Morocco: Year in Review 2012
While Morocco’s economic growth eased in 2012, a mix of short-term and long-term measures to improve the country’s fiscal health, alongside strong performance in select sub-sectors, have put the economy on track to see 5.5% growth in 2013, according to the IMF.
Morocco outstripped all other North African economies in 2011, notching up yearly growth of 4.9%, the IMF reported in August. Faced with domestic and external challenges, the country’s economic growth eased to 2.9% in 2012, although a particularly strong uptick in construction and key industries such as manufacturing compensated for decreases in other sectors, including agriculture.
Rising global food and fuel prices weighed heavily on Morocco’s public finances in the first half of the year, causing its economic position to weaken, while falling foreign demand for exports, particularly from Europe, reduced fiscal and external accounts.
However, the IMF expects the current account deficit to have fallen from 8% to 7.4% of GDP by the end of 2012, with further improvement earmarked for 2013, as exports from the phosphates and manufacturing industries increase. In addition, the fiscal deficit is expected to have shrunk by 0.8 percentage points to settle at 6.1% of GDP by the end of 2012. The deficit is expected to decline further to 5.3% in 2013.
Morocco is taking steps to rebuild its eroded fiscal and external buffers, led by a revision of costly public subsidies for food and energy products, which account for an estimated 15% of government spending, and a reform of its cash-strapped pension system. While the fiscal reform will take time to put in place, it has already been given a vote of confidence by key international players, underwriting the IMF’s decision to award Morocco a $6.2bn precautionary liquidity line in June.
In another move aimed at securing adequate budgetary support, Morocco issued a $1bn, 10-year bond on December 5. The country’s first international dollar-denominated bond, rated BBB- by Standard & Poor’s (S&P), was heavily oversubscribed, prompting Morocco to sell an additional $500m, 30-year bond, which attracted an additional $2bn in offers.
Morocco’s agriculture sector, which represents roughly 13% of GDP and 40.3% of employment, was hit hard by poor weather conditions in 2012. The country’s wheat crop was reduced 39% year-on-year (y-o-y) to 5.1m tonnes in the 2011-12 season, meaning Morocco faces the prospect of importing 4m tonnes of additional soft wheat through to May 2013, driving up imports to their highest levels in 30 years. The government will be looking to modernisation and aggregation projects, which are being introduced through the agricultural development strategy Plan Maroc Vert (PMV), to help boost production of key crops in the medium-term.
Morocco also took strides forward in its labour-intensive and export-dependent industrial sector in 2012, with the strongest performances recorded in aeronautics and automobile manufacturing. Aeronautic component exports grew 18% y-o-y to reach Dh4.64bn (€417.1m) by end-September, while automobile exports increased 7% to reach Dh18.3bn (€1.6bn).
The country is working to encourage foreign investment through the development of industrial free areas in key production areas, including a zone under development in Nouaceur dedicated to the aeronautics industry. Bombardier purchased land for the construction of a $200m aircraft component manufacturing plant in Nouaceur in June, with construction slated to begin by the end of 2012. The $1.1bn Renault automobile manufacturing plant, which opened in February at an industrial zone in Melloussa, is expected to produce 340,000 vehicles in 2013, rising to 400,000 per year at maximum capacity.
The production of phosphates and derivative products should also stimulate economic growth in 2013. In the first three quarters of 2012, the value of unprocessed phosphate exports grew to Dh9.71bn (€872.88m), up from Dh9.26bn (€832.43m) a year earlier. A Dh130bn (€11.6bn) expansion programme, which runs until 2020, aims to increase production capacity from 30m tonnes to 50m tonnes by establishing four new mines and building a 300-km mineral pipeline.
Activity across the sectors, including social housing initiatives and renewable energy programmes, has boosted the construction sector, which currently contributes 6% of GDP. The government plans to support the construction of 150,000 new social housing units per year through to 2015, while also increasing the capacity of both solar and wind power plants to 2000 MW each by 2020. A consortium led by Saudi Arabia’s ACWA Power International won a contract in September to construct a 160 MW solar power plant in Ouarzazate, which is earmarked for completion in 2015.
Many of Morocco’s expansion programmes, however, risk being limited somewhat by the ongoing credit crunch in the banking sector, with lending tightened considerably in the last three years. The central bank’s efforts to reform the sector and conform to Basel III standards should help boost liquidity in the medium-term. Measures aimed at increasing the capital adequacy requirement to 12% and core capital requirements to 9% will come into effect in June 2013, ensuring a solid basis for lending. In the long-term, efforts to establish Casablanca as a regional financial hub, particularly through the special economic zone Casablanca Finance City, should help to expand the financial sector.
Morocco’s economy will continue to be affected by the eurozone crisis, as well as high food and fuel commodity prices, in 2013. However, organic growth in several industries and government efforts to strengthen fiscal policies should build a strong base for future growth.