Morocco attracts automotive manufacturers and suppliers

By setting the right policies, incentives and conditions for foreign direct investment, automotive manufacturing in Morocco has developed from a burgeoning subsector with potential to become the top export product by value in 2018. The country has been able to attract some of the world’s largest car manufacturers and integrate them into an efficient ecosystem characterised by industrial and special economic zones that grant producers easy access to government services and a network of suppliers.

The industry has attracted investment from major players from Japan, the US, Europe and China. As of late 2019 the automotive segment had the capacity to produce 700,000 cars a year, led by two manufacturers – French firms Renault and Groupe PSA – and 200 suppliers that employed 180,000 people, according to the Moroccan Association for Automotive Industry and Trade (Association Marocaine pour l’Industrie et le Commerce de l’ Automobile, AMICA). It is also one of the prime generators of employment, creating almost 117,000 jobs between 2014 and 2018 – representing 28.8% of all new jobs over that period, according to figures from the Ministry of Industry, Investment, Trade and Digital Economy.

In the short to medium term officials are looking to expand installed capacity to manufacture up to 1m vehicles per year. “The world’s major automotive players are all in Morocco,” Abdelaziz Meftah, general manager of AMICA, told OBG. “The country has graduated from making items such as cables and car seats to a more diversified and complex array of products and components.”

History

The automotive industry has been present since the 1960s, with local producer Société Marocaine de Constructions Automobiles (SOMACA) assembling vehicles out of the Ain Sebaa industrial zone located near Casablanca for manufacturers such as Renault and Fiat. Locally produced vehicles were initially made for the domestic market, but later filled modest export orders. In the early years, some exports were geared towards European markets such as France and Spain, as well as Egypt and Tunisia. Morocco began to focus on attracting a larger number of automotive parts suppliers in the mid-2000s to reinforce manufacturing capacity and strengthen the value chain. The country also moved towards privatisation to attract foreign investment. State-owned SOMACA was privatised in 2003 and in March 2019 Renault became the sole owner. A critical step was taken in 2007 when the government signed an agreement with Renault to build a large-scale manufacturing plant in Tangier. The €600m ($674.5m) unit had an initial production capacity of 400,000 automobiles, 90% of which were to be exported. Production began in 2012 out of the Tanger Free Zone, and the arrival of Renault attracted automotive parts suppliers from around the world, such as Yazaki, Leoni, Antolin and Delphi. These entrants became integral elements in the automotive ecosystem in northern Morocco.

The industry was strengthened by the opening of the $2.3bn Tanger-Med Port in 2007. At the time, the port was the largest in Africa, and in June 2019 it became the largest port by container capacity in the Mediterranean after the inauguration of the $1.3bn second terminal. The port, which is located near the heart of automotive production, has played a key role in facilitating increased exports across the Mediterranean and beyond.

Exports

Increasing private sector participation have facilitated enhanced production levels and a greater contribution to exports. Between 2005 and 2010 automotive production rose from Dh12.7bn ($1.3bn) to Dh22.7bn ($2.4bn), while annual export output value more than doubled, from D9.2bn ($958.5m) to Dh18.9bn ($2bn). The upward trend has continued in recent years, with annual automotive exports increasing from D42.7bn ($4.4bn) to Dh72.3bn ($7.5bn), according to the Office des Changes. Vehicles alone, totalling Dh27.7bn ($2.9bn), accounted for over 27% of all exports in the first four months of 2019, up 0.3% year-on year.

Investment

The sector received a boost in June 2019 with the opening of Groupe PSA’s $630m automotive manufacturing plant in Kenitra’s Atlantic Free Zone. The facility will have a capacity of 100,000 vehicles by 2020, expanding to 200,000 by 2023. The facility was estimated to employ 1600 workers at the end of 2019, a figure expected to expand to 2500 in 2020. The new unit will focus on the production of Peugeot 208 vehicles for the Middle Eastern and African markets, and will also manufacture car engines. There will be a high locally sourced input component, with 60% of the parts purchased from Morocco. The company is looking to source even more from the local supply chain. In 2018 PSA ordered €850m ($955.6m) in local parts, and plans to increase this to €1bn ($1.1bn) by 2022.

Similarly to Renault’s factory attracting suppliers, the Groupe PSA investment brought with it to Kenitra an additional 27 car parts producers. Citic Dicastal, a Chinese firm specialising in manufacturing aluminium alloy parts for wheels, built a €350m ($393.5) facility nearby in late June 2019. “The Atlantic Free Zone created a full ecosystem within the region, and many new local firms have set up operations in order to supply sector players with the required components,” Badr Lahmoudi, general manager of Dicastal Morocco Africa, told OBG. Also that month, Nexteer Automotive opened a 107,000-sq-foot facility to manufacture electric power steering systems for Groupe PSA. The company’s first plant in Africa plans to employ 500 people in 2020. “We received great support from the Moroccan authorities with this crucial investment,” Hervé Boyer, president of Europe, the Middle East, Africa and South America for Nexteer Automotive, said in a statement announcing the plant. “The pro-investment approach towards starting new businesses in the region is extremely valuable.”

Other new additions to Kenitra’s automotive cluster include Chinese supplier Nanjing Xiezhong, which announced in July 2019 it would build a $15m facility to supply Groupe PSA with air conditioners, and Naples-based group Proma, which inaugurated a $33m stamping site that will employ 121 people in September of that year. Meanwhile, in September 2019 Yazaki announced it would open its fourth plant in the kingdom in Kenitra in early 2020.

Northern Expansion

The northern Tangier cluster has expanded even as suppliers have been drawn to Kenitra. In July 2018 local media reported that Volkswagen was looking to build a production unit in Tangier, although as of early 2020 no plans had been finalised. In June 2019 Galvanoplast, an automotive component treatment specialist, inaugurated a Dh140m ($14.6m) facility in Tangier. Furthermore, in November 2019 ContiTech, a subsidiary of German group Continental, announced plans to open a €3.6m factory in the city that will produce heating and cooling systems. The 5500-sq-metre unit will employ 100 people and service automakers in Tangier, Kenitra and Europe.Because of growing demand from new operations to service the industry in northern Morocco, in September 2019 the authorities announced an expansion of Tangier Automotive City’s area, from 178 ha to 517 ha. The free trade zone caters to automotive manufacturers and is located around 20 km from Tanger-Med Port.

New Deal

Automakers are also looking to take advantage of Morocco’s stability, workforce and location. In December 2017 Chinese electric car manufacturer BYD signed a deal to build a factory that produces battery-powered vehicles in the kingdom. Once operational, the unit is expected to employ 2500 people. However, as of early 2020 a timeline for the project had not been released.Major players are looking to replicate the success of the well-established automotive clusters in Tangier, Casablanca and Kenitra. “We are looking to expand these ecosystems into other regions,” AMICA’s Meftah told OBG. “For instance, we want to establish a cluster for auto parts manufacturing near Agadir.” It will also be important for the industry to move up the value chain and adopt new technologies. While Morocco has established itself on the world stage, it will be necessary to focus on innovation. “In the coming years, Morocco is expected to adapt automotive production and distribution that aligns with eco-friendly standards,” Oussama Berrada Gouzi, managing director of automotive firm Global Engines, told OBG. “With the help of sound regulations, hybrid vehicles in particular have a significant integration potential in the market.”

Indeed, hydrid and electric cars are becoming more sought-after in the local market. “Consumer trends are shifting in Morocco, and we are witnessing increasing demand when it comes to premium and eco-friendly vehicles,” Mehdi Bouhafs, managing director of Scandinavian Auto Maroc, told OBG.