Morocco's new investment charter looks to further boost foreign investment levels

Morocco has taken steps to sustain foreign investment inflows during a period of slow global growth. The authorities have rolled out a range of reforms, from a new National Business Environment Council in the Prime Minister’s office to the adoption of anti-corruption plans. However, perhaps one of the most prominent changes came in summer of 2016, with the rollout of a new legislative framework which helps to further incentivise foreign investment – and which has already yielded hundreds of millions of euros in new commitments.

Strong Performer

While many of the kingdom’s regional counterparts have seen a decline in foreign direct investment (FDI) between 2011 and 2016, FDI in Morocco rose by 11% between 2010 and 2015 to reach Dh39bn (€3.6bn), an upward trend that the government has been looking to maintain. The performance is impressive even when compared to the bullish figures posted by many other African markets. For example, press reports put the country in the top five of FDI recipients on the continent in 2014, with the second-largest increase in FDI projects.

Much of the increase has been focused on industry and renewable energy, with investors attracted by initiatives like the Industrial Acceleration Plan (Plan d’Accélération Industrielle, PAI) and other government-led incentives programmes. In its most recent sovereign notes, ratings agency Standard and Poor’s (S&P) cited Morocco’s focus on industrial development as key to the country’s stable outlook. “We expect economic activity to remain vulnerable to volatility in the agricultural sector and external demand fluctuations from Europe, notably in tourism,” S&P wrote in April 2016. “Nevertheless, investments in newly developed industries, such as the automotive sector, should improve economic diversification, and help GDP growth and exports over the medium term.”

New Charter

Under the new charter, which is part of Law 60-16 and replaces the previous investment charter implemented in 1995, investment promotion activities will be restructured under a centralised agency and free zones will be developed in each of the country’s 12 regions.

Incentives will also be extended to qualifying companies not located inside the free zones, including comparable benefits for export-oriented industries and a five-year corporate tax exemption for new industrial companies. Importantly, the new charter also recognises indirect exporter status, which should help support Morocco’s large automotive industry, and in particular its subcontractors, who will benefit from this new status.

Reaping Benefits

Following the introduction of the new investment charter in July 2016, the Moroccan government has signed Dh7.5bn (€691.6m) worth of international investment agreements. A combined 30 contracts with companies hailing from the UK, Canada, Brazil, China, India and Russia were inked the day after the new charter was announced. According to government statements, the agreements are expected to create around 39,000 jobs.

A total of 21 of the 30 investment agreements inked in that month were with companies from the automotive industry, such as UK automotive parts manufacturer Delphi, which signed a framework agreement for seven new facilities set to be rolled out through to 2021. According to Moulay Hafid Elalamy, minister of industry, trade, investment and digital economy, the auto industry’s local integration rate is projected to reach 65% over the coming years, suggesting significant growth prospects for domestic industry.

The deal includes a new Dh400m (€36.7m) plant at the Agropolis industrial park in Meknès, which will manufacture electrical distribution systems, and a research and development centre. Together the new investments are expected to create 13,000 jobs, according to local media reports.

A Dh2.69bn (€246.9m) agreement was also signed with Canadian supplier Linamar, which plans to open Morocco’s first engine component production facility, creating around 1000 jobs. The plant will supply leading international automakers, including Ford, Volkswagen and Peugeot Citroën, whose new factory in Kenitra is set to come on-line in 2019, producing 200,000 vehicles per year.

The auto industry features prominently in the country’s PAI 2014-20, which aims to improve Morocco’s trade balance, increase the industrial sector’s contribution from 14% to 23% of GDP and create 500,000 new jobs through the development of “ecosystems”, or productive industrial clusters aimed at stimulating growth and enhancing competition. A new engine and transmission cluster was established earlier in 2016 following the creation of a handful of other auto clusters, including ones focused on cabling, interior and seats, metal and stamping, and batteries.

In addition to agreements in the automotive industry, nine projects worth Dh600m (€55.3m) were signed with the textiles industry, and four industrial units worth a total of Dh260m (€24m) are in the pipeline for aeronautics.

Government Support

As part of the new charter, the country’s various trade and investment promotion agencies – including Maroc Export, the Moroccan Investment Development Agency and the Office of Fairs and Exhibitions in Casablanca – were consolidated under the newly created Moroccan Agency for Investment Development and Export (Agence Marocaine de Développement des Investissements et des Exportations, AMDIE). Falling under the purview of the Ministry of Industry, Trade, Investment and Digital Economy, AMDIE is charged with strengthening the coordination of operations, as well as streamlining the financial and human resources dedicated to investment promotion. A General Directorate for Trade, a General Directorate for Industry and an agency dedicated to developing the digital economy and e-government were also created under the new charter.

Capital Boost

Another key facet of the government’s efforts to attract additional foreign capital comes via Morocco’s financial markets. As part of efforts to stimulate the capital markets, in June 2016 the government floated a 40% stake in state-owned port operator Société d’Exploitation des Ports, commonly known as Marsa Maroc, on the Casablanca Stock Exchange (CSE).

Established in 2006 Marsa Maroc manages terminals and provides logistics at nine ports across the kingdom, and was seeking financing for plans to bid on two new terminals at Casablanca Port and expand regionally in North and West Africa.

Offer Details

The initial public offering, Morocco’s largest in eight years, was valued at Dh1.94bn (€177.5m), of which Dh600m (€55.2m), or over 30%, came from individual investors. Investor interest in the sale was high, with the shares more than six times oversubscribed, according to the CSE. The Marsa Maroc IPO follows two other highly sought-after offers in 2015 – the float of a 15% stake in fuel distributor Total Maroc in May, which raised Dh716.2m (€65.9m) and was 6.7 times oversubscribed; and the sale of Dh180m (€16.6m) worth of shares in insurance broker AFMA in December, which was seven times oversubscribed.

In addition to demonstrating strong investor appetite for equity sales, the Marsa Maroc IPO marks the first time the government carried out privatisation through the bourse, and observers note it could be a harbinger for further offers.