Foreign Direct Investments in the Renewable Energy Industry: A Case Study of Developmental Effects in Tunisia

Abstract

This research paper explores how Foreign Direct Investment (FDI) in the industry of Renewable Energy (RE) affect Development through the single case study of Tunisia. The North African country has enormous potential for the development of RE (GFSE, 2023 ). However, due to steadily worsening fiscal conditions and barely sustainable public debt (Adly & Meddeb, 2023), Tunisia cannot finance all the investments needed to develop RE sources, and started encouraging FDI inflows in the RE sector since 2015 (Tractebel, 2019). FDI is globally acknowledged to be a major catalyst to development (OECD, 2023), nevertheless, a lack of research on its effects exists (Hansen, 2019). Through the thematic analysis of five in-depth interviews and substantial secondary data, this research explores how FDI in RE affects Development given the existing industry-level and host-country characteristics in Tunisia. Finding at the industry level show that the state of development of Tunisian RE industry is advanced but the development of RE is hindered by STEG, a state-owned enterprise with monopoly over transport and distribution. Findings at the host-country level show that Tunisia presents extensive administrative and regulatory voids, financial challenges, and political instability. Overall, findings show that FDI has a great potential to support the achievement of development in the context of Tunisia, with several benefits having already been created. However, many conditions in place result to hinder this potential. Links between FDI (unmet) potential, industry characteristics and institutional voids are proved. These findings contribute to the discussion of FDI-related effects in DC, highlighting the potential it bears and the shortcomings deriving from contextually bound conditions, which should be accounted for.