Foreign direct investment at risk in Egypt and Tunisia

Union action in countries such as Tunisia and Egypt is forecast to have a negative impact on foreign direct investment in the short term as international companies face strikes in the wake of the unrest in parts of the Middle East and North Africa.

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Last Updated: May 19, 2011

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Two of Tunisia's largest foreign investors have been hit by strike action in recent months, as trade unions gain political momentum after the toppling of Zine el Abidine Ben Ali, the former president.

Britain's BG Group, Tunisia's largest natural gas producer, recently reported protesters had blockaded the firm's plant in the south of the country.

The Dubai investment company Emirates International Telecommunications (EIT), which holds a 35 per cent stake in Tunisie Telecom, has also faced industrial action at the Tunisian firm.

Such action comes amid wider disruption to foreign direct investment (FDI) in Tunisia.

As The National reported in March, almost US$45 billion (Dh165.29bn) worth of projects announced by Gulf investors in Tunisia during the tenure of the former president have stalled or been cancelled.

Ghanem Nuseibeh, a partner at Cornerstone Global Associates and senior analyst with Political Capital, said the increased power of unions in countries such as Tunisia and Egypt was likely to have a short-term negative impact on FDI.

"Increasing the roles of unions will ruffle some feathers and will have a direct negative impact on FDI in the short term," said Mr Nuseibeh. "This does not necessarily mean that FDI will decrease in the medium or long terms or threaten current foreign investments."

After Mr Ben Ali fell, local unions are now keen to root out corruption in the corporate world.

The Tunisian General Labour Union (UGTT), which has endorsed strike action at Tunisie Telecom, has called for about 60 employees of the firm to be dismissed due to what it said were unfair pay issues.

"In principle we don't want people to be fired. But we also don't want to encourage illegal favouritism," said Mohamed Mongi Ben M'Barek, the secretary general of the General Federation of Post and Telecommunications, a branch of the UGTT.

Deepak Padmanabhan, the chief executive of EIT, said the employment of such staff was necessary for the commercial growth of the company.

"These staff who are all Tunisian, were hired from the private sector, and as a result their salaries reflect their experience and are on par with those elsewhere in the Tunisian market place," said Mr Padmanabhan.

He said greater union activity in the country could deter foreign investors.

"Union activity in Tunisia is potentially going to give a negative image for the country," said Mr Padmanabhan. "If foreign investors look to Tunisie Telecom as a case study for what it is like to invest in the country, we think that they will have a lot of questions about how secure their investment would be."

Strike action was having a "negative effect on Tunisie Telecom's ability to perform in the market" - but was not unique to the firm, he said. "A number of other organisations are experiencing the same problems. However, Tunisie Telecom does not operate in a monopoly environment, there is fierce competition from Orange and Tunisiana - such actions only increase the potential for the other operators to grow their market share."

Philip Brazeau, who heads the telecoms practice at the Middle East law firm Al Tamimi, said the telecoms sector could come under particular scrutiny in the post-revolution landscape.

"Because telecoms is such a lucrative sector, it is not uncommon for officials with ties to governments which may be corrupt to have undertaken practices in the sector which may be unethical," he said.

Despite the disruption, Mr Nuseibeh said unions could act to improve transparency and attract FDI in the longer term.

"I think the challenge is both for the host countries' governments and unions as well as the foreign investors," he said. "They can turn this challenge into an opportunity that not only secures their investments in the long term, but also help those countries attract FDI."

bflanagan@thenational.ae

afitch@thenational.ae