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TUNISIA

by EOS Intelligence EOS Intelligence No Comments

Tunisia’s Bruised Tourism Industry Starts to Recover

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The tourism sector of Tunisia has been in turmoil over the past few years. The terrorist attacks on Sousse beach and Bardo National Museum in Tunis in 2015 crippled the industry, which had been witnessing a healthy growth before these events. As the Tunisian government and tourism industry players have been implementing strategies to revive the industry, some progress has been witnessed. However, the damage to the country’s image was grave and it is yet to be seen if the measures being taken will put the industry back on the growth trajectory.

Grave repercussions to the sector

Post Tunisia’s political revolution in 2011, the government started promoting tourism both domestically and internationally, and by 2014, the tourism sector contributed 15.4% to the country’s GDP. However, the terrorist attacks in 2015 in Sousse and Tunis killed nearly 60 foreign tourists (including 30 UK nationals) and significantly tarnished the image of Tunisia as a safe tourist destination.

The concerns over safety, reinforced by travel bans and no-travel recommendations issued by some EU countries, resulted in a drastic fall in the number of overseas tourists arriving in Tunisia. A travel ban issued by the UK authorities was particularly damaging to the local tourism sector, as UK had been the key demand-generating market for Tunisia. Between 2014 and 2017, the number of incoming travelers from the UK declined by 93% to 28,000 and many renowned UK travel companies, including Thomas Cook and TUI, discontinued their services in Tunisia.

The tourism sector had always been crucial for Tunisia’s economy and was one of the country’s key employment sectors, employing over 200,000 people before the attacks. The sudden decline in country’s tourism industry impacted cash inflow, business operations of several tourism industry players, and further destabilized the already faltering economy of the country.

The Recuperating Tourism Sector of Tunisia

Government reaction and first results

After two years of struggle, the Tunisian tourism market started showing first modest signs of recovery in 2017, following measures undertaken by the government to boost tourist footfall in the country. The Ministry of Tourism’s initial steps to help the industry survive included covering of social security contributions for tourism entities such as hotels, resorts, restaurants, etc., by the government, with the intention to help the providers maintain their employees and stay afloat. While this helped reduce the impact, the country still saw a massive loss of jobs in travel and tourism in 2015.

Simultaneously, the government tried to address the most pressing issue directly responsible for the decreased demand for Tunisian tourism services – traveler safety. To make tourists feel safe, the government tightened security around touristic sites, particularly in Sousse and Tunis. Additional surveillance equipment was placed at airports, hotels, and resorts to enhance security, while sector staff and various security forces received training on detecting suspicious behaviors and on counter-terrorism. Over the following years, Tunisia also received help from western countries in raising its security standards and procedures.

While these initiatives were needed and welcome, preventing attacks of this sort in a country located in close proximity to conflict zones, requires massive funding and complete, deep overhaul of its security and counter-terrorism system at all levels. Regardless of whether the steps already taken are sufficient or not to truly ensure safety, they certainly offered greater sense of protection to tourists, a fact promptly and extensively communicated to target customers across British and other European media.

The government of Tunisia has also taken measures to balance out the losses by trying to diversify its demand markets. To attract tourist from outside Europe, visa requirements for countries including China, India, Iran, and Jordan were eased with the introduction of visa on arrival. This strategy helped Tunisia attract Chinese tourists, whose footfall increased 56% y-o-y in January-May 2018 period.

To fuel business travel arrivals, the MoT started granting one-year multi-entry visa to businessmen and investors of these countries as well. Further, the MoT also removed entry visa requirements for countries including Angola, Burkina Faso, Botswana, Belarus, Kazakhstan, and Cyprus.

In parallel, the industry realized the need to broaden the sector’s offering. One such initiative was to expand the premium and luxury tourism segment targeting (quite interestingly) particularly British affluent travelers (indicating a continuous bet placed on British customers). In 2017, Four Seasons Hotel Tunis was opened, a major step in putting the country on the luxury tourism map, followed by a few more luxury resorts openings. In several locations premium activities have been developed, including marine spas and golf courses.

Europe’s cautious return to holidays in Tunisia

The measures appeared to have worked, and in 2017, the industry witnessed growth of the number tourists by 23.2% y-o-y to reach 7 million. While the government actions were to some extent successful, it was the lifting of travel ban to Tunisia by EU countries including Belgium, the Netherlands, Poland, and the UK that was the main factor leading to growth.

Recovery was further supported by the return of travel companies such as Thomas Cook and TUI, which resumed operations in Tunisia. Moreover, an air service agreement was signed in late 2017 between the EU and Tunisia to increase the number of direct flights between European countries and Tunisia, which soon led to the return of European airlines including Air Malta and Brussels Airlines on these routes.

All these developments have helped to revive tourism sector and regain European visitors to a certain extent. The number of tourists, particularly, from France and Germany, increased by 45% and 42%, respectively, y-o-y for the period of January-May 2018. This growth in tourist footfall was a great sigh of relief for local industry players, whose businesses have suffered tremendously post attacks.

UK tourist, the most valuable visitor, reluctant to come back

Despite Tunisia’s attempts to diversify its demand markets, the country sees UK as the most important source of tourists for its tourism sector. According to the Tunisian Hotel Association, the market will not fully recover until the British visitors are back in numbers from before the attacks, which will also send a strong message to the world that Tunisia is safe for travel again.

Before the attacks, tourists from the UK formed the bulk of most valuable visitors to Tunisia with high spending capacity, the strongest inclination to spend on high-end accommodation and local cuisines, staying for longer duration in the country, and shopping extensively for locally-made products.

Rebuilding Tunisia’s image in the eyes of British tourists is therefore seen as of great importance. While some British tourists started to return to Tunisia (following tightened safety measures and an extensive publicity thereof) many UK travelers continue to remain wary, and in spite the lift of the travel ban, British arrivals have not reached pre-2015 levels. This reluctance is difficult to break, as UK tourists still do not fully trust that their safety will be ensured, a fear further underpinned by tensions in Tunisia’s neighboring Muslim countries (e.g. Libya).

Some issues remain unresolved

The inability to bring back the UK tourists at levels from before 2015 is still a major problem to the local industry. Although the government undertook several initiatives to improve tourist safety, these steps are likely to be insufficient to prevent such events in the future.

Amidst Tunisia’s frail economic conditions, the availability of sufficient funds to truly and permanently ramp-up security is limited. Moreover, Tunisia must be able to ensure ongoing counter-terrorism abilities as a preventive measure, a task requiring a systematic approach and continuous financing, without dependence on western governments. Considering Tunisia is surrounded by areas prone to continuously produce this sort of danger, ensuring the right intelligence and financing is likely to be a challenge.

Tunisian tourism sector is fighting several battles at the same time, and the blow it received in an aftermath of the attacks had broad repercussions. Various structural issues, which had been present before 2015, still persist. This includes a relatively large share of poor quality accommodation and hotel services, which are not up to par with international standards and expectations of a western tourist, therefore are detrimental to market growth. The 2015 events put several hotel operators under heavy debt and in fight for survival, which pushed upgradation of hotel facilities much lower on their priority list.

There is also a shortage of well-trained hotel and other tourist services staff, which makes it difficult for the Tunisian tourism industry to compete with countries such as Turkey, especially if the substandard service level is paired with outdated and poorer hotel amenities and services. Tunisia does have training centers, however the aftermath of 2015 attacks put the entire sector along with ancillary industries in a standstill, therefore several training center have not been functioning at full capacity. Recovery will take time and it will be a while till a sufficient number of well-trained hotel staff will become available.

EOS Perspective

With tourism playing a pivotal role in Tunisia’s economy, the country found itself in a very difficult position as a result of the attacks. The revival of tourist footfall since the summer of 2017 is definitely encouraging, however the industry is still not out of the woods and needs to continue to work along with the government to ensure the return of the tourists, by addressing the key issues – safety and quality of services.

This should also be a good moment for Tunisia to realize the risks of reviving the industry with the same over-dependence on limited variety of demand markets as before (i.e. UK), and intensify its efforts to diversify target markets across Europe and beyond.

Apart from introducing and maintaining fundamental changes to the safety of the traveler and to what the industry offers, the country needs to revamp the way it markets itself so that it can improve its image and boost tourism. In the past, public authorities and industry players have not paid much attention to promoting the country’s tourism market on social media, relying largely on tour operators and agencies. However, promoting a positive image of the country along with advertising tourist facilities through online channels might help Tunisia reach broader customer segments across markets, e.g. by influencer endorsements (quite a successful approach for Abu Dhabi and Turkey, to name just a few, in the past).

It is also important for Tunisia to look beyond traditional mass-market, organized tourism and explore other avenues of revenue. More focus could be put on promoting cultural tourism as well as access to Sahara Desert – key attraction for people visiting south of Tunisia. Local investors have already started working to develop offers with local cuisines and immersive desert experiences, along with authentic-themed hotels and restaurants.

Tunisia has also made the right (although modest) steps to address the issue of substandard hotel amenities and unclear standard of accommodation that can be expected by tourists. Changes are being made to classification of hotels, as the current star rating system is outdated and based on size and capacity rather than quality of services. Efforts are being made to re-classify hotels in line with international standards. Such reforms are crucial for the industry to ensure higher level of customer satisfaction.

Rebuilding damaged image is always a long and difficult process and Tunisian authorities must do whatever possible to prevent similar attacks in the future. If the public authorities along with the industry players continue to make efforts to pull the country’s tourism market out of the pit, the optimistic expectations about tourist arrivals reaching 12 million by 2028, with a CAGR of 4.6% over 2018-2028, are likely to become reality, bringing back much needed employment and revenue to the economy.

by EOS Intelligence EOS Intelligence No Comments

North Africa: Is It The Next Frontier Market For Automotive Manufacturing?

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The article was also published in Automotive World’s Q2 2015 Megatrends Magazine

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Rapid urbanization, growing consumer base with rising disposable income, significant infrastructure investments, and proximity to the EU are some of the key reasons why automotive companies are increasingly attracted towards the North African markets. In spite of the impact of political upheavals on the region’s economy in recent times, the value proposition for global auto manufacturers remains strong.

The North African markets of Algeria, Egypt, Morocco, and Tunisia have attracted the eyes of multinational automakers in the last few years, thanks to rapid urbanization, rising disposable incomes, and continuous investments in infrastructure. In recent years, several automotive companies have assessed and entered these markets due to its favorable demographics.

North Africa’s market attractiveness relative to other regions has improved dramatically over the past years. According to E&Y’s Africa Attractiveness Survey of 2014, nearly three out of four respondents believed that Africa’s attractiveness will improve further over the next three years. Morocco and Egypt were seen as the two most attractive countries in North Africa by 55% of the respondents.

Despite several political and economic challenges, there is growing consensus that the region’s growth curve is on an upward trajectory, aptly supported by improvements in the EU economies, steadier inflation rates, and policy reforms undertaken by individual governments to harness growth.

Real GDP North Africa

While the FDI inflow statistics shows a different picture, the trend is expected to change as investors have been encouraged by the gradually restored political stability in these countries, as well as recent government initiatives to create business friendly regulatory frameworks.

FDI

What’s attracting automakers to North Africa?

In the North African region, Algeria, Egypt, Morocco, and Tunisia together accounted for a giant share of over 90% of the total new passenger car sales in 2014, as per statistics from International Organization of Motor Vehicle Manufacturers.

These four countries represent approximately 42% of the total African passenger cars market. After witnessing a steep decline in 2013 due to the weak external demand as well as the region’s volatile political environment, new car sales figures picked up in 2014. With the region’s growth back on track, rising investors’ confidence, and uptick in tourism, these sales figures are projected to increase in the next coming years.

For global OEMs, lower labor costs, proximity to Europe, expanding port facilities, various financial incentives, and increasing network of auto parts suppliers and subcontractors are making the region’s value proposition stronger.

North Africa’s strategic geographic location and its skilled labor force at competitive wages, has provided a perfect solution for vehicle manufacturers, allowing easy exports in order to cater to the needs of the European automotive industry. Besides, the region also serves as a gateway to the rapidly growing African and Middle-eastern automotive markets.

The region’s favorable demographics – a young and rapidly growing population, increased urbanization, and rising income levels are attracting many global automotive players. Consumers today in North Africa are more brand-conscious and technologically savvy. Forecasts from the OPEC suggest that car ownership in the Middle-East and Africa will nearly triple to 66 million by 2035, compared to 23 million in 2010, making it among the fastest growing markets in the world over the next few decades.

Individual governments have also played a vital role in the industry’s growth story by creating a favorable investment regulatory framework. Despite economic pressures and tight budgets, governments in these countries have continued to make significant investments towards infrastructure across ports, roads and railway networks. In addition, a range of financial incentives are offered to foreign investors in the auto industry. This includes free trade zones, multiple tax incentives, special land allotment, and partial contribution towards infrastructure expenses for auto industry projects. Further, the government has also invested towards training programs to build a skilled labor force that can fulfill the demands of the growing auto industry.

North Africa’s Big 4 Markets – Morocco, Algeria, Egypt and Tunisia

North Africa


Morocco has aggressively marketed itself as the new regional automotive hub for global automotive players. According to a 2013 report by PricewaterhouseCoopers, the Kingdom will be the 19th-largest vehicle producer in the world by 2017. Renault, Delphi, Lear, Leoni, Yazaki, Faurecia, Sumitomo, and Hirschmann Automotive are some examples of key investment projects in recent years. These companies are not just providing employment, but, are also supporting a thriving automotive SME sector.

Renault’s operations in Morocco have provided a major boost to its automotive industry, as more than 40% of the parts are sourced locally. Renault aims to further expand its production capacity in Morocco and is also considering setting up an engine production plant to serve the two production plants. This represents large scale potential opportunities for auto parts manufacturers and suppliers. In October 2014, the Moroccan government announced the signing of five MoU deals with leading manufacturers of automotive wiring, vehicles interior & seats, metal stamping, and batteries.

As demand from both local as well as export markets grows, the industry is going to witness higher investment growth in the near future. Further, car makers that enter the Moroccan markets are also able to leverage on the pool of skilled labor and network of more than 40 Tier-1 suppliers.

Algeria’s automotive industry relies heavily on imports from Europe and China, importing approximately 75,000 cars annually. The age of current passenger vehicles plying on Algerian roads and low ownership rates present a significant potential for passenger car manufacturers. The Algerian government has played its part by promoting investments, and creating a business-friendly environment for the auto sector.

Mercedes Benz recently announced that it aims to transfer its investments from Egypt to Algeria in 2015 in order to take the advantage of benefits and facilities provided by Algerian government to foreign automakers. Renault’s production unit that became operational in 2014 has facilitated the development of local subcontracting and network of suppliers to create a local automotive industry. In order to meet the growing demand, Renault plans to triple its production output to 75,000 units by 2019, and has also committed to increase the level of local content.

With an increased interest of OEMs in the Algeria story, several opportunities will arise for suppliers of auto spare parts, plastic injection, paint as well as bodywork facilities.

In spite of being one of the smaller countries in the region, the automotive industry in Tunisia boasts of more than 80 companies, employing over 60,000 people, with a turnover of TND 2 billion (US$ 1.02bn) in 2013. The recent MoU signed with Iran for co-operation in car manufacturing will also help the Tunisian automotive industry grow further in the next few years.

Tunisia has a robust network of suppliers in the automobile wiring sector, and an abundant pool of skilled engineers and technicians at its disposal. The bigger benefit is the fact that the cost of hiring such talent is not only one-third the cost of that in the EU, but is also lower than its North African peers. Investment in manufacturing automotive components for exports is a priority sector for the government and in order to attract more investments, the government offers fully integrated sites with industrial, logistics, and infrastructure support to companies seeking to establish their manufacturing operations in Tunisia. There are plenty of opportunities for companies that manufacture automotive electronic, mechanical, and plastic components dedicated for exports to European and African markets.

New passenger cars sales in Egypt posted a solid growth of nearly 25% in 2014. With ongoing government plans to develop and encourage investment in the sector, and the improving tourism industry, new car sales are expected to grow further beyond 2015.

Nissan motors in October 2014 announced that it will invest an additional US$60 million towards expanding its assembly operations in Egypt. The government is also encouraging a vehicle production joint venture between domestic firm Nasr Automotive Manufacturing and Russia’s AvtoVAZ. The deal will not only give automotive production industry a major boost, but, it will also create opportunities for auto parts manufacturers and suppliers. For example, tire market Pirelli signed a MoU to invest US$107 million over a three year period to increase the production capacity in order to meet the growing demand.

Egypt is well poised to see a stronger automotive growth, driven also by very favorable demographics and proximity to the Middle-east.


A Final Word – Immense Scope, Manageable Challenges

OEMs must accept that North Africa will be unable to match the potential of the BRICS, MIST or ASEAN countries; however, given the region’s positive economic growth trend and rising investor confidence, the outlook for automotive industry is upbeat.

Various initiatives taken by individual governments have provided a boost to the automotive industry, and continue to attract global OEMs to establish local presence for both regional and export markets. Region’s favorable demographics, strategic location and competitive wages not only make it an attractive hub for auto exports, but, also a lucrative market for auto manufacturers which seek to tap the potential of African passenger cars markets.

There are a few challenges, political and economic, that need to be managed, in order to encourage OEMs to set up shop in North Africa. On the economic front, it would be imperative to demonstrate an investor-friendly regulatory environment, as well as the willingness to provide tax breaks and similar financial incentives to OEMs to establish production base and export hubs. While on the political front, ensuring stability and managing issues surrounding external factors such as ISIS will be critical to convince automotive companies to invest both monetary and technological resources in the region.

At this point in time, given the political, economic and social dynamics of the North African region, the scope for growth of the automotive sector is immense.

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