The African Development Bank made a donation of £2.5 million, equivalent to €2.838 million, to the Tunisian government from the resources of the Multi-Donor Trust Fund for Countries in Transition in North Africa.
The aim was to finance a program to facilitate access by Tunisian small and medium-sized enterprises (SMEs) to funding from capital markets and venture capitalists.
The project was approved for financing in December 2017, the agreement was signed in May 2018, and the project entered into force in January 2019.
The first tranche of the grant was to be disbursed in October 2019 and the project was to be completed in December 2020, before the disbursement was revised to March 2022.
A flagship project initiated by the TSE and the financial center …
The project to help SMEs improve their access to non-bank finance is an innovative project that forms part of a global strategy initiated by the Tunis Stock Exchange (TSE). The aim was to broaden the capital market and strengthen its development by promoting a collaborative market approach.
To this end, the African Development Bank (AfDB) granted the Tunisian government a foreign currency donation of £2.5 million.
The main partners in the Investia-entreprises project are the Ministry of Finance, as implementing agency, the Financial Market Council (CMF), the Tunisian Association of Capital Investors (ATIC), the Tunis Stock Exchange and the Association of Stock Market Intermediaries (AIM).
The Association of Stock Market Intermediaries (AIB). The tutti-quanti of the Tunisian financial center.
The project was part of a global strategy initiated by the TSE, which favored a collaborative approach to the market.
The AfDB’s report, which was enthusiastic about the project, stated that it “particularly responds to the flagship of the Industrializing Africa Strategy on access to capital for SMEs”.
In addition, “the proposal fits perfectly with the Bank’s Financial Sector Development Strategy 2014-2019, which places particular emphasis on the financial sector to improve the depth and expansion of the real (private) sector and increase financial inclusion.
… And which combines AfDB’s objectives and is good for Tunisia
In particular, by addressing the capacity weaknesses of the beneficiary SMEs, the project will increase access to financial services for partially or underserved businesses, which is the first pillar of the Bank’s financial sector strategy.
The project is fully in line with the two pillars of the Tunisian Country Strategy Paper 2017-2021, namely:
i) Industrialization and value chain development;
ii) Improving the quality of life of people living in priority regions. By building the capacity of SMEs operating in various value chains, the project will facilitate their access to finance and thus their growth.
This will have a positive impact on Tunisia’s ability to develop its local industry and integrate into global value chains. Similarly, by supporting the growth of SMEs, the project will help to create much-needed jobs and improve the livelihoods of young Tunisians looking for work.
UK support was needed to deliver these activities in a context of budget constraints and a lack of resources to support SMEs.
Too many demands, for a Finance Ministry that doesn’t like to think out of the box!
The aim of the project was to set up a national program targeting a group of promising SMEs with the potential to grow and create jobs, provided that these SMEs address their capacity weaknesses.
Specifically, the program was to work in an initial phase with three cohorts of around 40 SMEs each (one cohort per quarter for three consecutive quarters), following the process outlined in the project document.
The strategy implemented by the TSE includes the promotion of the capital market and greater openness to the national economic environment. The TSE has undertaken a number of initiatives in recent years, both internal (strengthening governance and the information system) and external (training, awareness, regulations, tax incentives, international cooperation, etc.).
The project experienced considerable delays in its start-up phase. There were two main obstacles. The first was the risk of conflict of interest and the second was the tax risk. The measures taken to mitigate these risks added considerable complexity to the implementation process.
To mitigate the risk of conflict of interest (the TSE oversees the coaching and then decides on the same company’s access to the capital market), it was necessary to broaden the stakeholders beyond the TSE.
The project therefore involved the other players in the financial center (Ministry of Finance, CMF, MAIC, AIB, Central Bank). In addition, to mitigate the tax risk, TSE could not be the beneficiary of the subsidy, otherwise 20% of the amount would have to be paid as tax. For this reason, the subsidy was redirected to the Ministry of Finance, which therefore assumed fiduciary responsibility.
The UK embassy finally threw in the towel and walked away!
In September 2020, a note was produced by the AfDB proposing a restructuring of the Investia-Enterprise project, in order to accelerate its implementation, overcome current obstacles and reduce operational risks.
The note also supports an internal review of the project carried out by the British Embassy in Tunis between August and September 2020. The data contained in this note is dated September 2020 and presented the context of the project, the activities carried out by the various stakeholders over the previous periods and the level of implementation of the programmed activities.
Finally, the note proposed a restructuring of the project’s activities with a revised timetable and budget. Despite all these initiatives, the British Embassy (donor) in Tunisia decided to cancel £750,000 of the grant, due to delays in project implementation.
