Morocco’s economy is in good shape, and increasing its focus on FDI will take the economy to higher ground
Morocco’s economy has been in the uptick in recent years, and predictions for its growth continue to be positive. The country’s gross domestic product (GDP) grew by 4.4% in 2015 thanks to its good economic performance, but slowed down to 3% in 2016 on account of poor agricultural output caused by the drought. Morocco’s economy is predicted to rebound, however, to 4.5% in 2017. The Moroccan economy is also in a better position in The Heritage Foundation’s Economic Freedom Index, where Morocco was rated as moderately free, ranking in at 86th in the world and ninth in the Middle East and North Africa (MENA) region. Morocco was cited for its “notable progress” in terms of its economic liberalization efforts by the index.
But while indicators and predictions have been largely positive, Morocco remains to be a developing country with an economy that must stay competitive. In the aftermath of anti-government protests in 2011, Morocco approved a new constitution which sought to open up and modernize Moroccan society, strengthen its laws and institutions, and increase decentralization. Still, analysts and observers say there is still work to be done for Morocco to maintain its economic competitiveness.
An area where Morocco has achieved gains but must still work on is in its industries. Its newly developed industries such as automobile, aeronautics, and electronics have risen in the past few years, but growth among the industries outside of agriculture remains sluggish, with the World Bank indicating the growth rate at only two percent. Other industries such as textiles, clothing, and tourism have experienced a decline, and so far, the growth in the new industries have been unable to cover this decline. Agriculture remains as the country’s biggest industry, employing around 40% of the country’s total workforce, but being rain-dependent it can be volatile and result in weak output.
According to the World Bank, the gains made by its new industries and the expansion of Moroccan companies in Western Africa have given the country a boost its position in global value chains. But as the World Bank notes, this position, along with its gains in terms of its macroeconomic stability, will depend on the Moroccan government’s pursuit of sound macroeconomic policies and structural reforms.
Of particular importance in this implementation of policies and reforms are youth unemployment, increasing the participation of women in the workforce, and reducing poverty and inequality. Morocco’s employment rate for the second quarter of 2016 was only 47%, with the unemployment rate at around 9%. Youth unemployment was also high at 38.8% in June last year. There are still deep inequalities in Moroccan society in terms of gender and wealth, particularly access to education and jobs for women.
The impetus then is not just about lowering the unemployment rate but at making employment more inclusive in Morocco. Several initiatives do exist, such as social businesses that employ an all-women workforce who receive 100% of profits and cooperatives that conduct activities aimed at improving living standards in rural and urban areas of the country.
For its part, the government must act on promised reforms stated in its National Strategy for Employment—which aims to create 200,000 jobs annually—and ensure access to education and opportunities by women and youth to keep their workforce and industries afloat.
The quality of jobs on offer was also deemed as insufficient by analysts and observers, as many of the jobs are “generally informal and precarious.” The Index of Economic Freedom also states that inflexible labor standards keep a large sector of the labor force marginalized. Thus, it is important that the Moroccan government include meaningful employment and job security in its reform agenda to ensure continuity and sustainability in trade and business.
Along with inclusive employment and equal access to education and opportunities, multinational companies investing in Morocco are calling on the government to focus on improving the skills possessed by Morocco’s workforce. Investors say that the lack of skilled labor is a concern and are calling on the government to invest in better training for local workers. To further encourage foreign direct investment (FDI), investors are also calling on the government to increase its productivity by changing the workforce’s orientation and culture to that of achieving results and output.
Another challenge to Morocco’s economic competitiveness is the government’s dedication to upholding the rule of law, and making its laws work for trade and business. The constitutional reform enacted in 2011 and further reforms in 2015 granted greater civil liberties and independence from the throne for a few sectors, and the government has also moved towards modernizing and opening up processes to make it easier for companies to do business in the country. But while privatization and decentralization efforts may have made Moroccan economy more appealing to investors, many analysts and observers note that some of the reforms are not far-reaching. Observers have also criticized Morocco’s 2015 draft law on judicial reform as seriously flawed, and foreign investors have cited its lack of transparency in their regulating bodies as well as weak intellectual property rights protection.
Morocco has long been preferred by foreign companies because of its stability and security, making it appealing as a regional business hub. However, if Morocco wants to sustain its macroeconomic gains and suitability as a home for multinational companies, it has to show a willingness to follow through its reforms, uphold the rule of law, and ensure consistent enforcement of its anti-corruption laws. The government must also make it easier for foreign companies to do business in Morocco by simplifying or easing their procedures for starting a business, paying taxes, obtaining credit, registering property and trading, and improving minority investor protections. Morocco has 63 bilateral agreements ratified, aimed at promoting and protecting investments, and 51 agreements signed that aims to eliminate double taxation of income or gains; the success of these agreements will depend on the country’s efforts to reinforce the country’s justice and legal system.
The World Bank takes note that the structure of Morocco’s economy is still oriented towards non-trade activities such as construction, public works, and low value-added services, and on agriculture. This orientation has kept Morocco from achieving bigger productivity gains, and investment efforts have not given the country the chance for its growth to take off. But a turnaround has been observed particularly in the country’s FDI, where investment in the last 10 years has shifted dramatically, moving away from exploiting the country’s geological and natural resources to concentrating on market shares, adding value to the economy through trading, and supply chains. This means that Morocco must now focus its productivity and competitiveness on either further improving production and output in the above-mentioned activities and sectors, or change its orientation towards other services and industries where they can increase their output. Morocco’s economic structure needs to gain if it wants to further integrate into world markets.
With its status as an attractive market for foreign investment, Morocco can reap the rewards of its FDIs by fulfilling its new investment charter, introduced in July 2016 to replace the previous charter created in 1995. The new investment charter puts a convertibility system in place for foreign investors in Morocco and gives investors the freedom to transfer profits. Morocco must uphold its proactive FDI policies and include signing protection acts and adopting international business standards. Morocco must also invest in creating a platform for research and development, which includes increasing the capacity of Moroccan institutions to innovate and introduce new technology. Based on rankings given by the World Economic Forum, Morocco must also improve its quality of scientific research institutions, while companies must be encouraged to spend on research and development. Industries can also collaborate with Moroccan universities to undertake research and development projects.
Further, Morocco must improve and invest in its infrastructure to support FDI growth. Businesses are also advocating for improvements in Morocco’s airports and government implementation of an open sky policy, which will encourage more international airlines to include Morocco as their destination. Lastly, the country must make smart use of its landscape by supporting greenfield studies, which will help identify areas that can be utilized for business or production.
Morocco’s economy looks to be heading towards a great path, but the Moroccan government must follow through its constitutional reforms to solidify its gains. Its economy still has many areas for improvement; while these may seem daunting, the government must instead use the opportunity to make a positive change and seize on the confidence given to them by their foreign investors. Its dedication to maintaining sound fiscal practices, implementing reforms, investing on its citizens and infrastructure, and its commitment to creating an open and dynamic business environment will ultimately help Morocco maximize its gains and improve their international trade standing.
Follow me on Twitter: https://twitter.com/MohamedDekkak1