Tuesday, July 22, 2008

Morocco To Buck The Trend In Global Downturn?

Morocco’s economy is in good shape despite soaring oil prices and international financial instability, Economy and Finance Minister Salaheddine Mezouar told business leaders July 22nd in Casablanca.

Addressing a meeting of the General Confederation of Moroccan Businesses (CGEM), Mezouar supported his contention that the economy is thriving by noting the 6% year-on-year non-agricultural growth rate since 2001, the drop in unemployment from 14% to 10% and an overall increase in investment.

"These macroeconomic developments attest to the national economy's resilience [and an] effective economic and financial policy realised through reforms, major projects and sectoral policies," Mezouar affirmed.

The minister was equally optimistic about the future outlook. Inflation will be kept below 2%, overall economic growth will be 6.8% as forecast in the budget, and the continued process of expanding the tax base and controlling government spending will maintain the budget deficit at a level not exceeding 3% of GDP, he assured CGEM members.

Mezouar also called on the private sector to become involved in the growth process.

"What the government wants to do is involve employers in all economic plans as they are finalised. This democratic approach is aimed at ensuring that businesses commit themselves unequivocally to playing their part."

"With lower VAT and duties on imported goods, entrepreneurs have an ethical and civic duty to take advantage of subsidies and lower taxes by channelling this extra money into recapitalisation and business growth," he added.

All regions of the country are seeing unprecedented growth, said Mustapha Bakoury, chief executive of government investment body Caisse de Dépôt et de Gestion. He also noted that while Morocco’s economy already has a good reputation, even more can be achieved.

"I think we can do even better, provided that all economic, government and social players move towards a future based on fair distribution of wealth," Bakoury maintained. "We’ve already begun reaping the rewards of this."

Employers have welcomed the success of the partnership between the public and private sectors. Speaking at Tuesday's meeting, CGEM president said the organisation is willing to play its part in encouraging economic players to invest more heavily in sectors driving socio-economic development.

Monday, July 21, 2008

Morocco To Benefit From Spains Slowdown?

Slowing European Union economies could damage the exports Morocco needs to offset a soaring fuel import bill, but the north African country sees opportunities as well as risks, a government minister said on Monday.

Companies based in Morocco's main trading partners Spain and France are having to focus harder on costs and investor-friendly reforms have made Morocco a cheap and convenient base for growth, said External Trade Minister Abdellatif Maazouz.

"For France and Spain, Morocco remains traditionally the country they work with most," Maazouz told Reuters in an interview. "This crisis can be a factor for the redeployment of certain investments on to the Moroccan market."

Morocco has sought to counter perceptions it is a difficult and unpredictable business environment in an attempt to reverse decades of under-investment that has fuelled widespread poverty.

The government has launched road, port and rail projects and business parks and is trying to draw foreign companies by fast-tracking cumbersome bureaucracy and offering cheap land and fiscal incentives.

It hopes the measures will stop its share of world manufacturing exports shrinking and offer work to an army of unemployed graduates in new call centres and offshore services.

Morocco scored a major win last year when French carmaker Renault unveiled a $1 billion plan to build its biggest factory in Africa near Tangier.

Maazouz said a group of Spanish firms now planned to move into an industrial zone on 300 hectares near Settat south of the economic capital Casablanca, focusing on textiles and electronic components for cars, aircraft and household appliances.

The scale was similar to the Renault project in terms of potential revenue and more companies were likely to follow in their wake, he said.

"If we see the beginnings of crisis in Spain, we cannot be indifferent -- it will surely have an effect on the Moroccan economy," said Maazouz.

"But it could also be an opportunity for the Moroccan economy in that our proximity allows us to take a position in niche products that are suffering less from the crisis."


Morocco's government has said it is aiming for $4 billion of foreign direct investment this year, up from $3 billion in 2006 and as little as $500 million a decade ago.

Unlike many other countries that gradually improved their investment climate but allowed the private sector to choose which industries worked best, Morocco's government has pinpointed a limited number of sectors to actively promote.

Among those are textiles, a sector that has faced fierce competition from Asian manufacturers in its main EU markets but has sought to adapt by shortening production cycles and lead times to make the most of Morocco's proximity to Europe.

"It's not a question of relocations -- that is not what is being discussed," said Maazouz. "Morocco is offering solutions for companies with growing pains."

He said Moroccan exporters were already taking advantage of a recent free trade accord with the United States.

Moroccan exports to the U.S. saw average growth of 3 percent between 2003 and 2006 but surged 23 percent in 2006-2007, trade ministry figures showed. Exports to the EU grew 9 percent and 6 percent respectively in the same periods.

Wednesday, July 16, 2008

The Changing Face Of Moroccan Politics

Morocco's Islamist-leaning Parti de la justice et du développement (PJD), the second-largest party in parliament, has elected a new leader following a party congress attended by many of the country's leading politicians. Such an orderly and transparent process of democratic change is a rare occurrence in Arab politics, which tends to be dominated by long-serving autocrats, and reflects the ambition of the PJD to put itself forward as a model for respectable Islamism, along the lines of Turkey's ruling Justice and Development Party (AKP). In an ironic twist, whereas the new PJD leader, Abdelillah Benkirane, received a congratulatory phone call from King Mohammed VI, Turkey's AKP is under threat of disbandment in a court case that is set to commence on July 28th.

The election of Mr Benkirane came at the end of the party's sixth annual congress, held on July 19th-20th. Along with some 1,600 delegates from the PJD, several prominent political figures were also in attendance, including members of the cabinet and parliament, a former prime minister, Driss Jettou, and heads of other political parties, both from Morocco and other countries. The most notable absentee was Fouad Ali El Himma, the head of the newly formed Mouvement pour tous les democrats (MTD), and a close confidant of the king. Mr Himma has been involved in a sharp polemic with the previous leadership of the PJD, but is said to be more favourably disposed to Mr Benkirane.

The party congress picked "no politics without credibility", as its theme, calling for a restoration of trust in politics. Many Moroccans believe that important political decisions are still made by the monarchy and therefore remain sceptical towards political institutions. Voter turnout was just 37% at the last general election in September 2007. While expressing its allegiance to the monarchy, the PJD has called for further progress in democratic reforms that would empower political parties and help to give the political system more credibility among the public. The party advocates government based on Islamic principles, but has sought to avoid being seen as doctrinaire.

In the leadership contest at the end of the congress, Mr Benkirane received 684 votes, comfortably beating his nearest competitor, the outgoing secretary-general, Saad Eddine Othmani (495 votes), who had been expected to win. Mr Benkirane, who was the president of the PJD's National Council, the party's policy-making arm, is generally perceived as a pragmatic and consensus-making moderate, in particular in his relations with the monarchy. He has gained increasing popularity within the party, whereas Mr Othmani had been criticised for being vague and indecisive during his leadership. His standing had been affected by the relatively poor showing of the PJD in the September election—the party had set itself the target of winning up to 90 seats, but its eventual tally was only 46, leaving it in second place behind the conservative nationalist Istiqlal, which won 52 out of the total 325 seats.

The PJD was not included in the coalition government formed after the election. According to Mr Benkirane, the party had previously been offered the chance of joining the government in 1998 and 2002—offers which he said he had been inclined to accept. However, the PJD was obliged to adopt a lower profile after the 2003 terrorist bomb attacks in Casablanca, which was followed by a clampdown on Islamists of all stripes. The PJD now seems to be advancing on the road to rehabilitation. Mr Benkirane's first big test will be the municipal elections in 2009, in which the PJD will be looking to wrest control of some of Morocco's major cities, possibly in alliance with the Unions socialiste des forces populaires (USFP), a formerly dominant left-leaning party that was the biggest loser in the 2007 general election. Mr Himma is also courting the USFP as a potential ally for his party in the municipal polls.

Further ahead, the big prize for Mr Benkirane and the PJD would be victory in the next general election, which is scheduled to take place in 2012. Mr Benkirane has stated that, in the event of an election win, the PJD would have no objection to serving under a technocrat prime minister.

Sunday, July 13, 2008

Economic Growth Outlook

The king, Mohammed VI is facing numerous challenges such as poverty, unemployment, inflation and concerns arising from non inclusion of the Parti de la justice et du développement (PJD) in the government, despite it holding the second-largest number of seats in parliament. The king is well aware that he and his government will largely be judged on their success in dealing with social and economic exclusion. To this end, the government will continue to ramp up social spending, including on slum clearance and upgrading rural infrastructure. However, given limited resources, an inefficient bureaucracy and widespread nepotism and corruption, addressing the shortcomings of the country's infrastructure will prove difficult.

The government has set itself targets of achieving 6% real GDP growth, creating 250,000 new jobs and building 150,000 new housing units a year until 2013. These targets look overambitious, particularly given the vulnerability of GDP growth to shocks that affect agricultural output. However, they indicate that the government will prioritise efforts to attract more investment and reduce unemployment and poverty. Priority sectors for foreign direct investment are textiles, electronic components, offshoring services and tourism.

Another key policy issue will be reforming the agricultural sector, under a plan called "Maroc Vert", which aims to diversify crops and develop agricultural co-operatives. Details of the plan are to be outlined later this year. There is a great need for investment to upgrade the agricultural sector and diversify it away from dependence on rain-fed crops.

At present the agriculture sector is highly vulnerable to drought, and productivity varies greatly between regions. Output is around ten times higher in irrigated areas than in fields that depend solely on rainfall. Greater domestic use of fertilisers, which Morocco exports in large quantities, would also boost productivity. However, there are concerns that the implementation of the new plan could be held back by the same bureaucratic constraints that weakened the impact of previous agricultural reforms.

The Economist Intelligence Unit estimates that the central government budget recorded a deficit (excluding privatisation revenue) of 1.9% of GDP in 2007, based on preliminary Ministry of Finance figures that show that very strong growth in tax revenue offset a rise in spending. The 2008 budget projects that the deficit will widen to 3.4% of GDP, but we expect that it will slightly over­shoot this target as the government's growth assumption appears optimistic.

Although fiscal revenue is expected to continue to rise on the back of increasing foreign investment and better tax collection, it will not climb as quickly as spending, given higher bills for security (up by 29%), social welfare (17.5%), subsidies (which have nearly doubled) and infrastructure. The government will continue to find it politically difficult to cut total subsidy spending while international food and fuel prices remain very high. It will also face pressure from trade unions to increase wages. In this context, the deficit is unlikely to narrow as a proportion of GDP in 2009, despite continued GDP growth.

The main monetary policy objective of Bank al-Maghrib (the central bank) is to maintain currency stability, by keeping inflation under control and managing the exchange rate. However, the authorities are taking gradual steps to lessen currency controls, with the aim of introducing a fully floating currency at an unspecified date beyond the outlook period.

Local liquidity will remain strong, boosted by workers' remittances from abroad and by tourism revenue, creating some inflationary pressure. Nonetheless, the authorities will be reluctant to raise interest rates in case this leads to speculative pressure on the currency, particularly as the government's inflation forecast remains low.

Despite the global economic downturn, the outlook for Morocco's economic growth remains strong, though the government has revised its growth forecast slightly downwards and anticipates inflation to exceed previous expectations.

On June 3, Moroccan finance minister Salaheddine Mezouar announced that the government's growth forecast had been trimmed from 6.8% to 6.2%. Despite the downward revision, the expected level of growth "still remains quite an achievement considering the circumstances", Mezouar told the international press.

The circumstances to which Mezouar referred are 2007's sluggish growth rate and the worsening global economic outlook. Last year, on the back of a very poor agricultural harvest, Morocco's growth rate was only 2.2%, and a rebound to 6.2% is arguably remarkable given the fact that Morocco's major export markets in Western Europe are experiencing slower growth while still facing the possibility of interest rate hikes to stave off inflationary pressures.

Morocco's Mediterranean neighbours and key trading partners Spain and Italy have been particularly badly affected by the slowdown, with the construction boom in the former rapidly going off the boil, and the latter suffering from worrying stagnation. Nonetheless, Morocco's overall exports continue to grow: by 13% in the first five months of this year, significantly above the forecast 7.5%.

Despite the downward revision in the growth forecast, the government has upped the inflation outlook - Mezouar expects the rate to pick up to between 2.7% and 2.9%, as opposed to an original forecast of 2%.

Given the expected rate of growth and mounting global inflation, a rate of less than 3% would be fairly impressive, and further burnish the Moroccan government's reputation for fiscal probity. Worldwide, and particularly in growing economies such as Morocco's, inflation has been driven up by soaring oil prices - topping $130 a barrel by some measures - and the climbing cost of food that has been driven by climatic changes, shifting consumption trends in emerging markets and the replacement of food cropping by biofuel-focused cultivation in parts of North America and Europe. Construction material inflation, caused in part by a building boom in China, has put further upward pressure on prices.

As agriculture accounts for a large proportion of the Moroccan economy, a considerably better harvest this year is likely to both boost growth and have a disinflationary effect. Another not inconsiderable disinflationary factor will be grants totalling $800m from Saudi Arabia and the United Arab Emirates intended to counteract the effects of the galloping oil price. In the first quarter of this year, Morocco imported $1.1bn worth of crude oil, an increase of more than two thirds on the same period of 2007, which can be accounted for only in part by the falling value of the dollar.

The largesse of Morocco's Arab partners, who play an increasingly important role in the economies of North Africa, will help maintain the budget position. Despite rising fuel import costs and the effects of a public sector wage hike negotiated with occasionally restive trade unions earlier this year, the government has kept its budget deficit forecast at 3%. Mezouar said that increased tax receipts will offset the additional costs, and that therefore the government would not need to resort to borrowing money from abroad to meet its spending plans. "Receipts of value-added tax and corporate tax are up 20%," the minister was quoted as saying. "We are in a situation which will allow us to fulfil all our commitments in terms of both investment and financing. Resorting to international markets is not called for," he added.

There is great potential for exports to Morocco's fast-growing neighbours, while imports from them would enhance competition on the Moroccan market to the benefit of consumers. A gentle thaw is taking place, but for the time being, inter-Maghreb trade remains a missing piece in the Moroccan economic jigsaw.

Saturday, July 12, 2008

The Fiscal Outlook In Morocco

According to the IMF: fiscal consolidation efforts of recent years—which brought the budget close to balance in 2007 (from 2% of GDP in 2006) have provided the fiscal space in the short term to absorb the impact of higher world prices for subsidized products without undermining macroeconomic stability. But in the medium term, Morocco should move towards better targeting of subsidies to minimize fiscal risks and ensure adequate financing.

Cost of the subsidies could double as a share of GDP this year to reach about 5% (IMF)

EIU: 2008 budget projects that the deficit will widen to 3.4% of GDP, an estimate that may be too optimistic given growth outlook. Despite better collection, spending will likely outpace revenues in 2008 given higher bills for security (up by 29%), social welfare (17.5%), subsidies (which have nearly doubled) and infrastructure. High global food and fuel prices will make it politically difficult to cut total subsidy spending and unions will push to increase wages.

Declining deficit is progressively being financed by domestic sources rather than revenue generated from privatization as it was earlier this decade(EDC)

Morocco has among the highest tax rates in the MENA region (Tatom)

World Bank: Improving tax collection would increase the growth orientation of fiscal policy. Morocco has a fairly high debt level which limits future borrowing but does not seem to be debt intolerant. tax burden may be a disincentive to private investment

government debt has fallen to 54% of GDP in 2007 from 81% in 1999 and 66% in 2004. fiscal positions, especially a declining public debt contributed to restrained inflation in 1999-2005 (Fanizza/Soderling)