Morocco’s Moves to Improve Economy Are Paying Off

Country Continues to Improve Growth Results

Although the overall economic news in North Africa is mixed, due to the impact of the decline in oil prices and a lackluster rainy season, Morocco’s economic diversification priorities are enabling it to balance out the negatives with continued growth and development.

One sign of the economy’s health is that, as Reuters reports, “Morocco’s central bank cut its benchmark interest rate on Tuesday to 2.25 percent from 2.5 percent, loosening monetary policy for the first time in more than a year to boost growth hit by one of the worst droughts in the past decade.” The outsized impact of the agricultural sector on the economy affects both the country’s gross domestic product, revised downward from 2.1 to 1%, and gainful employment, as fully 40% of the workforce is engaged in the agricultural sector.

On the other hand, since Morocco imports more than 90% of its energy needs, its economy is benefitting from the drop in energy prices by reducing deficits, supporting cutbacks of energy subsidies, and enabling policy makers to consider a broader range of options in promoting growth. This good news is supplemented, of course, by the continued growth in the renewable energy sector, which will further drive down oil and gas imports and contribute to increased foreign reserves through export sales to neighboring countries

“We don’t have any concerns regarding inflationary pressures … So we can give some support to the economic activity,” Central Bank Governor Abdellatif Jouahri told reporters. The bank last cut rates in December 2014. In line with IMF recommendations, additional structural reforms are being implemented, including a more flexible exchange rate, reducing the euro’s weighting in the currency basket, and more emphasis on targeting inflation.

According to the article, “Morocco has already done more than most North African countries to make painful changes required by international lenders to curb its deficit, such as ending fuel subsidies and freezing public sector hiring. The government still controls the prices of wheat, sugar and cooking gas.”

Banking and Auto Manufacturing Sectors Drives Harder into Africa

In an FT article, Finance Minister Mohamed Boussaid spoke about the changes in the financial sector that are boosting growth. He noted that Moroccan banks are in 22 African countries, and about 17% of their activities are in Africa. “Europe will always remain a primary partner for Morocco, but Africa is now seen as the future in terms of growth and economic potential.”

Hassan el-Basri, head of risk at Banque Centrale Populaire (BCP), which has large holdings in seven sub-Saharan countries, says their impetus is that “These countries represent a real growth potential given the level of banking penetration, which remains one of the weakest in the world.”

The banking sector is dominated by BCP, Attijariwafa Bank (AWB), and Banque Marocaine du Commerce Exterieur (BMCE), which together hold 65% of the country’s banking assets. While this may be dangerous in some countries, the article noted that “most acknowledge that strong regulation by the central bank has so far contained this risk.”

Risk will be further mitigated with new players entering the financial sector as there are opportunities beyond the large company portfolios held by the Big 3. Minister Boussaid indicated as much, saying that “We are concerned by financing, especially of SMEs, which do not have enough capital.” By addressing their needs and with new mid-sized players in the sector serving the middle class, financial services will become even stronger.

blog biz2The success of automobile manufacturing is another star in Morocco’s African economic strategy. As reported by the FT, it is now, along with aeronautics manufacturing, the largest contributor to the country’s GDP. The Renault factory in Tanger produced 229,000 cars in 2015 and is the largest car factory in Africa. Jean-Francois Gal, director of the factory, notes that “We are in a perfect location at the gates of Europe,” and the bulk of its output is shipped to markets in France, Spain, and Germany.

The plant has created more than 7000 jobs and attracted some 150 supply-chain manufacturers that supply Renault and export to Europe and other markets. This extensive network attracted Peugeot Citroen to invest in a plant in Kenitra, on the Atlantic Coast north of the capital Rabat, with an initial capacity of 90,000 vehicles, mainly for the African market.

The goal for the sector, according to Hakim Abdelmoumen, president of the Moroccan Association for Automotive Industry and Trade, is 90,000 jobs by 2020, in addition to the 100,000 that already exist. This rapid expansion of the industry is having an important side benefit – attracting expatriate Moroccans with managerial and technical experience to return from overseas and lend their talents to this important sector.

In diversifying its economic base, moving up the value chain to industrial manufacturing, and developing agricultural strategies that encourage better use of technology, irrigation, seed selection, and production and marketing, Morocco continues to build positive economic indicators that facilitate growth and competitive strength.

Working Through Challenges, Morocco Maintains Focus on Progress

At a time when countries in the Middle East and North Africa (MENA) as well as the EU and US are struggling to balance civil liberties and heightened security measures, it is helpful to look at other factors contributing to a country’s stability and progress. This was the overall theme in articles published by www.the-report.com earlier this year, in conjunction with the International New York Times.

The series featured interviews with leaders in Morocco’s public and private sector, and articles covering some of the more visible development projects that are changing the face and tempo of the country.

For example, the interview with the Head of Government, Abdelilah Benkiran, provided a much needed antidote to the fixation on the role of religion in the Islamic-led government. Disagreements both major and minor (read abortion and gay rights to ads for alcoholic beverages on television) take up most of the media space with little insight, in the English-language press, about the PJD’s overall philosophy of governance. One message that sounded almost libertarian: “I believe that the government should disengage itself from all of the sectors that the private sector or civil society would take better charge of,” says Benkiran, “and refocus the available resources towards the citizens, the sectors and the regions that need them most.”

Given the current contentious climate in Morocco over a new media/press law, rights for juveniles, treatment of immigrants and migrants, enhanced rights for women, implementation of programs that equalize treatment of the Amazigh language, and the place of English in the educational system, recognizing private-public sector partnerships in concrete terms may go a long way to building consensus on policies to move forward.

Another article in the report looked at education and progress in economic development, which are closely linked because of the challenge to Morocco’s educational system to turn out qualified human resources. As the report notes, “With top-down educational reform now the focus of ambitious investment programs to transform the labour market, the country is ready to realise its potential both as regional hub and global competitor.” International donors, various ministries, NGOs, and civil society top the list of major players in redefining and empowering education and training in Morocco.

The series also surveyed efforts by the government to improve the quality of its workforce development strategies. “A major element in delivering Vision 2030, a roadmap to wholesale education improvements, are efforts to broaden Morocco’s talent pool via a significant increase in the number of scholarships and closer alignment with vocational training to better prepare its graduates for the job market.” Only by addressing the education sector broadly, from improving retention rates after primary school to improving the quality of products generated by universities, will concrete progress be achieved.

This raises additional concerns beyond the various players in the training and educational system, such as providing the technical infrastructure to support efforts that sustain institutional players and are also vital to the continued growth of entrepreneurism. “With the National Broadband Plan aiming to achieve broadband coverage for 100 percent of the population by 2022, Morocco’s nascent tech start-ups are ready to rise.” Extensive broadband is essential for the growth of technology and knowledge industries as well as its role as an enabler for existing industries to retool and reach new markets.

“Today, Morocco is the continent’s second-largest pharmaceutical exporter, with seven to eight percent of production now leaving the country, largely southward.  Following the expansion of its …state-of-the art manufacturing plant, however, Laprophan is looking not just to boost exports to Africa but also to the Middle East, Europe and the Americas.”

Morocco’s story would not be complete without acknowledging its vision to become a regional leader. “Today, although there is still much to be done, the country has nevertheless achieved the privileged status of a stable, peaceful Arab nation, governed smoothly by a democratically elected Islamist party. The successful transition from traditional kingdom to a modern global player, envied throughout the Arab and Muslim world, means that today more than ever Morocco is a key force in the region.”

The article focusing on Africa points out that “Numerous institutional and societal advances have laid the foundation for this stability, while economic reforms have succeeded in improving the day-to-day life of the Moroccan people and positioned the country comfortably and sustainably in the global arena.”

When looking south, one can’t help but be impressed with the results of King Mohammed VI’s “economic diplomacy.” “Today, 55 percent of Royal Air Maroc’s traffic goes to African countries, making Casablanca a regional hub. Morocco is also now the best-connected African country by sea routes, according to a United Nations Conference on Trade and Development (UNCTAD) report, and has seen a 20 percent increase in 2015 in the number of containers going through its ports.”

In a related interview, US Ambassador to Morocco Dwight Bush, provided three reasons why he is optimistic about Morocco. The first is its open and progressive business climate. The second is security throughout the country that has resulted “principally because you have a moderate, progressive Islamic state headed by King Mohammed VI who has a vision of his country, his people and their participation both internally and on the continent to try to help other countries to come along as well.”

The third item for Ambassador Bush mentions is Morocco’s political progress. “From a political perspective, Morocco has been ahead of many others in the region.” He sums up his view in what is a fitting conclusion to the series. “The hope is that Morocco continues to show by example how to work effectively to move the country forward, recognizing that you have needs for security as well as liberties and freedoms. And so in addition to our commercial and investment orientation, we work with the Moroccans to expand civil society and political institutions.”

It is a series worth exploring in detail.

What’s All the Fuss about in the Sahara?

King’s Green March Speech Changes Tempo and Terms of Development

As I remarked in my last blog, there is a new energy in Morocco about the future of the (Western) Sahara as a result of King Mohammed VI’s visit, the extensive projects that were announced, and the commitments he made to the region’s development. Of course, there was the anticipated negative clamoring from the Polisario Front and its supporters, who have done next to nothing to improve the lives of the refugees under their control. It is ironic that they condemned Morocco’s role in the South at a time when the King is ratcheting up the government’s commitment to bring both “deep regionalization” and significant growth to the area.

According to news accounts, these projects will create tens of thousands of jobs, improve local infrastructure, and upgrade access to services for local communities. As importantly, as a result of regionalization, Moroccans living in the Southern Provinces [the South] of Sakia El Hamra Laayoune, Dakhla Oued Ed-Dahab, and Guemim Oued Noon, will have extensive authority running local affairs.

Among the most significant projects are the expansion and construction of a new port facility in Dakhla that will enable greater access by cruise ships to this very attractive area; extension of rail lines from Marrakech to Lagouira (La Güera) south of Dakhla, on the way to Mauritania, opening additional economic links to Africa; enhanced commuter access through new bus facilities; a four-lane highway between Tiznit and Dakhla, opening up the area as a distribution and logistics hub; a centralized training center to support local industries; an entertainment and sports complex; and a new headquarters for the Agency for the Development of the South.

In terms of additional infrastructure, plans include expanded road networks, upgrades to existing air transport facilities, improved community centers, hospitals, clinics, and schools, and a university. The long-term goal is to both enhance the South as a regional center for commerce and industry and make it a viable hub for servicing African markets and projects.

It is estimated that some $7 billion will be spent in the next 10 years in the South, making it a key destination for attracting foreign direct investment (FDI), especially given the country’s preference for private-public-partnerships (PPPs) as a vehicle for large-scale projects – utilizing both technology and finance from reputable partners.

King Speaks to the People and the World

In his speech, King Mohammed was clear about his intentions. “We want to make a radical break with the manner in which Sahara issues have been dealt with so far: a break with the rentier economy and privileges, a break with poor private sector involvement and a break with the mentality of centralized administration.”

He attributed this shift in strategy to a realization that the status quo was not sufficient to achieve the full potential of the South. “I am keen to make sure we provide our fellow citizens in the southern provinces with all the necessary means to enable them to manage their own affairs and show they are capable of developing their region.” The King was clear that his vision for the South transcended politics and would build a strong business-based identity for the region, “to enhance the influence of the Sahara region as an economic hub and a crucial link between Morocco and its African roots.”

Among other projects, the King listed “major solar and wind energy projects,” and connecting Dakhla to the national grid – a critical ingredient in rationalizing the cost of power and the capacity to link to projects in Africa.

Other major projects that were included in the King’s remarks were “major seawater desalination plant in Dakhla and the establishment of industrial zones and facilities in Laayoun, El Marsa and Boujdour,” supported by the necessary legal framework that is business-friendly, encourages local and international investors, and attracts financing needed for these large projects.

He also addressed those who complain of Morocco’s use of resources in the South: “I should like to stress, in this connection, that revenue from natural resources will continue to be invested in the region, for the benefit of the local populations and in consultation and coordination with them.”

The King called for legislation that outlines the reciprocal responsibilities of the national and local governments and “to ensure citizen participation through platforms and mechanisms for permanent dialogue and consultation so that the citizens may fully subscribe to programs and be involved in their implementation. I therefore expect the inhabitants of our southern provinces and their representatives to live up to their responsibilities, now that we have set in place the institutional and development-related mechanisms for them to manage their affairs and cater for their needs.”

This is revolutionary stuff for Arab countries…struggling to recast the social contract that for generations defined the relationship between government and citizens. The King is advocating for a substantive recalibration of citizen participation within the framework of a responsive and accountable government. And he is backing up his vision with concrete steps that will change the face of the Sahara within an economic, social, and political framework that augers well for the future of Morocco.

Morocco’s Energy Strategy Attracts Global Attention

International Players Drawn by Government’s Ambitious Program

 

I recently visited four cities: Milwaukee and Madison, Wisconsin, Chicago, Illinois, and Minneapolis, Minnesota, speaking on business opportunities sparked by the US-Morocco FTA.

Ironically, most of the attention focused on potential opportunities in renewable energies – a sector that is only tangentially impacted by the FTA, yet one that has captured the attention of the global industry, from providers of consumer and small-scale technologies to the manufacturers of large scale solar and wind facilities and equipment.

There is also interest rising in Morocco’s efforts to build an integrated LNG and gas-to-power plant with an import facility near the current coal-fired power station at Jorf Lasfar, along with a number of combined-cycle gas turbine power plants. The Minister of Energy, Abdelkader Amara, has just visited the US, meeting with industry leaders, taking a tour of several LNG facilities, and speaking to companies in several states. The visit was described as “very productive,” and it highlighted Morocco’s efforts to “enhance its commitment to green energy.”

Lahsen Amarof, head of the Ministry’s Natural Gas and Fossil Fuels Division, noted that “The project will be tendered as one integrated project through one tender. We expect to have a consortium with many companies [undertaking the project], including CCGT specialists and companies for the LNG part.”

The Interfax report also noted that “The project also includes the construction of a 400-km high-pressure pipeline connecting the LNG terminal to the existing Maghreb-Europe pipeline, which takes Algerian gas to Spain via Morocco, through Mohammedia, Kenitra and Dhar Doum. The scheme also includes the construction of pipelines to each of the projected power stations, and may be extended to underground gas storage facilities at a later date.”

As financing comes on line through a variety of public-private sector partnerships, companies will line up to take part in this estimated $4 billion project that is part of the overall shift in the energy profile of Morocco.

Solar Continues to Dominate the News

sciamScientific American is the latest magazine to take notice of what Morocco is doing, in a recent article on solar energy in the Middle East. The article concedes that Gulf investors such as the UAE, Saudi Arabia, and Qatar and energy importers like Morocco have markedly different rationales for investing in solar. While the Gulf producers are concerned with achieving the best value for their exports by reducing domestic consumption, Morocco is simply trying to reduce its expensive fossil fuels import bill and reach its climate change goals.

“Global consulting firm Ernst & Young, in its latest Cleantech Survey Report for MENA, ranked Saudi Arabia, UAE, Morocco and Jordan as having the greatest potential for renewable energy investment in the region, adding that ‘the opportunities to provide affordable and secure low-carbon energy are continuously expanding.’”

Solar energy has many benefits. It can then be used to meet other development needs, such as powering high-use desalination and waste/water treatment plants at lower cost and lower greenhouse gas emissions technology such as the CSP projects in Morocco.

The magazine pointed out that “As part of its 2009 National Energy Strategy, Morocco has pledged to bring online 6,000 MW of renewable energy — 42 percent of its installed capacity — from hydro, wind and solar resources by the end of the decade. Last year, officials told the Al-Hayat newspaper that the country would invest $11 billion in wind and solar over the next five years, allowing the country ‘to turn from an importer into an exporter of alternative energy by 2020.’”

In its latest Renewable Energy Country Attractiveness Index, published this month, Ernst & Young credited Morocco’s solar program for adhering to a “bold risk allocation strategy for such large-scale and complex projects.”

In related news, Italian firm Enel Green Power SpA, a well-known leader in renewable energy, announced the opening of an office in Morocco.

enelAccording to CEO Francesco Venturini, Morocco has emerged as a renewable “energy pioneer” in the region, outlining clear goals and providing the “regulatory framework” necessary for renewable development. “We have already set foot in the country, establishing a local headquarters, and now we are aiming to grow by installing megawatts and contributing to the achievement of the country’s ambitious energy targets,” Venturini told a business conference in Rabat, according to media reports.

At the current time, Enel has a number of tenders on its radar, including the most recent project of Morocco’s national utility ONEE for an 850MW wind project that has attracted prequalified bidders from a number of countries.

The bottom line is that Morocco is making good on its vision for the future and is securing the commitments and expertise needed to meet it energy and climate change goals.