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Cablegate: Progress On Tunisia's Opening to Foreign Franchises

VZCZCXYZ0000
PP RUEHWEB

DE RUEHTU #0907/01 3491534
ZNR UUUUU ZZH
P 151534Z DEC 09
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 7070
INFO RUCNMGH/MAGHREB COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS TUNIS 000907

SENSITIVE
SIPDIS

STATE FOR EEB/IFD/OMA, EEB/EPPD, AND NEA/MAG
STATE PASS USTR (BURKHEAD) AND USAID (MCCLOUD)
USDOC FOR ITA/MAC/ONE (MASON), ADVOCACY CTR (TABINE), AND
CLDP (TEJTEL AND MCMANUS)
USDOC PASS USPTO (ADAMS, BROWN, AND MARSHALL)
CASABLANCA FOR FCS (KITSON)

E.O. 12958: N/A
TAGS: ECON EFIN EINV ETRD FAO TS
SUBJECT: PROGRESS ON TUNISIA'S OPENING TO FOREIGN FRANCHISES

REF: TUNIS 608

This message is sensitive but unclassified. Please handle
accordingly.

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Summary
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1. (SBU) According to the Ministry of Commerce, the
Government of Tunisia (GOT) plans to issue the implementation
decree for an August 2009 law governing franchises in
February 2010 -- a decree that will allow international
franchises to operate under Tunisian law. In addition, a
Central Bank representative who spoke at the GOT-organized
Tunis Med Franchise Show said royalty repatriation would be
permitted for any franchise receiving Ministry of Commerce
approval to operate. The Ministry of Commerce, in essence,
will treat an international franchise just like any other
foreign direct investment for the onshore sector.

2. (SBU) Coinciding with the first-ever show on Franchising
in Tunisia, held December 10-12, the Embassy hosted the visit
of international franchising expert Bachir Mihoubi. He led
two workshops at the Franchise Show, met with the Ministry of
Commerce team drafting new franchise regulations, spoke at a
Tunisian-American Chamber of Commerce luncheon, did press
interviews, and met with lenders and members of
entrepreneurship organizations. Based on information gleaned
during Mihoubi's visit, we believe the future for
international franchises in Tunisia is looking brighter. End
summary.

--------------------------------------------- ----
United States at Center of Franchising Discussion
--------------------------------------------- ----

3. (SBU) On December 8-12, the Embassy hosted the visit of
American franchising expert Bachir Mihoubi, whose travel was
funded by the Commercial Law Development Program (Department
of Commerce). Mihoubi led two workshops at the GOT-organized
Tunis-Med Franchise Show, the first-ever franchising show in
Tunisia (reftel). In addition, the Ambassador attended the
opening of the show and was asked to step up on stage with
the Secretary of State for the Ministry of Commerce and the
head of UTICA, the powerful Tunisian employers' association.
During his visit, Mihoubi also offered advice to the team at
the Ministry of Commerce responsible for drafting the
implementation decree of the new law governing franchises,
spoke at a luncheon with the Tunisian-American Chamber of
Commerce (TACC), and met with entrepreneurship organizations
and a representative from the GOT-affiliated Bank for Small
and Medium Enterprises. With the exception of the small
entrepreneurs' lunch, all events were actively covered by the
local media and garnered positive coverage of the franchising
issue.

--------------------------------------------- ---------
GOT Pushing Franchises, Private Sector Has Some Doubts
--------------------------------------------- ---------

4. (SBU) The GOT has said it wants to promote franchising as
a development tool. A letter by President Ben Ali, read at
the show's inauguration, reiterated this GOT policy, although
it did not specify whether international (and not just
Tunisian) franchises were included. The Secretary of State
for Foreign Trade in the Ministry of Commerce Chokri Mamojhli
said during opening remarks that it was important to keep
Tunisia's interests in mind above all. Noting the U.S.
Ambassador's presence, Mamojhli also called for the signing
of a U.S.-Tunisia free trade agreement. In his speech, Hedi
Djelani, the head of UTICA (employers' association) called
for the "internationalization" of the Tunisian economy
through franchises. Privately, he also told EconOff that our
"Gulf friends" (who are investing hundreds of millions in
real estate projects in Tunisia) wanted American franchises
here in Tunisia.

5. (SBU) The 2009 Tunis-Med Franchise Show, the first of its
kind in Tunisia, was very well attended. It featured over 45
booths, with 70 percent Tunisian franchisors and 30 percent
foreign franchisors, including a U.S. company, Curves
International, which licenses health clubs. Also in
attendance (but without a booth) were the owners of the

master franchise for Century 21 (for Algeria, Tunisia and
Libya), who have already submitted their documents to the MOC
for approval to operate and are awaiting an answer. The
show's organizer, the GOT-affiliated Tunis Chamber of
Commerce and Industry, invited Embassy representatives and
Mihoubi to a dinner the first night of the show, which
allowed EconOff to canvas some participants on their
expectations for the new law. The general trend was
optimism, but many franchisors (and Tunisian potential
franchisees present) were unclear on whether the
implementation decree would restrict the operation of a
franchise only to Tunisian companies, and whether royalty
repatriation would be an issue.

6. (SBU) Some Tunisian businessmen present said they already
operated franchises "under the radar" by signing both a
distribution contract (which allows them to repatriate
profits) and a franchising contract with a foreign company.
To pay royalties, they then take the money from the profits
and only register the distribution contract with the Ministry
of Commerce. We also learned that one U.S. franchise, Dale
Carnegie International, is already operating in Tunisia,
though we were unable to learn the details of their royalty
repatriation structure.

--------------------------------------------- -----------------
Details on Implementation and a Key Clarification on Royalties
--------------------------------------------- -----------------

7. (SBU) On December 12, Emboff and Mihoubi met with the team
in the Ministry of Commerce responsible for drafting the
implementation decree, a document the private sector is
looking to clarify Tunisia's opening to franchises. Thanks
to Mihoubi's legal background, the nearly two-hour meeting
turned into a question-and-answer session about worldwide
franchising regulation. The MOC officials admitted they were
nervous about the "unequal" relationship between franchisor
and franchisee and foreign brands "invading" Tunisia,
although they asked about other countries' incentives to
attract investment by foreign franchisors. The MOC is basing
the implementation decree on European legislation, and is
thinking of using Saudi model franchising contracts. Mihoubi
cautioned them against over-regulating, especially in such a
small market as Tunisia, as it would turn investors away.
The Ministry team asked to follow up with Mihoubi for comment
on the actual decree language, which is due out in February
2010. They also specified that the law would be applicable
for both international and national franchises.

8. (SBU) A Central Bank representative who spoke at the Show
said royalty repatriation would be permitted for any
franchise approved by the Ministry of Commerce. In practice,
this means that any international franchise will have to go
through the same steps as any other foreign investment in
Tunisia (except for export-only companies) -- registration
through the Ministry of Commerce and other GOT agencies. If
the investment is approved, according to the Central Bank,
authorization for royalty repatriation will just be a
formality.

--------------------------------------------- ---
Engagement with Entrepreneurs and Banking Sector
--------------------------------------------- ---

9. (SBU) As part of the Cairo Initiative, the Embassy
organized a small lunch between Mr. Mihoubi, a representative
of the Center for Young Entrepreneurs (CJD), a member of the
National Chamber of Women Entrepreneurs (CNFCE) and the Bank
for Small and Medium-Enterprises (BFMPE). The discussion
centered on the basics of franchising. The BFMPE
representative noted they had already made the decision to
direct some lending to franchises, since financing them is
less risky than regular start-ups. The CJD is planning a
workshop event on franchises in the near future, and asked
for Embassy assistance in providing materials. The CNFCE
representative, herself a business owner, was interested in
franchising her chain of rug shops. All remained hopeful the
decree would clarify whether international franchises were
allowed and if royalty repatriation would be permitted.

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Comment
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10. (SBU) Mihoubi's ability to connect with the Tunisian
audience helped drive home the U.S. message that bringing
international franchises to Tunisia will create jobs,
stimulate technology transfer, and help cement a culture of
franchising in which eventually Tunisian companies could
themselves become franchisors. The warm reception by both
the Ministry of Commerce and the Tunis Chamber of Commerce
and Industry contrasts heavily with the radio silence the
Embassy has often received from other parts of the Tunisian
government in broaching the subject. It was apparent there
is lack of detailed knowledge about franchising legislation
within the Ministry of Commerce, although we provided them
with model legislation text and food for thought on the
issue. The information we gleaned on the implementation
decree and the royalty issue bodes well for international
franchises seeking to operate in Tunisia. Although
international franchises will still have to be approved by
the Ministry of Commerce, the future is looking much
brighter. When the implementation decree comes in February,
we will have a clearer picture of the details. End comment.
GRAY

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