Credit Risk Management

Currency Spotlight: Tunisia

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Tunisia's currency, the dinar, has rebounded in the past two years after a turbulent 2018 that saw massive protests such as the one above.

Tunisia's currency gained on the dollar for the second consecutive year even as the nation's developing economy continues to struggle. 

The year 2020 saw many emerging and frontier market currencies get pummelled by the coronavirus pandemic, yet that wasn't the case for the tiny north African nation of Tunisia, which saw its currency, the dinar, rise against the dollar for second consecutive in a hopeful sign for a country still trying to gain its footing as a democracy.

On the final day of 2020, the dinar traded at a value of 2.673 to the dollar, a 3.47% increase from the currency's 2.769 conversation rate at the start of the year.  Since February of 2019, when the dinar fell to a record low of 3.054 to the dollar, the currency has climbed in value 12.8%, an amazing recovery for a currency had lost value against the dollar for eight consecutive years (see accompanying graph). 

The dinar suffered its worst year in 2018 falling 20% against the dollar as protests broke out across the country in January in response to government efforts to boost the economy by ending subsidies and raising taxes.  The currency took a further hit later in the year when the Ennahda Party, the Islamist party, prevailed in an election with only 34% voter turnout. 

The value of Tunisia's currency is significant because the country is one of the most developed in a region of the world where development, and democracy, are still not commonplace.  The former French colony remains the freest Arab democracy and was the birthplace of the Arab Spring, the democracy movement that spread across the Middle East in 2011.

But, in an unusual development, progress on the political front hasn't translated into sustainable progress on the economic front as Tunisia's gross domestic product (GDP), the leading economic measuring stick, has declined for five consecutive years since reaching its peak of approximately of $47 billion in 2014.  The country's 2019 GDP was $38.8 billion, according to data from the World Bank and projections from Trading Economics.  

"While significant political progress has been achieved, many Tunisians are frustrated by the lack of economic headway--particularly the failure of the government to address soaring unemployment and lingering corruption," wrote Sarah Yerkes an expert on Tunisia at the Carnegie Endowment for International Peace, in paper in January. In addition to corruption, "the continuing lack of transparency in the country" is also a problem. 

An example of Tunisia's transparency issues can be found in the country's capital market, the Bourse de Tunis, or Tunis Stock Exchange, which is small but comparable in development to the neighboring Egyptian and Moroccan exchanges.  As of January 2021, the TSE had 79 listings with a total market capitalization of $8.4 billion.

The value of Tunisia's capital market compared with the size of its economy -- a key development metric known as capital market-to-GDP ratio -- was 0.22 at the end of 2019, the last year in which economic data is available.  That's smaller than Morocco's at 0.55, but larger than Egypt's which is a very low 0.15. 

But, obtaining updated financial information on listed companies is not easy in Tunisia since the exchange's market data reports are published only in French and Arabic unlike the neigboring Egyptian and Casablanca exhanges that provide information in English as well as Arabic and French in the case of Morocco.

The largest publicly-traded company in Tunisia is Societe Frigorifique et Brasseries de Tunis S.A. (SFBT), a beverage and food refrigeration company, with a market capitalization of 4.7 billion dinar or $1.75 billion, which represents 21% of the exchange's total market value.  Annual revenue for SFBT was $433 million, according to the latest financial information from 2018, which had to be obtained through the stock exchange because no website for the company could be found.

Semi-annual statements through June 30, 2019 are the latest financial information provided by companies listed on the exchange reviewed by CreditPulse.  By comparison, year-end financial information for 2020 is starting to come out for publicly-traded companies in the United States.

The largest company in terms of revenue appears to be Poulina Group Holding S.A., a poultry company turned conglomerate, at $760 million, according to 2018 data, and a market capitalization of $700 million, the second highest on the exchange.  The third highest market cap on the exchange belongs to Banque International Arabe de Tunisie, the largest bank in Tunisia, at 1.66 billion dinar or $618 milllion.

Written by John Bassford, Senior Credit Analyst