Interview: Abdellatif Kabbaj
How can public policy effectively extend ongoing positive trends in the textile market?
ABDELLATIF KABBAJ: The sector is undergoing a positive movement towards exports, with growth of 5-7% per year. Companies that decided to develop in the fast-fashion segment are doing well. Although some were created less than two years ago, their financial situations and order bills show this model is working. However, the local market is also in the middle of a complicated phase, due to a lack of competitiveness against textile imports. The tax pressure on established business does not help: they are constantly targeted by the fiscal authorities, sometimes with little justification, which does not incentivise young entrepreneurs to remain in the formal economy. To increase its tax income, the government should focus instead on formalising informal businesses.
Another challenge for textile companies is the large investment needed to open retail shops, due mainly to the high cost of real estate. These costs are driven by fragmentation in land ownership, as well as a habit that is spreading among Moroccan investors of buying land for speculative purposes. The government has moved to address this by increasing its tax on non-constructed lands from €0.40 to €1 per sq metre. They could boost the market by going much further in that direction and setting the tax at €10 per sq metre, which would motivate landowners to sell more quickly.
To what extent have free trade agreements (FTAs) benefitted the maturation of Moroccan industries?
KABBAJ: To some extent, several of the FTAs that Morocco has signed with specific countries or economic zones have actually helped parts of the industry, such as the automotive and aerospace segments. Nonetheless, it is becoming urgent that the government rebalance its partnerships with a couple of countries, including Turkey and the US. The fact that these countries have much more industrial firepower than Morocco results in a situation where Moroccan industries cannot compete.
Turkey is a case in point, especially in the textile sector. Turkish firms that move abroad benefit from very efficient cooperation between the public and private sectors. A Turkish company that opens a retail shop in Morocco will receive significant aid and subsidies: its rent will be paid for three years, its storage and communication costs will be endorsed by the government and 50% of its settling costs will be paid for by public funds.
To preserve the local industrial fabric, Moroccan authorities should consider imposing integration rates on foreign firms. In Algeria the government made it mandatory to reach a minimum integration rate of 20-30% on goods sold in-country. We could easily implement this model in the agri-business or textile sectors. For the state, industrial investors are always more profitable than those investing in retail only.
What business opportunities can Moroccan industrial and retail firms leverage in the Algerian market?
KABBAJ: Even if the border with our neighbour remains closed, there is a significant logistical flow of goods between Tangier and Oran that allows for the development of some interesting businesses, not to mention the process of exporting to Algeria, which has evolved in recent years. The transit time has been reduced by half. Indeed the Algerian market should be a natural destination for Moroccan products.
First, “Made in Morocco” goods benefit from a positive country-of-origin effect. Second, our consumption habits are roughly the same, but their purchasing power is higher, with a middle class that is three times bigger. In Algeria our retail brand reaches two times our standard turnover in terms of area. Overall, more integration and openness between the two countries would result in economic growth on both sides of the border, not to mention the two economies complementing each other. As for Diamantine, our retail brand, we aim to reach a network size of 50 outlets at term and open a technical textile and clothing manufacturing plant.