Morocco's construction sector moves forward

Following a slowdown in 2013 caused by various factors, Moroccan construction saw a return to growth in 2014 and 2015, with high demand for housing and investment in infrastructure projects continuing to drive the sector. Although the price of building materials has been adversely affected by the sector’s downturn in recent years, with the steel segment in particular feeling the impact of slow growth in the international steel market, cement consumption, a key performance indicator for the sector, saw a modest return to growth in 2015. While access to credit, particularly for developers, continues to hamper expansion, incentives from the Ministry of Housing and Urban Policy (Ministère de l’Habitat et de la Politique de la Ville, MHPV) have provided some support. If foreign investment picks up in the coming years as predicted, the sector’s recovery will continue.

Performance

While a decline in private investment has caused the industry to remain largely stagnant in recent years, Construction Cayola reported that Morocco’s construction sector saw modest year-on-year (y-o-y) growth of 1.3% in 2015. GDP from construction, one of the country’s most dynamic sectors, reached Dh11.6bn (€1.1bn) in the fourth quarter of 2015, according to the Higher Planning Commission (Haut Commissariat au Plan, HCP). The sector contributed Dh143.67bn (€13.2bn) to the country’s total gross fixed capital formation in 2015, or 51%, according to the MHPV, an increase of 4% over 2014.

In 2015 the industry’s added value reached an estimated Dh55.83bn (€5.1bn), up 6% y-o-y. The number of housing units built in 2015 grew by 21% y-o-y, according to the MHPV. HCP figures show this rise follows a drop in the number of building permits issued in 2014 to 42,559, down 21.9% from 2013.

The construction sector remains a large source of jobs, employing nearly 1m people in 2015, according to the HCP, nearly the same number working in the sector in 2014. During the downturn in the industry between 2008 and 2011 more than 65,000 jobs were cut. With the government continuing to invest in large infrastructure projects, employment in the sector is expected to pick up again in the coming years.

Regulation

Morocco’s construction sector has long been subject to a regulatory framework composed of both national decrees and local legislation, but budget constraints in recent years have led to a concerted effort to simplify procedures in order to attract more private investment. According to the World Bank’s 2016 “Doing Business” report, it took 91 days to obtain a construction permit in Morocco, which is slightly better than Tunisia, where it took 93 days, and far ahead of Egypt and Algeria (179 and 204 days, respectively). Furthermore, the World Bank noted that Morocco made property transfers faster in 2016 by establishing electronic communication links between different tax authorities. ”In the wake of the new public-private partnership (PPP) law of 2015, PPPs will likely boost activity in the construction sector,” Ahmed Kabbaj, CEO of Société générale des travaux du Maroc, told OBG.

New Code

In 2015 the unified General Regulations on Construction were put in place with the goal of providing a more joined-up regulatory framework and improving transparency and oversight. Previously, the absence of a cohesive national code created an environment conducive to informal activity, with private sector projects being largely self-regulated. The informal sector accounts for around 25% of construction activity and saw a boom after 2011, when the government relaxed restrictions on obtaining land permits in a bid to reduce the kind of social discontent that led to revolutions in Tunisia and Egypt, according to Majdouline Fakih, equity analyst at CFG Bank. “The government lets people do whatever they want, meaning building without permits or without authorisation,” Fakih told OBG. “After regulations were relaxed in 2011 there was a lot more informal construction. This bubble took four years to explode. We are just now reaching normalised consumption.”

The new code has been designed to increase transparency and competition in the industry, define the roles and responsibilities of actors in the construction process, set up oversight mechanisms for procedures and site safety conditions, and create quality control for materials and penalties for companies that do not comply with the new regulations. According to sector stakeholders, as well as payment delays, the biggest challenge facing the industry is labour safety.

Financing

Inadequate financing continues to hinder growth in the sector, particularly for developers. Financing available for new projects remained limited for several years when banks faced liquidity constraints, although credit has improved over the past two years. In 2015 outstanding real estate loans reached more than Dh242bn (€22.2bn), up slightly from Dh238bn (€21.8bn) in 2014, accounting for 27% of total credit in the country, according to the central bank, Bank Al Maghrib. The lending rate applied by banks also decreased from 6.05% in the fourth quarter of 2014 to 5.56% in the fourth quarter of 2015.

Foreign Investment

To address the financing challenges, a number of local developers have turned to foreign partners. As of early 2016 real estate accounted for the largest share of foreign direct investment at 38.6%, according to the Moroccan Investment Development Agency. Around 20% of developers in Morocco conduct business as part of a joint venture, many involving Gulf countries. Rabat’s 200-room luxury hotel development La Marina Morocco, for example, is a joint venture between state-owned l’Agence pour l’Aménagement de la Vallée du Bouregreg and Abu Dhabi-based Eagle Hills.

The prominent participation of foreign investors is also visible in the country’s numerous infrastructure and public works projects, such as the construction of a 350-km, high-speed rail link between Tangiers and Casablanca which received a total of €380m in funds from the Gulf states of Saudi Arabia, Kuwait and the UAE. With the government seeking more private sector involvement in the construction of ports and other public works, opportunities for foreign investment in infrastructure construction remain.

Materials

While Morocco benefits from significant production and high quality in its building materials segment, its industries have faced tough international competition and struggled to keep up amid high energy costs and global overcapacity in recent years. Following Morocco’s implementation of a free trade agreement with the EU, for example, the country faces steep competition from Spain in tile production and from Italy in the marble sector. In addition, the construction materials industry has been disrupted by international price volatility and excess capacity. With supply outstripping demand, a price war exists in the Morocco, which has lowered its prices as international ones rise.

Overall, however, this has not stopped the country’s producers from continuing to eke out steady growth. Morocco’s cement industry, for example, saw nearly 14.25bn tonnes sold in 2015, up from 14.06bn tonnes in 2014, marking a 1.4% y-o-y increase, according to the MHPV. The cement sector had previously reached an all-time production high in 2011, before being hit by the real estate downturn. The sector has historically seen large margins, and prior to 2011 regularly experienced double-digit growth, according to Fakih.

Cement Players

The cement industry in Morocco comprises five main players. Lafarge Maroc, which is part of Swiss multinational LafargeHolcim, has a capacity of 6.9m tonnes per annum (tpa). The second-largest player is Ciments du Maroc, a subsidiary of Italy’s Italcementi Group, which recently launched a joint venture with Spain’s Grupo Puma for a new plant. Moroccan-owned Ciments d’Atlas entered the sector at the end of 2010, with an eye to expanding its operations into West Africa. Other producers include Asment de Témara, a subsidiary of Portugal’s Cimpor, and Holcim, a subsidiary of the Swiss group, which produces 4.5m tpa on average. Lafarge and Holcim announced in 2015 that they would merge, after their parent companies merged at the international level. Fakih told OBG, “The merger will lead to less pressure on prices, but this could also permit new players to come to the market, in the same way Ciments d’Atlas entered the market in 2010.”

With an investment of Dh300m (€27.5m), Moroccan holding group Anouar Invest, one of the largest agribusiness players in Morocco, announced in November 2015 that construction of its cement factory in Laâyoune had begun. The plant, CimSud, is scheduled to begin operations in July 2017 producing 500,000 tpa. The group has also begun construction of a cement plant in the Settat region with capacity of 2.2m tpa due to begin operations in late 2018. The latter project’s budget is Dh3bn (€275.1m).

Public Works

Construction activity in recent years has been driven by several factors, including purpose-built cities, industrial zones and rising demand for housing, but investment in public infrastructure, particularly transport, has been a primary engine. Over the course of 2016 the government will invest Dh32bn (€2.9bn) in public works, according to the Ministry of Equipment, Transport and Logistics, Dh5bn (€458.4m) more than in 2015 (see Transport chapter). Specifically, roads and highways will receive Dh11.09bn (€1bn), ports Dh7.53bn (€690.4m), rail Dh4.32bn (€396.1m), aviation Dh1.04bn (€95.4m), and transportation and logistics Dh514m (€47.1m).

Morocco also secured a $112.3m loan from the African Development Bank (AfDB) in March 2016 to improve the 142-km section of the Tangiers-Casablanca-Marrakech rail line. The funding is targeted at the Moroccan National Railways Office and will also cover a second track to be constructed between the Settat and Marrakech stretch of the route.

Port Development

The expansion of port facilities under the 2030 National Port Strategy offers a number of new opportunities for the construction sector. Tangiers has undergone a major transformation with the development of Morocco’s largest port, Tanger-Med, which has been financed by a PPP. With the first phase finished, the second is scheduled for completion by the end of 2017.

New ports slated for construction or currently under way include Nador West Med and Safi Port. The former will be a deepwater port on the Mediterranean coast in the north-east Rif region and is expected to come on-line in 2019 or 2020, with a focus on coal and hydrocarbons. The AfDB has already provided the country with Dh1.2bn (€110m) for the port project, which is around 10% of the cost. Construction of Safi Port is also under way in the capital of Safi Province on the Atlantic coast. The Dh4bn (€366.8m) project will offer facilities for cargo ranging from local agricultural products to bulk and container shipments.

The kingdom’s road network is also receiving an influx of capital. A 143-km highway worth around €500m linking El Jadida to Safi, south along the western coast, is under construction and expected to be completed by December 2016. Key urban corridors are also being widened and expanded, such as Rabat’s ring road, which is being extended by 41 km.

Airport Expansion Projects

A variety of projects that aim to increase capacity and develop Morocco’s airports are also helping the construction sector. Among the government’s priorities is the expansion of Terminal 1 at Casablanca’s Mohammed V International Airport, which will nearly triple its current capacity from 8m to 23m passengers. Marrakech Menara Airport is also set to expand with the construction of a new 67,000-sq-metre terminal worth Dh1.2bn (€110m), which is under way and will raise capacity from 6m to 9m passengers. Also planned is an airport specialising in business aviation in Casablanca’s suburb of Tit Mellil that is expected to begin operations in the second half of 2017.

Urban Plans

In October 2015 King Mohammed VI inaugurated the construction of Tétouan Grand Stadium, a project worth Dh700m (€64.2m), as part of the urban and economic development plan for Tétouan spanning 2014-18. A few miles south of the Strait of Gibraltar, Tétouan is Morocco’s first metropolitan area to employ a city development strategy. The port city is set to undergo a raft changes, with a new plan aimed at enhancing tourism, commerce, housing and quality of life. Maghreb Arabe Press, the state news agency, reported that the stadium will seat 40,410 and cover 36 ha.

“With Moroccan cities now having a high density of population per square kilometre, the new challenge is to create more liveable cities, with parks, cultural centres and green spaces, but without impairing the agricultural lands and the irrigated territories,“ Hicham Meftah, JACOBS Engineering S.A. studio director, told OBG.

Power Projects

In a country that depends on importing fossil fuels to generate an estimated 97% of its energy, Morocco has invested considerably in renewable energy in recent years, leading to many contracts for the construction sector. The government seeks to boost national production to 2000 MW each from wind and solar power by 2020, and together they are targeted to account for 42% of energy needs. To meet this target the government plans to build five wind farms for a total of Dh31.5bn (€2.9bn), while under the €7.7bn Morocco Solar Plan five solar plants will be built. In February 2016 CNN reported that the first phase of the 160-MW Noor 1 concentrated solar power plant in Ouarzazate went on-line. The €683.8m plant was built by Saudi Arabia’s ACWA Power, which was also awarded the contract for the 200-MW second phase, known as Noor II.

Residential

Construction activity has also been supported by demand for property, in particular residential developments. Luxury and high-end units have tended to drive residential activity in past years, but more recently pent-up demand for lower- and middle-income housing has led to a spate of new projects targeting more modest accommodations. This is not surprising, given that as of early 2016 the middle class is now estimated to account for 30% of the population, according to the HCP. Between 2014 and 2016 the MHPV and the National Federation of Real Estate Developers signed agreements to provide around 20,000 mid-range housing units.

Social Housing

There has been even more activity in the affordable housing segment. The MHPV has remained committed to addressing the shortage of affordable housing and its housing programme will continue until 2020. The ministry expects demand to increase by 150,000 units each year. Construction of 183,523 affordable and social housing units began in 2015, up 2.8% y-o-y, according to the MHPV. A total of 178,301 affordable and social housing units were completed in 2015, an increase of 21.4%.

Affordable housing programmes put in place by the government are part of a larger effort that began in the early 2000s to reduce the number of slums and informal construction in the kingdom. Among these efforts is the Villes Sans Bidonvilles (City Without Slums) programme, which was launched in 2004 and aims to eliminate slums in 85 cities across the country. The programme has seen much success, with 55 cities declared slum-free as of early 2016.

Both tax incentives and subsidies for land are provided by the government in an effort to attract private investment to the affordable housing sector. Developers are required to commit to a certain number of housing units to qualify for such incentives. Morocco’s largest real estate developer, Addoha, accounts for nearly half of the low-cost housing currently being constructed in the country.

Mixed Use & Commercial

Mixed-use and commercial developments continue to play a major role in the sector (see Real Estate overview), including projects such as the $900m Wessal Bouregreg, which will offer 4200 residential units, a 5000-sq-metre shopping mall, and commercial and public space; and the €300m Zenata, a new city for 300,000 residents to be built in the Casablanca suburb Ain Harrouda by 2030. In addition, a $55m mixed-use space in Agadir is being planned by UAE-based Tasweek Real Estate Development and Marketing. In March 2016 Morocco also broke ground on a 45-storey tower, which will be the tallest in Africa, in Salé at an estimated cost of Dh3bn (€275.1m). Financed by the local BMCE Bank Group, it will house retail and leisure facilities, office space, a residential area and a luxury hotel.

Outlook

While it has struggled in recent years, the construction sector’s prospects remain positive as public investment in infrastructure has kept pace despite budgetary restraints. The government aims to improve transport and tourism infrastructure, address housing shortages and modernise energy delivery by raising the volume of renewable generation. State incentives in the residential sector have also buoyed the industry, and a growing middle class, which accounts for 30% of the population, is set to continue driving up demand in the mid-range sector.

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The Report: Morocco 2016

Construction & Real Estate chapter from The Report: Morocco 2016

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