Morocco builds its connections with African economies

With an emphasis on diversifying its commercial partners, Morocco’s African strategy has sought to raise the kingdom’s political and economic profile, and extending its clout across the continent. Over the past decade, Moroccan investments in several African countries have been channelled towards financial services, industrial production and construction. Much of this economic drive has had direct political and institutional support from King Mohammed VI, who between the start of his reign in 2001 and late 2017 has taken over 50 trips to 29 different African countries. This hands-on approach has had palpable effects, translating into trade accords, cooperation agreements, and opening the door for Moroccan investment and exports.

The authorities have made clear that the move to forge closer links with African markets is a long-term strategy. “If you look at exports to those countries, they are still not that significant. However, the goal is to make Morocco a player on the continent, and position the country between Europe and Africa, to make Morocco indispensable for European exporters, importers and dealers in Africa,” Karim Gharbi, partner and head of research at CFG Bank, told OBG. Expansion of Moroccan businesses and investment initially targeted the francophone countries of West Africa. More recently, however, the kingdom’s public and private investment flows are increasingly capturing opportunities in East Africa, where fast-growing economies such as Kenya, Tanzania and Ethiopia are becoming regional heavyweights.

The deepening of economic ties with Africa will likely be accelerated by Morocco recently rejoining the African Union (AU). The kingdom left the union, then known as the Organisation of African Unity, in the early 1980s, when the regional body admitted Moroccan/Western Sahara – which Morocco considers to be part of its territory – as a member state. After announcing Morocco’s intention to rejoin the AU in mid-2016, King Mohammed VI embarked on a regional tour that included trips to Ghana, Nigeria, South Sudan, Rwanda, Madagascar, Ethiopia, Tanzania and Zambia. As a result, Morocco signed over 100 cooperation agreements with some of the most dynamic economies in Africa, setting the stage for an ongoing expansion of the country’s presence south of the Sahara. Francophone countries in particular have received the majority of attention. Between 2011 and 2015 Côte d’Ivoire was the recipient of 30% of the kingdom’s foreign direct investment (FDI) in the continent, followed by Mauritius at 16%, Mali at 12% and Cameroon with 9%.

REGULATORY TOOLS: Beyond political support, Moroccan businesses looking to expand into the region have benefitted from a change in the existing regulatory framework. According to a policy brief published in February 2017 by OCP Policy Centre (OCPPC), a Rabat-based think tank, the liberalisation of Morocco’s outbound investment rules were critical for the ongoing expansion of firms across the continent. In 2014 rules were eased to allow Moroccan companies operating for three or more years in a foreign country to invest up to Dh30m (€2.8m) annually, provided that the investment goes into activities directly linked to the firm’s business. The following year, in December 2015, the maximum amount of investment that could be transferred abroad for investment purposes was raised to Dh100m (€9.3m) for countries in Africa, and set at Dh50m (€4.6m) for investments elsewhere.

KEY SECTORS: The kingdom’s economic operators have had success in transferring their knowledge and expertise in sectors like banking, insurance and telecommunications into less-developed markets in sub-Saharan Africa. Established firms such as Attijariwafa Bank, BMCE Bank of Africa, Maroc Telecom and Royal Air Maroc have all been expanding their links across the continent. Indeed, around 30% of the major Moroccan banks’ revenues come from operations in sub-Saharan Africa, according to Jad Benhamdane, senior business analyst at BMCE Bank of Africa, and the banking sector accounted for around 31% of all Moroccan FDI flowing to Africa, per OCPPC figures. Although significant, this is a reduction from the 44% of FDI the banking sector accounted for in 2011, a sign that Moroccan investment in the continent is expanding from financial services into other projects and sectors.

At a business level, operators are taking advantage of opportunities in markets with growing populations and unfulfilled opportunities in high-value activities, including not just financial services, but also telecoms and manufacturing. For example, Nexans, the country’s largest wire cabling manufacturer, is building a $12m production unit close to Abidjan, in Côte d’Ivoire. The factory is set to be operational by 2018 and will be built under a joint-venture agreement with the Ivorian industrial firm, Envol.

A number of other sectors have also been deepening their involvement, further changing the composition of Moroccan FDI flowing to its southern neighbours. The telecoms sector’s share of FDI in the continent more than doubled between 2011 and 2015, increasing from 9% to 21%, as Maroc Telecom acquired a handful of telecoms operations in Gabon, Côte d’Ivoire, Togo, the Central African Republic, Benin and Niger for $650m. Participation by the real estate sector has also seen improvement, increasing from 2% to 11% over the period. At the same time, figures show a reduction in the weight of industrial investment in overall FDI movements between Morocco and sub-Saharan Africa, falling from 22% to 12%. However, as a series of high-volume investments announced in 2016 and 2017 for the establishment of fertiliser plants in several African countries begin to take shape, the share of industrial FDI is likely to rise in the coming years.

EXPORTS: Increasing investment in Africa has invariably represented an opportunity for diversification, which has in some respects moved Morocco away from its traditional partners, but has also reduced the country’s exposure to the more sluggish, advanced economies in the north. According to the Office des Changes, Morocco’s trade with sub-Saharan Africa posted average annual growth of 9.1% over the 2008-16 period, generating a surplus trade balance of Dh11.9bn (€1.1bn).

Although closer ties with sub-Saharan African economies have allowed Morocco to expand its reach into a region full of potential, trade with the continent still accounts for a relatively small portion of total international exchanges. According to the OCPPC, Morocco’s trade with sub-Saharan Africa accounted for 3.4% of total external trade in 2015, compared to 56.7% with EU countries and 15.3% with economies in the MENA region. However, the centre also detects growing diversification of exports to African markets, with the number of Moroccan products sold in sub-Saharan African countries rising from 85 to 185 between 1995 and 2015.

EAST AFRICA: In its southbound economic expansion, Morocco has been leveraging its capabilities and know-how for use in large-scale investment projects, and a number of recent deals have been struck with East African countries. In November 2016 OCP Group, the state-owned conglomerate charged with managing the country’s phosphate production, exports and industry transformation, signed a $2.4bn investment deal to build a fertiliser manufacturing plant in Ethiopia, according to regional media reports. The new production unit will cover 100 ha and service the domestic market. Parallel to the deal, Morocco and Ethiopia also signed a handful of bilateral agreements covering areas such investment protection, renewable energy, agriculture and air transport, demonstrating that economic cooperation between Morocco and Ethiopia is set to increase over the coming years.

CHALLENGES: However, closer economic interactions with African countries will come with its own challenges. For example, exporting goods to certain parts of the continent will pose logistics difficulties for Moroccan investors and producers. Although the kingdom is developing efficient transport networks that cover air, sea and land, many of the countries that Moroccan firms are expanding into have infrastructure gaps that make manufacturing and trade operations difficult and increase operating costs. This is set to pose problems both for Moroccan industries setting up shop in some of the more complex African countries, as well as for Moroccan exporters looking to gain market share. Managing political risk will also be key for companies expanding their activities across the continent. Morocco’s growing presence in sub-Saharan Africa is set to continue, and although trade with the continent still represents a minority of the kingdom’s total trade, it is setting the stage for future gains.