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Small Tunisian firms struggle to turn profits

Entrepreneurs in the country face a number of challenges, from currency restrictions to state banks wary of new ideas.

Last updated: 17 Apr 2014 07:17
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Digital Mania, a small videogame company, hopes to be in the black this year [Aymen Ben Mansour/Al Jazeera]

Ilyes Gouja was optimistic about his prospects as a small-business entrepreneur in post-revolution Tunisia.

Gouja and his wife returned to their native Tunisia from France about a year after the 2011 toppling of Zine El Abidine Ben Ali, lured by the promise of a healthier economy. Together, they launched Vitalight, a biotechnology company that produces specialised bacteria for food supplements.

"The revolution is one reason that pushed me to come back," Gouja told Al Jazeera, noting that the former regime’s corruption sapped public confidence. "The financial and economic environment until the revolution was very sick and very bad. I couldn’t really take a risk to come back here, as there were only minimal chances to succeed... Now I think the situation has improved."


IN PICTURES: Tunisia's struggling economy


Gouja’s venture remains in its infancy, with the couple aiming to raise 500,000 dinars ($300,000) by the end of this year to bring Vitalight to fruition. They are already about halfway there. But entrepreneurs such as Gouja continue to face a number of obstacles in post-revolution Tunisia, including a risk-averse investment community, state banks wary of new ideas, and restrictions on exchanging Tunisian currency. In addition, public support for non-traditional business concepts can be difficult to secure.

We should promote a culture of free initiative, tolerance to change, mobility and risk-benefit analysis.

- Noomen Lahimer, economics professor at the University of Carthage

"I tried to get grants from the government. We have a lot of grant programmes for innovation, but all the grants go to big companies," Gouja said. "Here we don’t have the culture to invest in innovative ideas."

The struggles of small businesses in the country are due in part to a traditional aversion to economic risk in Tunisia, according to Noomen Lahimer, an economics professor at the University of Carthage in Bizerte. He believes this stems from the implementation of a state-oriented economic model after Tunisia gained independence in 1956, including government ownership of many large enterprises, wage and price controls and protectionist tariffs. Little room was left for individual entrepreneurs to form new businesses on their own.

"Now, the economic model has changed," Lahimer said, noting while the state maintains a strong presence in sectors such as banking, many enterprises that had been owned by the state have been privatised in recent decades. "We should promote a culture of free initiative, tolerance to change, mobility and risk-benefit analysis."

Sofiane Ammar, who founded a Tunisian e-commerce business, said it can be quite difficult for new businesses to attract investment or secure state support. With Tunisian investors showing more interest in traditional projects, nobody would invest in his project - a company called Dealoo, which offers discounts to local businesses in a fashion similar to Groupon - for more than two years. He was also unable to secure funding from the government after trying for several months in 2011.

Ammar was ultimately able to launch his venture, but faced additional challenges due to the poor state of e-commerce in Tunisia.

"The user experience when you try to pay [online] is a headache," Ammar told Al Jazeera, noting consumers in Tunisia do not have the same protections against online payment fraud as shoppers in the United States. Dealoo had to set up physical locations for cash purchases, he said, in order to serve customers who were unwilling or unable to use the online system.


RELATED: Tunisia's Arab Spring - Three years on


Hamdi Ksiaa from the Bank for Financing Small and Medium Enterprises, a state institution tasked with providing financing for such businesses, said while public funding is available for smaller enterprises, much of it goes to more traditional business ideas.

"Most of the loans are used to sponsor projects in the industrial sectors," Ksiaa told Al Jazeera. But he rejected the suggestion that entrepreneurs in cutting-edge sectors are not receiving assistance, noting around 10 percent of the more than 200 million dinars ($128m) in financing the bank has provided since 2005, has gone to hi-tech and communications technology businesses.

The concept of launching a small business, however, continues to draw scepticism among broader Tunisian society. "If you go to your father or mother and say you will build your own project, they will panic. They know it is very tough, with no tools or structure," Ammar said.

Joel Rozen, an anthropology PhD candidate at Princeton who has spent two years in Tunisia studying business education, said there are a variety of cultural obstacles facing would-be entrepreneurs in the country.

When you have an idea, you have to break down doors.

- Sofiane Ammar, e-commerce businessman

"In Tunisia, entrepreneurs are somewhat less celebrated than doctors and engineers, with business schools generally populated by those who’ve scored lower on their exams," Rozen said in an interview with Al Jazeera. "[Many parents] continue to urge their children to pursue public-sector posts over what they view as riskier jobs in the private sector."

Borhene Ben Said, director of the master’s programme at the Institute for Higher Commercial Studies, a public business school in the Tunis suburb of Carthage, said while some other schools may require higher exam scores, "we are capable of producing people who can innovate and create projects".


RELATED: Opinion - Tunisia's second revolution


The risk of the private sector has been a way of life for Walid Sultan Midani’s video-game company, Digital Mania, which was established in the year of Tunisia’s revolution and has since released dozens of games. The company finally broke even in 2013 and is hoping to turn a profit this year. Midani agreed that selling a 21st-century business model to potential investors is tricky: "Nobody understood what we were doing," he told Al Jazeera.

Even after his company secured some vital capital in the form of a loan from a state bank, Digital Mania faced another common problem for Tunisian businesses looking to attract customers abroad: restrictions on the Tunisian dinar, which cannot be easily transferred across international borders.

The Tunisian Central Bank, which has a  very low foreign currency reserve, seeks to limit the flow of currency out of the country through certain regulations and limitations effecting businesses and consumers. It restricts the ability of Tunisians to exchange dinars into other currencies keeping much-needed cash in the country, and consumers are unable to engage in international e-commerce from their Tunisian bank accounts, forcing some to seek out middlemen.

For years, Lahimer said, the Tunisian government has said it wants to eliminate these currency exchange restrictions and allow dinars to be traded freely across borders. The target date for this was pushed back from 2010 to 2014, but the 2011 revolution and resulting political instability shook the economy, further shrinking the country’s reserves of cash and making this later target date also unlikely.

In the meantime, Ammar said, Tunisian entrepreneurs must be patient.

"When you have an idea, you have to break down doors," he said. "For three years you have to know that you potentially won’t be paid at the end of the month."

Bilel Sfaxi contributed to this article.

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