Morocco’s industrial sector is a key contributor to the country’s economy. Between 1985 and 2016 industry contributed an average of about 19% to GDP, and in 2017 this increased, raising the sector’s contribution to around 25% of GDP. The country’s industrial offering is diverse and includes products in the automotive, electronics, textile, offshoring, pharmaceuticals, aerospace, chemicals and electronics segments. In the period between 2008 and 2015 industry was the second-largest economic sector, with 22% of the total inward foreign direct investment flows. Principally, investment went to the rapidly growing high-tech manufacturing industries, including automotive, aeronautics and food processing. Indeed, industrial manufacturing has grown steadily in output, and between 2010 and 2016 the compound annual growth rate was 5.1% – faster than the country’s average GDP growth for the same period.
According to PwC, between 2016 and 2022 the sector is projected to grow an additional 5%. However, it must first diversify its offering, which could include further shifting to high value-added manufacturing such as aerospace or automotive, and increasing overall exports. In this vein, the Moroccan government launched the Industrial Acceleration Plan (Plan d’Accélération Industrielle, PAI) in 2014 to strategise for the sector’s development through to 2020. Consequently, industry is currently in a period of transition, shifting to increase the value of its offerings in order to be more competitive internationally.
Industrial Acceleration Plan
In 2008 the government launched the National Pact for Industrial Emergence, a six-year strategy that focused on attracting investment while putting forward various global industries for development, including automotive, aerospace, electronics, agro-industrial processing and offshoring sectors. The plan was comprised of incentives and major structural projects to support the development of each industry. Following this pact, in 2013 the government announced the comprehensive PAI, which launched in 2014 and aims to develop the country’s industrial offering into a catalyst for growth. The plan is also intended to strategically position Morocco’s industrial within global supply chains. To achieve this, it will develop industrial ecosystems around clusters that align, establishing increasingly lean and efficient manufacturing value chains.
This is reflected in the effort to develop special economic zones (SEZs) and industrial areas with sectoral focus, from automotive to pharmaceutical. In these clusters multiple stakeholders have the opportunity to work in close proximity, and interact with a variety of supply chain links, including small and medium-sized enterprises. In particular, this plan focuses on formalising informal industrial companies. To this end, a mechanism for integrating small businesses was created, which includes an adapted tax component, social coverage, a dedicated financing tool and other supports.
This strategy aimed to increase the weight of industry in Morocco’s GDP from its 2014 level of 14% up to 23% by 2020 – a goal which was achieved in mid-2017. In addition, it will create 500,000 industry jobs by 2020. From 2014 to 2017 the sector increased its added value by 17%, partially in response to the fast evolution of the integration rate.
Between 2014 and 2017 exports rose from €10bn to €13.4bn, an increase of 34% (see analysis). In addition, the sector created 288,000 jobs, amounting to 58% of the original target. Industry has been identified as a key sector that could help address the country’s unemployment problem. Around 60% of the population is under the age of 34, an age range which has high levels of unemployment.
Youth unemployment averaged 26.5%, a number that rose to 42.8% in urban areas. Consequently, continuing to create a wide range of employment opportunities in the industrial sector is one of the government’s key objectives.
In 2017 Morocco’s automotive sector surpassed that of South Africa, making it the leading automotive producer in Africa. The country produced 345,000 passenger vehicles, putting it ahead of South Africa’s output of 331,000. In 2018 an estimated 400,000 vehicles were produced, of which 90% were exported to Europe. In addition, the automotive industry boasts the strongest job creation out of all the economic sectors; between 2014 and 2018 it created 83,800 jobs, which accounted for 29% of all industrial jobs. It also has a local integration rate of more than 50%. International car manufacturers from China, Korea and the US all have industrial facilities located in the country, along with larger international brands such as Peugeot and Renault.
In September 2018 German automobile producer Volkswagen announced that it would establish a local car assembly plant. The kingdom incentivises investments such as these with a five-year corporate tax exemption for automotive companies setting up in Morocco, and a 25-year exemption if most production is exported. Other benefits include value-added tax (VAT) exemptions, land purchase subsidies and rebates of up to 30% on investment costs. The sector targets a production capacity of 1m vehicles between all manufacturers, for annual export turnover of €17.9bn and an integration rate of 85% by 2020. Recent investments to expand production capacities are a key step towards achieving this goal.
In 2018 French car manufacturer Renault signed an accord with the Moroccan Society of Automotive Construction plant in Casablanca to greatly increase its production capacity. The factory extension will allow the Renault group in Morocco to increase its overall production capacity to 500,000 vehicles per year, with 340,000 produced at the Tangier plant. “As an example of industry trends, Renault produced more than 400,000 vehicles in its automotive plants in Morocco in 2018, of which 90% was exported to 74 different countries,” Marc Nassif, general manager of Renault Moroc, told OBG. “Such volume confirms Morocco’s vocation to be a major industrial hub,” he said. Similarly, in 2019 the Peugeot-Citroën production facility, located in the Kenitra Atlantic Free Zone, is expected to open with a capacity of 90,000 vehicles in its first stage. Eventually the factory is intended to produce up to 200,000 cars, creating 3500 direct and 20,000 indirect jobs. As these large investments materialise, Morocco can expect the growth in this sector to meet 2022 goals.
The offshoring sector in Morocco has also experienced a period of continuous growth over the past few years. In 2016 the average sector growth rose to 7%, and in 2018 the offshoring growth rate surpassed 10%. For the first time the sector is set to surpass Dh10bn (€899m) in export revenue, making it one of the top foreign currency earners for the country. In terms of employment, the sector generated almost 8000 jobs in 2018, making it the second-largest industrial employer with approximately 18% of industrial jobs in total.
International companies are increasingly looking to Morocco for their business process outsourcing (BPO) and IT outsourcing (ITO) activities as a result of Morocco’s strategic position near Europe as well as its low labour costs. BPO activities comprise general business administrative functions, managing client relations and specific trade activities. Meanwhile, ITO includes infrastructure management, software development and application maintenance. A number of international companies including HP, Amazon, Dell and IBM have relocated their industrial activities to Morocco’s various SEZs. The main economic zones for offshoring in Morocco are Casanearshore, Rabat Technopolis, Oudjatechnopole, Tetouan Shore and Fez Shore. Many of these are undergoing expansion projects in order to accommodate more companies and increase their business. By 2020 the sector is expected to generate Dh16bn (€1.4bn) and generate around 100,000 jobs.
The agro-industrial sector is an important foreign currency earner for Morocco, generating Dh52.17bn (€4.7bn) in exports in 2017. Furthermore, agro-industry accounts for nearly one-third of the country’s industrial capacity with Dh116bn (€10bn) of yearly turnover and employing 143,000 people. According to Imad Boulabat, managing director of Wilo Maroc, industry and agri-business are evolving in Morocco. “In the past, the building sector represented the majority of our turnover. Today, more than 40% is dedicated to the industrial sector as well as agri-business. So both the PAI and Plan Maroc Vert have tremendously boosted sector performance,” he told OBG.
To date, Dh2bn (€179.9m) has been invested in creating around 90 different projects. The contract programme itself was allocated a total of Dh12bn (€1.1bn) in investment through 2021, so there is still some way to go to before the project is fully completed. Some investment has come from the World Bank, which launched the Strengthening Agri-Food Value Chains Programme with the goal of improving sector growth by promoting agri-business and increasing levels of overall market efficiency. The project directly addresses small and medium agrifood producers and enterprises in order to improve their integration into agri-food chains.
Through enhancing the agri-food market efficiency, the programme will help modernise management for wholesale markets by improving their access to the competitive market prices.
Another large employer for the country is the textile industry, with approximately 26% of industrial jobs and 183,000 people working directly within it. The sector closed 2017 with a strong export performance, and for the first time reached upwards of Dh36bn (€3.2bn). Exports thus increased 9% over 2016, and during the first six months of 2018 the sector grew an additional 3%. According to Abdellatif Kabbaj, managing director for textile and real estate company Soft Group, several factors explain this growth – including the proximity of Morocco to major European markets, the responsiveness of its operators, the competitiveness of its products and the economic slowdown recorded in several competing countries. However, manufacturers can have difficulty selling in the domestic market, which is estimated today at more than Dh44bn (€3.9bn). Kabbaj stressed that massive imports, which are considered by some to be unfair, have been penalising local producers for some years. Therefore, measures must be taken to increase market share in the local market. Indeed, the segment accounts for 24% of the country’s exports. It is set to grow even further in 2019, with increasing focus given to producing solely for international markets. There are 1600 manufacturers in the country, with production capacity of more than 1bn pieces per year, but there is still plenty of opportunity for growth. In order to boost exports, the government has devised a sector strategy that divides the textile industry into ecosystems including fast fashion, knitwear and denim, each area with a different focus. Denim, for example, has been tasked with creating roughly 14,800 new jobs by about 2020.
Morocco has numerous plans to leverage its textile industrial capabilities to become a global sourcing centre specialising in fast fashion and denim. Its proximity to Europe is an essential advantage, as retailers continue to move towards near-sourcing, but the country also needs to offer high-quality product rivalling those of the sector’s current leaders.
Morocco has the second-largest pharmaceuticals industry in Africa, with an annual turnover of Dh14bn (€1.3bn). The sector represents 2% of the national GDP and generates more than 9000 direct and 50,000 indirect jobs. Although pharmaceuticals production has a long tradition in Morocco, the sector has been primarily focused on the local market and has just recently expanded to join the global pharmaceuticals stage. Local industry covers 60% of the need of the national market while just 10% of the medicine produced is exported to foreign markets. The sector exports to 33 countries around the world, though most of the pharmaceutical products exported go to African markets.
Some Moroccan pharmaceutical laboratories such as Cooper Pharma, Pharma 5, Galenica and Laprophan have set up operations in sub-Saharan Africa. Export revenues for the sector amount to Dh909m (€81.8m), leaving room for improvement. The sector appears set to expand, and a number of international investments are under way. As of 2017 investment in the pharmaceuticals industry reached upwards of Dh800m (€71.9m) annually. In October 2018 a new production facility opened in Ain Aouda, representing Dh60m (€5.4m) of investment between Indian pharmaceutical group Cipla, and two Moroccan firms, Pharmaceutical Institute and Cooper Pharma. Cipla has a facility that will produce 15 types of metered-dose inhalers, 11 of which will then be commercialised for the first time in Morocco.
Other investments are expected to be made that will produce generic medicine as well as biosimilars, which currently cover 80-90% of the public market and 25% of the private. The global generic drug market accounted for around $200bn in 2015 and is expected to reach approximately $380bn by 2021. Thus, the Moroccan government has been actively pushing for the generics market, and from 2012 to 2017 the government’s price reduction policy boosted overall sales for generic drugs. Illustrating this, the health authorities lowered prices of several medications – including some used to treat common chronic diseases – in order to additionally augment the market for generic medicines.
They have also amended local legislation to attract investment to the generic medicine sector. In 2017 growth of generic drug sales was 7%, versus overall market growth of 4.6%. However, patented medicines continue to dominate the market with almost 60% growth. This may change in the coming years as Morocco’s national pharmaceuticals policy continues working towards increasing generic market shares to approximately 70%, a goal that looks promising. By 2021 the pharmaceuticals industry is expected to increase its annual turnover to over Dh18bn (€1.6bn). However, in order for the sector to reach its potential, increased efforts must be made to expand the range of drugs produced. In addition, transportation and logistics must be improved in order to better export pharmaceutical products to new markets and in larger quantities. Morocco has potential to be an emerging player in the global market, which would increase the sector’s importance in the domestic economy while bringing in a higher total levels of foreign revenues.
Global pressure to lower costs has made it essential for industrials to implement technology that will increase productivity and optimise costs. In this regard the Moroccan industry must ensure that it is at the forefront of cutting-edge innovations, including the integration of Industry 4.0 in Africa, as the current level of adoption of Industry 4.0 is still considered fairly low.
Morocco has the potential to be an early adopter in the region, and to be at the forefront of creating advanced manufacturing systems as well as unique products, surpassing other developed economies, and in turn strengthening its proposition as a centre of Africa. Industry 4.0 brings with it benefits for high-tech sectors such as automotive, particularly in the ability of manufacturers to leverage on data analytics to quickly improve or customise their products. Successful evolution to Industry 4.0 will require significant financing, however, as well as closer focus on research and development (R&D).
In 2017 Morocco invested 0.8% of its GDP in R&D, which marks a significant increase from 2006, when R&D investment stood at only 0.3% of GDP. This rise proceeds the government’s recent encouragement of R&D investments. The PAI intends to increase R&D investment in the country to 1% of GDP by 2020, in accordance with the UN Sustainable Development Goals for Africa. However, in order to stimulate this R&D, an efficient ecosystem conducive to research needs to exist. Universities, research centres, government and the private sector must cooperate, working together to use technology for productivity improvements and innovation that will foster industrial as well as overall economic growth.
One of the main objectives of the PAI is to increase the industrial sector’s employment opportunities and leverage the pool of human resources available in the country. In fact, a main cause of unemployment in the country is not lack of jobs but instead lack of skills in specific areas. Therefore, a vocational education strategy aims to increase training centres as well as vocational training programmes for various industries.
Much of the focus on vocational training in the kingdom has been guided by Morocco’s Office for Professional Training and Employment Promotion (Office de la Formation Professionnelle et de la Promotion du Travail, OFPPT), which draws a significant portion of its funds from taxes paid by companies. The OFPPT aims to train up to 1.7m students over the course of the 2016-20 period. In addition, a host of international partners, as well as associations linked to specific manufacturing segments, have taken increased roles in helping to design training policies to suit improvements in productivity.
In December 2018 French car manufacturer Renault signed an agreement with École Mohammadia d’Ingénieurs, an engineering school located in Rabat, to encourage professional development in the automotive sector. The partnership will match academic training to the needs of the sector while developing specialised skills in line with innovations.
Another recent measure taken to improve vocational training in the sector was the signing of a memorandum between the minister of education and vocational training, the South Korean ambassador to Morocco and other African countries. This accord focuses on developing the automotive sector by training managers in Morocco, Senegal, Cameroon, Tunisia and Côte d’Ivoire. The agreement will allow 53 Moroccan, as well as other African managers and trainers in the automotive industry, to receive four years of vocational training by South Korean experts in both Morocco and South Korea. Similar vocational training programmes have been established in other industrial subsectors besides automotive. Manufacturing has developed in segment-focused clusters within SEZs, therefore targeted vocational teaching and training capacity have been incorporated very organically in these areas. Although vocational training has been evolving and continues to be an integral part of the PAI, it has experienced delays, and the government has requested additional time for reforming and upgrading professional training programmes. In January 2018 King Mohammed VI signed an agreement in Agadir for the creation of a Souss-Massa free zone, which would include a professional training component, but this project is yet to come into fruition. Therefore, increased efforts must made to reform vocational programmes.
The government has created several free zones across the country where investors can implement their businesses or industrial plants and benefit from tax, Customs and foreign exchange incentives. The advantages of investing within these zones include: exemption of taxes on dividends and partnership shares; and 0% corporate tax during the first five years and then a reduced rate of 8.75% starting on the sixth for the following 20 years. Additionally, licence and urban taxes are exempt for 15 years, and all registration taxes and stamp duties are included, while VAT and tax-free repatriation of foreign earnings are also all exempt. Morocco’s numerous free trade areas include: the export processing zone of Tangiers, the free zones at Tanger Med Ksar el Majaz Mellousa 1 and 2, the free zone in Dakhla and Laayoune, the free storage zone of hydrocarbons of Kebdana and Nador and the export processing zone in Kenitra.
The industrial sector will continue to play an integral role in Morocco’s economy and is set to grow an additional 5% by 2022. With this in mind, the PAI has been put in place to help the industry diversify, expand the value of its offerings and become more internationally competitive. Growing focus on the industry’s plan, as well as the burgeoning automotive, textile and pharmaceuticals industries, will likely result in increased levels of foreign exports, and consequently in higher revenues, more job availability and a stronger economy overall. In addition, this focus will positively impact foreign relationships. “The Made in Morocco brand is an asset that is worth strengthening through a solid economic diplomacy strategy,” Jalil Skali, general manager of Dolidol, told OBG.