Picking up speed: Generous incentives and demographic changes mean new prospects

After several years of negotiations and preparation, Morocco is set to see a significant jump in car production following the inauguration of French carmaker Renault’s new Melloussa plant in February 2012. Spanning 280 ha, this €1bn plant is the largest automotive factory in North Africa and in its first 10 months of operation churned out over 100,000 cars. Production is due to increase in the next two years, with the plant boasting a maximum capacity of 400,000 vehicles per year once the second phase in 2013 is wrapped up. Currently, the factory employs 2000 local staff and following the completion of the second phase, it will employ an estimated 6000 workers directly and support another 35,000 jobs indirectly. Intriguingly, and in part a result of the country’s move to reduce industrial emissions, the plant has a small environmental footprint, with minimal CO and water waste.

GOVERNMENT INCENTIVES: The Renault manufacturing plant is located in the Tanger Free Zone (TFZ), which holds the status of a Special Economic Zone (SEZ). The TFZ is one of the two established Integrated Industrial Platforms (P2Is) that were specifically designed to benefit automotive manufacturing. These platforms aid firms to rent or buy physical capital by providing general infrastructure assistance; general services such as telecoms, banking and health care services; advanced logistical and engineering services; and training programmes to develop a specialised workforce. Additional incentives include state support of up to 10% of total investment to facilitate factory construction. Automotive firms that have established plants in Morocco are able to enjoy a five-year corporate tax exemption, value-added tax exemptions on imports and exports, the removal of restrictions in capital convertibility and repatriation, simplified Customs procedures and free transactions in foreign currencies. The establishment of P2Is and SEZs fall under the aegis of the National Pact for Industrial Emergence (Pacte National pour l’Emergence Industrielle, PNEI), the programme spans the years from 2009-15 and aspires to achieve a GDP increase of Dh50bn (€4.44bn) and to create over 220,000 jobs.

WORKFORCE FORMATION: A key dimension of the PNEI is the training of the Moroccan workforce to ensure highly skilled workers for global firms producing in the country. By 2015 the government plans to train 70,000 new specialised graduates for employment in the auto sector. To this end, the government has established a 100% state-financed Institute for Training Professionals Automotive Industry in Casablanca in partnership with Renault, where factory workers from the Melloussa plant as well as employees of Renault’s component suppliers will be trained. While Renault is able to offer its expertise to aid in the training process, the company also benefits from the local presence of a workforce knowledgeable in automotive production.

INTERNATIONAL APPEAL: Renault is not the first carmaker to take advantage of Morocco’s attractive package of natural and government incentives, with a rising number of international firms establishing activities in SEZs across the country, particularly in the TFZ, the industrial and logistic park Atlantic Free Zone, which caters to all industrial sectors, and the Tangier Automotive City, an industrial platform dedicated to automotive manufacturing.

Japan’s Denso and France’s Inergy Automotive Systems have invested €12m and €6m, respectively, in component systems in Tangier, while Delphi Automotive expanded the capacity of its Tangier plant in 2011, creating 1200 new jobs. Spanish company Proinsur also invested €2m in a 2500-sq-metre factory in the TFZ that specialises in plastic injection and automotive parts. Kenitra’s Atlantic Free Zone has also seen action with the opening of the Japanese firm Yazaki’s third factory in September 2012, while France’s Saint-Gobain and Japan’s Fujikura have invested €9.47m and €14.6m in new production units. The participation of new international entrants has also created opportunities for local enterprises to flourish. Domestic firms, such as metal automotive parts producer Socafix, prosper by providing needed equipment to carmakers, in effect establishing a complete supply chain to the advantage of multinational manufacturers.

NATURAL ADVANTAGES: The broad range of state initiatives complement Morocco’s natural advantages as a manufacturing site, particularly for high-value products such as automobiles. Located only 14 km from the European continent, Morocco’s close proximity to major European and African ports, and the ability to position large-scale production facilities near the Tanger-Med deep-water port improves its competitiveness as an export destination, lowering transportation costs and providing swift access to a potential market of 4.2m vehicles across Europe. “In my opinion, Morocco has the best offer in the region for car production. With infrastructure being upgraded, low labour costs, respectable sector productivity, particularly in light of tremendous investments in training, low logistics costs, close proximity to important markets and the potential for high domestic growth, Morocco has all of the conditions favourable to attract all types of investors in auto distribution, production, innovation and marketing,” Ryad Mezzour, the general-director of Suzuki in Morocco, told OBG. Solid wages and fiscal competitiveness enables Morocco to effectively compete against similar low-cost producers to the EU and the US, with costs at least 50% lower than Mexican automotive production. The signing of free trade agreements with the EU, alongside open access to other Arab countries through the Greater Arab Free Trade Agreement, has further diminished costs by eliminating Customs barriers, with tariffs on secondhand vehicles still being negotiated, enhancing the competitiveness of products produced in Morocco.

DOMESTIC CONSUMPTION: Morocco’s domestic market offers interesting, medium-term opportunities for car producers. Valued at €1.5bn, the market remains relatively underdeveloped for its population size, with an average of 130,000 units sold each year amidst a populace of 32.3m people. Morocco’s undersized market is largely a factor of affordability and price-sensitivity. “Currently, the price of cars in Morocco is around the same as Europe, which is a problem because a significant portion of Moroccans cannot afford it. With an average yearly income of $3000, people struggle to respond to demands for food and shelter; therefore, cars are not a priority,” said Mezzour.

However, a burgeoning and young population, rising purchasing power and an increasing affinity for foreign products has enticed 35 domestic and international automakers to sell their brands in the country. “This is a country in demographic and economic transition, so prospects for growth are very interesting compared to Europe or the US. Africa, and particularly North Africa, is growing, and Morocco is continuing to evolve as a market – automobile demand in Algeria tripled in three years, and the right combination of factors could produce similar growth in Morocco,” Mezzour told OBG.