The country’s economy has traditionally seen the biggest concentration of activity around its major cities in Casablanca, Rabat and Tangiers, but the potential for growth in its southern provinces is sizeable, and a number of initiatives in recent years have sought to increase investment in the area. The southern region benefits from a number of natural resources, including pelagic fish, solar power and mineral reserves, and longstanding efforts to develop infrastructure and enhance private service provision are helping to open up new business opportunities and progressively improve living conditions.
Plenty of Value
With some of the richest fishing waters in the world, desert and coastal scenery, and opportunities for agricultural development and mining exploration, Morocco’s southern provinces have solid resources on which to base growth. So far, a host of provincial business ventures and smallscale industries have proven that the southern region’s economic expansion can rely on a smart combination of leveraging historical attractions and expanding modern industries. Local natural resources can also contribute to creating value.
Further economic and social development, however, will depend on the region’s capacity to attract more private investors. While doing so will not be easy, given the current levels of development and the southern provinces’ sheer vastness, the potential returns are significant. According to a report by Morocco’s Economic, Social and Environmental Council (Conseil Économique, Social et Environnemental, CESE), the southern provinces account for 59% of the national territory and about 3.2% of the kingdom’s population at 1.03m. In balancing both challenges and opportunities authorities will be able to base development on the back of what has already been achieved under the previous investment drives.
History & Geography
The southern region of Morocco is broken down into 10 provinces divided between three areas: Guelmim-Es Semara, Laâ youne-Boujdour-Sakia-El Hamra and Oued Eddahab Lagouira, which is located at the southernmost tip of the national territory, bordering Mauritania. The southern part of the country is also closely integrated with the Souss-Massa-Draâ region to the north, which, while not considered part of the south per se, nonetheless provides key infrastructure for businesses in the three nearby areas. Souss-Massa-Draâ is not under the direct sphere of the Agency for the Promotion and Economic and Social Development of the Southern Provinces of the Kingdom (Agence pour la Promotion et le Développement Economique et Social des Provinces du Sud du Royaume), known as the South Agency, which was created by King Mohammed VI in 2002 to spearhead the economic development of the southern provinces.
The three southernmost areas of the country make up the territory known as Moroccan Sahara, which was colonised by Spain from 1884 until 1975. The Spanish administration’s departure from the territory led to armed conflict between Morocco and the separatist Polisario movement, which lasted until 1991, with negotiations between the government and the separatists still ongoing. Historically, both the size and remoteness of the provinces, along with the legacy of Spanish colonialism and the subsequent dispute over the region’s governance, have had an impact on the development of the south. These factors have also impacted the rate of economic development, with the territory posting higher unemployment rates in comparison to other parts of the country at 15%, against a national rate of 9%, as well as grappling with limited infrastructure.
Major Link
To the north, linked to the region but not included in the territory of Moroccan Sahara, Souss-Massa-Draâ is now considered an important economic centre for the southern provinces. The region’s economic potential, coupled with expanding transport and communications infrastructure, has helped to promote development further south.
The city of Agadir, which is the kingdom’s seventh-largest city and an economic and tourist centre, has been especially important in helping business and public services to expand further south. For many companies operating in the southern cities of Dakhla and Laâyoune, Agadir still serves as an essential logistics and business centre. This, however, is expected to change in the medium term, as the gradual development of infrastructure in the south’s urban centres allows for more autonomous economic infrastructure to support the region.
The southern provinces are also well positioned to benefit from Morocco’s growing drive to invest in West and Central African markets. In recent years Moroccan firms, encouraged by deepening bilateral cooperation agreements, have been expanding into sub-Saharan economies, as they are fortuitously placed to benefit from a confluence of Atlantic trading routes and serve as a link between Europe, North Africa and sub-Saharan economies. According to the Ministry of Economy and Finance, trade between Morocco and the rest of Africa rose by 13% over the 2003-13 period to Dh36bn (€3.92bn), reaching 6.4% of total trade in 2013. “Besides the existing potential presented by tourism and fishing, we should create opportunities in international commerce, taking advantage of the region’s position,” Lamine Benaomar, wali (provincial governor) of Dakhla, told OBG.
Regionalisation Drive
The Moroccan state has moved to decentralise certain powers from Rabat in order to increase the role of regional authorities in sustainably managing resources. In February 2015 the Moroccan government approved a decree that officially reduced the number of official regions in the kingdom from 16 to 12.
The move follows a longstanding debate about regionalisation of Moroccan government and society and aims to facilitate each region’s access to financial resources, promote efficient administrative services, and encourage respect for existing and historical ties within the social and economic composition of the new administrative areas. Introduced by the Ministry of the Interior, the decree sets out its plan for “advanced regionalisation”, under which each region will be able to provide more input in terms of development goals, as well as being guaranteed more autonomy in achieving any plans.
Under the new institutional setting, the three southern provinces are set to change in 2015. Guelmim-Es-Semara will become Guelmim-OuedNoun, absorbing the province of Sidi Ifni while losing those of Tata and Es-Semara, and with Guelmim serving as the region’s centre. The Laâyoune Boujdour-Sakia El Hamra region will become simply Laâ youne-Sakia El Hamra, managed from the city of Laâ youne. The third region in the south is the Oued-ed Dahab-Lagouira region, which will become the Dakhla region, with Oued Eddahab as its main administrative area. The area’s governance structure is set to change under the advanced regionalisation process, which, local authorities hope, will facilitate the development of investment plans that are more directly geared towards the region’s specific needs. “The new advanced regionalisation status will give regional Centres for Investment a new role, allowing them to propose ideas to the local authorities,” Khalil Nazih, regional director at the Centre for Investment in Souss-Massa-Draâ, told OBG.
Development Drive
Much of the impetus to improve the infrastructure and social development of the provinces came from King Mohammed VI’s commitment to ensure that the less populated areas of the south are able to enjoy the same economic improvements that have benefitted the kingdom’s northern and central areas over the past decade. In the case of Morocco’s three southernmost provinces, implementing the regionalisation model is also linked to attempts to improve the development model used in the region. In a speech delivered in November 2013, King Mohammed VI mentioned that a sometimes dysfunctional approach to certain aspects of development in the southern region had led to the establishment of a rentier economy. In fact, direct government financial support and tax exemptions have helped to improve several social and economic indicators in the southern region. However, they have also contributed to a low level of entrepreneurship and private sector development.
As the CESE report pointed out, the southern provinces’ economy is marked by rent-seeking and low market activity. Entrepreneurship is also weak, due in part to the absence of a formal financing policy for new businesses, especially start-ups. Changing this is one of the primary goals of the new development approach to the region.
Henri-Louis Védie, a professor of finance at HEC Paris business school who specialises in emerging economies, particularly Morocco, told OBG, “Nowadays, we are in a different phase which consists of doing additional work to really ensure that development continues, but also involves a stronger contribution from private investment.”
South Agency
In March 2002 a royal decree founded the South Agency, which became one of the main government bodies charged with mobilising public and private resources to ensure adequate development of the country’s Saharan provinces. Since its inception, the agency has had an important role in not only proposing development strategies for the south, but also taking a leading position in designing the financial structuring, design and implementation of key projects in the region. The agency also combines multiple roles as a source of consultation, monitoring and coordination of ministerial activities in cooperation with other state entities that operate in the south. Several international bodies have played a role in development activities in the south by helping to finance projects, such as UNESCO’s “The Sahara of Cultures and Peoples”, which focused on assisting Saharan states to combat poverty through sustainable development.
Economic Structure
Despite their comparative remoteness, the southern provinces of the kingdom have benefitted from rich primary natural resources. In line with the kingdom’s moves to develop secondary and tertiary sectors nationally, the south is also targeting a wide range of value-added activities. Abundant fish and seafood stocks in the region’s marine territory constitute an important source of income, but the region also boasts agricultural land and mining reserves (see analysis).
Other emerging sectors that benefit from the region’s geography are also taking on an increasingly important role, such as wind and solar generation projects. Furthermore, the natural landscape and favourable conditions for water and wind sports are slowly leading to an increase in ecotourism developments by private investors (see analysis).
According to figures from CESE, the combined GDP of the three southernmost areas of Morocco reached approximately Dh33.2bn (€3.61bn) in 2010, equal to around 4.3% of the annually generated wealth in the country. For that same year, local household spending was measured at Dh15.9bn (€1.73bn), which amounted to roughly 3.6% of total household expenditure in Morocco.
Main Sectors
The fishing and seafood processing industries account for 74,000 jobs, making them the largest employer in the southern provinces, and contribute 50% of regional exports, bringing in around Dh1.9bn (€206.72m), 73% of which goes to the local population. Besides its importance to the local economy, the fishing industry in the south plays an important role for the country as a whole, with about 78.7% of Morocco’s coastal catch coming from the southern region in 2012. Due to its importance, the sector has also been a main target of infrastructure expansion in the region, especially through the improvement of existing port and docking facilities.
Although the region is predominantly arid, agriculture is becoming an important activity and now accounts for 7% of the southern provinces’ GDP, according to CESE. While the sector’s weight in the south is lower than the national level of 14% of Morocco’s GDP, agriculture has an essential role in terms of income, with 75,000-100,000 people depending solely on agriculture, which employed around 20,000 people directly in 2013.
Despite the limited availability of water – demand for irrigation water is expected to rise from 9.93m cu metres in 2010 to 30.19m cu metres in 2030, which may strain groundwater resources – specific conditions allow for production of tomatoes, citrus and other fruits. Oasis areas in particular can yield a variety of natural products such as dates, pears, watermelon, special types of carrots, onions, cucumbers and barley. In certain segments, such as tomatoes, for example, agricultural yields can sometimes be double those of the rest of the country in specific areas of the southern provinces.
The sector will benefit from the government’s Green Morocco Plan, a nationwide strategy that aims to modernise farming techniques and raise production yields (see analysis). Unlike other regions where crops dominate, the south’s agricultural sector is heavily dependent on animal production. Of the Dh2.3bn (€250.24m) in GDP generated by the sector in 2013, 67% of it came from animal production, which also provides 74% of sector wages and 79% of total profits, according to figures from CESE.
Power Up
Other natural resources such as phosphates and minerals are also increasingly regarded as potential wealth generators for Morocco’s south. The phosphate sector already has a solid foothold in the region, providing 2150 direct employment positions as of 2013. The region accounts for 1.6% of the country’s proven phosphate reserves, most of which are situated in the Boucrâa area, which has an annual output of 2.5m-3m cu metres. The deposits are exploited by Phosboucrâa, which is owned by OCP S.A. (formerly state-owned Office Chérifien des Phosphates). Besides providing direct employment, the mining of phosphates in the region has also created some 450 jobs via contracting services to about 50 local firms. Furthermore, the region has also shown potential for the exploration of other minerals, such as iron and uranium, and already has proven gold reserves. In addition, there is some offshore exploration occurring in the southern region.
The southern provinces are also an increasingly popular location for renewable energy projects. The country’s renewable energy regulations allow producers to sell power directly to industrial customers – which puts the region in a strong position to attract more investment to the sector. One of the largest single private investments announced in recent years is the Dh1.8bn (€195.84m) extension of the Akhfennir wind farm in Tarfaya from 102 MW to 202 MW, led by Moroccan renewable energy developer Nareva. “In the short term, the southern region will receive the most attention from renewable energy developers in the country, because they have some of the windiest areas in the kingdom,” Kamal Abdelhafid, engineering and strategic director of Platinum Power, told OBG. Platinum Power is also installing renewable energy capacity in the southern provinces, with three wind power generation ventures under development, including a 150-MW wind project in Laâ youne and two projects further south in Dakhla, with 8 MW and 600 MW of capacity, respectively.
Business Environment
Small and medium-sized enterprises (SMEs) and local investors dominate the regional economy. CESE reported that as of 2013 there were 42,000 companies in the three areas. While 29% of those firms were classified as SMEs, the majority, at 70%, were considered very small enterprises (VSEs), mostly in the informal sector with less than 25 employees. A mere 1% of companies were classified as large-scale businesses.
According to figures from CESE, 60-65% of private investments in the southern provinces are made by local operators, with Moroccan investors from other regions of the kingdom representing 30-35% of total activity, and foreign investors making up about 10-15%. For their part, SMEs have an essential role in the regional economy, accounting for 70% of GDP and over half of employment positions, in line with their contribution to the national economy of around 90% of GDP each year.
Out of Sight
Similar to the national economy, and to North Africa as a whole, a large proportion of VSEs are reported to work informally, according to CESE. This creates difficulties for companies wanting to access credit to expand their businesses.
Larbi Taira, sales manager for fisheries company Société de Congélation de Poissons, told OBG, “The size of the informal sector is one of the main threats for Morocco’s formal fishing industry. But while much remains to be done, the situation has improved thanks to stronger regulations and controls.”
The small size of the average business in the south means that in a lot of cases businesses do not meet the necessary governance requirements for financing. However, access to funding in Morocco can be a challenge more broadly, with the country ranking 104th out of 189 economies in terms of getting credit on the World Bank’s 2015 “Doing Business” report, a fall of five places from 2014. In the World Economic Forum’s “Global Competitiveness Report 2014-15” access to financing was the most commonly cited challenge for doing business.
The south is no exception in this regard. This is in part reflective of and contributes to the limited level of financial inclusion in the region. In 2013 the southern provinces had a combined total of 125 bank branches, a very small proportion of the country’s overall total of 5113 branches.
Taxes
Another ongoing problem has been a lack of clarity on taxation procedures. According to CESE, “The provinces of the Laâyoune-Boujdour-Sakia-El Hamra and the Oued Ed-Dahab-Lagouira region, as well as the provinces of Es-Semara and Tan Tan benefit from the de facto non-application of the corporate income tax, of the income tax … of value-added tax and domestic consumption taxes. In the area of local taxation, and except for some rare exceptions, these provinces benefit from the de facto non-application of both municipal and business taxes.”
This situation has an impact on both businesses and public administration. Non-payment of taxes not only hampers the development of governance practices among the region’s firms; it also reduces the amount of available resources for municipalities aiming to invest in improving social services and infrastructure. Tax revenues in the southern provinces do not exceed Dh1.3bn (€141.44m) – 46% of this coming from local taxes – which is far below the Dh10bn-11bn (€1.08bn-1.2bn) required each year for capital expenditures. Given the negative effects of this on business and investment, authorities plan to establish clearer taxation procedures and improve enforcement. “Advanced regionalisation might have the benefit of establishing a specific tax regime for the southern provinces,” Benaomar told OBG.
Private Sector Drive
The efforts taken to strengthen the business environment appear to be having the intended effect. In March 2015 a conference hosted in Laâyoune by the General Confederation of Moroccan Companies (Confédération Générale des Entreprises du Maroc, CGEM) led to the announcement of a total of Dh6bn (€652.8m) in planned private investments for the southern region over the course 2015, covering projects from the construction of 10,000 housing units in Laâyoune and Al Marsa to a Dh235m (€25.57m) investment in fisheries infrastructure in Dakhla. In a region that has traditionally lagged behind other parts of the country in its ability to attract private projects, the announcement was a big one, and was matched by efforts by the national government to help reduce constraints on doing business. The Ministry of Interior has stated that it would work closely with CGEM to ease any necessary procedures, as well as address issues related to access to land.
CGEM expects the current portfolio of around 60 projects to create up to 10,000 direct jobs in sectors ranging from real estate and construction to agriculture, transport, tourism and renewable energy development. The city of Laâyoune will receive the biggest share of investment projects at 37, followed by Dakhla with 15 and Guelmim with three investment projects. Laâyoune will also receive the largest amount of investment, at Dh3.2bn (€348.18m).
The most significant slice of investment will go to the real estate, construction and tourism sectors, which will receive over Dh2.7bn (€293.76m). Agricultural processing will receive Dh465m (€50.6m), followed by the services sector with Dh445m (€48.42m) in upcoming investments. Industry and transport will also be focal points for private venture development and are set to receive Dh332m (€36.12m) and Dh108m (€11.75m), respectively, according to figures from CGEM provided to the local press. One of the largest single projects will be the construction of 8,500 housing units by real estate developer Addoha. The Dh2.2bn (€234m) investment will target housing for all segments in the city of Laâyoune, as well as in the nearby area of Al Marsa. In addition, the expansion of the Akhfennir wind farm should create hundreds of jobs.
Social Indicators
Social development indicators have seen improvement in recent years, in some cases exceeding national averages, although there are still areas that need more work. On the whole, greater access to education has been one considerable achievement, resulting in literacy rates of 67.8% in the southern provinces, compared to the national average of 61.7%, according to figures from CESE. Besides increased access to primary school facilities, most junior high school students are not only completing their studies, but are doing so at a considerably higher rate than in the kingdom’s other provinces. While average completion rates in the kingdom are 64.6%, areas such as Laâyoune-Boujdour-Sakia-El-Hamra and Guelmim-Es Semara have attained secondary school completion figures of 81.7% and 68%, respectively.
Although this points to major improvements in the early stages of the education system, one of the region’s greatest challenges will be how to transform these pre-tertiary success stories into a population of young professionals with a high level of employability. “To promote employment we also need to value work and make clear that employment is a much better way to value an individual than social support,” Benaomar told OBG.
Proverty Reduction
The Moroccan state has also channelled significant funding into reducing the incidence and severity of poverty in the southern provinces. According to figures included in the CESE’s report, between 1994 and 2012 the total annual contribution by the government reached Dh4.6bn (€500.48m), distributed through both direct and indirect subsidies. The government’s subsidies have clearly helped the southern provinces, as poverty rates in the Laâyoune and Dakhla areas were 2.2% and 2.4%, respectively, according to 2013 figures from CESE, which were significantly lower than the national average rate of 8.9%.
Employment
Job creation is a priority for the regional authorities and a number of initiatives – ranging from improved primary education to technical training – are under way to address this. According to CESE, the official unemployment rate in the southern provinces in 2012 was 15.2%, significantly higher than the national average of 9%. Rates are even higher for young people and women, for whom unemployment reached 28% and 35%, respectively. Most jobs in the region are concentrated in the fisheries industry, public administration and market services, with the last two accounting for 75% of employment, according to figures from CESE.
To build on the high completion rates for secondary students, government support has been provided for the development of professional training centres in the south. As of 2013, Morocco’s Office for Vocational Training and the Promotion of Employment had established a total of 77 vocational training centres in the southern provinces, most of them in the bigger urban centres of Laâyoune, Dakhla and Guelmim, according to the CESE report.
Despite these efforts, employability in the southern region remains an ongoing issue. Several factors, including a mismatch between workforce capabilities and market needs, and an economy structured around a large number of small businesses, have meant that unemployment levels remain high.
Urban Development
Throughout the kingdom, the past decade has seen several programmes launched to improve urban development through the expansion of affordable housing, increased transport options, utilities infrastructure connectivity, and a reduction in informal settlements and slums.
These efforts have yielded notable results in the southern regions, in part thanks to the high level of urbanisation, particularly in coastal areas. According to government figures, access indicators to utilities such as water, electricity and sewage surpassed national figures. Electricity coverage in the south reached 84% of the population, compared to 70% for Morocco as a whole, and potable water obtained 70% coverage, higher than the national average of 55%. The South Agency has a relevant role to play in this, channelling public capital into urban redevelopment efforts in major cities.
In Dakhla, for example, a Dh146m (€15.88m) plan was launched for the 2005-07 period to overhaul infrastructure and municipal facilities. This entailed revamping public buildings, improving street lighting and building a range of new public facilities, including a sports centre, new bus terminal and a conference centre. A second urban investment package for the city of Dakhla was allocated for 2008-09. With a value of Dh121m (€13.16m), it financed the construction of additional public infrastructure, such as public pools, a music conservatory and upgrades to park areas. The second package had a business development focus, establishing a wholesale market and a municipal market as well as a handicrafts centre to promote the region’s traditional wares. Another Dh300m (€32.63m) was allocated to improving urban development in Dakhla over the 2009-12 period, with a special focus on the city’s expansion, as well as improving conditions for economic development. This third publicly financed package, which came as Rabat declared Dakhla slum-free in 2010, was used to build a road linking the city to the coastal areas on the outskirts, create smaller links within the city, establish an industrial zone and construct a fishing village for the region.
The current urban spending programme for Dakhla, set to run until 2019, will invest in the renovation of historical sites, as well as the creation of new cooperatives, which have been an efficient tool to expand work opportunities in the region, especially for women. “Besides the infrastructural side, which is very important, the South Agency must also always keep in mind the need to invest in programmes that help set up a social economy and private initiative for the people in the region,” Bekkar Laghdaf, regional director for the South Agency in Dakhla, told OBG.
Outlook
Despite its remoteness and historically limited private sector development, the southern provinces have made significant strides over the past decade. Among other things, investments in education and health care have improved several key indicators. However, work remains to be done in terms of translating these early victories into full-fledged successes that can impact economic development over the long run.
Employment remains a challenge. The region’s economy is largely based on primary resources, and although serious efforts have been made to add value, some key local industries will benefit from more investment. Such ventures are now materialising as a result of a more visible commitment from the private sector. The strengthening of the government’s engagement in developing the region, through moves to implement a better governance model, will surely help to boost the level of private investment in the region. This will be essential to expanding the scope of value-added activities based on natural resources.
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