Strong macro drives Morocco’s investment appeal – alifarabia.com
There is a reason why the European Union picked Morocco as the first North African country to begin its free trade agreement negotiations with last week.
Morocco has emerged as the most stable North African country, after King Mohammad VI navigated through a tricky period during the Arab Spring. A new democratically elected government with powers has led to a relatively stable country compared to the painful transitions in North African peers Tunisia, Libya and Egypt.
“In the context of political transitions in many countries in the region and high social demands, a new constitution was adopted in July 2011 in order to pave the way for broad-ranging political changes and reforms, including strengthened roles for the head of government and Parliament,” the International Monetary Fund said in a February report.
Morocco is also a stalwart EU trading partner and the country is the first North African state to embark on the Deep and Comprehensive Free Trade Agreements (DCFTAs) with the European Union.
An EU-Morocco Association Agreement had already come into effect as early as 2000, and Rabat was also one of the first inductees in the European Neighborhood Plan (ENP) in 2005. Negotiations for a new ENP Action Plan for the period 2013-2017 were concluded in November 2012 and a formal adoption process is under way.
“As regards the proposed new EU-Morocco ‘Mobility Partnership’, negotiations are advancing at a satisfactory pace and agreement on a political declaration is expected already sometime during the first semester of 2013,” the EU said in a February report.
While the two parties will thrash out trade issues as part of the DCFTA negotiations, agreement on liberalization of trade in agriculture came into force on October 1, 2012.
“Negotiating directives for a new Fisheries Partnership Agreement were adopted by the EU in February 2012 and, following preliminary technical talks, two rounds of negotiations have so far been held. Morocco remains the largest recipient of EU assistance in the ENP-south region with EUR 580.5 million earmarked for 2011-13 with a focus on social and economic development, environmental protection, institutional support (i.e. justice and human rights).”
Solid economic outlook
The DCFTA negotiation is a vote of confidence by the EU in Rabat’s relatively stable regime and efforts to strengthen democratic institutions in the country.
The country has also done reasonably well economically, given that its biggest trading partner – the EU — was in the throes of a recession, and the wider North Africa region has been in chaos for much of the past two years.
“Indeed, Morocco’s macro outlook continues to be relatively solid, in our view, notably when compared to its regional peers,” notes Alia Moubayed, analyst at Barclays Capital.
“First, growth, while slowing down in 2012, remained around 3.2% year-on-year in 2012 compared with less than 2% in Egypt, 2.7% in Tunisia, and 3% in Jordan.
Non-agricultural GDP grew by an estimated 4.8% year-on-year and more than compensated for the sharp contraction in agricultural GDP, which resulted from a severe drought in 2012.
“With expectations of increased FDI investment flows, stabilization in the external environment, and expectations of better harvest, the government forecasts growth to reach 4.5% y/y in 2013, the highest in the MENA region,” said Moubayed.
Equally crucial, Morocco has begun implementing fiscal reform to contain a ballooning budget deficit.
Last year, it raised fuel prices by 20%, increased taxes on alcoholic drinks and cut non-essential spending, which reduced overall deficit from 6.8% of GDP in 2011 to almost 6.1% of GDP in 2012, placing Morocco in a more favorable position compared with its regional peers.
This year, the government plans to reduce the deficit by a further 1.4 percentage points of GDP, through a combination of tax reforms and wage bill rationalization.
“While this may be an ambitious target given downside risks to growth and the political economy of subsidy reform, we expect the government to pursue its reform program gradually as it works on building support for its fiscal consolidation measures, while avoiding adverse effects on growth,” said Mobayed.
Financial aid pours in
Meanwhile, on March 12, the World Bank offered a USD 160 million loan to Morocco, as part of a comprehensive package of operations to support the country’s business environment.
“Morocco has engaged in a number of promising reforms to liberalize and promote investment in key sectors over the last decade,” said Simon Gray, World Bank Maghreb Country Director. “The impact of these reforms on growth and job creation will be further enhanced by addressing the remaining rigidities in the institutional and regulatory business environment especially as they pertain to small and medium enterprises.”
The bank also parted with another USD 6.4 million to help sustainable agricultural practices in the Plan Maroc Vert, the country’s 2008-2020 agricultural strategy, aiming to double the agriculture sector and create 1.5 million jobs.
The new funds come on top of the first tranche of the USD 2.5 billion aid package from the Gulf states.
Last year, the IMF signed off on a USD 6.3 billion ‘Precautionary Liquidity Line of Credit for Morocco.’
Net international reserves (NIR) stood at USD 17.1 billion at end-October (USD 16.8 billion target), and the cumulative deficit reached MAD 34.7 billion during the first 10 months of the year (target MAD 41.6 billion).
Higher economic growth, lower unemployment, better health and educational outcomes, better access to basic infrastructure, and a marked reduction in poverty rates are tangible evidence of the progress made in fostering inclusive growth, notes the IMF.
The only black mark is youth unemployment, which remains particularly high.
“The authorities’ reform agenda includes measures to boost potential growth, tackle inequalities in the distribution of income and access to health care, particularly across regions as well as reduce unemployment,” said the IMF.
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