The Tunisian government took advantage of a visit by the Chinese foreign minister in mid-January to solicit more Chinese investment and financing. Certainly, China has the means to provide valuable aid to Tunisia! But would she?
China wants Tunisia to quickly carry out structural reforms to consolidate its public finances and opt for good, rational, and modernized governance.
What are the options and prospects for Sino-Tunisian cooperation? Elements of answers to see better!
1- Economic ties between the two countries are limited: the stock of Chinese foreign investments in Tunisia is less than 30 million US dollars and outstanding loans are only 132 million US dollars. Bilateral trade is uneven, with Tunisia’s annual exports to China below US$70 million, while it imports around US$2 billion from China.
Tunisia is not a priority for China
2- However, although Tunisia is part of the Belt and Road initiative, we expect that China will be reluctant to increase its investments in Tunisia, given the difficult economic and financial situation of the country, with risks of high levels of debt default.
China has already been marked by debt defaults and rescheduling in several sub-Saharan African countries. It is also poorly viewed by the IMF regarding the opaque debt that China provides to certain highly indebted countries that need to reschedule their debt.
3- China has indicated that it supports an IMF program for Tunisia, which the Tunisian president is resisting. In doing so, China supports all these painful reforms, to clean up fiscal governance and reduce deficits.
With China unlikely to be a major source of financing, Tunisia appears to be running out of options to meet its significant external financing needs, other than continuing to squeeze imports and facing product shortages. important bases with resulting pressures on living conditions.
4- Foreign exchange reserves are sufficient to face a large pending repayment of Eurobonds in February, but the financing prospects are very uncertain (850 million Euro-bonds, and around a hundred million dollars in profit of international creditor authors).
Chinese Foreign Minister Wang Yi landed in Tunis on January 14 for a two-day visit to mark 60 years of diplomatic relations between the two countries. Tunisia is facing a fiscal crisis and a stalled economy, and officials hope strengthening ties with China could help ease some of its current tensions.
5- In particular, Chinese financing for large infrastructure projects creating jobs and perhaps even direct loans to help cover the budget are on the wish list. However, none of these wishes seem likely to come to fruition at the moment. The last diplomatic interaction between the two countries took place in December 2022 during a multilateral conference in the Saudi capital, Riyadh, where Tunisian President, Kaïs Saïed, met his Chinese counterpart, Xi Jinping. At the moment, Tunisia is not a priority for China, and this is unlikely to change in the short term.
Soft energy rather than infrastructure projects
6- The Chinese Minister of Foreign Affairs was received by Mr. Saïed, and both attended a ceremony at the new International Diplomatic Academy of Tunis financed by a grant of 23 million US dollars from China. The project will help the Tunisian government train its foreign service personnel.
In recent years, China has helped fund a new university hospital in Sfax, a sports and cultural center in Ben Arous, and a Confucius Institute at the University of Carthage to increase access to Mandarin classes for Tunisian students.
7- Although China is also building a dam on the Mellègue River in the Kef governorate, it seems for the moment that China is more focused on projecting soft energy production into the traditional backyard of Europe, rather than considering Tunisia as a critical economic partner with strategic resources that it can exploit.
Unequal business relationships and low investment
8- Although Tunisia has been part of China’s Belt and Road Initiative since July 2018, large-scale projects that China has supported in other countries have not materialized in Tunisia. Bilateral trade also remains well below its potential.
According to the National Institute of Statistics of Tunisia, Tunisian exports to China fell from 209 million dinars (67.1 million US dollars) in 2021 to 65.6 million dinars in 2023. Chinese exports to Tunisia, on the other hand, grew from A$6.5 billion (US$2 billion) to A$8.5 billion over the same period.
9- It is possible to increase Tunisian exports to China, in particular agricultural products such as olive oil, but this process will be gradual and will be hampered by the limits of national production.
Meanwhile, of the 3,700 foreign companies operating in Tunisia in 2023, only 19 had Chinese capital, and the total stock of Chinese foreign direct investment in Tunisia fell from 36.6 million US dollars in 2019 to 26, 2 million US dollars in 2022.
10- Chinese loans to Tunisia remain small, at only US$132 million, and we expect that China will not be willing to significantly expand its loan portfolio in the foreseeable future. China already faces complex debt restructurings with several African countries and is concerned about Tunisia’s fragile economic and financial situation, with high risks of debt default.
At a news conference during his visit, Mr Wang stressed China’s support for Mr Saïed but added that the reforms would help improve Tunisia’s economic situation. This followed a statement made in March 2023 by the Chinese ambassador to Tunisia supporting a then-proposed IMF program (which Mr. Saïed subsequently rejected).
11- We see this as a clear sign that although China wants Tunisia’s economic situation to stabilize, it is not looking to provide support without the assurance of an IMF-funded program.
As we do not expect an IMF program to be feasible in 2024, we therefore doubt that China will have any appetite to invest in some of the infrastructure projects the government is promoting. These include investments in rail transport, the extension of the Tunis-Carthage International Airport, and new seaports.
12- Without secure external financing and economic stabilization in Tunisia, China will have reservations about how these projects would generate sufficient financial returns for loan repayment. We therefore expect Chinese investments in Tunisia to remain largely symbolic.
With China unlikely to be a major source of financing, Tunisia appears to be running out of options to meet its significant external financing needs, other than continuing to put pressure on imports and facing shortages of important commodities with resulting pressures on living conditions.
13- Plans aimed at increasing phosphate revenues and recovering assets plundered by corruption have yielded very little. There is still no visibility on how the government will cover the US$5 billion external financing needs identified in the 2024 budget.
Foreign exchange reserves are sufficient to ensure that a pending Eurobond repayment of 850 million euros (US$925 million) is reached in February, but thereafter the country will largely rely on the generosity of bilateral donors like Saudi Arabia and perhaps Algeria, to avoid sliding deeper into financial crisis.
14- All these parameters mean that China or other countries approached by Tunisian diplomacy will not take risks by investing or lending intensively to Tunisia. Everyone is waiting for the implementation of the structural reforms proposed, among others, by the institutions of the Bretton Woods agreements. The IMF’s board of directors has 20 members, including China… and Saudi Arabia.
* The Economist Intelligence Unit (EIU) is the research and analysis division of The Economist Group. Established in 1946, it has more than 70 years of experience helping businesses, financial firms, and governments adapt to an ever-changing global landscape.
