Reforms channels foreign investment into key economic sectors in Morocco

A large part of Morocco’s ability to post stable growth rates over the past several years has been its capacity to attract foreign direct investment (FDI). An influx of investment has translated into new industrial developments, telecommunications expansion, tourism projects, energy production and infrastructure builds. Although the amount of FDI inflows registered a small reduction in 2016 compared to the previous two years, prospects are strong as Morocco remains a centre of stability in a region that has been politically and socially unpredictable. In addition, important reforms aimed at improving the environment for FDI, reducing barriers to business operations and strengthening the manufacturing base will likely continue to position Morocco as a preferred destination for investment in the Mediterranean basin.

FDI FIGURES: The overall trend for FDI in recent years has been one of gradual growth, as economic reforms have made the country more attractive for foreign operators, and more closely linked Morocco with the global economy. Between 2010 and 2015 FDI inflows increased considerably, rising from $1.2bn to $3.3bn, according to World Bank data. In 2016 FDI inflows decreased further to $2.3bn, in part due to global instability and a wait-and see investor attitude in the second half of 2016, following the UK’s Brexit vote in the summer and the November election of US President Donald J Trump. In 2017, however, FDI inflows increased for the first time in two years, to $2.6bn, according to the Office des Changes.

Despite external challenges, improvements in competitiveness have helped Morocco maintain healthy levels of FDI. The 2016-17 global competitiveness index, published by the World Economic Forum, ranks Morocco 70th out of 138 countries for overall competitiveness, while the World Bank’s “Doing Business 2017” report saw Morocco improve its position from 75th out of 190 countries to 68th in 2017. However, some Moroccan observers underline the fact that international rankings do not always take into account some aspects of competitiveness that are key for FDI attraction. “Morocco remains one of the most stable emerging economies of its regional peers,” Mohammed Rachid, deputy director for international relations and international organisations at Casablanca Finance City, told OBG. “Stability always matters, but I think that security and political stability are of particular importance in investment and economic development.”

STRENGTHENING CONDITIONS: Its image as a stable investment destination has been strengthened by government efforts to curb the fiscal deficit, with results garnering a positive reception from international bodies and market observers. In February 2017 ratings agency Moody’s changed the outlook of government bonds from stable to positive.

The authorities are also matching expected FDI inflows with considerable volumes of public investment. In its 2017 budget, the Ministry of Economy and Finance expected to invest as much as Dh62bn (€5.7bn) over the year, with an extra Dh128bn (€11.9bn) worth of investments to be executed by government-owned companies. Part of the investment envelope – some Dh20bn (€1.9bn) – was expected to go towards port infrastructure, while the agricultural sector received Dh8.9bn (€824m) and the manufacturing sector Dh3.7bn (€342.6m). Additionally, renewable energy projects were expected to receive Dh11.7bn (€1.2bn) in 2017.

These investment commitments to develop specific sectors have contributed to the country’s attractiveness. The National Pact for Industrial Emergence, launched in 2008, and the 2014 Industrial Acceleration Plan (Plan d’Accélération Industrielle, PAI) have set the stage for the manufacturing sector to regain a central position in the Moroccan economy, in turn boosting the industrial sector’s attractiveness for international investors. Under the PAI, production clusters are being organised into interacting ecosystems, bringing together producers and suppliers as part of international logistics value chains. This has been critical in attracting new manufacturing suppliers in the aeronautics and automotive segments. One clear example is the deal signed between Moroccan authorities and aeronautics manufacturer Boeing in September 2016. The agreement will see the US-based firm create a manufacturing ecosystem near the northern city of Tangiers (see Tangiers chapter), which will involve up to 120 suppliers and create 8700 new jobs in industry. The deal is expected to increase industrial exports from Morocco by approximately $1bn.

PEER PRESSURE: The country has performed well compared to its African peers, maintaining its position as a top destination for FDI. A survey by EY distinguished Morocco as the most attractive investment destination in Africa out of 46 countries, followed by Kenya, South Africa, Ghana and Tanzania. In 2016 the kingdom attracted 12% of investment projects, 7% of investment volumes and 19.2% of employment positions created by FDI inflows to the continent.

On the other side of the equation, Morocco’s moves into Africa, which have included expansion of its services industry as well as greenfield investment in manufacturing, have contributed to raising the country’s profile as an investment gateway to Africa. As a result, international firms are increasingly investing in the kingdom for use as a base from which to enter into other markets. In April 2017, for example, Mexican group Bimbo, one of the world’s largest bread producers, announced the acquisition of Moroccan baked goods producer Adghal, including its three production units in the country. The acquisition was Bimbo’s first foray into Africa. “What you have seen over the past several years is the setting up of Casablanca as the platform for investors in Africa, because they will have access to Moroccan banks, Moroccan insurers and Moroccan consultants, with Africa experience,” Karim Gharbi, partner and head of research at CFG Bank, told OBG. “This has helped to shape Morocco as hub for goods and services.”

REFORM MOVEMENT: In addition to the country’s macroeconomic stability and its advantageous geographic position between Africa and Europe, investment flows have responded positively to a series of well-structured reforms. Notably, these include a new investment charter. The regulation, part of Law 60-16, was announced in August 2016 as a substitute for a 1995 investment law and is driving key changes to the country’s investment rules. First, it is expected to shift investment promotion efforts to a new government agency. Second, the new charter envisions extending the creation of free trade zones into each of the country’s 12 regions. Building upon the important role that free trade areas have played in attracting new manufacturers to Morocco, the charter allows for the extension of the same tax benefits to specific producers that are located outside these areas and has created indirect exporter status, which enables better conditions for suppliers of key export manufacturing industries.

A more recent change should also help to strengthen investor confidence, both for domestic as well as international stakeholders. A long-discussed law designed to curb payment delays entered into force in September 2017, one year after it was first published. The law aims to reduce the maximum limit for payment of a contract from 90 to 60 days, with the possibility of penalties for non-compliance. Public companies have been required to abide by the new limitations since January 2018. Comprehensive implementation of the law should help to reduce the liquidity issues that can prove insurmountable for some small and medium-sized enterprises, and reduce risk aversion among investors.

CENTRALISATION EFFORTS: To attract investment, the authorities have merged several government entities involved in investment promotion under the same banner. The creation of the Moroccan Agency for Investment Development and Exports (Agence Marocaine de Développement des Investissements et des Exportations, AMDIE) was signed into law in August 2017 and began activities that year under the Ministry of Industry, Trade, Investment and Digital Economy. AMDIE encompasses the activities of three other investment-oriented bodies, namely Maroc Export, the Moroccan Investment Development Agency and the Office for Fairs and Exhibitions in Casablanca. AMDIE will be in charge of managing the operations and coordinating the necessary resources for all investment promotion efforts. While annual volumes may vary, Morocco appears set to maintain its reputation as a destination for FDI. Attracting foreign capital has been critical to raising growth prospects and creating employment, and continuing efforts to improve conditions for domestic business operators will be crucial to integrating FDI flows with the development of solid domestic industries.