Morocco appears poised for future growth despite short-term challenges

Although Morocco is set to see weaker GDP growth in 2016, due in large part to a poor agricultural harvest following low rainfall, a series of financial reforms and initiatives, and strong foreign investment, have positioned the country well for future gains. The kingdom has had success in its recent efforts to build up export-oriented manufacturing projects, which should take over from more traditional industries in driving growth as well as providing higher-quality employment over the longer term. However, observers also argue that the kingdom’s medium-term potential growth is less clear, with sectors driving economic expansion still maturing.

Economic Composition

The primary sector remains an important part of the Moroccan economy, contributing 12.7% on average to GDP between 2010 and 2014, up slightly from 12.3% between 2005 and 2009, according to the latest data from the High Planning Commission (Haut Commissariat au Plan, HCP). With only around 15% of the country’s agricultural land irrigated and the kingdom suffering from periodic drought, sectoral output is subject to volatility. The cereals segment, which accounts for around 17% of total agricultural output on average, is particularly vulnerable to fluctuations in rainfall. As a result, output of key crops often varies, which can have a significant impact on overall GDP growth from year to year.

Secondary (industrial) activity accounted for 26.2% of GDP over the same period, according to the Ministry of Economy of Finance (Ministère de l’Economie et des Finances, MEF), up from 25.4% between 2005 and 2009. In addition, tertiary activity (services) accounted for 51.9%, which was unchanged on the 2005-09 figure. Meanwhile, government efforts to develop export-oriented industries – which have been one of the main recipients of foreign investment – have made notable advances in recent years, bolstering hopes for future growth.


GDP expanded by 4.5% in 2015, according to figures from the HCP, driven in large part by strong agricultural GDP growth of 12.8%. This was due to a good harvest in 2015 that compared especially favourably with the weak growing season in 2014. By contrast, non-agricultural GDP growth stood at 1.9% in 2015, down from 2.5% the year before and an average of 4.4% between 2010 and 2013. This was partly due to weak growth in Europe, which serves as Morocco’s main export destination, tourism market and source of remittances, as well as more moderate domestic demand growth.

The economy grew by 1.7% year-on-year (y-o-y) in the first quarter of 2016 and by 1.4% in the second quarter. The HCP predicted growth for 2016 would slow to 1.5%, while in March 2016 the kingdom’s central bank, Bank Al Maghrib (BAM), put the figure at 1% , having cut its forecast from 3% previously.

The main factor putting downward pressure on economic expansion in 2016 has been a winter drought that has substantially reduced agricultural output for the 2015/16 harvest. This is having a particularly strong impact on growth given the high agricultural base in 2015. As a result, the HCP is expecting agricultural output will contract by 9.7% over the course of 2016. Agricultural output was down 12.1% y-o-y as of the second quarter of 2016.

The outlook for non-agricultural growth is slightly more positive, with the figure standing at 2.5% y-o-y in the second quarter of 2016, which was a marginally stronger performance than in 2015. “The economy depends heavily on demand from the eurozone, and while there is something of a recovery under way there, it is not strong enough as of yet to substantially boost growth in Morocco,” Karim Gharbi, head of research at Moroccan investment bank CFG, told OBG. “Unemployment levels in the eurozone also remain high, which is having negative repercussions on both remittances and tourism.” While the growth rate will likely soften in 2016, the IMF expects it to recover to 4.7% in 2017, as agriculture bounces back and the European economy picks up. The medium-term outlook for Morocco is favourable, and the IMF forecasts average growth will rise to around 5% a year by 2020, although it noted that the country’s high level of integration in global trade flows and dependence on imported energy leaves it vulnerable to exogenous pressures.

Mohamed Tahri, deputy director-general at Société Générale Maroc, a local subsidiary of the French bank, agreed that the medium-term outlook was favourable. “Morocco has several important competitive advantages, including political stability, its geostrategic location, free trade accords in place with major economic powers and growing levels of foreign investment, all of which will help with future economic development,” Tahri told OBG. “If oil remains cheap, we may also see a relaunch of large-scale public investment in coming years, which drove growth between 2008 and 2012.”

Past Success

Gharbi highlighted that the slowing growth rate – at least in comparison to the higher rates of the previous decade – was in part a result of the maturation of certain sectors. “In the early 2000s the government substantially improved the regulatory framework for a number industries, and sectors such as telecoms, banking and construction started to expand from a low base at double-digit rates, driving wider economic growth,” he told OBG. “However, these sectors are maturing, as banking and mobile phone penetration rates, as well as per capita cement production, have all reached comparatively high levels and are now growing more slowly as a result,” Gharbi added, saying that the medium-term potential growth rate hovered between 3.5% and 4%.


The unemployment rate fell from 9.9% in 2014 to 9.7% in 2015, according to the HCP. This was thanks to the net creation of 33,000 new jobs over the course of the year, which brought the size of the workforce to 10.68m. The services sector saw the creation of 32,000 new jobs, construction 18,000 and industry 15,000, while 32,000 jobs were lost in the agricultural sector. The outlook for 2016 is somewhat less clear, with the overall unemployment rate rising slightly during the first quarter of 2016 to 10%, up from 9.9% a year earlier.

Urban unemployment stood at 14.6% and rural at 4.1% in 2015. The HCP put the underemployment rate at 10.8%, up from 10.3% in 2014. As is the case across North Africa, unemployment is a particular problem among the youth population, standing at 20.8% for Moroccans aged between 15 and 24, including graduates. This figure rises to 39% in urban areas. Meanwhile, 24.2% of Moroccans holding certificates of professional specialisations and 21.2% of those with higher-level diplomas are unemployed. As a result, Moroccans under the age of 30 account for 63.5% of the kingdom’s unemployed workforce. “While the macroeconomic situation has improved, there is still room for growth in terms of job creation,” Tarafa Marouane, chairman and CEO of Morocco United Arab Emirates Development Company, told OBG. “Morocco’s economy is expanding, but it is not providing enough jobs, especially for the youth.” Unemployment in Morocco has declined slightly in the last 15 years, although this is in part because the labour force participation rate has also fallen, from 53.1% in 2000 to 47.4% in 2015 and 46.3% in the first quarter of 2016. The rate is pulled down by a low urban participation rate of 41.4% and, in common with other regional states, a very low female participation rate of 24.8%.

There is a push to boost job creation, particularly in the services sector, although this has come with limited success. “Agricultural employment will continue to decline as the sector becomes more efficient, and while one would expect growth in other sectors to compensate, this is not really happening,” Jean-Pierre Chauffour, lead economist for the MENA region at the World Bank, told OBG. Underscoring this, in a speech in April 2016, BAM governor Abdellatif Jouahri noted that industry’s share of employment has been falling since the start of the millennium, from 12.8% between 2000 and 2007 to 11.9% between 2008 and 2014.

While emerging export-oriented industries such as automobile manufacturing should provide new jobs, there are concerns that technological advances have rendered these insufficiently labour intensive to substantially dent unemployment. To address this, the authorities are promoting the development of other more labour-heavy industries in the service sector such as offshoring, though job creation in the services sector also appears to be falling off, having dropped every year over the past five years from 115,000 in 2011 to 32,000 in 2015.

Skills & Education

Morocco’s youth unemployment rate is in part a result of workforce preparation and education. The 2015-16 “Global Competitiveness Report” published by the World Economic Forum ranked an inadequately educated workforce as the fourth-most-problematic factor for doing business in the country (see analysis).

However, the situation has improved enormously in recent years, with enrolment for both genders at the primary level at 98.4% in 2014, up from 65.6% in 1996 and 90.3% in 2009, according to the World Bank. However, there is scope for further progress in the coming years. “The problems relating to education in Morocco are not primarily about money or resources – there has been a huge improvement in school attendance, with nearly 100% attendance rates for children up to 11 years of age in urban areas – but rather about the quality of education,” Mamoun Tahri-Joutei, director of economic intelligence at BMCE Bank, told OBG, adding that the authorities were working to improve this.

As a result, there has been a big push for vocational training in recent years, thanks in part to the efforts of the state-run Bureau of Professional Training and Employment Promotion, which aims to train 1m people by 2020. Industry associations have similarly sought to establish new technical education facilities, as in the aerospace sector, where private sector industry group the Moroccan Association of Aeronautics and Aerospace partnered with the government to establish the Moroccan Aerospace Institute. The field is also one of two focus areas of the second compact between Morocco and the US Millennium Challenge Corporation signed in April 2016, which will provide $220m of funding to improve secondary and vocational education to better meet private sector needs.

Trade & Account Balances

The trade deficit fell from Dh114.1bn (€10.5bn) in 2014 to Dh77.4bn (€7.1bn) in 2015 due to growing exports and a drop in energy import costs in particular. Total exports of goods and services rose by 8.1% to Dh325.1bn (€29.8bn), as per figures from the Office des Changes, comprising Dh181bn (€16.6bn) of exported goods (up 8.3%) and Dh143.3bn (€13.1bn) of exported services (up 7.8%).

Major export groups include automotive products, which at Dh48.6bn (€4.5bn) in 2015, were up 20.7% for the year and are now the kingdom’s biggest export, as well as phosphates and phosphate products at Dh44.2bn (€4.1bn), agriculture and food products at Dh43.5bn (€4bn), and textiles, clothing and leather goods at Dh33bn (€3bn).

Meanwhile, total imports of goods and services were 3% lower in 2015 at Dh402bn (€36.9bn), with imports of goods declining by 4.7% in value to Dh325.2bn (€29.8bn), and those of services increasing by 4.7% to Dh77bn (€7.1bn). The drop was a consequence of a 28.1% decrease in the cost of energy imports to Dh66.7bn (€6.1bn), thanks to lower oil prices, as well as a reduction in the volume of crude oil imports. In addition, the value of food imports fell by 14.3% as a result of a strong 2014/15 domestic agricultural harvest.

However, the drought-afflicted 2015/16 agricultural season is highly likely to put pressure on the deficit as wheat imports rise to cover the fall in domestic production. The deficit rose by 5.5% in the first quarter of 2016. While exports grew by 2.8%, with automobile exports up 11.3%, imports outpaced them on growth of 3.9%, driven by higher purchases of industrial equipment (up 17.1%), finished consumer goods (15.7%), semi-finished products (10.3%) and food products (7%). This was in part counterbalanced by a 31.7% decrease in imports of energy products and a 9.2% fall in raw materials.

Boosted by the improvement in the trade balance in 2015, the current account deficit fell from 6.2% in 2014 to an estimated 2.1%, according to HCP figures, with the IMF putting the figure at 1.4% in its April 2016 “World Economic Outlook” report. The deficit has been falling in recent years after having peaked at 9.5% of GDP in 2012 on the back of high oil prices, and the tourism sector appears to be recovering after a slower 2015, with revenues rising by 5.3% in the first quarter of 2016.

Long-Term Changes

Over the longer term, the IMF expects rapid expansion in new export-oriented industries to reduce the trade deficit, and has forecast the current account deficit will stabilise at around 1.3% of GDP. To help sustain this, the government is taking steps to mitigate its dependency on energy imports, with the aim of obtaining 52% of the kingdom’s electricity needs from renewable sources by 2030. Morocco is already on track to meet its target of 42% by 2020, and the sector has attracted large amounts of foreign investment. February 2016 saw the completion of the first phase of the world’s largest concentrated solar power plant – the Noor I plant, located near Ouarzazate – which will generate 580 MW of power when fully completed in 2018. “The kingdom is rapidly becoming more energy efficient as it switches to renewables and also other fuel sources, for example, by moving to replace fuel oil for power generation with gas, which is cheaper. This no doubt will also help reduce the trade deficit and exposure to oil price volatility,” Walter Siouffi, managing director for Morocco, Tunisia and Libya at Citibank Morocco, told OBG.

Trade Agreements

Morocco has free trade agreements with the US, Canada, Turkey, the European Free Trade Association, and, under a single agreement known as the Agadir Agreement, Jordan, Egypt and Tunisia. However, its most important treaty so far is with the EU, which is the kingdom’s largest commercial partner, accounting for 57.2% of Morocco’s trade volumes in 2015. An Association Agreement came into effect in 2000 that saw the gradual establishment of a duty-free zone for industrial goods, which has been fully in place since 2012. Moroccan industrial goods have had duty-free access to the EU since 1976, but the accord extended this to EU access to Morocco.

Morocco and the EU also signed an agricultural agreement in 2012, providing duty-free access to the EU market for 55% of Moroccan agricultural products, which the EU says represent 98% of Moroccan agricultural products exportable to the EU, while EU access to Morocco’s agricultural market is to be gradually liberalised over the course of a decade, with the exception of some sensitive Moroccan markets such as cereals and olive oil. However, a court decision in December 2015 invalidating the agricultural trade agreement has somewhat strained relations. The European court’s move aimed to exclude the disputed territory of Moroccan/Western Sahara from the agreement and included duty-free quotas on agricultural produce. In response, Morocco suspended all contact with EU institutions in February 2016. The Council of the European Union has appealed the court’s decision and a ruling is expected within a year.

In 2013 the EU and Morocco also began negotiations on extending their commercial ties through a so-called Deep and Comprehensive Trade Agreement, which is aimed at furthering the kingdom’s integration into the EU economy, and which would, among other changes, further liberalise trade in services, harmonise key elements of Morocco’s commercial regulatory framework with that of the EU, simplify Customs procedures and increase protections for investors. Four rounds of negotiations on the accord have taken place; however, in June 2015 the kingdom put a scheduled fifth round on hold in order to conduct and assess a study on the potential ramifications of such an agreement.


Inflows of foreign direct investment (FDI) hit Dh39.9bn (€3.7bn) in 2015, up from Dh36.5bn (€3.3bn) in 2014, according to the Office des Changes. Net FDI stood at Dh31.8bn (€2.9bn), up from Dh29.9bn (€2.7bn) the year before, and this has risen every year since 2010, standing well above its pre-financial crisis peak of Dh23bn (€2.1bn) in 2007. Industrial investment has helped drive this growth, increasing more than six-fold in the five years to 2013, when the sector was the largest recipient of foreign investment with 39.3% of the total, followed by real estate, and tourism.

France was Morocco’s largest foreign investor in 2015 – a position it has occupied for many years – with a sum of Dh9bn (€825.2m), or 22.6% of total foreign investment, according to the Office des Changes; however, this was down from Dh11.8bn (€1.1bn) in 2014. The UAE followed in second place – a ranking it has maintained for the past five years – with Dh6.67bn (€611.5m), or 16.7% of the total, up from Dh4.52bn (€414.4m) in 2014; and the US in third place with Dh4.25bn (€389.7m), or 10.6% of the total, up from Dh2.71bn (€248.5m) in 2014. This displaced Saudi Arabia, which was the third-largest foreign investor in 2014, with investments of Dh3.88bn (€355.7m). The US in particular is working to deepen economic ties. “Increased US diplomatic representation in Africa is paving the way for an enhanced economic presence. The commerce department, for example, is working to improve the participation of US companies in public tenders,” Rabia El Alama, managing director of the American Chamber of Commerce in Morocco, told OBG.

In 2015 real estate attracted the most foreign investment by sector with Dh10.8bn (€990.2m), or 27.2% of total inflows, followed by the manufacturing sector with Dh8.71bn (€798.6m), or 21.8% of the total, and the finance sector with Dh4.10bn (€375.9m), or 10.3%. However, in the past five years, manufacturing industries have led the way with 27.7% of total foreign investment, ahead of real estate activities, which totalled 25.9%. Food manufacturing accounted for 10.5% and the automobile industry made up 7.1% of the total.

FDI stock stood at Dh463bn (€42.5bn) at the end of the 2014 and the leading sectors were industry, telecoms and real estate. Concerning greenfield investments, renewable energy has been the leading recipient of FDI inflows in recent years, attracting $2.93bn between 2011 and 2015, followed by real estate with $2.8bn and the automotive original equipment manufacturing sector with $2.69bn. The outlook for investment remains positive, particularly as the country looks to position itself as a gateway to West Africa through initiatives such as Casablanca Finance City. Some of Morocco’s largest companies already have a large presence in francophone markets in West and Central Africa. “The African continent is a major source of growth for Moroccan companies,” Hassan Ouriagli, CEO of Société Nationale d’Investissement, told OBG. “For instance, we have identified cement, insurance, banking and energy as key growth opportunities for the group.” Morocco has also been working to sign new bilateral agreements with countries like Gabon, Côte d’Ivoire and Cameroon. “Companies that come to Morocco to look at African communities will also see local opportunities,” Siouffi told OBG.


Although it seems as if 2016 will see weaker growth than in previous years, if Morocco can continue to attract major investment in high-growth-potential industries such as the automotive, aeronautic, agri-business and offshoring segments, while also developing well-integrated business ecosystems in these areas, it could achieve the type of growth rates witnessed in other emerging markets, such as those of South-east Asia. This would in turn help boost economic development.


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The Report: Morocco 2016

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