Bottom Line: Developments during the month of May indicate that Tunisia’s Islamist government is preparing in earnest to take on the threat posed by radical Salafi forces.
Analysis: The second week of May saw the government ban gatherings of the Ansar al-Sharia group, which we believe has seen a significant increase in its following. At a minimum, there are 100,000 Ansar al-Sharia Tunisia members. Ansar al-Sharia defied the ban to attempt to hold its annual conference and was met by an unexpectedly harsh response from Tunisian security forces, who clashed with the group’s supporters, leaving one person dead. The group’s spokesman has been arrested, along with some 200 members, and its leader is in hiding (Saif Allah Bin Hussein). But what is significant is that the government has now publicly labeled them “terrorists”, definitively removing itself from any association with the group. It is important to keep in mind that Ansar al-Sharia of Libya that attacked the US diplomatic facility in Benghazi in January, while the Tunisia network of this group attacked the US Embassy in Tunis in February. What concerns us about the government’s tactics against Ansar al-Sharia is that it could alienate non-extremist Salafis and the backlash could be a swelling of the more extremist ranks for an even more formidable force. That said, we do not believe the government has made a tactical error here—it would be impossible to make the necessary distinctions among Salafis and repair ruling party Ennahda’s image simultaneously.
Recommendation: While this signals a positive change in strategy by the government, the security situation will necessarily worsen before it improves and there could be reverberations in the oil-producing areas, where E&P companies have largely shrugged off the threat. Investors should be aware that oil and gas assets are increasingly insecure in Tunisia, and the fallout from Libya and Syria—as well as the government’s new strategy--will increase this uncertainty over the coming months.