Over the past 10 years Morocco has changed significantly. Visitors to Casablanca, Tangiers or Agadir now explore cities that are substantively different from their 2004 incarnations, with new tramways, taller buildings and faster internet.
The country’s economy has changed in an equally dramatic fashion, with impressive progress made in some critical areas. Plenty of challenges remain – including rural development, energy security and youth unemployment – but the kingdom now benefits from several free trade agreements, a major deep-sea port, free trade zones, a more sustainable fiscal policy, a robust manufacturing sector and established capital markets.
Although it grappled with perceptions of elevated risk during the 1990s, Morocco today presents a very different picture, particularly given the difficulties faced by its neighbours. Over the last decade the country has capitalised on its geographical location as a gateway to both Europe and Africa to build a diverse, open and investor-friendly economy.
GDP GROWTH: The most obvious sign of the country’s ascendant trajectory is its headline indicator: GDP has risen steadily over the past decade, growing by an annual average of 6%. Unsurprisingly given the global context, the first half of the decade delivered stronger growth, above 8% annually, with Morocco benefitting from increased flows of foreign direct investment (FDI) and growing exports on strong demand from Europe. In 2008 GDP growth peaked at 12%, but despite the close ties with stagnant Eurozone economies such as France and Spain – and subsequently amid the turmoil of the Arab Spring – Morocco has continued to deliver decent economic growth. The economy has, since then, expanded at a lower average rate of 5% per year, but this is still higher than the 3% per annum average it achieved in the 1990s.
Central to this performance was the country’s National Pact for Industrial Emergence (Pacte National pour l’Émergence Industrielle, PNEI) strategy, which was launched in 2008.
Focusing on six key sectors of the economy where the kingdom believes it has an export advantage (electronics, automotive, aeronautics, offshoring, food processing and textiles), this served to attract continued foreign investment to the country. It also reduced the volatility in economic growth by increasing the weight of industry in relation to the weather-dependent agricultural sector.
With Europe’s economy set to slowly crank back into positive economic growth in 2014, the short and medium term prospects look encouraging. DEMOGRAPHIC CHANGE: There have been steady changes on a more basic level, too. Morocco’s population has continued to grow, reaching an estimated 32.5m in 2013, giving the country one of the largest consumer markets in the Arab world.
Crucially, however, annual growth rates have slowed to a more sustainable rate, averaging 1.04% over the past decade, versus 1.36% in the preceding 10 years. Morocco’s further demographic changes have been broadly in line with other emerging markets. Urbanisation has continued at a steady pace, with some 57% of the kingdom’s population now living in an urban area, up from 54% in 2003.
Health indicators have also seen encouraging progress. Infant mortality in Morocco has improved considerably, with the World Bank indicating 27 per 1000 live births in 2012, down from 38 per 1000 just 10 years earlier and 56 per 1000 in 1993.
POVERTY: Under the UN’s Millennium Development Goals (MDGs), Morocco committed to reducing by half the proportion of people living on less than $1 per day. In 2007, eight years before the 2015 MDG deadline, the kingdom announced that it had achieved this target, with the percentage of people living at this level estimated to be 0.56% (0.07% in urban areas and 1.2% in rural areas), versus 3.5% recorded when the MDG was signed and 2% in 2001.
Even greater progress has been made in the category of people living on under $2 per day, with the rate falling from 30.4% in 1990 to 20.2% in 2001, and again to 8.1% in 2007. Morocco receives aid from a number of multilateral institutions such as the African Development Bank, the World Bank, as well as the EU, in order to help the kingdom realise both inclusive and sustainable growth.
EDUCATION & LITERACY: Huge strides have been made in educating the population over the last 10 years. World Bank data shows that the youth literacy rate increased from 70% in 2004 to 82% in 2013. This is in large part due to a series of government programmes that sought to boost enrolment, such as the Tayssir programme. It is a cash transfer scheme implemented in 2008 that gives grants to underprivileged families to send their children – particularly girls – to school. Each family receives between Dh80 (€7.10) and Dh100 (€8.90) for every child attending primary school, and Dh140 (€12.40) for every child in secondary school.
The programme has been a huge success, with the number of beneficiaries increasing from 88,000 in 2008 to 670,000 for the 2011/12 school year, while net enrolment rates for children in primary school have improved from 85% nationally in 2003 to 97% in 2012, according to the UN.
JOB CREATION: Ensuring jobs for all of those new graduates is a trickier proposition. Headline figures are encouraging, indicating that employment has fallen from an average of 11.9% in 2003 to 9.4% in 2013. However, new entrants into the job market still face difficulties landing full-time positions. World Bank data shows youth unemployment rising from 17% in 2003 to almost 19% in 2013, despite increasing levels of education. Indeed, the World Bank puts this figure as high as 35% in some urban areas. As a result, efforts are being made to target first time employees and new graduates. Part of the problem stems from a historical mismatch between the skill sets that are in high demand in the country (in growth sectors such as aeronautics, automotive and pharmaceuticals) and the curriculum of secondary and tertiary institutions, which tend to emphasise traditional disciplines.
The government has already launched a number of vocational training programmes that aim to fill the labour force needs of industries such as aeronautics and automotive, for which sponsorship is available. Moreover, the last two budgets in particular have specifically targeted unemployed youth with 26,000 new public jobs created in 2013, and a further 18,000 proposed for 2014.
However, public sector wages already represent some 12% of Morocco’s GDP, and more needs to be done to tackle the disconnect between graduates’ expectations and the realities of the job market. BUDGET DEFICIT/SURPLUS: Morocco’s fiscal policy has seen spells of laudable progress as well as periods of high spending. The first half of the decade was characterised by relative budgetary restraint, with the fiscal deficit improving from 4.2% in 2003 to a surplus of 0.7% in 2008, and government indebtedness falling from 65% of GDP to 48% across the same period. Following the outbreak of the financial crisis in Europe, however, the kingdom’s finances took a battering, with FDI and exports both falling and companies’ earnings, including the crucial corporate tax receipts which comprise the vast majority of the tax base, following suit.
The situation was compounded following the outbreak of unrest in Tunisia, Egypt and Libya in 2011, which prompted the government to raise social spending. Subsidies on food and energy increased from Dh29.8bn (€2.65bn) in 2010 to a peak of Dh52.3bn (€4.64bn) in 2012, while government spending was also channelled into areas such as the public sector wage bill and the Social Cohesion Fund.
The actions helped stem domestic unrest, although they also widened the kingdom’s budget deficit, which reached 7.7% in 2012 – its highest level since 1990. In an effort to plug the ever-widening imbalance, the Moroccan government increased its borrowing, both internally and externally.
As a result of this, the most recent government budget has sought to directly address some of the most prominent weaknesses. The kingdom made some inroads to better balancing its books in 2013, reducing the fiscal deficit to 5.5%, subsidies by Dh10bn (€888m) to Dh42bn (€3.73bn) and government investments by Dh5bn (€444m).
More drastic measures to reduce the deficit in 2014 are now in place, with subsidies on petrol and fuel oil completely abolished – funds allocated to subsidies have been cut to Dh35bn (€3.11bn) – and tax exonerations for large farms removed. With the government ever-conscious of the balancing act between minding the nation’s accounts and the growing demands of the population, spending on public sector jobs has continued to increase, jumping Dh5bn (€444m) to Dh103.7bn (€9.2bn) in 2014.
FDI: One of the cornerstone policies pursued by Morocco in its recent history is its strategy to attract FDI as a means of diversifying the economy and propelling economic growth. To this effect, the Moroccan Investment Development Agency (Agence Marocaine de Développement des Investissements, AMDI) was set up in 2009 with the goal of not only promoting Morocco as an investment destination, but also of working internally with agencies such as the National Committee for the Business Environment and the General Confederation of Moroccan Enterprises to improve the business environment.
The level of annual FDI inflows has increased dramatically, up 68% from Dh23.9bn (€2.12bn) in 2003 to Dh40.2bn (€3.57bn) in 2013. Following the outbreak of the financial crisis in 2008, inflows were tempered, however 2013 was almost back at 2007 peak levels, when the kingdom realised Dh41.4bn (€3.68bn) in incoming FDI.
TRADE: One of the principal aims of signing free trade agreements and attracting investment to Morocco was to increase the country’s exports, thereby boosting its foreign currency reserves.
While exports are certainly heading in the right direction at present (+118% since 2003, or yearly average growth of 8%), both household consumption and capital spending have increased, resulting in a significantly faster pace of growth for imports (+179%, or 11% per annum).
While the rise was in part driven by higher imports of equipment and materials needed to set up PNEI industries, a large chunk of the imbalance is due to soaring oil prices, to which Morocco – as an energy importer – remains vulnerable.
As benchmark oil prices jumped from an average $28.85 per barrel in 2003 to more than $110 per barrel in 2012/13, the cost of Morocco’s oil imports has correspondingly swelled, with oil now representing 28% of total imports, versus 14% in 2003. Oil imports are therefore the main driver in the dramatic turnaround seen in Morocco’s current account balance over the past decade, with the kingdom going from a surplus of just over 3% in 2003 to a deficit of 7.7% in 2013.
As a result, the country has enacted a slew of programmes to reduce heavy fuel consumption, with a number of large-scale solar and wind power projects currently under construction. Offshore petroleum exploration has also picked up, providing some hope that the country’s imports will see a gentle decrease over the medium to long term.
DOING BUSINESS RANKINGS: Morocco’s score in the World Bank’s “Doing Business” survey has improved every year for which data is available, rising from 52% in 2005 to 65% in 2013. According to the 2013-14 survey, huge progress has been made in areas such as starting a business, where Morocco increased its score from 62.9% in 2005 to 89.4%, ranking the kingdom 39th out of 189 countries, and trade across borders, where it rose from 66% to 78%, and is at present ranked 37th.
However, the survey points out that considerable gaps to the best-in-class remain in areas such as resolving insolvency (40.6%, 69th), protecting investors (46.7%, 115th) and getting credit (50%, 109th). As a result, the government has been specifically targeting these areas to further streamline the business climate, providing material and policy support for small and medium-sized enterprise lending programmes, strengthening the judicial framework and ensuring investors rights.
All told, the last 10 years has seen Morocco work hard to establish itself as one of the robust economies in North Africa, despite the difficult macro backdrop. While challenges remain in areas such as reforming the pension system, reducing the public sector wage bill and formalising more of the economy to enlarge the fiscal base, many of the stepping stones are already in place to ensure Morocco continues to develop and flourish over the next 10 years.
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