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Cautious eye on Tunisian woe

The turmoil has damaged Tunisia's well-polished image as a tourism and investment hotspot.

The political upheaval in Tunisia is spilling over into the struggling north African country's economy, with economists and ratings agencies hastily revising their previously bullish predictions for growth.

Economists have already begun to revise economic forecasts downwards following the ousting last week of president Zine el Abidine Ben Ali and the formation of a new unity government. Alia Moubayed, an economist at Barclays Capital, said in a recent note that tourism and foreign direct investment critical to financing the country's trade deficit would be most affected by the turmoil.

Credit ratings agencies have also begun to downgrade the country's bonds, with Moody's Investors Service reducing its assessment yesterday to "Baa3", its lowest investment-grade rating. Stocks listed in Tunis, meanwhile, have taken a hammering.

The turmoil has damaged Tunisia's well-polished image as a tourism and investment hotspot, while also raising new questions about its potential for foreign investment from Europe, Asia and the Gulf.

Tunisia's economy grew by more than 5 per cent in 2006 and 2007, according to IMF figures, and has maintained growth rates higher than in the developed world.

But high unemployment among a well-educated young population led to political discord as standards of living failed to keep pace with its healthy economy.

Yet some people reason that if political change in Tunisia erases corruption and does more to solve the rampant youth unemployment that sparked the unrest, it could prove positive in the long run for stock markets and the broader economy.

"A lot of what's being talked about in this market is perhaps more focused on the alarmist," said Daniel Broby, the chief investment officer at Silk Invest in London. "But in the long run this is going to reduce corruption and it's going to reduce political problems. In the long run, this is possibly going to be a net positive, so I wouldn't say everyone would be a seller in this instance."

Most of Tunisia's foreign investment comes from nearby Europe, but many companies in the Gulf also have assets in the country.

Few investors from the Gulf are worried that their Tunisian assets will be directly threatened as a new government comes to power. However, many recognise that the value of investments there is likely to be affected.

"If you are an investor you have to take it like it is flooding or an earthquake or something like that," said Fathi ben Grira, the Tunisian chief executive of Menacorp in Abu Dhabi. "Honestly, the only concern I can see is that the value of the assets will be affected."

"Tunisia was always open for trade," he said. "That will not change."

Many Gulf property companies have launched big projects in Tunisia. Bahrain's Gulf Finance House is helping to arrange the Tunis Financial Harbour, a major development in the capital. Abu Dhabi's Al Maabar launched a US$10 billion (Dh36.73bn) project in Tunisia in 2008. And the Bukhatir Group, based in Sharjah, unveiled a $5bn Tunis Sports City project in 2008. Neither Gulf Finance House, Al Maabar nor the Bukhatir Group made any comment.

Before the most recent global economic boom, Tunisia's property market had "not attracted wide and sustainable international interest, although some GCC experiences had varied levels of success", said Chiheb ben Mahmoud, a senior vice president at the property consultancy Jones Lang LaSalle.

About 2005 that changed, he said, as companies from Emaar Properties in Dubai, Al Maabar, Sama Dubai, Gulf Finance House and Bukhatir announced ambitious developments. The global financial crisis, however, derailed Tunisia's property craze. "The 2008 correction brought these intentions to a halt and although some projects are hardly . alive, most of them have been permanently shelved or completely cancelled," Mr ben Mahmoud said.

Meanwhile the Abu Dhabi Investment Authority (ADIA) owns half of Banque de Tunisie et des Emirats, while a subsidiary of Dubai's TECOM Investments, owns a 35 per cent stake in Tunisie Telecom.

An executive at the TECOM subsidiary said major fallout was not expected from the upheaval. "Since acquisition, this investment [in Tunisie Telecom] has provided good returns and dividends that has primarily been driven by demand from consumers and businesses," said Deepak Padmanabhan, the chief executive of the TECOM unit Emirates International Telecommunications.

"We believe that the company will continue to perform in line with shareholders' expectations and will not be impacted by political changes."

Mr Broby said foreign investors in its stock market had no reason to fear for the safety of their assets. But the political upheaval could delay planned listings and stall the development of the country's thinly-traded market, he said.

"Tunisia is an illiquid market," he said.

"The most important thing in the long run is to get a bit more depth in the market."



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