A rising tide: The northern region is a hub of industrial activity

Anchored by the port city of Tangiers, Morocco’s diverse northern region has undergone a significant transformation in the past 10 years. The infrastructure and economic tissue of the north lagged behind much of the country for decades. However, since the late 1990s, efforts to decentralise governance, boost local infrastructure and encourage industrial growth have propelled the region forward.

The crux of these efforts is an integrated economic development plan that aims to capitalise on the region’s location at the juncture of the Atlantic Ocean and the Mediterranean and along key maritime trade routes. Central to this is the sprawling Tanger-Med port complex and a network of integrated industrial zones in the Tangiers-Tétouan region that have become the economic driver of the north. Today, Tangiers-Tétouan is the second-largest recipient of foreign direct investment (FDI) inflows after the greater Casablanca area. In addition, a five-year urban and economic development plan, Tangiers-Metropolis, launched in September 2013, aims to invest another Dh7.66bn (€680.2m) in the greater Tangiers area between 2013 and 2017 to reinforce its position as a motor of the national economy.

While the port-industrial complex in Tangiers has been the focus of public and private investment in the past decade, the region’s growth has opened up possibilities in a number of sectors, including tourism, services, information and communications technology, offshoring and agriculture, and across a number of northern provinces, including Tétouan, Larache, Assilah, Taza and Al Hoceima.

A WORLD APART: For decades, the northern region was left on the sidelines by the government’s focus on developing the country’s administrative and economic centres, Rabat and Casablanca. The strategic position of Tangiers on major maritime passages made it a valuable foothold on the southern Mediterranean for seafaring powers for centuries, and the area changed hands a number of times from Phoenician and Roman traders to more recent occupations by the Portuguese, Spanish and British.

When the rest of Morocco became a French protectorate, Tangiers was instead declared an international zone, governed by a separate regime between 1923 and 1956. This isolation contributed to the city’s disconnect with the national development plans in the latter half of the 20th century.

INVESTMENT: However, government efforts to incorporate underserved regions in the north, east and south into the national economy have multiplied in the past 20 years. An agency dedicated to the development of the region, the Agency for the Promotion and Development of the North (Agence pour la Promotion et le Développement du Nord, APDN), was created in 1996 to build the region’s relationships with domestic and foreign partners and channel public and private investment into economic development projects. The APDN oversees two of Morocco’s 16 regions: Tangiers-Tétouan and Taza-Al Hoceima-Taounate. Tangiers-Tétouan accounts for the bulk of economic activity and investment. It covers 11,570 sq km in the north-west, bordered by the Atlantic on the west and the Mediterranean to the north. The port of Tangiers is 14 km away from Spain across the Strait of Gibraltar. The region includes two prefectures, Tangiers-Assilah and M’diq-Fnideq, and five provinces: Chefchaouen, Larache, Fahs-Anjra, Tétouan and Ouazzane. The region counts nearly 2.9m inhabitants, one-third of whom live in the hub of Tangiers.

The neighbouring Taza-Al Hoceima-Taounate region covers 23,548 sq km, and includes 1.8m inhabitants in four provinces: Al Hoceima, Taounate, Taza and Guercif. It borders Fez-Boulemane to the south and the Oriental region to the east (see Oriental chapter). Taza-Al Hoceima-Taounate is less connected than Tangiers-Tétouan, with one small port in the regional capital, Al Hoceima, and an airport that ensures seasonal connections to European destinations, mostly through low-cost carriers. The region is primarily rural (75.8%) and access to road infrastructure, health care and education services lag, in part due to its mountainous terrain. However, the region has untapped potential for agriculture and smallscale ecotourism, which local authorities are working to develop with support from European partners.

The northern region also borders the exclave of Ceuta, located on the Mediterranean coast between Tangiers and Al Hoceima. Like Melilla farther east, Ceuta is officially Spanish territory and, as such, attracts large numbers of African immigrants looking to make the jump to mainland Europe.

TRANSPORT CONNECTIONS: The government has made a concerted effort to improve transport infrastructure in the northern regions in the past two decades. The Tangiers-Tétouan region currently has two international airports. Ibn Battouta International Airport is located 11 km from Tangiers, near the city’s primary industrial zone. Airport capacity at Ibn Battouta was expanded from 450,000 to 1.5m passengers with the opening of a second terminal in 2008, in a bid to support the region’s economic growth. This extension, combined with the arrival of low-cost airlines the same year, helped to boost passenger traffic by nearly 70% from 484,400 passengers in 2008 to 822,259 in 2013, making Tangiers the fourth-largest Moroccan airport in terms of passenger volume. Tétouan’s smaller Saniat Rmel airport also provides regular connections to European hubs.

The Tangiers-Tétouan region counts 2000 km of roads, of which 144 km (7%) are regional and national highways. Tangiers is connected to other key cities on the Atlantic coast via the main north-south highway axis, the A1, and to the northern coast via the Rocade Meditérranéenne, which was completed in 2012. In the near term local authorities are working to widen the 148-km road connecting the interior town of Taza with Al Hoceima, in an effort to open up access to that region’s two main cities.

Existing railways along the Atlantic coast link Tangiers to Rabat in just under four hours and Casablanca in five hours. An extension was constructed in 2009 to connect the Tanger-Med port complex, 22 km east of Tangiers, to the national rail network.

The Casablanca-Tangiers line currently accommodates around 2m passengers per year, but a project to build the country’s first high-speed railway (ligne de grande vitesse, LGV) aims to increase this to 8m passengers in the future. Work is under way on the first segment of the LGV, a 200-km stretch connecting Tangiers to Kénitra. The project will require a total investment of €1.8bn, with considerable support from international partners. The first segment is expected to be completed in 2016, and the line will be extended to Rabat and Casablanca in future stages. The LGV should help to provide rapid, higher-quality passenger transport between the primary cities on the Atlantic coast and to drive more traffic to the growing port complex at Tanger-Med (see analysis).

MARITIME TRADE: The primary catalyst of the region’s development is undoubtedly the TangerMed port complex. Tangiers has long been a centre for maritime trade, and the decision in 2002 to install a major port complex aimed to harness the region’s trade and trans-shipment potential as a multiplier for other sectors. Among other developments, the port has benefitted from increased traffic and links following the signing of the US-Morocco free trade agreement in 2006 as well as the expanding Association Agreement with the EU.

The existing facility, inaugurated in 2007, has two container terminals. Dutch firm APM Terminals manages the first terminal, TC1, under a 30-year concession with Morocco’s Akwa Group; TC2 is operated by the German-Italian consortium EUROGATE-Contship with shipping firms MSC, CMA-CGM and Comanav. The port’s passenger and international road transport terminal can process up to 7m passengers and 700,000 trucks per year. Tanger-Med also has a hydrocarbons terminal, with a capacity of 5m tonnes of refined products per year, a bulk terminal and a vehicle terminal with an annual capacity of 1m vehicles. The container terminals are adjacent to a 250-ha logistics free zone and an intermodal services zone, which round out the port facilities. Tanger-Med is now the second-largest centre for maritime traffic in Morocco after the port of Casablanca, and annual trade flows are rising steadily. Container traffic at the port rose 40% year-on-year (y-o-y) to 2.5m twenty-foot equivalent units (TEUs) in 2013. Overall cargo traffic, in terms of tonnage, rose 39% to reach 34.9m tonnes. This uptick was driven by the thriving industrial sector, and, in particular, increasing production at Renault’s automotive assembly plant in the nearby Melloussa free zone. Vehicle exports from the Renault factory increased 81% y-o-y in 2013, accounting for just over half of the 181,500 vehicles that passed through the Tanger-Med port. The French manufacturer launched work on the second phase of the plant in late 2013, which ultimately aims to triple annual production to 340,000 vehicles per year.

TANGER-MED II: Maritime traffic will expand further when the second phase of the port facility, TangerMed II, is completed in 2016. Construction began in 2010, led by a consortium of France’s Bouygues Travaux Publics, Belgium’s Besix, Italy’s Saipem and Morocco’s Somagec, to built two new container terminals that will bring total capacity from 3m to 8.2m TEUs per year. No concessionaire has yet been selected for the third terminal (TC3), which will have 1600 metres of quays and an annual capacity of 3m TEUs.

The concession for TC4, with a total capacity of 2.2m TEUs, was awarded to Marsa Maroc, the state-owned port operator that manages nine port terminals nationwide, in 2009. To supplement public financing, the project has considerable financial support from overseas lending institutions, including a €200m loan from the European Investment Bank (EIB) and Dh1.5bn (€133.2m) loan from the Arab Fund for Economic and Social Development. The government is also considering selling a minority stake in Marsa Maroc in 2014 in an effort to fund the operator’s expansion in Tangiers, as well as in Casablanca.

INDUSTRIAL POTENTIAL: The Tanger-Med Special Agency (TMSA) was established in 2003 to manage the port and a related network of industrial and free zones. While most of the kingdom’s ports are overseen by the National Ports Agency, the Tangiers port has its own dedicated agency, the Tanger-Med Port Authority, which itself falls under TMSA. The region’s industrial zones are overseen by the Tangiers Free Zone (TFZ) company, which is 51% owned by TMSA and 49% owned by a variety of national and foreign groups, including pension funds and banks, as well as institutional investors.

The first industrial zones in Tangiers have existed since the 1960s, and multinational firms have had a presence for just as long. However, the area’s industrial development took off in the late 1990s, when plans for new zones and the new port were rolled out. The largest park, the TFZ, was established in 1999 on a 400-ha site on the outskirts of Tangiers. By 2013 the zone had grown to contain 500 companies and has so far generated €2bn in investment. The TFZ was voted the best free zone port in the world by fDi Magazine in 2012, an accolade which local authorities hope to will inspire confidence in free zones nationwide.

As industrial activity has increased and existing zones have become saturated, local authorities have expanded the region’s industrial offering. Today, the greater Tanger-Med industrial platform includes six industrial zones within an 80-km radius of the port: the TFZ, Renault’s Melloussa park, the new Tangiers Automotive City (TAC), the Fnideq commercial free zone, Tétouan Park and Tétouanshore.

The TFZ, Melloussa, TAC and Fnideq parks are all free zones. According to national laws, this means that activity in the zones must be primarily export-oriented. Fiscal incentives are standardised for all free zones nationwide, and include a five-year exemption from corporate income tax, followed by a rate of 8.75% for the next 20 years, as well as exemption from value-added tax, local operating fees and urban taxes, and foreign currency controls.

AUTOMOTIVE & AERONAUTICS: The zones are open to firms in industrial production, logistics and services. Today, the automotive sector is the largest segment in terms of export turnover and employment in the zone. The next largest sector, aeronautics, accounts for roughly 10% of the TFZ’s annual $1.1bn in turnover, followed by the electronics industry. Recent growth in industrial exports will have real implications for the national economy; in a January 2014 review, the IMF indicated that increased automotive and aeronautics exports will be one of the key factors that will support GDP growth of 4.8% in the non-primary sector in 2014.

The establishment of large-scale manufacturers and assembly plants contributed to the development of a strong network of suppliers, subcontractors and service providers, which will help to support further growth in the zone. This particularly true of the zone’s automotive network, which today includes a large number of component manufacturers in areas like cabling, seats and plastic injection. While this specialisation trend dates back more than a decade, the move by French auto manufacturer Renault to open a large-scale production facility helped to jumpstart growth in the automotive segment. Renault’s factory began operation in 2012 and production reached over 100,000 vehicles in 2013. The state provided Renault with a 280-ha plot in the Melloussa free zone at no cost, in the interest of attracting future investment to the region.

Mehdi Tazi-Riffi, managing director of the TFZ, told OBG, “While the Tanger-Med industrial platform is developing across a number of sectors, the current installed capacities of the TFZ lend themselves well to further specialisation in the auto industry. The arrival of Renault in 2012 was an important factor in drawing new investors to the zone. However, the fact that suppliers can access an installed capacity of 5m vehicles per year in Europe via the TangerMed port has also encouraged the zone’s automotive specialisation in the last decade.”

FUTURE GROWTH: As existing parks neared capacity, work on a dedicated free zone, Tangiers Automotive City, was launched on a 300-ha site opposite Renault’s Melloussa park. The zone will be open to manufacturers, equipment suppliers, logistics operators and related service firms in the automotive industry. Local authorities hope to attract a second large-scale auto manufacturer to the region in the coming years, which would create a new wave of demand for industrial space. The first 55-ha tranche of the site was commercialised in mid-2013 and has generated Dh600m (€53.3m) in planned investment. At least six manufacturing and service projects are set to begin operations in the zone, including the US-based Electrical Components International and two Spanish firms, Europac and Turbo Cadiz. The first operations are set to begin between late 2014 and early 2015 (see analysis). INDUSTRIAL TÉTOUAN: In addition, a 150-ha industrial park is under construction in nearby Tétouan. The first 15-ha tranche is expected to become available in late 2014. Unlike the industrial zones in Tangiers, Tétouan Park is instead slated to focus on small and medium-sized enterprises, which make up the majority of the local economy. The zone will be oriented towards Moroccan firms in agro-industry, textiles and light processing, and sales will be directed to the domestic market. The offshoring sector was made a priority under the national industrial plan; several sites are under development nationwide, including a 20-ha offshoring zone in Tétouan. Similar to Technopolis in Rabat and Casanearshore in Casablanca, Tétouanshore will offer 14,500 sq metres ha of office space for companies specialising in software development, IT outsourcing, business process outsourcing, call centres and other back office services. According to the TFZ, roughly 15 companies are working to launch projects in the zone.

An IT training institute will be established in Té touanshore in partnership with international firms such as Cisco and Microsoft with an ultimate capacity for 500 students. However, finding sufficient numbers of local, trained employees will be a challenge for companies across the industrial sector as it continues to expand. The availability of human resources in the north has gone through several periods of strain, and local schools are working to increase capacity in high-demand sectors. The local market for low-skilled labour has stabilised, but companies continue to search for more high-skilled engineers, technicians and manager (see analysis).

TANGIERS-METROPOLIS: Infrastructure projects under the regional development strategy have transformed the northern region over the past decade. A new initiative launched by King Mohammed VI in September 2013, Tangiers-Metropolis, aims to direct public and private investment of Dh7.66bn (€680.2m) into the region by 2017 in order to further strengthen the transport network, expand industrial zones, update urban infrastructure and raise Tangiers’s profile as a tourism destination.

Several major infrastructure projects aim to streamline road transport, including the construction of a ring road around Tangiers, a third motorway along the Atlantic coast, and several new underground parking centres in the city centre. A 65-km section of the Atlantic coast between Assilah and Cap Spartel, which has strong potential for tourism, will be cleaned up, and the historic and cultural sites in Tangiers will be renovated. The scheme also targets social infrastructure, with plans to construct new schools and health care facilities. According to the APDN, the initial tenders have been launched in most sectors, and construction has begun on underground parking projects meant to ease circulation in Tangiers.

A related project was launched in 2010 to convert the historic Bay of Tangiers into a recreational port and tourist attraction. With the inauguration of Tanger-Med, the region’s international trade activity has been transferred away from the bay, opening up the zone’s potential for tourism, real estate, commerce and cultural life. Société d’Aménagement pour la Reconversion de la Zone Portuaire de Tanger Ville is overseeing the Dh7bn (€621.6m) programme, which includes plans for three cruise ship docks, a 1600-berth recreational marina, a shopping centre, as well as residential, commercial and business real estate. The site is expected to be completed by 2017, with considerable support from public-private partnerships and private concessions (see analysis).

REAL ESTATE DEVELOPMENT: Increased economic activity in the last decade stimulated a push to build mid-range housing, as evidenced by the landscape of Tangiers’s perimeter, which is dotted with residential projects in various stages of completion. There is a surplus of mid- to high-end housing, but prices remain stubbornly high. The sales prices in Tangiers’s real estate market have proven resistant to the impact of the economic crisis in Europe and in Morocco; while rental prices have dropped an estimated 30% on average in the last few years, sales prices have not budged. Real estate construction in Tangiers, particularly of apartment buildings, is often seen as an investment, and many owners are reluctant to sell until the market improves.

The industrial boom also brought an influx of labourers, and public developers are working to expand the affordable housing segment to accommodate them. The government launched a programme to construct 12,000 social housing units in the Tangiers-Tétouan region between 2008 and 2012, targeting workers who earn up to 1.5 times the minimum wage. The state-owned housing developer Al Omrane is also constructing a new development in Chrafate, located in the rural commune of Jouamaa near the Melloussa industrial zone. Chrafate is being developed as an environmentally friendly town and will help to absorb workers in the surrounding industrial zones. The town is expected to accommodate 150,000 residents by 2020, spread over 1300 ha and 30,000 housing units, according to APDN. Work on the site was launched in 2009.

POWER CONNECTION: According to Energie Electrique de Tahaddart estimates, regional demand for electricity jumped by roughly 8% in 2012 as new industrial projects came on-line, and another 3.1% in 2013. Rising industrial activity will continue to drive consumption, and the state is working to stay ahead of this demand locally and minimise its electricity imports from Spain. The kingdom’s electricity imports rose 5.2% y-o-y to reach Dh2.93bn (€260.2m) in 2013. Imported electricity provided 17.08% of the power consumed nationwide in 2013, down slightly from 17.67% in 2012. The Tangiers-Tétouan region has a total installed capacity of 750 MW, from a combination of thermal, hydroelectric and wind power. Of this, 380 MW is produced by the Tahaddart combined-cycle plant, which operates using natural gas levied from Algeria’s Maghreb-Europe pipeline, which passes through northern Morocco.

The government has set the goal of reaching an installed capacity of 2000 MW each of wind and solar power by 2020. While these targets are still a long way off, Morocco has made great strides in its effort to develop eco-friendly and renewable energy production. The launch of the Tahaddart plant in 2010 was an important step forward for the region, which brought electricity generation closer to production centres in the north and shifted generation away from power generated from fossil fuels towards more environmentally-friendly natural gas.

The northern region is set to receive two more wind plants under the national plan to install 1000 MW of new wind farms between 2010 and 2019 (see analysis). The first project to be constructed under this plan is a 150-MW plant in the northern town of Taza. The plant is currently being built by a consortium of France’s EDF Energies Nouvelles and Japan’s Mitsui, and is slated to come on-line in 2015. In February 2014 the national utility provider, Office National de l’Électricité et de l’Eau, launched a tender for a second 100-MW wind farm in Tangiers. Five international consortia have been pre-qualified for the tender, and the concessionary will be chosen in 2014.

TOURISM: The northern region has a number of attractions, at various stages of development. The cities of Tangiers and Tétouan are the most developed markets in the north: Tangiers has long been a cosmopolitan stopover given its history and the port’s proximity to Spain, while nearby Tétouan is considered a cultural destination, and its medina is recognised as a UNESCO World Heritage Site.

International hotel chains are increasing their footprint in the two cities, and tourism arrivals are rising steadily. The number of tourists registered in hotels in the Tangiers-Tétouan area rose 5% from 523,100 in 2010 to 549,200 in 2012; growth in the first three quarters of 2013 accelerated considerably, increasing 7% y-o-y. Over half of the 2012 arrivals in Tangiers-Tétouan were domestic tourists, with 13% and 9% coming from Spain and France, respectively.

The industry is limited by the region’s existing hospitality infrastructure, but this is set to change in the coming years. The Tangiers-Metropolis programme outlines several projects that aim to redevelop green spaces and leisure areas in Tangiers, preserve the city’s heritage sites and increase visitor capacity.

A third key destination is Chefchaouen, which was one of six cities acknowledged by UNESCO for its role in the intangible cultural heritage of humanity under the Mediterranean diet section. In addition to these three centres, the regional tourism strategy plans to develop natural and ecotourism, particularly through the redevelopment of Bouhachem National Park and the creation of rural tourism offerings (see analysis).

A high-end resort is planned in Larache, near the ancient site of Lixus, under the country’s Plan Azur tourism scheme. However, the project has been on hold for several years after European partners reduced their involvement during the economic crisis. A consortium led by Moroccan real estate developer Alliances, Caisse de Dépôt et de Gestion and the Moroccan Fund for Tourism Development assumed control of the project in October 2013 and aims to restart work in 2015 (see analysis).

EXPANDING DEVELOPMENT: International investment in the north is often drawn to Tangiers, given its industrial platform, strong transport network and relatively dense population. However, authorities are working to implement development plans for each province, to capitalise on local advantages and limit rural-urban migration, and to ensure that growth spreads beyond the region’s urban centres.

The province of Larache, south of Tangiers, has launched an integrated development programme that aims to reinforce the province’s role as one of the main drivers of the agriculture industry in the north. Plans are in the works to establish Larache as a point of convergence for agricultural products coming from throughout the region for export from Tanger-Med or local distribution. The province aims to establish an agropole near the port of Larache dedicated to agro-industrial production, light processing, conditioning and logistics (see analysis).

Economic activity in Taza-Al Hoceima-Taounate is hampered by poor-quality roads, the region’s mountainous terrain, limited port facilities, and the scale of the informal economy. These conditions make Taza-Al Hoceima-Taounate an unlikely destination for large-scale investment for now; however, regional authorities see potential in small-scale ecotourism and agriculture projects. The APDN and local authorities are also working to accelerate development in the underserved Taza-Al Hoceima-Taounate region. A €24m joint programme is being led in partnership with the EU to assess the economic potential of the province of Al Hoceima. The partners will mobilise their funds in order to raise the living standards of local populations and assist them in creating revenue-generating activities that can boost the province’s attractiveness as an agricultural centre and eco-tourism hotspot. In the long term, the programme aims to build links with other provinces in the region to integrate more touristic landmarks to better promote the destination and encourage complementarities between local economic operators.

OUTLOOK: Further development of the Tangiers industrial platform will continue to drive the region’s growth. Tangiers’s 2013-17 regional development strategy addresses all aspects of the local economy and should help to harness the region’s potential for both economic and human development. The informal sector will continue to weigh on the economy, particularly in the more isolated Taza-Al Hoceima-Taounate region, so extending the benefits of increased FDI to local companies and employees will be one of the key challenges for regional authorities.

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The Report: Morocco 2014

The North chapter from The Report: Morocco 2014

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