In the wake of Prime Minister Mehdi Jomaa’s world tour to court international assistance, the focus on Tunisia’s economy has taken center stage a means to further the country’s momentum—but not all options are being explored. Tunisia needs an immediate cash injection and substantial investment to finance its deficit and grow its economy. Tunisians living abroad, historically an important source of remittances, have been largely ignored as a source of investment due to a lack of appropriate financial mechanisms that facilitate increased participation in the Tunisian economy from abroad. In conjunction with efforts aimed at attracting foreign investors to Tunisia, the government should also tap into the Tunisian diaspora’s wealth and savings rather than only rely on its income. Needing all the help it can get, Tunisia’s government can set up financial vehicles—such as funds or certificates of deposit (CDs)—that diversify sources of cash while attracting the most natural investor group. Diaspora engagement sets the stage to bring accrued and vested foreign direct investment (FDI) to Tunisia.
The diaspora contributes remittances but investments remain low
In 2012, the Tunisian diaspora contributed to 5 percent of GDP in remittances while only investing 0.26 percent of GDP (196 million dinars across the industry, services, and agriculture sectors). Tunisians living abroad send cash, but also invest in real estate and often in family enterprises or small/medium sized companies. Remittances come directly from their income, rather than from their savings. There are good reasons why the diaspora is reluctant to place its savings in Tunisia. A town hall discussion with Tunisian professionals conducted by the Tunisian American Young Professionals in April 2014 reveals two main reasons:
- It is easier to maintain savings in the country of residence—with more available financial instruments depending on risk appetite (bonds, mutual funds, stocks, etc.). Vehicles for communication related to investment and opportunities in Tunisia is minimal, if not absent;
- It is difficult to maintain savings in Tunisia—a lack of transparency, distrust in the financial system, conversion risks, and general instability in the country remains a point of genuine concern for a diaspora that fears its money could either evaporate or get stuck in Tunisia.
Focus on the diaspora as initiators of investment
The Tunisian government and private sector encourage foreign investment in Tunisia, citing strong fundamentals (educated population, relatively good infrastructure, middle class, fiscal incentives..), its position as a hub for expansion to Africa, Europe, and the Middle East, and the medium-term stability, transparency, and rule of law it offers as it transitions toward democracy. World Bank statistics, however, show that FDI decreased by 41 percent in 2013 and expect FDI to Tunisia in 2014 to remain low. With risk-averse investors looking to other options, the Tunisian government cannot afford to ignore the enormous potential for diaspora investment. By focusing on convincing Tunisians to diversify their contributions to the economy and address the two key issues cited above, the government could greatly enhance its FDI base.
The diaspora maintains emotional ties with Tunisia and a natural inclination to improve its condition—more so than traditional foreign investors. Tunisians abroad also have an advantage given their familiarity with the cultural and business environment, enhancing their ability to better estimate and control for risk. They are an ideal target group to initiate investment in the country. Attracting diaspora investment can help the government encourage masses of foreign investors. Thus the government needs to facilitate prospective investors. If it is not able to convince is own diaspora, fewer foreign investors will be convinced of the promise Tunisia holds.
Proper incentives and investment vehicles
If properly incentivized, the diaspora can become the largest body to invest in the growth of their own country. If each Tunisian commits to keeping an average $1,000 in savings in Tunisia, the additional $1.2 billion will present new opportunities for those seeking financing. The government should allow the establishment of proper investment vehicles that target the diaspora, such as:
- The ability to open savings through foreign currency certificate of deposits in Tunisian banks. These accounts can be denominated in Euros or dollars;
- A diaspora bond system in which Tunisians would pay a premium in exchange for more transparency and influence as exercised by diaspora bond holders on the type of investments. These funds could be used in infrastructure projects in the South and Western parts of the country, and if fully transparent and participatory, the diaspora should be able to ensure that those investments are conducted with a focus on regional infrastructure development. An internet-based investment platform could help ensure such transparency;
- A diaspora fund with “patriotic” low level of returns, not to exceed 3 percent focused on microfinance that enables rapid job creation in the most vulnerable regions of Tunisia at relatively low cost and low risk;
- A dedicated unit within the Foreign Investment Promotion Agency that aims at informing, promoting, and communicating the range of diaspora vehicles and investment incentives.
The way forward
Tunisia’s massive budget deficit and trade imbalances necessitate attracting FDI, reforming its investment code, upgrading the financial regulatory system, and simplifying convoluted administrative procedures. But these reforms will take time, and Tunisia needs money now. Establishing diaspora-oriented CDs, bonds, or funds are actionable and require little political capital to enact. Many examples of diaspora bonds and funds illustrate the benefits of tapping Tunisians abroad. In recent years, a number of emerging economies have aimed to attract their respective diaspora to foreign currency deposit accounts: Turkey offers accounts to all Turkish passport holders residing abroad; Egypt issues bonds to Egyptian workers throughout the Middle East; India regularly issues bonds to avoid balance of payments crises and shore up international confidence in India’s financial system.
Rather than replicating what has been done already, Tunisia can engage the diaspora to weigh in on their preferred investment vehicles (international financial institutions such as the World Bank can support diaspora surveying at no cost to Tunisia) and inspire other mechanisms for economic growth. Leveraging technology, particularly crowd funding, to guarantee proper transparency and give investors the confidence they need is but one example of the creative ways Tunisians can contribute to their country’s transition.
Mohamed Malouche is the Board Chairman of the Tunisian American Young Professionals (TAYP), a diaspora association seeking to increase economic cooperation, ties, and exchanges between Tunisia and the United States.