Cablegate: Tunisia Economic Highlights

VZCZCXRO9425
PP RUEHTRO
DE RUEHTU #0788/01 1990601
ZNR UUUUU ZZH
P 170601Z JUL 08
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 5336
INFO RUEHAS/AMEMBASSY ALGIERS PRIORITY 7692
RUEHLO/AMEMBASSY LONDON PRIORITY 1467
RUEHNK/AMEMBASSY NOUAKCHOTT PRIORITY 1004
RUEHFR/AMEMBASSY PARIS PRIORITY 1932
RUEHRB/AMEMBASSY RABAT PRIORITY 8567
RUEHTRO/AMEMBASSY TRIPOLI PRIORITY 0253
RUEHCL/AMCONSUL CASABLANCA PRIORITY 4241
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 TUNIS 000788

SENSITIVE
SIPDIS

STATE FOR NEA/MAG (HARRIS)
STATE PASS USTR (BURKHEAD)
USDOC FOR ITA/MAC/ONE (NATHAN MASON), ADVOCACY CTR (REITZE), AND
CLDP (TEJTEL)
USDOC PASS USPTO (ADAMS, BROWN AND MARSHALL)
CASABLANCA FOR FCS (ORTIZ)
LONDON AND PARIS FOR NEA WATCHER

E.O. 12958: N/A
TAGS: ECON ETRD SENV EFIN BEXP ENRG TS
SUBJECT: TUNISIA ECONOMIC HIGHLIGHTS

1. (U) This cable contains highlights of recent economic
developments in Tunisia on the following topics:

A. Alstom Signs Contract for Power Plant
B. Energy and Agribusiness Widen Trade Deficit
C. Gas Price Hike...
D. IMF Counsels Subsidy Reform
E. Tunisia's Cereal Crop and Imports Down
F. Tunisia Olive Oil Exports Up 15 percent
G. Temporary Shortage of Vegetable Oil

-------------------------------------
Alstom Signs Contract for Power Plant
-------------------------------------

2. (U) On July 1st, French engineering company Alstom signed a Euro
335 million (US $528.221 million) contract with the Tunisian state
owned electrical utility (STEG) to build a 400-megawatt
combined-cycle power plant in Tunisia. The new facility will be
constructed on the site of the old thermal power plant of Ghannouch,
in Southern Tunisia, according to local media. Alstom has secured
an additional 12-year operation support and maintenance agreement
but did not provide the financial details. Alstom was selected by
STEG after the April 28-29 visit of French President Sarkozy to
Tunisia.

3. (SBU) Comment: Since his election, Sarkozy has succeeded in
securing several lucrative contracts in Tunisia by promoting French
assistance in the field of power generation and nuclear energy for
civil use. France and Tunisia signed a framework agreement for
cooperation on nuclear energy similar to those France signed with
Morocco, Algeria, Libya. Under the agreement, France will sell a
nuclear plant to Tunisia after a period of 15 years. End Comment.

-------------------------------------------
Energy and Agribusiness Widen Trade Deficit
--------------------------------------------

4. (U) On July 14, the Tunisian National Statistics Institute (INS)
released trade figures for the first half of 2008. Compared to the
same period in 2007, the Tunisian trade deficit widened 37 percent
as imports jumped 27 percent, led by purchases of energy and
agriculture goods. The deficit stood at TND 2.572 billion (US $2.186
billion), up from TND 1.877 billion (US $1.483 billion) a year
earlier. Exports increased 24.6 percent to TND 12.235 billion (US
$10.4 billion), while imports jumped 27 percent to TND 14.807
billion (US $12.586 billion).

5. (U) The upward trend of demand and prices for oil and commodities
on the international market affected negatively Tunisia's energy and
agribusiness balance, with respective deficits of TND 755.8 million
(US $642.43 million) and 250.3 million (US $212.76 million). The
value of petroleum product imports doubled to TND 2.479 billion (US
$2.107 billion), as Tunisia imports most of its crude oil and
refined petroleum products. Tunisia also exports some crude from
aging wells. Agricultural purchases, mainly cereals, stood at TND
1.498 billion (US $1.273 billion) for the period, up from TND 1.152
billion (US $910 million) a year earlier. Meanwhile, the mining,
phosphate, and derived products sector generated a trade surplus of
TND 896 million (US $761.6 million), up from TND 384.4 million (US
$303.7 million) in 2007, as Tunisia is the fifth largest phosphate
producing nation in the world.

6. (U) Textile and clothing trade exports, one of Tunisia's major
sources of hard currency, increased 3.1 percent, TND 2.854 billion
(US $2.426 billion) up from TND 2.769 billion (US $2.187 billion).
Tunisia's textile sector consists of off-shore (export only) and
on-shore enterprises, which may also sell their products
domestically. The off-shore side constitutes the engine for exports
with TND 2.794 billion (US $2.375 billion), while on-shore companies
generated only TND 60.3 million (US $51.25 million). Imports, TND
1.868 billion (US $1.588 billion), are almost static, with only a
0.1 percent increase, compared with last year. Imports for this

TUNIS 00000788 002 OF 003

sector correspond almost exactly to the value of material shipped to
supply Tunisia's off-shore companies. The trade balance for the
sector shows a surplus of TND 986 million (US $838.1 million), up
from TND 903 million (US $713.4 million) in 2007.

-----------------
Gas Price Hike...
-----------------

7. (U) On July 6, the GOT increased petrol prices by 5.6 percent to
cope with its energy deficit as oil import costs have risen sharply.
A Ministry of Industry communique stipulated that the price of
unleaded gas would increase from TND 1.250 (US $1.076) per liter to
TND 1.320 (US $1.136). Premium-grade gasoline has increased from
TND 1.245 (US $1.06) to TND 1.320 (US $1.13) per liter. To help
explain the second increase in gas prices since March 2, the
Ministry of Industry pointed out that the price hike will absorb
only 20 percent of the actual increased cost born by the state
budget. True cost of the GOT's subsidy program has increased from
TND 400 million (US $344 million) to TND one billion (US $862.67
million). The subsidy budget had been based on the assumption that
world oil prices would average US $75 per barrel, the Ministry
said.

-------------------------------------
... While IMF Counsels Subsidy Reform
-------------------------------------

8. (SBU) The IMF's Article IV consultations report, released on July
10, stated that the current situation requires the GOT to pursue
structural reforms and strengthening Tunisia's macroeconomic
position. The report added that on the budgetary side, the
authorities are faced with a delicate tradeoff between the need to
maintain the purchasing power of Tunisians in the face of rising
international prices of food and petroleum products while preserving
fiscal sustainability over the medium to long term. Given the very
rapid increase in direct and indirect subsidies related to these
products, which the authorities currently estimate at 7.1 percent of
GDP, and the strong likelihood that the current high world prices
will persist, the IMF encouraged Tunisia to continue reforming its
subsidy system and implement its energy conservation policy.

----------------------------
Dim 2008 Cereal Crop Outlook
Amid Soaring Cereal Imports
----------------------------
9. (SBU) Statistics recently released by the government-run National
Statistics Institute (INS) showed a sizeable increase in Tunisia's
combined durum and soft wheat imports during the five-month period
ending May 2008, compared to the same period a year ago. Durum
quantities shipped into the country increased by nearly 25 percent
to reach 340.1 thousand MT whereas soft wheat imports stood at 577.8
thousand MT, up by a hefty 47 percent. This sustained wheat import
trade is likely to continue as the 2008 wheat crop, currently being
harvested, is believed to be below average. Scant rainfall during
much of the last spring season took a toll on the wheat crop.
Government of Tunisia has yet to issue its own crop estimate but
Post has tentatively pegged overall wheat production at 1.25 million
MT down from 1.45 Million MT reported last season.
10. (U) Unlike wheat, barley imports are down by over 52 percent
during the same time period. On July 10, Reuters reported that
Mustapha Lassoued, an official at the main farmers' union (UTAP),
said that high costs of barley imports pushed the country to slash
purchases and switch to corn and other cattle feed for its expanded
livestock. Post's current estimate for 2008 barley production stands
at 0.36 million MT, a 30-percent decrease from the previous year.
Drought is once again the main culprit.
11. (U) Corn imports rose nearly 12 percent over the same period.
This import level reflects continuing strong demand from poultry and
dairy sectors alike. Overall demand for corn has been so far immune
to international price hikes, thanks in part to subsidies and tax
waivers granted by the Tunisian Government.
---------------------------------------
Tunisia Olive Oil Exports Up 15 Percent
---------------------------------------

TUNIS 00000788 003 OF 003

12. (U) According to GOT figures, Tunisia's olive oil exports
increased by 15 percent to 89,300 metric tons in the first quarter
of this year compared to the same period last year. Olive oil
represents half the country's farm exports, which account for more
than 10 percent of total exports. Tunisia sells 90 percent of its
olive output abroad, mainly to Europe. The value of olive oil
exports rose to TND 398.2 million (US $338.47 million) for the
period from TND 291.9 million (US $230.6 million). Tunisia is the
world's fourth-largest olive oil producer. Over the past decade, its
olive crops average averaged 145,000 metric tones per year. The GOT
aims to boost local production to 210,000 metric tons in the coming
three years.

13. (U) More than a tenth of the nation's 10 million inhabitants
benefit from the labor-intensive olive oil industry, with 60 million
olive trees covering 1.6 million hectares. In order to upgrade
exports receipts from olive oil, the GOT is encouraging national oil
producers to shift their marketing of olive oil from bulk to bottled
product.

-----------------------------------
Temporary Shortage of Vegetable Oil
-----------------------------------

14. (U) On June 3, Tunisian media reported a temporary shortage of
subsidized edible oil due to a change in domestic marketing. On
June 6, a National Office of Oil (ONH) communique denied the
shortage of subsidized edible oil, stating that the GOT had decided
to sell bottled edible oil instead of the bulk oil, due to national
health considerations.

15. (SBU) Comment: The most likely culprit for the temporary
shortage of edible oil was smuggling activities between Tunisia and
Algeria. Algerian newspaper El Khabar has reported that the soaring
prices of edible oil in Algeria prompted smugglers to create new
smuggling methods on the eastern borders, including bringing edible
oil from Tunisia inside petrol cans. According to El Khabar, five
litres of Tunisian subsidized edible oil were being re-sold in
Algerian shops for Algerian Dinars (AD) 300-400 (roughly US $4.62 to
$6.16), while locally produced vegetable oils had reached AD 700-800
(US $10.77 to $12.31). End Comment.

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