Tunisia: Security risks remain in hospitality sector

02 May 2018

The hospitality industry in Tunisia is exposed to a high risk of terrorism. Around 6,000 Tunisians left to join Islamic State (IS) in Libya, Iraq and Syria, and returnees will pose a significant domestic security threat.

Security Environment

Since the 2011 revolution that ousted President Zine al-Abidine Ben Ali, security risks in Tunisia have remained elevated. The hospitality industry faces a significant threat from Islamic extremism. In March 2015, a terrorist attack on the Bardo museum in Tunis resulted in 24 fatalities. Two months later, 38 people were killed when a gunman opened fire at the Port El Kantaoui tourist resort near the coastal city of Sousse. Assets in the tourism and hospitality industry in Tunis, Monastir, Djerba and Sousse remain targets for militant attacks.

The risk of terrorism will remain high throughout 2018, particularly as Tunisians return from fighting for IS in Libya, Syria and Iraq. Approximately 6,000 Tunisians left to fight for IS, one of the highest per capita rates in the world. Tunisia’s frontiers with Libya and Algeria are poorly secured, allowing groups affiliated with IS and Al-Qaeda in the Islamic Maghreb to infiltrate across the border. The conflict in neighbouring Libya has previously spilled over into Tunisia. In March 2016, around 50 IS militants attempted to seize the border city of Ben Guerdane, but were stopped by the Tunisian military. Tunisia’s border with Libya also acts as a transit point for automatic weapons, increasing the likelihood of mass casualties during terrorist attacks.

High levels of unemployment coupled with inflation and austerity measures have raised the risk of civil unrest, particularly in the southern and western governorates. In January 2018, ant austerity protests took place across Tunisia, including in greater Tunis as well as in the tourist towns of Sousse and Hammamet. Police fired tear gas to disperse protestors in the Ettadhamen district of Tunis, while one demonstrator was killed in Tebourba, a town outside the capital. Assets in the hospitality industry are unlikely to be specifically targeted during protests but may be affected by business disruption. While demonstrations in major urban centres such as Tunis are usually less prone to violence, the risk is likely to rise ahead of presidential elections in November 2019.

Trading Environment

The threat of social unrest will constrain the government’s ability to consolidate its weak fiscal position. GDP growth is forecasted to rise from 2.3% in 2017 to 2.8% in 2018, supported by growth in the tourism and agricultural sectors, but Tunisian’s public sector is bloated; its wage bill of 14.7% of GDP in 2017 is almost double the emerging market average. In addition, Tunisia external vulnerabilities are high, as more than 65% of government debt is denominated in foreign currency.

Foreign exchange reserves fell to as little as 77 days of import cover in March 2018, but International Monetary Fund(IMF) loan disbursements are expected to support a rise in reserves to USD 5.2 billion by the end of 2018. Government debt is high and is likely to reach 73% of GDP in 2019. Tunisia’s budget deficit of 6.1% of GDP in 2017 is also elevated, but is forecasted to fall to 4.9% of GDP in 2018 as the government implements austerity measures as part of a USD 2.9 billion IMF Extended Fund Facility agreed in June 2016.

Investment Environment

While the threat of terrorism remains high, the United Kingdom changed its travel advice for Tunisia in July 2017 and no longer advises against travel to the country’s main tourist destinations. Tunisia’s hospitality sector is likely to be buoyed by a rising number of tourists, as annual arrivals are projected to reach 8 million and year-on-year tourism revenues increased by 23% in Q1 2018. An investment law approved by Tunisia’s parliament in September 2016 has made it easier to transfer funds out of the country, but the threat of social instability is likely to slow the implementation of additional reforms.

The risk of expropriation in Tunisia is relatively low. While the government retains the right to expropriate property, there have been no recent occasions where this has been prejudicial to foreign investors. Legal and regulatory risks are moderate, as the performance of Tunisia’s courts remains hampered by heavy bureaucracy. Until 2011, judges were personally appointed by the president and therefore elements of the judiciary remain politicised.

Tunisia: Pricing Outlook

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Tunisia, Ghana, Belarus and Finland all of which have been the subject of recent enquiries from JLT's client base.

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The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email eleanor_smith@jltgroup.com

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