ° Source: API TUNISIA - BALANCE OF PAYMENT EFFECTS OF FOREIGN DIRECT INVESTMENT (1969-77) TUNISIE - EFFETS DES INVESTISSEMENTS ETRANGERS SUR LA BALANCE DES PATEMENTS (1969-77) 1969 1970 1971 1972 1973 1974 1975 1976 1977 A. Inflow Entr6es Direct Investment 10.5 10.3 12.5 15.6 24.5 21.6 26.2 31.5 50.0 Investissements directs Office Expense - _ - - - 2.0 1.0 12.3 13.7 Depenses de bureaux Total 10.5 10.3 12.5 15.6 24.5 23.6 27.2 43.8 63.7 Total Outflow Sorties Capital Repatriation 0.2 - o.7 2.8 3.3 6.5 Repatriement de capital Repatriated Earnings 2.7 4.5 5.0 11.0 12.9 14.0 12.3 12.1 5.9 Repatriement de gains Dividends 0.8 1.7 1.7 8.3 9.1 4.6 Dividends Iechnical Assistance _ _ _ 2.0 1.1 1.0 1.1 1.9 2.2 Assistance technique Total 2.7 4.5 5.0 14.0 15.7 17.4 23.5 26.4 19.2 Total Direct Balance of Effets directs sur la balance Payment Effects 7.8 5.8 7.5 1.6 8.8 6.2 3.7 17.4 44.5 des paiements B. Indirect Effects/Export Promotion Law 1972 Effets Indirects/Exportations Loi 1972-38 Wages 0.4 1.7 4.1 9.6 14.0 Salaires Contribution to Government 0.1 0.4 0.9 2.1 3.1 Imports et taxes Services 0.1 0.6 1.8 4.9 7.1 Services Raw Materials 0.1 1.4 0.8 1.8 1.9 Matieres premie.res Indirect Effects 4.1 7.6 18.4 26.1 Effets indirects 0 ' C. Overall Effects 7.8 5.8 7.5 1.6 0.7 10.3 11.3 35.8 70.5 Effets Globaux Source: Banque Centrale de Tunisie (partie B) - - API "Contribution des Entreprises Exportatrices A l'quilibre de la Balance des paiements", Decembre 1977. - TUNISIA - GROSS FIXED INVESTMENT BY SECTOR TUNISIE - FORMATION BRUTE DE CAPITAL FIXE, PAR SECTEUR (in millions of dinars, at current prices) (en millions de dinars. aux Drix courants) 1965 1969 1970 1972 1975 1976 1977 1978 Agriculture 26.2 34.5 26.7 30.7 54.0 64.2 70.5 90.2 Agriculture Extractive Industries 7.7 11.0 14.3 26.2 75.6 85.8 90.5 93.3 Industries extractives Electricity and Water 5.7 7.1 10.3 23.2 35.0 50.8 57.3 66.2 Electricite et eau Manufacturing 22.3 16.0 17.8 25.7 83.5 93.4 126.1 164.9 Industries manufacturiares Food Processing 0.3 2.2 2.9 4.8 17.4 20.6 23.7 27.6 Industries agricoles et alimentaires Textiles, Clothing, Leather 9.7 3.6 3.9 6.6 13.0 10.5 11.6 7.3 Textiles et confection Mechanical and Electrical 14.5 2.3 2.5 3.4 6.5 11.0 14.7 17.1 IME Construction Materials 0.8 1.8 0.8 2.8 21.6 31.5 60.0 64.1 Mat6riaux de construction Chemicals 0.7 1.9 2.3 4.4 15.1 13.8 10.1 42.1 Chimie caoutchouc Woodworking, Paper, Other 0.2 4.2 5.4 3.7 5.4 6.0 6.0 6.7 Industrie du bois, papier, autres Services 43.4 54.6 61.6 90.2 167.1 203.3 223.1 239.6 Servicer Infrastructure 21.3 24.8 21.1 18.2 45.8 52.5 77.5 94.8 Equipements collectifs TOTAL 145.0 148.0 151.5 214.2 461.0 550.0 645.0 750.0 TOTAL Total in constant 1972 prices 158.6 162.6 161.3 214.2 300.0 330.0 363.0 396.0 Total aux prix constants 1972 Manufacturing as X of Total 15.4 10.8 11.7 12.0 18.1 17.0 19.6 22.0 Industries manufacturi6res, en 2 du - tal Source: Ministry of Planning / Ministere du Plan 0 am n X a. _. - 120 - Appendix I,13/ Appendice I.13 TUNISIA - EMPLOYMENT CREATION/ TUNISIE - CREATION D'EMPLOIS ('000) 1970-1972 1973-1976 1977-1978 Food Processing 1.4 6.7 5.5 Textiles, leather 6.2 30.6 13.2 Textilec, confection EMIs 2.5 6.9 5.8 IMEs Construction Materials 1.0 6.7 6.1 Materiaux de construction Chemicals 1.4 2.8 1.8 Chimie caoutchouc Others 1.6 6.5 6.3 Divers Total Manufacturing 14.1 60.2 38.7 Total Industries Manufacturieres Total Employment 71.3 163.3 84.3 Total Creation d'Emplois Manufacturing as % Total 19.8% 36.9% 45.9% Emploi des Industries Manufac- turi&res en % du Total TUNISIA - INVESTMENTS IN MANUFACTURING/ TUNISIE - INVESTISSEMENTS DANS LES INDUSTRIES MANUFACTURIERES (Millions D) 1961-1968 1969-1972 1973-1976 1977-1978 Food Processing 15.1 13.3 59 51 Industries agricoles et alinentaires Textiles, leather 22.4 17.0 45 19 Textiles, confection EMIs 35.1 11.2 32 32 IMEs Construction Materials 12.1 6.3 82 124 Materiaux de construction Chemicals 8.3 16.3 46 52 Chimie Caoutchouc Others 8.6 15.3 20 13 Divers Total Manufacturing 101.6 79.4 284 291 Total Industries Manufacturieres Total GFCF 908.9 686.3 1564 1395 Total FBCF Manufacturing as % GFCF 11.2% 11.6% 18.2% 20.9% Industries Manufacturieres en Z FBCF Public Investment Manuf. 87.6 132.5 199.2 Investiisements Publics dans Industries Manufacturieres Public as % of Total Manuf. 86.2% 67.3% 46.6% 68.4% Investifsements Publics en Z Total Industries Manufacturieres Source: Ministry of Planning / Ministere du Plan Budget Economique 1979 - 121 - Appendix I.14/ Appendice I.14 TUNISIA - SUMMARY OF TRENDS IN MANUFACTURING TUNISIE - RESUME DES TENDANCES DANS LES INDUSTRIES MANUFACTURIERES Sub-sector (Constant 1972 Prices) Sous-secteur (prix constants 1972) 1969 1970 1972 1974 1976 1977 I.A.A.: Food Value Added (MD) 25.20 21.70 42.20 41.70 49.20 43.30 Valeur ajoutEe (MD) Industries: Employment (000) 13.95 14.31 15.32 16.98 22.00 24.55 Emploi (000) Net Capital (MD) 75.06 75.04 78.04 85.39 98.06 105.03 Stock de capital net (MD) 1ateriaux de Construction: Construc- Value Added 5.70 5.40 6.70 7.10 10.10 11.60 Valeur ajout6e tion Materials: Employment 15.18 15.44 16.19 18.13 22.91 26.02 Emploi Net Capital 20.76 20.88 23.26 29.82 62.03 93.00 Stock de capital net IMlEs: EMIs: Value Added 9.10 9.10 12.70 14.70 15.50 16.90 Valeur ajout6e Employment 18.22 18.82 20.65 23.16 27.56 30.11 Emploi Net Capital 44.98 46.08 50.30 56.91 63.93 69.99 Stock de capital net Chimie caoutchouc: Chemicals: Value Added 5.70 6.30 9.50 12.50 7.30 11.40 Valeur ajoutSe Employment 2.87 3.32 4.31 5.51 7.14 7.82 Emploi Net Capital 15.88 17.96 30.31 42.46 57.60 61.29 Stock de capital net Textiles: Textiles: Value Added 12.70 12.90 18.40 22.90 33.80 37.20 Valeur ajoutEe Employment 121.92 123.50 128.11 141.10 158.66 165.16 Emploi Net Capital 32.37 35.77 42.69 52.52 57.16 58.26 Stock de capital net Paper, Wood, Miscellaneous: Papier, Bois, Divers: Value Added 6.50 8.00 9.30 12.00 12.90 13.80 Valeur ajout6e Employment 24.78 25.20 26.36 28.94 32.91 35.90 Emploi Net Capital 18.50 24.54 28.51 33.60 37.60 39.69 Stock de capital net TOTAL: TOTAL: Value Added 64.90 63.40 98.80 110.90 128.80 134.20 Valeur ajoutge Employment 196.92 200.59 211.19 233.82 271.19 289.56 Emploi Net Capital 207.55 220.27 253.11 300.70 376.38 427.26 Stock de capital net Source: Ministry of Planning, IEQ, mission estimates. - 122 - Appendix I.15/ Appendice I.15 TUNISIA - SUBSECTORAL ICORS IN MANUFACTURING/ TUNISIE - COEFFICIENTS MARGINAUX DE CAPITAL, PAR SOUS-SECTEUR DES INDUSTRIES MANUFACTURIERES Investments (1972 Constant Prices)/ Value Added (1972 Constant Prices)/ Investissements Sub-sector/ Valeur ajoutee (aux prix constants 1972) (aux prix constants 1972) Sous-secteur 1973 1974 1975 1976 1977 1978 1973 1974 1975 1976 1977 I.A.A. 34.4 41.7 41.7 49.3 43.3 49.3 5.56 10.18 11.33 12.72 13.94 Textiles 21.2 23.9 30.0 33.8 37.2 37.2 8.03 9.59 8.46 6.49 6.82 I.M.C.C.V. 7.5 7.1 8.3 10.1 11.6 13.9 3.00 5.58 16.99 19.46 35.29 I.M.E. 14.1 14.7 15.2 15.5 16.9 19.5 4.06 6.39 4.23 6.79 8.65 I. Chimiques 11.1 12.5 8.8 7.3 11.4 13.1 6.09 8.03 9.83 8.52 5.94 I. Diverses 9.9 12.0 12.2 12.8 13.8 16.3 2.74 3.72 3.52 3.70 3.53 TOTAL 98.2 110.9 116.6 128.8 134.2 149.3 29.48 43.49 54.36 57.69 74.18 ICOR/ Sub-sector/ Coefficient Marginal de Capital Sous-secteur 73-77/74-78 73-76/75-78 (1 year-lag)/ (2 year-lag)/ (decalage d'un an) (d6calage de deux ans) I.A.A. 1.82* 2.07** I.T.C. 2.46 2.45 I.M.C.C.V. 12.55 6.62 I.M.E. 5.58 4.47 I.C.H.C. 19.20 n.s. I.D. 2.69 3.18 TOTAL 5.07 4.82 * : 73-75/74-76 **: 73-74/75-76 Source: Ministry of Planning and Mission Calculations/ Ministere du Plan et Calculs de la Mission - 123 - Appendix 1.16/ Appendice I.16 TUNISIA/TUNISIE VALUE ADDED PER WORKER IN MANUFACTURING/ VALEUR AJOUTEE PAR TRAVAILLEUR DANS LES INDUSTRIES MANUFACTURIERES Sub-sector/ Sous-secteur 1969 1972 1976 1978 1972/69 1978/72 1978/69 Food Industries 1.806 2.755 2.236 1.793 15.1 - 6.9 - 0.1 Industries agricoles et alimentaires Construction Mat. 0.375 0.414 0.441 0.479 3.3 2.5 2.8 Materiaux de construction EMIs 0.500 0.625 0.562 0.584 7.1 - 0.9 1.7 IMEs Chemicals 1.986 2.204 1.022 1.472 3.5 - 6.5 - 3.3 Chimie caoutchouc Textiles, leather 0.104 0.144 0.213 0.216 11.5 7.0 8.5 Textiles, confection Others 0.262 0.353 0.392 0.416 10.4 2.8 5.3 Divers TOTAL 0.330 0.468 0.475 0.482 12.4 0.5 4.3 TOTAL VALUE ADDED AS % OUTPUT/ VALEUR AJOUTEE EN % PRODUIT BRUT 1972 1976 1978 Food Industries 21.5 20.5 19.8 Industries agricoles et alimentaires Textiles, leather 27.5 26.4 26.3 Textiles, confection EMIs 32.3 27.4 26.6 IMEs Construction Materials 43.8 48.6 46.7 Materiaux de construction Chemicals 31.7 16.8 23.6 Chimie caoutchouc Others 37.8 38.8 40.1 Divers Total Manufacturing 26.5 25.0 25.9 Total Industries Manufacturieres Source: Mission Estimates / Estimations de la Mission - 124 - Appendix 1.17/ TUNISIA - WAGES, INFLATION AND LABOR PRODUCTIVITY/ Appendice I.17 TUNISIE - SALAIRES, INFLATION ET PRODUCTIVITE DU TRAVAIL 1970 1972 1975 1975 Index/ 1976 1977 1978 (Current D0000 p.a.) Indice 1975 Index/ (Millions D par an (1970=100) Indice aux prix courants) (1970-100) Average Wages per Worker Salaires Moyennes par Travailleur Subsector: Food Industries .471 .540 .616 131 158 n.a. n.a. Sous-secteur: Industries agricoles et alimentaires Textiles, leather .106 .125 .160 151 158 n.a. n.a. Textiles, confection EMIs .420 .475 .685 163 166 n.a. n.a. IEs Construction Materials .234 .301 .493 211 221 n.a. n.a. MatEriaus de construction Chemicals 1.180 1.302 1.592 135 162 n.a. n.a. Chimie caoutchouc Others .280 .249 .385 185 190 n.a. n.a. Divers Total Manufacturing .202 .242 .339 168 181 Total Industries Manufacturieres Index (19704100) 100 120 168 181 225-245* Indice (1970-100> Minisium Wage Industry (D/hour) .084 .104 .145 .145 .193 .214 Salaire minimum dans l'industrie CD/heure) Index (1970-100) 100 124 173 173 230 255 Indice (1970-100) Cost of Living Index (1970=100) 100 108 129 136 145 154 Indice du cout de la vie (1970=100) Wholesale Price Index (1970=100) 100 109 152 154 162 166 Indice des prix de gros (1970=100) GDP Deflation Index (1970=100) 100 109 146 147 159 167 Coefficient dEflateur du PIB (1970=100) Wage Index/VA Index Value Added/Worker Index Indice Salaire/Indice VA Indice Valeur Ajoutee/Par Travailleur (in current values) 1970 1975 1976 1978 1975 1976 (aux valeurs courantes) Subsector: Food Industries 100 185 180 159 71 88 Sous-secteor: Industries agricoles et alimentaires Textiles, leather 100 252 295 326 60 54 Textiles, confection EMIs 100 163 192 204 100 86 IMEs Construction Materials 100 152 175 256 139 126 Msatriaux de construction Chemicals 100 152 91 141 89 178 Chimie caoutchouc Others 100 186 206 234 100 92 Divers Total Manufacturing 100 203 212 243 83 85 Total Industries Manufacturieres Averag;e Hourlv Compensation Salaire Roraire moyen dans lee Industries in Manufacturing (US$ per hour) Tunisia France Italy Germany Netherlands U.K. U.S. Manufacturieres (11$ par heure) Compensation in 1976 0.43 5.63 5.21 6.62 8.08 3.40 8.00 Niveau en 1976 Compensation in 1977 0.57* 6.16 6.00 7.84 9.40 3.62 8.71 Niveau en 1977 * Estimated /EstimE Source: Ministry of Planning /Ministere du Plan Mission Estimates /Estimations de la Mission - 125 - TUNISIA|TUNISIE Appendix I.18/ Appendice 1 .18 RANKING OF INDUSTRLAL SUBSECTORS BY PERFORMAMCE INDICATORS/ CLASSEMENT DES SOUS-SECTEURS ?AJVTh'ACTt'1ERES PAR INDICES DE PERFORMANCE (1) (2) (3) (4) (5) (6) Invest- V.A.! ICOR/ ment cost Import- Worker/ Coeffi- per job/ Labor In- Marginal Export- Substitution Valeur cient Coat tensity/ Output Ratio/ Potential/ ajoutee mar- d'inves- Intensite Propension Potentiel de Sub-sector/ par tra- ginal de tissement en marginale substitution Sous-secteur vailleur capital par emploi travail 1/ a exporter d'importation Food Industries 1 1 4 6 6 6 Industries agricoles et alimentaires Textiles, leather 6 2 1 1 2 5 Textiles, confection EMIs 3 4 3 4 3 1 IMEs Construction Materials 4 5 5 2 5 3 Materiaux de construction Chemicals 2 6 6 5 1 4 Chimie caoutchouc Miscellaneous 5 3 2 3 4 2 Divers Overall Performance Indicators: Global Productivity (7)/ Indices GEneraux Productivite globale Subsector/Sous-secteur des facteurs (7) (1) to (6) (1) to (7) Food Industries 4 5 5 Irndustries agricoles et Food Industries 4 ~~~~~~~~~~~~~~~~alimentaires Textiles, leather 1 1 1 Textiles, confection EMIs 3 2 2 IMEs Construction Materials 5 5 6 Mat6riaux de construction Chemicals 6 4 4 Chimie caoutchouc Miscellaneous 2 3 3 Divers 1/ Measured by Gross Output per Worker! Mesur6 par la production brute par ouvrier Source: Appendixes I.6, I.13, I.14 and I.15 and Table 1.05| Appendices I.6, I.13, 1.14 et 1.15 et Tableau 1.05 I'tOlR0'lEC TOO IhYFSTOi'UT 002000 AYD 0WPLTToxNT OlTAttoli L CAT bAfi LAW 1969-35 OF 00003 26, 1969 TAIt 197Z-35 OF APRIL 27. 1972 LAW 1974-76 OF AUGUST 3, 1974 0002iTfi9 AiouNr OY 1N0ES0Ti003 TADZ P90=I'TT0N FOR 1-EX-TS 00900- OF P0005lAn0N IOS CRdATtD, TfP O \ agoA OF ONIoIN OCrno-:' O rnifs lon ALT1 O-td20 * 0W..* D2NO,0,2 ) >11D,25COoo) for Eoporo fr- Ap 1-20 B:21-50 0:51-20 0:1-501 E 2tS T-eTan p erotoon; 3ulltootot FL tlemptioo FileoerttOipfor Aill nooes --- Penp. from.e.. nosa o an d nt f..It oi- -ererO -------- oo-wtexted polfoLt Onoperat nar f onIrati noa f ooso ron Tenio OOenUtOtwgrot :nd enewpeoitn frChaonetoperaolng :nonxe LAXaoltodnRrt,Osteooos. Orroetaebsle o010t,o Ere thi:T5 Tore raoediatee edooed roood atErarrr 407 of 607of 7G,.of 807.of 907 rf ofen,oalu taxable enteDsioon et P0F9ibie O ROTE li TernSth tOo notelata no/ noetcm poeI iTooar for letall 501. Tt- Ondnid-o3 OtEiSO0aT000 Tooss -nteorxpaoded fioostoo Pr o Isrs for 2D ar ---__-o_---__ Flo tote only ogpl,eo to PoIt, l- woib possolsl with pose.Alt doors lno n t Tao on TetoBe roOT TaDElble -fiTEnooalocAsfee on (EiE p fOe Foonpt for tooLO Loropt forl 'Dyoros borrowin=stot-estobh:Lb 0:0(0 3 yesrs 5 yeos sOstA 50S 0 ybo U ears -dinoribottd profrits 00 Sco asx for 00(0(1101 hAorTas boo Tenet nt redored rtae iDsTnpExints S~~~~~~als o f ixt(Oow 22Yt 0Dt octet 101, 00 for0 0tore 301 f- i.,itlld-IA ~ ~ ~ ~ toOOtrs 0 0 instoox Ontlas exd; i Oun owort 0eos lesporro Oxeompt from eli d eE ne3ont tromo al1 duieSO -xeipton ofi dtelf dotEdes on…nexorto --T ------ --o---------n ipoorted oapiol ioporteed toploti prodooroo prore oil aori---o -- nhztlEttin- ---- ------- LonelF nrobasee f- ton t b,o 00000 Or vbrotnoxO 'f f YELur ---------------- - lonron- lorext0 o o -r--------------------- T T-,iblI~~~tt dr -otOo in - Town noprodoosx _ _ ___ _ ___ _ oexenbnon frBP to a-…-------- ----------------E-pon fx t to re--, - _ Iwport onatrnos So qunotxetTooleneeoltlitoex Onol xort"tonx of oIl At llsintor ToritEx sre goowod orbthi 20 Ons froom reosOpo ot Ooqnno by twowestor Rpeptroetlox loooors-001s --_---------Alnn-ooeooeol onoextoot eap freely rerato-ote alt net reoenoec cocountag to ebtei IDvestEBDt wioOt to boeeP exhnge-----------------------n------- ITO lionodotloo of (Ao-o :nveott,to tbao wiay oepenw:tte ths penoteOa eTea1 of the anopnt ix trotter thex tAn axoooxtorilttwllO twnvetod Ow Exolovxene Ocr,-ofewnt ol " OorefxoO 0o0 eooont eEerctal ---x----- If odoltoo nepons o rr Lo osor looooo ,OhIbt s oOlA:xx th remsinder oP tl e ltooota peroon TooKesn 11 S e redored the rodoLo,ro oon oolm enoor 202. Seionowxlotttntion 1----- eotar:rlneo coo .,,toblooLed im cerooox re.i.. --oxoeootaobt:&ootnoneoseotloen -B oxoentot soodfo op toYe _Oo ftxl i=trow -prootefon of 10r,0 t o tonoe 606 (h id5LeOOste EKuorts~~~~~~~~~~~~~~ ~ --------- if -Iprt eKse- il oitr-aY -r ---------------------- 00cEr of ncompe (on ext.-,o xtl opoly i; onoenrtoaooattaxlsle Ox …--------------- Atooleroted Aepeecloroon R---__-- ------ -------------- -Tho brooO -t - of the tIa oav be 100050 Op the ------------------- ~~~~~~-roo5eO(o'tladcot___ _Fxdt Fa(oeo(x, h2r tm000 or dcoreA ot fxoorobldcnt onofxE d itlwat&tttcef …------ PrxoOstmnenfTTrer lnedoorondwotLonoit(ee ----- ratre, bo d,o- and o-r- bexofic-'-- …-----fProote,on 01 011 ioPrexrrootro- b0tbera-ate------ , su s e e -Interoot rare tobat 0-es oftbEnkAleodlosrEeede--- A ooroe L'ARence do pronnotloe Use boa IR teteextot "regoon 0artl outlet 051 fooenr dex indnanowna enrortatretosa Lot 72-32 du 27 aootl 1072,0 ettnti 74-7A do S atoill 1976 raeltiTe c p; ioTeatlaaeo7nts dons lea ondoatroi e xannTno,ro area.r - 127 - Appendix II.2/ Appendice II.2 INDUSTRIAL DECENTRALIZATION BENEFITS (Law 77-578; July 6, 1977) Group A Group A, B and C Nabeul, Monastir, Mahdia Flat rate registration tax for Gabes, Bizerte, Sousse, Sfax capital increases. (with exception of Menzel One additional year of exemption from Bourguiba, Sousse Nord, Sousse profit tax. Sud, Sfax Medina, Sfax Nord, During the first five years of operation Sfax Sud) exemption from income tax levied on distributed profits to stock holders and partial exemption on interest pay- ments on funds borrowed to establish the enterprise, not exceeding 6% of the nominal value of the paper issued. Group B Group B and C Zaghouan, Beja, Siliana, Apart from all benefits mentioned Kairouan, Sidi Bouzid above, interest rate subsidy applying to lending rates above 5 percent, with the subsidy being equivalent of up to 5 percent of the rate charged. Possibility of state providing all infrastructure. Group C Group C Jendouba, le Kef, Kasserine, All benefits set out above plus Gafsa, Medenine a 10% investment subsidy not exceeding D 10,000. Source: Journal Officiel, Decret 77-578; July 6, 1977 - 128 - Appendix III.1/ Appendice 111.1 TUNISIA - OUTPUT AND GROWTH OF EMIs/ TUNISIE - PRODUCTION BRUTE ET CROISSANCE DES IME Gross Outwut/Produit brut Grwt raters EMI Subsector/ 1972 1978 p.a. (real terms)/ ISIC Sous-secteur IME D Mlns.% D MlnsT % Taux de croissance 1 - Mechanical Industries 1 - Induetries mncaniques 3813+3843 Steel structures, platework 3.1 7.6 9.6 7.7 10.7 Ccnatruction mntallique et chaudronnerie 3841 Shipyard* 0.8 2.0 3.1 2.5 14.9 Ccnatruction navale* 3821+3822 Engines*, Agric. Implements _.8 2.0 2.4 1.9 10.1 Moteurs*, 4quipements agricoles Sub-Total Equipment Goods 4.7 11.6 15.1 12.1 11.3 Sous-totel biens d'equipement 3710 Steel mill 9.1 22.5 23.0 18.5 7.0 Siderurgie* 3710 Iron/steel foundries* 1.6 4.0 3.7 3.0 5.4 Fonderies fonte/acier* 3720 Lead foundries/products* 4.6 11.3 7.8 6.3 0.1 Fonderies et produits 3813+3819 Pipes, Cans*, metal parts 5.8 14.3 15.0 12.0 7.4 Tubes et tuvaux, emballages metalliques*, piaces mEtalliques Sub-Total Intermed. Goods 21.1 52.1 49.5 39.8 5.7 Sous-total produits intermediaires 3843 Automotive/cycle assembly* 5.4 13.3 26.6 21.4 19.6 Montage automobiles et cycles* 3811+3819 Metal Products, hardware 2-1 6.7 5.0 4.0 1.6 Ouvrages en mEtaux, quincaillerie Sub-Total End-Products jJ, 20.0 31.6 25.4 15.0 Sous-total produits finals Total Mechanical Industries 33.9 83.7 96.2 77.3 9.1 Total industries mecaniques 2 - Electrical Industries 2 - Industries electrigues 3831 Transformers-Electric MotorE 2.8 6.9 11.1 9.0 15.3 Transformateurs, moteurs 3839 Batteries, cables, others 1.0 2.5 5.0 4.0 19.9 Batteries, cables, autres Sub-Total Equip/Inter-Goods 3.8 9.4 16.1 13.0 16.6 Sous-total biens d'equipement et intermediaLres 3832 Radio, TV Assembly 2.0 4.9 5.3 4.2 7.8 Montage radios/TV 3829+3833 Household Appliances* 0.8 2.0 6.8 5.5 31.0 Apparef,5s electromenagers* Sub-Total End-Products 28 6.9 12.1 9.7 17.0 Sous-total produits finals Total Electrical Industries 6.6 16.3 28.2 22.7 16.8 Total industries Electriques TOTAL EMIs Output 4aQ5 100.0 124.4 100.0 10.5 TOTAL I?iE TOTAL EMI Value Added 12.9 33.1 Valeur ajoutEe total IME Value Added/Output, in % 31.9 26.6 Valeur gioutee/Production brute * Owned largely or totally by the Public Sector/ Possed4s en totalite ou grande partie par 11 secteur public. Source: V Plan and Budget Economique 1979. - 129 - Appendix III.2/ Appendice III.2 Page 1 of/de 3 TUNISIA - COVERAGE OF EMI PRODUCTION LINES BY TUNISIAN INDUSTRIES/ TUNISIE - DES LIGNES DE PRODUCTION IME PAR LES INDUSTRIES TUNISIENNES Activities undertaken in Tunisia/ ISIC Denomination/Denomination Activites entreprises en Tunisie 37 Basic Metals/ Industries metallurgigues de base .371 Iron and steel basic industries/ Steel mill (rods only). Foundries/ Siderurgie et premiere transfor- Siderurgie (fers a beton seulement). mation des ferreux Fonderies .372 Non-ferrous metal basic industries/ Lead foundry and products/ Production et premiere transfor- Fonderies et produits de plomb mation des metaux non-ferreux 38 Fabricated Metal Products and Machinery/Fabrication d'ouvrages en metaux, machines et materiels .381 Metal Products, except machinery/ Ouvrages en metaux, sauf machines et materiel: 3811 Cutlery, hand tools, general Generally produced/ hardware/Coutellerie, outils a Generalement produits main, quincaillerie 3812 Metal furniture and fixtures/ Some produced/ Meubles et accessoires en metal Certains produits 3813 Structural metal products and Generally produced, except boilers/ platework/Structures metalliques Generalement produits, sauf et chaudronnerie chaudronnerie 3819 Other metal products n.e.c., Generally produced, except surface- except machinery/Autres ouvrages treatment/Generalement produits, en metaux, sauf machines et sauf traitements de surface materiels, n.d.a. .382 Non-Electrical Machinery/ Machines, sauf machines electriques 3821 Engines and turbines/ Only small diesel engine assembly/ Moteurs et turbines Montages petits moteurs diesel 3822 Agricultural Machinery and Only non-automotive implements/ Equipment/Machines et materiels Materiels non automobiles agricoles - 130 - Appendix III.2/ Appendice III.2 Page 2 of/de 3 Activities undertaken in Tunisia/ ISIC Denomination/Denomination Activites entreprises en Tunisie 3823 Metal and wood working machinery/ Void/Aucune Machines pour travail bois et metal 3824 Specialized industrial machinery/ Void/Aucune equipment Machines et materiels speciaux pour l'industrie 3825 Office computing/accounting Void/Aucune machinery Machines de bureau, de calcul et de comptabilite 3829 Non-electrical machinery/ Only pumps, refrigerators, sewing equipment n.e.c. machines, and machining shops/ Machines et materiels non Pompes, refrigerateurs, machines 6lectriques n.d.a. a coudre, et ateliers d'usinage .383 Electrical Machinery, appliances and supplies/Machines, appareils et fournitures electriques 3831 Electrical industry machinery Only transformers and small motors/ and apparatus/Machines et Transformateurs et petits moteurs appareils electriques industriels 3832 Radio, TV and communication Only assembly of radio/TV sets equipment and components/ Montage d'appareils radio et TV Appareils de radio, TV et telecommunication 3833 Electrical appliances and Only stoves and water heaters/ housewares/ Fourneaux et chauffe-eau Appareils electro-menagers electriques 3839 Electrical apparatus and supplies Only cables, batteries, small wiring n.e.c./Appareils et fournitures devices/Cables, accumulateurs, electriques n.d.a. petit appareillage d'installation .384 Transport Equipment/ Materiel de transport 3841 Ship building and repairing/ Ship repairing (up to 60,000 DWT)/ Construction et reparation navale Reparation navale (jusqu'A 60.OOOT) 3842 Railroad equipment/ Only freight cars/ Materiel ferroviaire Wagons de marchandises Appendix III.2/ - 131 - Appendice III.2 Page 3 of/de 3 ISIC Activities undertaken in Tunisia/ ISIC Denomination/Denomination Activites entreprises en Tunisie 3843 Motor vehicles and parts and Assembly of cars, trucks, buses/ accessories/ Montage d'automobiles, camions et Vehicules automobiles autobus 3844 Motorcycles and bicycles/ Assembly of bicycles/mopeds Motocycles et cyles Montage de cycles et velomoteurs 3845 Aircraft/Construction aeronautique Void/Aucune 3849 Transport equipment n.e.c. Void/ (animal-drawn)/ Aucune Materiel de transport n.d.a. .385 Measuring and controlling equipment/ Appareils de mesure et contr^ole Optical goods/Instruments d'optique 3851 Measuring and controlling Only electric meters/ equipment/Appareils de mesure Compteurs electriques et controle 3852 Photographic and optical goods/ Void/ Instruments photo et optique Aucune 3853 Watches and clocks/ Assembly of watches (72-38 Montres et horloges enterprises/Montage de montres (entreprises de la loi 1972-38) TUNISIA - PRODUCTION, DEMAND AND TRADE OF MECHANICAL AND ELECTRICAL GOODS TUNISIE - PRODUCTION, DEMANDE ET ECHANGES EXTERIEURS DE PRODUITS DES IME (Millions D) Sub-sector/ 1972 1976 1978 Sous-secteur Production Imports Exports Demand Production Imports Exports Demand Production Imports Exports Demand Production Imports Exports Demande Production Imports Exports Demande Production Imports Exports Demande Mechanical Goods Produits MEcaniues Equipment Goods 5 40 0.1 44.9 8 130 2.2 135.8 15 189 2.5 201.5 Biens d'equipement Intermediate Goods 21 22 6.7 36.3 40 61 4.9 96.1 49 88 6.2 130.8 Biens intermediaires Consumer Goods 8 18 0.4 25.6 20 37 1.9 55.1 32 42 1.2 72.8 Biens de consommation Sub-Total 34 80 7.2 106.8 69 228 9.0 288.0 96 319 10.0 405.0 Sous-total Electrical Goods Produits Electrigues Intermediate/ Biens d'equipement et Equipment Goods 4 9 0.1 12.9 9 29 0.3 37.7 16 51 1.5 65.5 intermnediaires Consumer Goods 3 4 _ 7.0 8 21 0.5 28.5 12 11 3.5 19.5 Biens de consommation Sub-Total 7 13 0.1 19.9 17 50 0.8 66.2 28 62 5.0 85.0 Sous-total TOTAL 41 96 7.3 129.7 86 288 9.8 364.2 124 391 15.0 500.0 TOTAL Source: Table 2.1, Appendixes II.3 and II.6/ Tableau 2.1, Appendices II.3 et II.6 0.0. . w $5x '- - 133 - 4. 0 4. 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'-4.4. 4.0. 040 0 0 4. 04. o4. 40 0 4.0 4.44 40 4. 4 40 444'004044. '0 4 4. -4. 444.040 -4. 0'04004.0 4 4 4 <0 00 4.' 4.4. 00 00 04.0 44.0 0. 4.4. o 04 4.04 4.404. 4o '004.4 440'0o40404 04 4. 4. 0 4'04.040 0 04 44444. 40 0 4. 4.. 4. '0 00 no 4 0440040400 0 0044400.."40 4.0 4.0.-..04.44400404004040000040440 0 04 04 00 00 00 4.4. 04. 4.4. 4. .0 40440004.00 4004404.40'0 04.4.4 4. 00044.44.'040440000'0440'0  5 AS 44555A5. 4.000404000000040'0oOOoOoooooo04 4 4. 4 0 0 4.0 0 4. 4. 4. 4. 0.4. 4. 4. 00-4. 4. 0 4. 4. 4. 04. 4.00 4. 4. 4. 00 0. 04. 404 0 0 04.4.4. 0. 4.0 4.4. - 0 4.00.4. 04 00. 4.0. - 0 4. 0. 0.4.4.4. 0. 0 0 oO 4. 4. 4. 000 0. 4. 4.4.4. 00 4. o 0. 4.. 0 '4.4.4. 44 'on 04 ..'4. 00. ' 0 - 4. 0.00. 4. 00 4.4.4. 0 4. - 4. 4. 4.4.4. 4. 0 4'.0 4.0. .0 4. 04..- 04. 04.4.04.0 4.4 4. 0.0 004.4.04.0 0 4.4.04. '.4. 0 044.0.4.'-4. 44 '-4 4444 .4.0.004.00 4. 4.4.4.4.4.04.4.00 4. oOO4.000 4. oO4.0--oo 4. 4  g 04.4.0 0.0 4. 0 '0oO4.4.0.00o4. 4.. 4. 0-04.4.4.4.4. 4. OoOotO.O 4. 4. 4.0.4.4. 4.4. 4. 0 04.4.04-4.004.4. 4. 4.004.044.0. 04.4.4.4.04. 0 0 - 4.0.4 4.44 04. 4. 4.4.4.0.000.000 4. 4.4.4-0.04.40 0 04.44-000 4. 4. 4- 4. 0 0 0 04 0 4.4 0 0 0 4. 0 0404.000. 0. 0. 404. 0 4. 0 4.4. 44 0 4.4. 0. 4. o4. 04.0 04 0 Appendix III.5/ - 134 - Appendice III.5 Page 1 of/de 2 TUNISIA/TUNISIE COMPOSITION OF MAJOR MECHANICAL EQUIPMENT GOODS - 1977 IMPORTS COMPOSITION DES PRINCIPALES IMPORTATIONS DE BIENS D'EQUIPEMENT MECANIQUES - 1977 Customs Code/ Code douanier Designation/Produits D Millions 840100 Boilers/Chaudiares a vapeur 1.171 8406 et 8408 Engines/parts/Moteurs a pistons et autres moteurs, 9.792 parties et pieces 8409.. Road compressors/Rouleaux compresseurs 0.988 8410 + 11 Pumps/parts/Pompes a liquides et air, parties 7.351 et pieces 8412.. Air conditioning/Groupes de conditionnement d'air 0.904 8413.. Air Burners/Bruleurs et foyers 0.913 8414.. Industrial oven/Fours industriels 1.178 8415.. Refrigerating equipment/Equipements frigorifiques 1.645 8417.. Water Heaters/Chauffe-eaux non-electriques 9.327 8418.. Centrifugal equipment/Centrifugenses, parties et pieces 5.236 8419.. Industrial washing machines/Machines a nettoyer la 2.787 vaisselle 8421.. Fire extinguishers/Extincteurs, parties et pieces 1.105 8422.. Lifting/hoisting equipment/Appareils de manutention 13.122 et levage, parties et pieces 8423.. Earth moving equipment/Materiels de forage, terrasse- 13.324 ment, parties et pieces 8424.. Agricultural implements/Machines agricoles 1.603 8425.. Agricultural machinery/Autres equipements agricoles 1.453 8426,27,28,29,30 Food industries equipment/Machines et appareils pour industries agricoles et alimentaires 5.983 8431,32,33,34,35 Paper/printing equipment/Machines et appareils pour 3.233 papier et imprimerie - 135 - Appendix III.5/ Appendix III.5 Page 2 of/de 2 Customs Code/ Code douanier Designation/Produits D Millions 8436,37,38,40,41 Textiles/clothing equipment/Machines et appareils 9.763 pour textiles et confection 8445,46,47,48 Machine tools/Machines - outils, parties et pieces 5.904 8451,52,53,54,55 Office equipment/Machines et appareils de bureau 2.614 8456 Mining equipment/Machines a traiter les matieres 10.826 minerales 8459 Other machinery n.e.c./Machines, appareils et 5.144 engins n.d.a. 8460 Industrial molds/Moules industriels 1.370 8462 Roller bearings/Roulements en tous genres 1.354 8463 Mechanical parts n.e.c./Pieces mecaniques n.d.a. 4.466 TOTAL 122.556 Source: Statistiques du Commerce Exterieur - 136 - Appendix III.6/ Appendice III.6 Page 1 of/de 2 TUNISIA - MAJOR IMPORTS OF ELECTRICAL GOODS/ TUNISIE - PRINCIPALES IMPORTATIONS DE PRODUITS ELECTRIQUES 1977 Code/ Weight (T)/ Value (OOODT)/ Code Designation/Produits Poids (T) Valeur(OOODT) 8501.. Electrical motors, generators, parts/ 3469 6832 Generations, moteurs, transformateurs et parties 8503oo Small batteries/Piles electriques 1780 1152 8504.. Auto, batteries and parts/Accumulateurs 885 538 electriques et parties 8505.. Hand electrical machines, and parts/ 81 365 Outils et machines outils a main electriques, et parties 8506.. Electromechanical household equipment/ 729 312 Appareils electro-mecaniques a usage domestiques 8508.. Ignition devices for engines/Bougies 1113 1574 d'allumage 8509.. Lighting devices for automobiles/Appareils 809 678 d'eclairage et signalisation pour vehicules 8510.. Electric portable torches and parts/ 15 129 Lampes electriques portatives 8512oo Electric water heaters/Chauffe-eau et 338 615 radiateurs electriques 8513oo Telephone equipment and sets/Appareils 562 5883 t6lephoniques 8514oo Micros, loudspeakers/Micros, haut-parleurs 30 155 8515.. Radio/TV sets and parts/Recepteurs radio et 1383 8339 TV, et pieces detachees 8518oo Condensers/Condensateurs electriques 38 197 8519.. Switchboards and parts/Appareils electriques 3940 12873 de branchement, coupure et commande, pieces et parties - 137 - Appendix III.6/ Appendice III.6 Page 2 of/de 2 1977 Code/ Weight (T)/ Value (OOODT)/ Code Designation/Produits Poids (T) Valeur (OOODT) 8520.. Electric lamps and tubes, parts/Lampes 343 733 et tubes electriques pour eclairage, et piaces 8521oo Electronic valves and lamps/Tubes et 988 1593 valves electroniques 8523oo Electric cables/wires/ 12653 7658 Fils et cables electriques 8525,26oo Insulators/Isolateurs et pieces isolantes 616 481 9026oo Electric/gas meters/Compteurs 133 453 d'electricite, gas et liquides 9027oo Other meters/Autres compteurs 23 111 9028oo Measuring electric instruments/ 711 3450 Appareils electriques de mesure 9029oo Parts of measuring instruments/ 41 288 Parties d'appareils de mesure 54409 91.... Watches/parts; time-measuring equipment/ 107 928 Montres, compteurs de temps, et piaces 92(11+13)oo Audio instruments and parts/Appareils 56 365 d'enregistrement et reproduction du son Source: Statistiques du Commerce Exterieur TUNISIA - EXPORTS OF MECHANICAL AND ELECTRICAL PRODUCTS TUNISIE - EXPORTATIONS DE PRODUITS IME (in millions of dinars, at current prices) (en millions de dinars, aux prix courants) 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 Tons D.M TMnS D.M 122k U.N 9.2QL D.M I=&1 D.M _Tnf721 _T-WF. Mst1 I.3 Tt D. 000 000 000 000 000 000 000 000 000 000 _ Iron and Steel products 92 3.1 110 4.9 45 2.2 74 3.4 149 6.8 95 7.5 12 1.1 3 0.6 2 0.9 1.7 Ouvrages en fers, fontes et aciers Copper products 1 0.5 1 0.5 -- 0.2 -- 0.2 1 0.5 1 0.4 -- 0.1 1 0.3 0.5 0.2 0.3 Articles et ouvrages en cuivre Lead products 15 2.2 19 3.2 14 1.9 22 3.1 261 4.4 25 6.4 21 3.7 21 4.0 15 4.1 16 4.2 Plomb e6tal et ouvrages Engines achinery 0.1 0.1 0.1 0.1 0.1 0.5 0.4 2.2 1.0 2.5 Apparells,oachines et engins Electrical 0.1 0.1 0.1 0.1 0.3 1.0 1.9 0.8 3.6 5.0 Machines et appsreils 6iectriques Others 0t3 0.4 0_4 0.4 0.5 1.5 1.6 1.9 1.1 1.2 Autres TOTAL 6.3 9.2 4.9 7.3 12.6 17.3 8.8 9.8 10.9 14.9 TOTAL Iron and Steel products, as % of Total: 49 53 45 47 54 43 13 6 8 11 Ouvrages en fers et fontes, en % du total: Lead products, as % of Total: 35 35 39 42 35 37 42 41 38 28 Produits en plodo, en % du total: Source: Ministry of Planning/ Ministere du Plan - a, n. Ax TUNISIA/TUNISIE EXPORTS OF MECHANICAL AND ELECTRICAL PRCIDI CTS BY DEST7NATION (1977) PRINCIPALES EXPORTATIONS DE PRODUIIS DES IME POUR PAYS DE DESTINATION (1977) Other Other Code! Total! France! Italy! Other EEC/ developed/ Libya!/ alta/ Algeria! dev-loping/ Code Pr-duct/Produit morale France ATo ,ie dorre CFF Adrren PD Tlhre MoTto dAlerie dAtreo PVD 731800 Iro1n-/Ste Tobes 119 92 1 1 25 Tubes et tuayxys ee fer/ier 732300 CasS/Tins 345 2 46 297 FGts 0t bidons en t6Re 734D02 Other Stool-Ioo Works 182 0 Y 1 1 1 8 4 156 Autres estoges en Errs 0t ftces 7801.. Load Merol/Pr-d-l-s 4110 131 1209 501 !h 1575 Ia 405 289 PlanE brat et ouvrages 820501 Drilling Toolo 171 40 131 Otils forage et saudogo 820502 Tools for Ierto Work 133 75 1 36 /e 1 18 ' rils poor travail des metaur 840609 Parts for Piston Engiene 152 2 *132 !b 8 10 Parties et pjiees poor meteors 8 piston 8422. . Lifts/haodling oqoip.ert 125 94 28 e 3 Appareflo do sasotentio n et lerage 8423.. Earth eving/Drilling eqo'p. 274 42 1 1 93 132 5 Parti-s 0t pifcrr de -arhin.s do forage et terrassement 8041.. Sewing Ma.hi-ee and par-s 94 6 * 85 /c 1 2 MacObises 3 -odre et parties 845100 Typewriters 46 46 M-hi- a e-ire 846100 Tap fe-tory and faucets 39 5 13 11 1 RabietLterie 8463.. Miscell--eoos Mach. Paris 30 6 3 2 15 3 PiFees dsdaniqooA sda 760807 Aluminium Parts/WorEs 37 07 t Conecructi-na ot parties en alamfedom 761000 Alolmnii- Cars/Cortainers 68 * 2 !o 55 11 pGts ot bid.n- en alonfea 860950 Parer of hai1road Cars 32 32 Partie- do vShic-lea f-orovialren 870600 P-rts/Acce-on-ies for Cars 48 3 5 4 3h Partie et a ssoires poor vihinles automobiles 902400 Debit mere-/I-ts-r.nrnts 14 1 _ 5 3 2 Compteurs et instro-ets do mesare Sb-Total: Mechanical Coads 6019 419 1258 737 1690 423 338 687 357 leas-tesl: produits m-ecniq-es 8501.. Electric Cenerator!/ 121 27 7 6 79 2 Mto-urs, tra-sformateura ot parties et pil-es Transfurmers 8515.. Radio-TV sees and par-s 770 709 2 n 56 /L /d 1 2 Appareils radio et pieces detachfee 8519.. Switchba-da and ports 2194 1442 223 *526 !c !d 2 1 Appare-ils eletriques do br-sohemeet, c-opureeot -ommande 852300 Electric Cables and aits 394 148 0221 /c 25 File et oSbl-s Slectriques 902800 Measor.ig Electric 268 27 *147 !b 5 7 4 78 Apparoils electrtiq-e do mesure Ins trunents 91 .... Watches; tining instrunes t 120 1 72' Lb 42 /e 4 -ntr-s, compteurs de temps 92(11+13)Audio irstrumnos/parts 31 0 14 17 Ic _ _ _ _ - Appareils enregistremert et reproduttien du man; acesne ires SRb-Tatai Electrical Goads 398P 2368 225 1313' 53 89 0 78 29 Snus-rotal: produita elentriques TOT'AL 9910 2787 1573 1784 1743 522 347 7t5 386 TOTAL 789 2020 of which: Sb-Total0 1281 doet: ious-total5 vs La Gree-e/Grece !b Netherlands/L-s Pays Ban /c Weat Ger-any/L'Allemagne fedfrale /d Uni-ed Kingdom/le Roypooe-Uai /e Swteerland/la Suise *Asserled And 0R-reported order TenPorary Adnission Regime/Operati-ns dr esetage et exportations rFfeftrnes sousarlglaea suspe-sifs. Souce-: Statitiq-e do Com-ecce Eatfriror pi2NA/3 0F April 23, 1979 - 140 - Appendix III.9/ Appendice 111.9 TUNISIA - EXPORT ENTERPRISES OF LAW 1972-38 IN EMIs TUNISIE - ENTREPRISES EXPORTATRICES DES IME - LOI 1972-38 Mechanical/ Enterprises/ Employment/ Industries necaniques Entreprises Emploi Equipment Goods 3 330 Biens d'Equipement Intermediate Goods 4 207 Biens interwEdiaires End-Products 2 58 Produits finals Total Mechanical 9 595 Total industries mecaniques Electrical/Industries Electrigues Intermediate/Components 14 (7) 1500 (1400) Produits intermediaires et composants End-Products 2 75 Produits finals Total Electrical 16 1575 Total Industries Electriques TOTAL EMIs 25 2170 Total IME ( ) Electronic components assembly/ Montage de composants Electroniques Source: API TUNISIA/TUNISIE STRUCTURE OF COSTS AND PRICES IN SELECTED MECHANICAL INDUSTRIES - 1977/ STRUCTURE DES COUTS DE PRODUCTION ET PRIX DE REVIENT DANS QUELQUES INDUSTRIES MECANIQUES - 1977 (in percent) (en pourcentage) Equipment goods/ Intermediate goods/ Biens d'equipement Produits intermediaires FnA-nroducts/Produits finals Steel structure platework/ Metal Cutlery Auto Cost Item/ Charpentes contain- hard assem- Truck Composant altalliquas Ship Engines Foundries/ nera/ ware/ bly/ compo- -haudronnerie repair/ assembly/ Fonderies - Machine Steel Embal- Coute- Mon- nents/ Firm 1 Firm 2 Repara- Montage Firm 1 Firs 2 job/ pipes/ lages llerie tage Elements lire 2eme tion de lare 2eme Atelier Tubes mAtal- quincai- voi- de firme firme navale moteurs firme firme d'usinage acier liques Ilerie tures camions Imported Materials 24 16 n.a. 60 26 7 20 42 51 43 50 30 MatiAres importees Local Materials 3 9 n.a. 2 26 16 25 8 5 3 3 10 Matiures locales Total Materials 27 25 23 a/ 62 52 A! 23 45 50 56 46 53 40 Total matieres consommables Tot. Services/Suppl. 18 25 16 3 4 8 10 7 5 4 9 12 Biens et services locaux (inc. S.T. Interest) (y compris interet C.T.) Misc. Costs 3 1 3 1 2 4 3 1 1 1 2 2 Couts divers Indirect Taxes on 13 10 3 A! 23 6 13 9 21 17 25 24 20 Taxes indirectes a la Production production (includes Duties) (y compris droits douane) Labor 18 28 63 6 24 44 31 6 15 14 8 10 Main d'oeuvre Capital Cost 8 4 3 3 3 5 3 4 8 6 1 9 Cout du capital (amortissements) Profit (Gross) 13 6 (10) 2 9 3 0 11 (2) 4 3 6 BenEfices (bruts) Ex-Factory Price 100 100 100 100 100 100 100 100 100 100 100 100 Prix sortie-usine Value Added/OutPut 52 48 59 34 42 65 43 42 38 49 36 45 V.A./Valeur finale Capacity Utilization 65 62 67 58 63 70 80 60 65 75 66 67 Taux d'utilisation des capacitds Ex-Factory Prices as Pi oteuie uropean FOB --110/120-- 90/100 155 --120/130-- 110/120 130 130/140 110/115 200 160 Prix FOB Europe Nominal Protection -_50(4)L/- None 46 -15(4)b/- 40 21 27 N.A. 160 51 Protection nominale % Output Exported 4 - 80 - - 3 - - - 12 - - Part production export&e a/ Part of the Taxes on Production is included in the Materials Cost/ Une part des taxes a la production est comprise dans les matieres premiares. b/ Level of production for equipment and intermediate goods entering authorized investments/ Niveau de protection pour les biens intermediaires et d'Equipement entrant dans la fabrication des t investissements agrees. m m Source: Mission estimates from plant visits and firms' accounts/ x Estimations de la mission A partir des visites d'usines et des comptes des entreprises. IMPORTS OF MECHANICAL PRODUCTS FOR POSSIBLE SUBSTITUTION/ IMPORTATIONS DE PRODUITS MECANIQUES SUSCEPTIBLES D'UNE SUBSTITUTION LOCALE Customs 1977 Imports/ Unit value/ Code! Description/Produits Importations 1977 Valeur Code Tons/ D. Millions/ unitaire douanier Tonnes Millions dinars f(D/kg) 1. Iron/Steel Castings Produits de fonderie fonte/acier 731700 Cast Iron Pipes 1206 0.285 0.24 Tubes et tuyaux en fonte 732000 Cast iron/steel pipe fittings 2130 1.603 0.75 Accessoires tuyauterie fonte/acier 733000 Anchors 100 0.049 0.49 Ancres et grappins 733600 Domestic heating appliances in pig Appareils domestiques de chauffage en fonte iron/steel 1210 1.277 1.05 ou fer 733700 Central heating " " 745 0.385 0.52 Appareils chauffage central en fonte ou fer 733800 Miscelaneons Domestic " 1229 0.738 0.60 Articles de menage divers en fonte ou fer 734002 Other products in pig iron/steel 2526 2.519 1.00 Autres ouvrages en fonte ou fer 841109 Parts for Air pumps and compressors 762 0.633 0.83 Parties et pieces de pompes et compresseurs 842409 Parts for Agricultural Equipment 165 0.170 1.40 Parties et pieces de machines agricoles 845609 Parts for Mining machinery 509 0.712 1.40 Parties et pieces de machines a traiter les matieres minerales 846100 Sanitary tap factory and faucets 2589 4.505 1.74 Articles de robinetterie 871407 Parts for Animal-drawn Carts 492 0.264 0.54 Parties de vehicules de traction animale Sub-Total Castings 13662 13.140 0.96 Sous-total pieces de fonderie 2. Primary and semi-finished steel products Produits siderurgigues semi-finis 731400 Steel/iron wires (non-insulated) 1693 0.401 0.24 Fils de fer ou acier (non isol6s) 731800 Iron and steel tubes and pipes 14217 4.459 0.31 Tubes et tuyaux fer et acier 732100 Iron and steel structures and parts 19315 7.593 0.39 Constructions metalliques et parties 732200 Large Iron and steel tanks 410 0.588 1.43 Grands reservoirs en fer et acier 732300 Containers and cans 95 0.083 0.87 Futs et bidons en tole 732400 Containers for liquified gas 807 0.491 0.61 RXcipients pour gaz liquifiEs 732500 Iron and steel cables (non-insulated) 971 0.634 0.65 Cables en fer ou acier (non isol6s) 732700 Iron and steel screens 102 0.099 0.97 Grillages en fer/acier 7331.. Nails, staples and aonstruction hardware 337 0.216 0.64 Pointes, clous, chevilles, crochets, agrafes 7332. . Bolts, nuts, washers 2380 1.810 0.76 Boulonnerie/visserie en fer 733500 Steel springs _515 0.508 1.00 Ressorts et lames en fer/acier Sub-Total Basic Steel Products 40842 16.882 0.41 Sous-total produits siderurgiques 3. Non Ferrous Basic Metal Products Ouvrages en metaux non-ferreux 740800 Copper pipe fittings 102 0.258 Accessoires tuyauterie en cuivre 741000 Copper cables (non-insulated) 435 0.391 Cables en cuivre (non isolEs) 741500 Copper Bolts and Nuts 44 0.068 Boulonnerie/visserie (en cuivre) e > . 760800 Aluminium Construction Structures 397 0.646 Constructions et parties en aluminium ' X t 761000 Aluminium Containers and Cans 949 0.168 FPts et bidons en aluminium 6 761200 Aluminium Cables (non-insulated) 2011 1.479 'Cables d'aluminium (non isoles) Sub-Total Non-Ferrous Metal Products 3938 3.010 Sous-total ouvrages en metaux non-ferreux _ IMPORTS OF MECHANICAL PRODUCTS FOR POSSIBLE SUBSTITUTION/ IMPORTATIONS DE PRODUITS MECANIQUES SUSCEPTIBLES D'UNE SUBSTITUTION LOCALE Customs 1977 Imports/ Unit value/ Code/ Importations 1977 Valeur Code Description/Produits Tons/ D. Millions/ unitaire douanier Tonnes Millions dinars (D/kg) 4. Metal Products and Hardwares Ouvrages en mEtaux et pieces diverses 820100 Agricultural hand tools 58 0.068 1.17 Outils agricoles A main 820200 Hand saws and blades 146 0.285 1.95 Scies A main et lames 820300 Hand tools 277 0.754 2.72 Outils a main 8204.. Anvils, clamps weldings lamps, hand forges 402 0.720 1.79 Divers outils a main (enclumes, Etaux, forges, lampes a souder) 82(09+10+ 13+14)00 Cutlery (knives, scissors, blades) 77 0.225 2.92 Coutellerie at parties 830100 Locks and Keys 503 0.955 1.90 Serrures, verrous et cles 830200 Metal hardware for furniture 3193 1.533 0.48 Ferrures de meuble 8307.. Lamps and their metal parts 592 0.614 1.04 Lampes d'6clairage et parties non Electriques 830900 Metal items for clothing 274 0.539 1.97 Fermoirs mEtalliques pour vetements 8313.. Bottle caps 120 0.206 1.72 Bouchons mEtalliques, capsules en mEtaux 831500 Soldering electrodes 224 0.184 0.82 Baguettes Electrodes Sub-Total Metal Products/Hardwares 5866 6.083 1.04 Sous-total ouvrages en mEtaux divers 5. Mechanical Equipment and Machinery Appareils et machines mEcaniques 840100 Steam Boilers 813 1.171 1.44 Chaudieres a vapeur 840900 Road Compressors 630 0.988 1.57 Rouleaux compresseurs 8411.. Air pumps, fans and compressors 1493 2.867 1.55 Pompes, ventilateurs et compresseurs 8413.. Burners and furnaces 515 0.913 Froeurs at foyers 8414.. Industrial furnaces and parts 1107 1.178 1.06 Fours industriels at parties 841701 Non-Electric Water Heaters 6998 9.121 1.30 Chauffe-eau non 6lectriques 8421.. Fire extinguishers and parts 1650 1.105 0.67 Extincteurs et parties 8422.. Lifting/hoisting equipment and parts 9125 13.122 1.44 Appareils de manutention et levage, et parties 8423(02+09)Earth moving equipment and parts 5275 9.594 Machines de terrassement, et parties 8224.. Agricultural implements 1842 1.433 0.78 Equipements agricoles 8425.. Automotive Agricultural Equipment and parts 915 1.453 1.59 Machines agricoles automotrices, et parties 8449.. Hand machine tools and parts 106 0.444 Machines-outils a main, et parties Sous-total appareils et machines mEcaniques/ Sub-Total Mechanical Equipment! agil d rnpr Machinery 30469 43.389 matErials de transport 6. Transport Equipment MatEriels de transport 86(07+08+ 09)00 Railroad freight cars and parts 3279 2.337 0.71 Wagons de marchandises et parties 8701(02to T D D 07) Road tractors (410 units) 1803 2.440 1.35 Tracteurs routiers (410 unitEs) as 8701(08+ a . 09) Ind. trucks, tractors, stackers (1430) 3492 4.712 1.35 Tracteurs non routiers A roues (1430 unites) O 0 x 87097 . ..Ind. trucks, tractors,(530) 371 1 Chariots de manutention auto (537 unitEs) a M 8707.. Ind. handling trucks (537) 1307 1.917 1.47 Motocycles et v6lomoteurs at parties 8709(+12)00Mopeds, motorcycles, bicycles and parts 1309 1.399 1.35 Remorques et parties at piaces 8714(02+08)Truck trailers and parts 1339 1.449 1.08 BRteaux de pache et autres 8901.. Fishing and other vessels 16578 5.519 0.33 Soux depeheet des 29107 19.773 0.68 Sous-total matEriels de transport - Total produits mEcaniques TOTAL MECHANICAL PRODUCTS 123884 102.277 Source: Statistiques du Commerce Exterieur - 1977 EEC IMPORTS OF EMI PRODUCTS FROM DEVELOPING COUNTRIES/ IMPORTATIONS DE LA CEE DE PRODUITS DES IME EN PROVENANCE DES PAYS EN VOIE DE DEVELOPPEMENT 1974-1977 Import Growth Rate/ Code/ Imports in Value ($ Millions)/ Taux de croissance Code Description/ Importations en valeur ($ millions) 1974-1977 Doua-iier Produits 1 1975 1976 1977 (1 p.a.) 73 Iron and Steel Products 300.8 363.9 482.1 410.2 14.3 Fontes, fers et aciers 82 Metal Tool 37.9 50.2 72.6 86.0 35.5 Outillage en metaux communs 83 Metal Products 24.4 23.8 33.4 42.8 24.3 Ouvrages divers en metaux 84 Mechanical Equipment/Machinery 184.6 302.5 704.0 432.6 37.0 Appareils et machines mecaniques 85 Electrical Equipment/Machinery 431.6 470.2 744.2 952.4 34.2 Machines et appareils electriques 86 Railway Equipment 0.4 1.1 1.2 2.4 N.S. Materiel de chemin de fer 87 Automobiles, Cycles, Tractors 32.7 47.6 90.7 72.8 34.6 Autos, cycles et tracteurs 88 Aerial Transport Equipment 13.5 24.8 64.7 53.1 62.8 Engins de navigation aerienne 89 Sea Transport Equipment 22.8 56.7 60.3 131.4 85.0 Engins de navigation maritime 90 Scientific/Optical Instrument 91.0 123.9 195.9 157.9 23.9 Appareils optiques et scientifiques 91 Watches 13.1 34.6 97.7 121.9 116.7 Horlogerie Sub-Total Manufactures 1,152.9 1,499.4 2,546.8 2,463.4 32.8 Sous-total produits manufactures 74 Copper Metal and Products 2,524.4 1,455.1 1,594.6 1,618.8 (-) Cuivre et ouvrages en cuivre 76 Aluminum Products 72.3 55.7 92.6 128.8 25.0 Aluminium et ouvrages en aluminium 77 Lead Metal and Products 54.0 28.8 28.3 38.8 Plomb et ouvrages en plomb Sub-Total Metal Products 2,650.7 1,539.6 1,715.5 1,786.4 (-) Sous-total demi-produits non ferreux TOTAL EMI Products 3,803.6 3,039.0 4,262.3 4,249.8 7.0 Total produits des IME D 0.0.L Source: EEC Nimex Statistics / nx Statistiques NIMEX-CEE c Appendix V.1/ - 145 - Appendice V.1 TUNISIA/TUNISIE STRUCTURE OF COSTS AND PRICES IN SELECTED ELECTRICAL INDUSTRIES - 1977 STRUCTURE DES COUTS DE PRODUCTION ET PRIX DE REVIENT DANS QUELQUES INDUSTRIES ELECTRIQUES - 1977 (in percent) (en pourcentages) TV radio Trans- small Equip- Elec. formers/ appli- Coat Itlea aienBf Meters/ Petits ances/ TV/radio assembly/ Composant Goods/ Cables Batte- Comp- transfor- Petits Montage radio/TV Siems Wires/ ries/ teurs Gros mateurs et appa- Firm 1 Firm 2 Firm 3 d'equipe- Cables Accamu- elec- electra- Electra- reils lere 2eme 3eme ment fils lateurs triques mEnager menager TV radio firme firme firme Imported Materials 27 62 50 60 40 81 87 73 80 77 Matieres importees Local Materials 6 - 20 - 18 - - - - - Matieres locales Total Materials 33 62 70 60 58 81 87 73 80 77 Total matieres premiEres Local Supplies/Servicen 7 2 Biens et services locaaa Misc. Costa 3 23 5 5 1 2 1 6 3 3 Couts divers Indir. Taxes on Prod. 22 23 Taxes indirectes A la production (including duties) (y campris droits de douane) Labor 19 5 8 11 5 S 4 8 6 5 Main d'oeuvre Capital Cost 10 17 28 5 13 11 Cout do capital (amortissements) Profit (Grons) 11 ( . 6 Benefices (brats) E-Factory Price 100 100 100 100 100 100 100 100 100 100 Prix sortie-usine Value Added /Output 57 15-35 27 37 39 18 12 23 18 21 V.A..Valeur finale Capacity Utilizati-r 66 25 90 80 80 60 n.a. 80 65 80 Taum d'utilisation de capacites E8-Facorry Prices as % 100/110 120 90/100 100/110 110 125 na. 130 125 120 Prim sortie-usine/ of European FOB Prices Prix FOB Europe Drieetio/Eo-Pactory 116 116 118 118 145 145 165 112 112 112 PriF interieur/ Price M% Pria sortie-usina % Output Exported 45 - - - - - - 5 - 20 Part production exportEe Foreign Assistance Partner - Initially On O - - - Partenaire et assistance exterieurs o SSI (less than 50 workers)/PI (moins de 50 ouvriers) Source: Miasioa estimates from plant visits and firma' accounts/ Estimations de la mission A partir des visites d'osines et des comptes des entreprises. - 146 - Appendix VI1.1 Appendice VII.1 TENTATIVE LIST OF PROJECTS IN THE PTPELTEEN LISTE PRELIMINAIRE DE PROJETS 'DANS EA FTI7ERE" I - MECPiANTCAL INDUSTRIES/INDUSTRrES MECANIURES Period/ Investment (ND)/ Periode de Ownershipl Projet Investissement r_elisation Prcooteur Proiet El Fouladh-Renewal 3.5 1980-82 PubLic E1 Fouladh-Renouvellement Fonderies Reunies 9.0 1980-82 Public Fonderies Reunies SOFOMECA Expansion 2.0 1980-82 Public SOFOMECA Expansion STUMETAL Expansion 1.5 1981-83 Public STUMETAL Expansion SOCOMENA-Renewal 2.5 1981-83 Public SOCOMENA-Renouvellement AMS-Renewal 1.0 1979-81 Public AMS-Reneuvellement SOTUMO-Diversification 2.3 1980-83 Public SOTMO-Diver.ffication SGI/Tunis 2.2 1979-80 Private/Privi SGI/Tunis Off-shore Platforms 2.0 1978-80 Private/Priv& Construction de plateformes de forage Aluminum Packing-New 4.5 1979-80 BDET Sponsor/Pronoteur PDET Emballage aluminium-Nouveau Motor Oil Filters-New 1.2 1979-81 PDET Sponsor/Promoteur BDET Filties a huile moteur-Nouveau Vehicle Ascles-New 0.7 n.a. BDET Sponsor/Promoteur BDET Essieux de vehicules-Nouveau Sub-Total 32.4 Sous-total Mechanical Complex-New 35.0 1979-82 BDET Sponsor/Pronoteur BDET "Complexe m6canique"-nouveau STIA-Expansion 15.0 1979-84 Public STLA-Expansion Total 83.4 Sous-total Projects Recommended lot nvestigdtWIiT Projets odo 0tletude est recommandAe Metal structures/Optimia 3.0 1980-82 Private/Prlve Optimisation charpentes mdtalliques Platevork et chaudronneries optimisation AMS-Diversificatior. 5.0 1981-83 Public AMS-Diversification Various Auto Components 2.5 1981-83 BDET Sponsor/Promoteur BDET Divers accessoires auto Pumps/Compressors 5.0 1981-83 PDET Sponsor/Promoteur BDET Pompes et compresseurs Wagona-Expansion 2.0 1980-82 Public Wagons ferToviaires-Expansion SOCOMENA-Expansion 5.0 1981-83 Public SOCOMENA-Expansion 22.5 Sous- tot'al TOTAL MECHANICAL 105.9 TOTAL MECANIQUE II - ELECTRICAL INDUSTREES/INDUSTRIES ELECTRIQIES lrkvestment Period! Investmentp P6riode do ownership/ Poje t Project Invostissement realisation Promoteur lE CONFORT-Expansion 2.9 1979-81 Public LE CONFORT-Expansion CHAKIRA-Expansion 3.4 1978-82 Private/Priv6 CHAKIRA-Expansion SOTACER-Expansion 2.0 1979-81 Private/Prive SOTACER-Expansion SACEK-Expansion 3.5 1980-82 Semi-Public SACEM-Expan.sion NOUR-Expansion 2.8 1979-81 Privete/Priv6 NOUrR-Expansion SIAIIE-Expansion 2.8 1979-80 Public SIAME-Expansion 2nd Battery Project-New 2.4 1980-82 BDET-Sponsor/Promoteur BDET 2eme projet accumulateurs-Nouveas Telephone Assembly-New 2.0 1979-81 n.a. Montage de telephones-Nouveau Zlsd Sous-total Projects Recommended for Study Projets dont l'tude est recommand6e Large Electric Motors-New Expansion 0.5 1980-81 Semi-public preferably Grands noteurs electriques-Nouveau Switchgears/boards-New 2.0 1980-82 Semi-pu lic preferably Appareils coupure/branchement-Nouveau Electrical Hardwares-New 2.0 1980-83 Private Appareillage electrique-Nouveau Telephone Equipment-Expansion 6.0 1981-83 n.a. (Semi-Public preferably) Equipement t6l6phonique-Expansion 10.5 Sous-total 32.3 Total industrieselectriques IOTAL EnIS: #Prejeoto Investmenlt PublictSemi-?ublic/BDET/Piivate TOTAL IME Identified 22 105.2 10 2 5 5 Identifies Recommended 10 33.0 3 3 2 2 Recommendes 32 138.2 13 5 7 7