Tunisia presents an attractive-on-paper opportunity: a young, educated population, French-speaking, geographic proximity to Europe, and a stock market up 50% year-to-date. Yet our June visit revealed a market exhibiting characteristics of Zimbabwe-like distress, with significantly elevated political interference and macroeconomic risks that do not seem to reflect current valuations, particularly given the slow economic growth. The Old Mutual African Frontiers Fund has no exposure to the Tunisia Stock Exchange, and this is how it will remain at this time.
Political risk: rising authoritarianism
President Kais Saied was elected democratically in 2019 and has systematically consolidated power since dismissing Parliament in 2021. In 2022, he amended the constitution, transforming Tunisia from a parliamentary democracy to a centralised presidential system. Most concerning for investors: the President now has the right to hire and fire judges, effectively removing judicial independence.
Saied has jailed opposition figures, journalists, and activists while targeting business elites – some on credible corruption charges, others seemingly for political purposes. Corporate tax rates have risen dramatically (corporates from 15% to 20%; banks from 35% to 40%), and the Central Bank has lost independence, now directly funding government deficits.
For the last three years, Saied refused a new International Monetary Fund (IMF) programme because he disliked the oversight terms. Tunisia's last IMF repayment occurs in 2026, after which it will have limited multilateral debt. The government is rather funding itself through regional partners (Afreximbank, Saudi Arabia, local banks).
Macro: inflation, foreign exchange restrictions and deteriorating competitiveness
Tunisia's headline inflation sits at around 5% (having fallen recently). Foreign exchange is under strict rationing, and while locals say the parallel market gap is minimal, these restrictions echo failed currency regimes elsewhere.
Import cover is now 4.1 months – adequate but the drop is concerning given subdued growth and control of imports. The real effective exchange rate has deteriorated over the past five years, partly due to foreign exchange controls and inflation eroding competitiveness. GDP growth averaged just 1.8% over the last four years, well below the growth of most African countries.
The government maintains monopolies on imported essentials (sugar, coffee, flour, cooking oil) and has struggled to pay suppliers on time, creating working capital pressure across the economy. While we were told foreigners have never had problems repatriating capital, reliance on government goodwill is uncomfortable. We exited our position in Tunisia a few years ago when repatriation was seamless.
Market dynamics: A bubble, not a buy
The Tunisia Stock Exchange surged 50% year-to-date, significantly outpacing MSCI Africa (+5%). This move does not reflect improving fundamentals but rather a classic bubble triggered by structural factors: abundant banking system liquidity, sustained inflows into domestic mutual funds, and a shortage of attractive alternatives due to weak business confidence and a stalled real estate market. The Tunisia Stock Exchange is locally dominated. While official statistics are not available, foreign participation is estimated at less than 5%.
Tunisia Stock Exchange is up more than 50% in 2026
The banks are a good case in point. Local investors say they are seen as too big to fail and resilient but are now trading at record valuations. We have rarely observed banks hitting 15-20x price-to-earnings (P/E) ratios or 3-4x price-to-book multiples outside of market extremes.
Industrial companies appear to be trading at less extreme levels than the banks but still largely trading above five-year trends. The combination of poor growth visibility, rising taxes, political uncertainty, and current valuations offer little margin of safety.
The Tunisia Stock Exchange is relatively typical of African exchanges. It has a few banks, a few consumer companies and some cement companies. The only large sector it is missing is telecommunications. The one standout business was One Tech. Half of its business produces cables, the other half manufactures circuit boards (the green boards found inside all electronic goods). 90% of the world’s circuit boards are produced in China. One Tech supplies the automotive industry with circuits. While nobody can compete with China on price, companies like One Tech provides an alternative source in case of supply issues
Valuation and risk/reward
Our process seeks to find investments in countries where valuations are attractive, and the exchange rate outlook is at least stable. At this time the decision is easy. On valuation, Tunisia is the lowest scoring market in Africa currently. This is not surprising given the strong rally this year leaving many counters at record levels. The currency also scores poorly relative to most other African currencies. But this currency is largely managed, there are exchange controls in place that will limit demand for foreign currency. This means that although the macroeconomic scores look poor overall, the currency is likely to actually be stable.
Unexposed to the local stock market
Tunisia's equity market is pricing in plenty of good news. Instead, the country exhibits rising authoritarianism, fiscal dominance of the Central Bank, inflation, and deteriorating competitiveness. The gap between market pricing and reality has widened dangerously. At this time, we are comfortable with being out of the Tunisian market.