Investment in industrial activity begins to pay off in Morocco

With a vision that it can create jobs and spur growth in other areas of the economy, the Moroccan government has focused considerable attention on developing the kingdom’s industrial sector in recent years. Under the framework of several strategic government plans, key manufacturing segments, including automotive and aeronautic components and agro-industry, have seen injections of capital and the rollout of specialised infrastructure, training facilities and fiscal incentives, helping to transform Morocco’s industrial sector over the past decade.

The success has allowed the country to make considerable gains in reducing its trade deficit and boosting secondary activity. In 2015 this resulted in a fall in the country’s trade deficit by Dh36.8bn (€3.4bn), dropping from Dh114.1bn (€10.5bn) to Dh77.3bn (€7.1bn). However, in recent years export-dependent segments of the industrial sector, like textiles, have felt the effects of the downturn in Europe – Morocco’s largest trading partner – and competition in the region is increasing, particularly from Tunisia and Algeria.

Indicators

While the industrial sector has been affected by the global slowdown in trade in recent years, indicators from the fourth quarter of 2015 showed a gradual recovery was under way.

According to the High Planning Commission (Haut Commissariat au Plan, HCP), the index of manufacturing production registered a 0.8% increase in the fourth quarter 2015 compared to the same period of 2014. In total, the production index of the manufacturing sector registered a rise of 0.4% between 2014 and 2015. While a small boost, it is an important one, given that manufacturing accounts for approximately one-sixth of the kingdom’s GDP and a fifth of its workforce.

According to the Moroccan Investment Development Agency (Agence Marocaine de Développement des Investissements, AMDI) the industrial sector accounted for 11.9% of the country’s total foreign direct investment in 2014, the last year for which data is currently available. This was among the highest rates registered in Africa that year, and exports continued to grow in 2015, reaching Dh214.1bn (€19.6bn), a 6.6% increase year-on-year (y-o-y), according to preliminary figures from the Office des Changes. The increase in 2015 continued a trend of growth for Moroccan exports, which hit Dh200.8bn (€18.4bn) in 2014 and Dh185.4bn (€17bn) in 2013.

The growth in industrial exports is in part the result of a strong performance by the country’s automotive industry, which recorded Dh48.6bn (€4.5bn) in exports in 2015, a Dh8.3bn (€761m) increase y-o-y, followed by the country’s phosphate and derivatives industry with Dh44.3bn (€4.1bn) in exports, a Dh6bn (€550.1m) increase y-o-y, and the agriculture and food industry with Dh43.5bn (€4bn), a Dh4.5bn (€412.6m) increase y-o-y. The country’s aeronautics sector also saw modest growth increasing exports from Dh7bn (€641.8m) in 2014 to Dh7.3bn (€669.3m) in 2015, a Dh302m (€27.7m) increase y-o-y, while Morocco’s pharmaceutical industry saw an 6.3% increase in exports year-on-year.

Not every segment saw an improvement, however. Following a year of growth in 2014, the textile and leather industry fell to Dh33.02bn (€3.02bn) in 2015 from Dh33.5bn (€3.07bn) the previous year, a 1.5% drop. Electronics also saw a fall in exports by 3.7% y-o-y, recording Dh7.68bn (€704.2m) in 2015 compared to Dh7.97bn (€730.8m) in 2014.

Growth Strategy

Over the past decade, Moroccan authorities have made efforts to improve both hard and soft infrastructure. Recent years have seen the rollout of major transport facilities, such as the Tanger-Med Port, for example, as well as reforms to Customs procedures. However, the government has also launched more specific industrial initiatives to help boost output in certain sectors, with some notable results.

Government Pacts 

In 2008 the National Pact for Industrial Emergence (Pacte National pour l’Emergence Industrielle, PNEI) was introduced, focusing investment in capital infrastructure on the development of the automotive, aeronautics, electronics, food processing, offshoring and textiles industries. The plan resulted in the creation of 110,000 jobs between 2008 and 2011, according to AMDI. During the same period, exports increased by an average of 22% per year.

Aiming to further spur industrial growth, the Moroccan government introduced the Industrial Acceleration Plan (Plan d’Accélération Industrielle, PAI) in 2014, to extend over the period of 2014-20 targeting the same industrial sectors as the PNEI. On the back of considerable growth in the aeronautic and automotive industries in recent years, the PAI seeks to capitalise on achievements and promote wider growth across the industrial sector, including traditional segments like textiles and pharmaceutics, which have lagged behind.

By 2020 the PAI hopes to create 500,000 new jobs and increase manufacturing’s share of GDP from 14% to 23%. Central to the new plan is the creation of industrial production clusters, referred to as ecosystems. By improving technology transfer and integrating businesses, ecosystems are seen as a way to stimulate growth, increase competition and to improve quality and productivity.

The plan aims to support the development of small and medium-sized enterprises (SMEs), which account for an estimated 95% of businesses in the country but which have faced challenges that have stunted growth, including poor access to land and finance, and a large informal sector. The plan seeks to support the growth of SMEs by integrating them into global supply chains.

Under the plan, the Industrial Development Fund has been set up as a public investment fund worth some €2bn to help achieve these goals. The fund seeks to incentivise the movement of informal business to the formal sector, providing support for the many family-owned companies in the kingdom as they move to a corporate structure, all to increase the industrial sector’s ability to rely on locally developed goods and services.

Cement

The cement segment is a key contributor to the industrial sector. Moroccan cement companies sold nearly 14.25m tonnes of material in 2015, up from 14.06m tonnes in 2014, a 1.4% increase y-o-y. The cement sector had previously reached an all-time production high in 2011, before being hit by a real estate downturn.

There are five main players in the Moroccan cement industry: Lafarge Maroc, which is part of the French multinational and has an annual capacity of 6.9m tonnes; Ciments du Maroc, a subsidiary of Italy’s Italcementi Group, which recently began a joint venture with Spain’s Grupo Puma to construct a new plant; and Ciments de l’Atlas (CIMAT), which started up in 2010, with an eye to expanding its operations into West Africa. Other producers include Asmet Témara, a subsidiary of Portuguese firm Cimpor, and Holcim, a subsidiary of the Swiss group, which produces on average 4.5m tonnes per year, although Lafarge and Holcim announced in 2016 that the two would merge, after their parent companies merged at the international level. The merger could lead to less pressure on prices, but this could also permit a new player to come to the market, in the same way CIMAT entered in 2010.

Moroccan holding group Anouar Invest, one of the largest agribusiness players in Morocco, announced in November 2015 the construction of a cement factory in Laâyoune with an investment of Dh300m (€27.5m). Cement Sud will begin operations at the new plant in July 2017 and is set to produce 500,000 tonnes of cement each year. The group has also begun construction of a cement plant in the Settat region that is set to produce 2.2m tonnes annually and begin operations in late 2018. The project’s budget is set at Dh3bn (€275m).

Steel

A slowdown in demand due to the country’s stalling construction sector coupled with oversupply on the international level have led to challenging recent years for Morocco’s steel industry, although the medium-term outlook remains positive in light of a range of industrial sector and government infrastructure projects in the pipeline.

To help the sector, the government imposed various protective measures, though the move became the subject of hot debate in the kingdom in recent years. After discussions with the European Commission and Turkey, Morocco’s Ministry of Industry, Commerce, Investment and Digital Economy set an additional ad valorem tax on the import of rolled and plated or coated steel sheets, of 22% in 2016, 20% in 2017, 18% in 2018 and 16% in 2019. A 36,000-tonne import quota restriction on cold-rolled coil imports was also put in place.

Luxembourg-headquartered integrated steel and mining company ArcelorMittal, whose main production in Morocco is through Sonasid, is the largest long steel producer in Morocco, with facilities in Nador and Jorf Lasfar. The company produced 500,000 tonnes of crude steel in 2014, which was sold mainly on the domestic market.

Maghreb Steel, which has a combined production capacity of around 1m tonnes per year for semi-finished products, has seen positive signs in 2016 year-to-date as a result of government measures. In February local media reported that Maghreb Steel would sign an agreement with Renault to supply 70,000 tonnes of steel per year to the French automaker’s factory in Tangiers.

The increased local demand has been an important contributor to a steel industry that has faced other demand-side challenges. Producers are working to diversify their export partners in the face of competition from other nations.

Despite a slowdown in oil prices, which reduced costs, the steel sector is still facing fierce competition from Turkey, China and Spain. Therefore, the country is looking to further expand its export to sub-Saharan countries, like Mauritania, Senegal, Côte d’Ivoire and Gabon.

Automotive

Morocco’s automotive manufacturing sector, the largest in North Africa by value and second largest on the continent after South Africa, has flourished in recent years, benefitting from sustained support from the government, which has included incentive packages and the creation of automotive industrial clusters.

Inside the country’s economic zones, which include Tanger-Med and the Atlantic Free Zone in Kenitra, corporate tax rates are zero for the first five years, after which rates increase to 8.75% for the next 20 years. Business in economic zones is also exempt from export fees. While the government has invested heavily in the auto industry, supply of skilled labour, necessary to continue attracting investment, remains an issue.

To increase the pool the government has recently launched training institutes in Casablanca, Kenitra and Tangiers, with a fourth in Tangiers Free Zone in the initial stages of construction. To further support training, funds of Dh65,000 (€5960) in aid are offered per person. These efforts have yielded strong results. According to preliminary figures from the Office des Changes, Morocco’s automotive industry accounted for 22.7% of the kingdom’s total exports in 2015, up from 20% in 2014. The industry has now surpassed phosphates as the leading sector for exports.

Under the PAI, authorities aim to increase the automotive sector’s exports to Dh100bn (€9.2bn) and create up to 90,000 new jobs by 2020. According to the Moroccan Association for Automotive Industry and Trade, the segment currently employs approximately 100,000 people and around 150 automobile-related companies are present in the country. Currently the sector sees an average of 21,000 cars per month produced, up from 17,000 per month in 2014.

The majority of production – which is targeted to hit 800,000 overall by 2020, under the PAI objectives – is focused on exports, although domestic sales have increased in recent years, seeing 24.8% y-o-y growth in 2015 to Dh4.9bn (€450m).

Renault is the largest player in the country, having opened Africa’s largest car factory in Mellousa, Tangiers and a smaller factory in Casablanca. The company produced 288,053 vehicles in 2015, up 26% on 2014. The company created 1650 new jobs in 2015 and employs a total of 9653 employees. Since 2005 Renault has owned a majority stake in Morocco’s main car manufacturer, Société Marocaine de Construction Automobiles. In April 2016 Renault announced it would invest Dh10bn (€916.9m) in Morocco to increase local production of components, which in turn is set to raise the company’s local sourcing of components from 32% to 65%. The investment is expected to create Dh20bn (€1.8bn) in revenues.

PSA Peugeot Citroën, the second-largest player in Morocco, is also set to build a €557m factory outside Kenitra. Scheduled to open in 2019, the factory will assemble subcompact and compact models for Africa and the Middle East, and will have an initial annual production capacity of 90,000 vehicles. In addition to Peugeot’s new plant, expansion plans include a new factory making electrical distribution systems and a research and development centre to be launched by automotive components and systems manufacturer Delphi. The company currently has three operating plants in the kingdom and employs around 12,000 workers. The move by Delphi comes as the country is seeing a steady rise in component production. The PAI aims to increase the sector’s integration rate from 45% to 60% by 2020. To achieve this goal, five sectorial ecosystems have been set up under the PAI, including for cabling, batteries vehicle interior and seats, and deep drawing of sheet metal.

A number of major component firms have begun operations in Morocco to take advantage of this. Renault’s substantial investments in 2012 led car component manufacturers like Snop, GMD, Bamesa, Yazaki, Sews and Saint-Gobain to start their own production units. Evidence of this growth can be seen in the fact that the cabling segment of the automotive industry saw an increase in export revenues, with Dh20.1bn (€1.8bn) in 2015, up from Dh17.2bn (€1.6bn) in 2014, according to preliminary figures from the Office des Changes.

Aeronautics

Like the automotive sector, Morocco’s aeronautics industry has advanced significantly in recent years, and in 2015 the segment saw exports reach Dh7.3bn (€669.3m), a modest increase on Dh7bn (€641.8m) in 2014 (see analysis). Given that prior to 2000 local aeronautic manufacturing was virtually non-existent, the sector has become one of the main benefactors of the government’s consecutive industrial plans. Among the developments that have aided producers was the creation of the Midparc Free Trade Zone Industrial Park in 2013, a 12623-ha dedicated offshore industrial zone in Nouaceur, close to Casablanca’s international airport. To attract investment, the government has offered fiscal incentives in the zone such as a 100% tax exemption for the first five years it is open and a reduced rate of 8.75% for the following 20, then rising to 17.5%.

There are more than 100 aeronautics manufacturers currently operating in the segment, including major producers such as France’s Safran and Canada’s Bombardier, and many of them are planning to inaugurate new facilities. At the end of 2015 Stelia Aerospace completed a €40m plant in Nouaceur, specialising in the assembly of metal subassemblies for Airbus and Bombardier planes, while French aerospace company Daher will open a third factory worth $16.26m in Morocco in 2017. Aerospace electronic systems company Thales Group is also set to build a 3D metal printing centre in Morocco that will be fully operational by 2018.

Agro-Industry

As with many of the Mediterranean Basin’s economies, agriculture comprises a large proportion of Morocco’s economy, which has helped ensure an ample supply of inputs for the processing and foodstuffs sectors. According to AMDI, the agro-industrial sector contributes 4% to the kingdom’s GDP and employs around 100,000 people, with exports reaching Dh25bn (€2.3bn) in 2015, up from Dh22bn (€2bn) in 2014. Over the past five years the average annual growth rate in the sector stood at 12%, due in part to the success of the Ministry of Agriculture and Fishing’s Green Morocco Plan, which was launched in 2010, and has sought to boost investment in the sector and increase coordination between upstream and downstream activities. Segments that have experienced significant growth under the plan include cereals, poultry and dairy (see Agriculture chapter).

The improved performance has helped attract new investors. In November 2014 France’s Danone acquired a further 21.75% of shares in Moroccan dairy firm Centrale Laitère for €278m, raising its stake to 90.9%. In October 2015 the company changed its name to Central Danone. Other recent acquisitions include American Kraft Food’s (now called Mondelez) acquisition of Moroccan cookie producer Bimo in 2013 for $151m, and French firm Sofiprotéol’s acquisition of a 41% stake in Morocco’s state-owned Lesieur Cristal for Dh1.3bn (€119.2m). In March 2015 Mondelez International opened a new $11m cookie factory in Casablanca.

Cosumar, the country’s sole sugar producer, with seven plants producing a total of 1.65m tonnes per year, has benefitted from the local population’s high sugar consumption levels, which more than double the African average at 36 kg per capita. However, the producer will be forced to deal with the lifting of sugar subsidies, a process that is expected to be finished by 2017. The price of sugar will increase by Dh0.15 (€0.01) per kg each month, and by the end of 2016 the total jump in price will be Dh1.60 (€0.15) per kg. By the end of 2017 the price per kg of sugar will hit Dh3.20 (€0.29).

Local Market

Morocco has seen continued growth in domestic consumption of foodstuffs and fast-moving consumer goods (FMCGs) due to long-term trends that have buffered the industry from the exogenous environment, including strong population growth, changing consumer habits and increasing urbanisation. Morocco was the fourth-highest country in Africa for total household expenditure on FMCGs, reaching $20.1bn in 2010, according to the World Bank’s Global Consumption Database, falling behind Nigeria with $41.7bn, Egypt with $27.6bn and South Africa with $23bn. In 2015 the HCP observed that Morocco’s total household spending was Dh567.54bn (€52bn), up from Dh552.6bn (€50.7bn) in 2014.

While consumer confidence has been on a decelerating trend amid the global economic downturn, recent signs show a modest recovery that, if it continues, bodes well for FMCGs in the kingdom. Appearing in the third quarter of 2015 on the Neilsen Consumer Confidence Survey, a measure of consumers’ confidence, concerns and spending intentions in 61 countries, Morocco received an index score of 85. Four in 10 respondents said they believed their job prospects and personal finances would be good or excellent in the next 12 months, while 33% of consumers surveyed were optimistic about their immediate spending capacity. Morocco’s score remained the same in the fourth quarter of 2015, but dropped one point in the first quarter of 2016. Government programmes aimed at encouraging a shift away from informal to organised retail are also adding to the potential growth of the FMCG segment. In 2007 the Moroccan government launched the Rawaj Vision 2020 programme, a government plan aimed at modernising distribution and supply chains. Under the plan, authorities will oversee the development of 600 supermarkets and hypermarkets as well as develop 15 malls and 15 outlet stores, in the hope of increasing the retail sector’s contribution to GDP to 15%.

Phosphates

Morocco has a large mining sector, which spans a number of precious and semi-precious metals, but the bulk of the activity comes from phosphate, of which Morocco has the world’s largest reserves. OCP S.A. holds a monopoly on the extraction and processing of phosphates in Morocco. Following a drop in global phosphate prices in 2013, phosphate and derivatives exports increased over the past three years.

In an effort to sustain this growth, OCP S.A. has introduced a wide ranging Dh130bn (€11.9bn) industrial development plan, including the construction of several new major infrastructure projects. According to preliminary figures from the Office des Changes, 2015 saw Dh44.2bn (€4.1bn) in exports of phosphate and derivatives, up from Dh38.3bn (€3.5bn) in 2014 and Dh37.3bn (€3.4bn) in 2013. Crude phosphates held a 22.6% share of Morocco’s phosphate exports in 2015, a slight increase from 2014’s 21.4%.

Textiles

Morocco’s textiles industry was hit hard by the dismantling of the Multi-Fibre Arrangement in 2005, which led to increased competition from Asian manufacturers, and by the global economic crisis in 2008. The arrangement, which had been in effect since 1974, had imposed quotas on how much developing countries could export to developed countries. However, there is cause for optimism, particularly in the fast fashion segment, where Morocco’s location and proximity to Europe provides an edge. A sustained turnaround would be important, given the sector’s relative weight in the economy. Morocco is home to some 1600 textile manufacturers, including suppliers for the world’s largest apparel retailer, Spain’s Inditex, which owns the popular Zara, Massimo Dutti and Bershka brands. The textile industry contributes on average 20% to value-added industries, and accounts for 42% of jobs in the country’s larger industrial sector.

According to the HCP the textiles industry increased production by 0.3% y-o-y in 2015, compared to a y-o-y increase of 2.9% in 2014. With the exception of 2014, when the sector saw a 5% spike in textile exports y-o-y, the textile and leather industry has seen a decrease in exports, according to preliminary data from the Office des Changes. A total of Dh33.02bn (€3.02bn) in exports were registered in 2015, down from Dh33.51bn (€3.07bn) in 2014, a 1.5% decrease y-o-y Data from Bank Al Maghrib shows a decline in early 2016. To help reverse this, the government has prioritised the sector under the PAI strategy, identifying six ecosystems for development: fast fashion, denim, technical textiles, home and lifestyle-use textiles, knitwear, and distribution. The ecosystems are expected to attract investors and suppliers of raw materials to form industrial clusters that can help bring down the cost of imports for textile goods and increase profit. In March 2016 six large companies and 22 SMEs signed a convention with the government for ecosystem investment projects worth Dh713m (€65.4m). The projects are expected to create nearly 12,000 jobs, representing 12% of the 2020 target for job creation in the industry set out in the PAI.

Pharmaceuticals

With more than 33 factories and nearly 40 pharmaceuticals laboratories, Morocco is home to the second-largest pharmaceuticals manufacturing industry in Africa behind South Africa. Local production is high enough to satisfy the majority of local demand: according to the Moroccan Association for the Pharmaceutical Industry, nearly 65% of national drug requirements in 2015 were covered by local production.

The industry – which is largely dominated by multinational subsidiaries, such as Cipla, Tecnimede, Roche and Ranbaxy, but also includes a number of local producers, including Cooper International and SunPharma – saw total annual production of 424.8m units in 2015, excluding exports, and overall turnover in 2015 reached Dh13.7bn (€1.3bn). The industry now provides nearly 40,000 direct and indirect jobs, with at least 95% local staff. In 2015 the sector recorded a 6.3% increase in exports y-o-y, to Dh1bn (€91.6m). The growth came as welcome news to an industry that had seen a decline in exports in 2014, mainly due to the loss of markets like Libya and Iraq as a result of political instability. Local players Cooper Pharma, Pharma and Sothema had the largest share of exports in 2015. Europe was the destination for 70% of exports, francophone Africa 25% and Asia 5%.

Outlook

Building on the success of the PNEI, Morocco is expected to broaden sector development under the PAI. The industrial sector has stood out regionally as a success story, securing significant foreign investment and taking real strides in reducing the trade deficit. Continuing investments in the fledging aeronautics and automotive industries, along with sustained efforts to revive the textiles and pharmaceuticals subsectors, which have lagged behind, bode well for the sector. Should local operators and foreign players work together to improve their cooperation, further development of the industrial sector will certainly be possible.