Public investment and regulatory reforms support recovery of Morocco's construction sector

Morocco’s construction sector has performed moderately well since the global financial crisis of 2007-08. According to the most recent figures from the Ministry of National Planning, Urban Planning, Housing and Urban Policy, the sector contributed 6.3% to economic growth in 2017, or Dh59bn ($6.1bn), and created 15,000 jobs, including 1000 in rural areas. “Thanks to the quality of the workforce, including engineers and other skilled professionals, the sector has seen its performance and expertise improve in recent years,” Zaid Lahbabi, general manager at Global Infrastructure Development North Africa, a private contractor, told OBG.

The construction and public works sector grew by 1.3% in the third quarter of 2019, compared to a decline of 0.1% in the same period of 2018. Policies aim to support small and medium-sized enterprises (SMEs) and upskill workers. In June 2019 a decree was passed stating Moroccan firms must hold at least a 15% stake in public construction projects. By developing the local workforce, authorities aim to increase the sector’s annual turnover from Dh53,000 ($5520) per worker in 2014 to Dh67,000 ($6980) by 2022.

Performance

According to a report published by market analysis firm Fitch Solutions in 2018, Morocco’s construction sector is expected to grow by an average of 3.1% per year until 2028. The agency forecast that growth will be slower compared to recent years, as large-scale projects such as the Casablanca-Tangier high-speed rail line and the Tanger-Med II port have been completed. Fitch also noted that the kingdom will be outperformed by other countries in the MENA region such as Egypt and Qatar, where average growth is expected to reach around 8% over the same period. Nevertheless, the outlook for the sector remains promising, with a large portfolio of projects supported by government funding, which should provide a steady flow of investment opportunities. The authorities are confident that the sector will see healthy growth in the years ahead, with the government aiming to generate Dh81bn ($8.4bn) from construction activity by 2022, creating around 1.2m new jobs.

Despite slowed growth in recent years, construction remains a major contributor to the economy. In 2018 the sector accounted for the second-largest proportion of newly established companies, at 17% of the total. While this is a sign that construction activity is healthy, the market is characterised by a high number of small firms and a small number of larger players, resulting in price competition among small-scale subcontractors.

Public Investment

The 2019 budget earmarked Dh40bn ($4.2bn) for the construction sector, down from Dh42bn ($4.4bn) in 2018. Roughly Dh18bn ($1.9bn) of this total was allotted for major public infrastructure projects, including the construction of government and administrative buildings, hospitals, airports, and cultural and religious sites.

Around Dh9bn ($937.6m) was allocated to road management, while Dh4.6bn ($479.2m) was set aside for highways, to be divided between 35 construction projects and 18 feasibility studies. Some Dh1.1bn ($114.9m) was assigned to construction projects, civil engineering and studies being carried out by the National Railways Office. This funding helped to accelerate plans to upgrade and extend the rail network, with the aim of improving connections between the country’s special economic zones and coastal and dry ports.

The ports segment received Dh11.6bn ($1.2bn) of the sector’s total budget, which was used to support the 20-year National Ports Strategy. The strategy aims to increase the country’s maritime shipping traffic from 92m tonnes in 2010 to 300m tonnes in 2030. Its share of the 2019 budget was largely allocated to the development of new ports such as Dakhla Atlantique and Nador West Med, as well as the expansion of existing facilities. To this end, the National Ports Authority launched a Dh3.2bn ($333.4m) programme to upgrade ports between 2019 and 2021, under which a maritime station and fixed footbridge will be built in Casablanca.

The water segment was also a major recipient of construction funding, receiving a total of Dh6.4bn ($666.8m), divided among urban and rural drinking water supply and water sanitation. As cities rapidly expand and Morocco’s economy remains dominated by the agriculture sector, water systems are a major part of the country’s public infrastructure strategy. Furthermore, the Priority Programme for Drinking Water Supply and Irrigation 2020-27 was adopted in January 2020, which plans to allocate a total of Dh115bn ($12bn) to the development of water infrastructure over the seven-year period. This investment will go towards the construction of 20 dams, with the goal of raising water storage capacity from 5.4bn cu metres to 27.3bn cu metres by 2027.

Public-Private Partnerships

In order to meet its infrastructure financing needs, which are estimated at 8-14% of GDP, Morocco is increasingly looking to public-private partnerships (PPPs) to fund construction projects. Of the total Dh77bn ($8bn) of public investment earmarked in the 2020 budget, Dh12bn ($1.2bn), or 15.6%, is to be financed by PPPs, with plans for this proportion to increase over the coming years.

To this end, in January 2020 an amendment to Law No. 46-18 governing PPPs was introduced, which widened the scope of PPP applications to include local authorities. Additionally, the amended law established a National PPP Commission, which is overseen by the prime minister and is responsible for setting the national PPP strategy, defining best practices for contracting and providing technical assistance to local administrations in organising PPP contracts.

Cement

The production and consumption of cement remains stable, with a steady flow of investment helping to raise capacity after a period of decline. The kingdom is home to four cement producers: LafargeHolcim, which held a 54% market share as of 2017; Ciments du Maroc, with 24%; Ciment de l’Atlas, with 14%; and Asment de Témara, with the remaining 8%. In 2017 these producers generated a total Dh16bn ($1.7bn) in revenue. In 2020 the segment is expected to generate approximately Dh18.8bn ($2bn).

According to government statistics, cement sales increased by 2.5% in 2019 to reach 13.6m tonnes, compared to a decline of 3.6% the previous year, when 13.3m tonnes of cement was sold, breaking the segment’s downward trend after three consecutive years of falling sales. BMCE forecast that this growth will continue into 2020, with an “expected revival of activity” as a result of a public works budget of approximately Dh32bn ($3.3bn). However, the firm also noted that in the years ahead cement sales may be negatively affected by slowing demand in the real estate market, rising electricity costs and the introduction of a 2.5% social solidarity contribution on companies’ taxable profits exceeding Dh40m ($4.2bn) in FY 2019/20.

Muted growth did not impede the expansion of cement manufacturing facilities in 2019. The Société Générale des Travaux du Maroc signed a Dh2.4bn ($250m) agreement in June 2019 with the national infrastructure company Tekcim to build a cement plant in El Jadida, which will have a capacity of 1.4m tonnes and is scheduled to be completed in 2022.

Additionally, in May 2019 Ciments du Maroc announced the acquisition of Atlantic Ciment and Cimsud, two subsidiaries of local conglomerate Anouar Invest. Atlantic Ciment is in the process of developing a 2.2m-tonne cement plant in Settat, while Cimsud is building a 500,000-tonne grinding plant in Laâyoune. The new facilities will supplement its three operating plants in Agadir, Safi and Marrakech.

Casablanca

The year 2020 marks the end of the 2015-20 Development Plan for Casablanca, which aimed to improve the city’s quality of life, regional connectivity and economic attractiveness. Some of the plan’s major achievements include the completion of the Dh200m ($20.8m) sea promenade for the Hassan II Mosque, the largest mosque in Africa; a Dh300m ($31.2m) initiative to renovate the Casablanca medina, its pre-colonial old town; and the Dh1.3bn ($135.4m) Marina Shopping Mall, which opened in April 2019 and has a total gross leasable area of 43,000 sq metres, comprising offices, commercial areas and residential units.

Meanwhile, new projects in Casablanca continue to be announced. In December 2019 real estate company Compagnie Générale Immobiliere launched the marketing of its Luxuria Tower development, a 1792-sq-metre residential building containing 50 high-end apartments.

To support these developments, the city is looking to expand its public transport system to cover 100 km by 2022. The tramway network stands at a total length of 47 km, with plans to construct two new lines to extend it by 20 km by 2022. The authorities also plan to reinforce Casablanca’s rapid-service bus lines, which currently have a capacity of 100,000 passengers per line per day.

Efforts are under way to increase car park capacity in the city in order to alleviate congestion and reduce inner city traffic. This is particularly important as the country continues to expand its road and highway infrastructure, with the construction of the Dh2bn ($208.4m) Casa-Berrechid highway and the enlargement of the Berrechid Tit-Mellil highway connecting the city to nearby industrial zones. This comes alongside the announcement in 2019 of the construction of a new rail line connecting Mohammed V International Airport to the existing high-speed railway, at a total investment of Dh3.8bn ($395.9m).

Rabat

Major construction projects are also under way in Morocco’s capital city, Rabat. Construction of the 250-metre Mohammed VI Tower began in 2019 at an expected cost of Dh4bn ($416.7m), and it is scheduled to be completed in 2022. The tower is being developed by Belgian contractor Besix and local firm Travaux Generaux De Construction De Casablanca. The 55-storey building will include 12 floors of offices, 14 floors of residential units and a luxury hotel.

Eco-Cities

Alongside the expansion of infrastructure in Morocco’s existing urban centres, new, sustainable cities are increasingly being developed. Four eco-city projects have been launched by phosphate company OCP Group and state-owned investment fund Caisse de Dépôt et de Gestion du Maroc (CDG). The first phase of the city of Zenata, located 30 km north of Casablanca, is set to be completed in 2020 at a cost of Dh11bn ($1.1bn). The 8-sq-km development will contain 2000 residential units. The city is being financed by a Dh23bn ($2.4bn) investment from the CDG and is expected to cover a total 18.3 sq km, 30% of which will be green space. The eco-city will also include an industrial area, schools and health care facilities, clean transportation infrastructure and a dry port.

Renewable Energy

In line with the increased uptake of sustainable building methods, the kingdom is looking to raise its renewable energy capacity with the aim of using 42% renewables by 2020 and 52% by 2030. Morocco’s current renewables output is supplied by 11 wind farms, accounting for 33%; four solar power plants, representing 19%; and hydroelectricity making up the remaining 48%. To meet its goal of 6000-MW capacity by 2020, the country plans to construct an additional 640 MW of wind power and 1150 MW of solar power generation. These projects will be complemented by new power plants to supply the distribution network. The 580-MW Noor Ouarzazate solar plant was finalised in 2018 and successful storage tests were completed in December 2019 by Swedish energy storage firm Azelio. In 2020 two other major solar plants, Noor Midelt I and II, are to be built with a capacity of 800 MW and 230 MW, respectively (see Energy & Utilities chapter).

Structural Difficulties

In order for the sector to expand it still needs to overcome a number of structural challenges that impede development. The sector remains reliant on bank loans; in 2018 its outstanding debt totalled Dh95.7bn ($10bn). In recent years banks have taken a project-appraisal method rather than a client-appraisal approach, and readjusted budgeting plans to ensure that contractors are held accountable and funds are not directed to other projects.

The sector’s reliance on bank loans has been compounded by an increase in payment delays. According to a study conducted by French insurance firm Euler Hermes, the average length of payment delay for Morocco’s construction sector increased from 57 days in 2015 to 71 days in 2017.

Another structural problem faced by the sector is the prevalence of informal activity. In the construction sector, subcontractors often work on an informal basis or employ informal staff. In order to tackle this issue, a contract was signed between the government and the professional associations for engineering and construction in September 2018 to enforce a code of conduct for public works, with the aim of better regulating local firms and outsourcing companies.

Outlook

For Morocco’s construction sector to achieve its target of generating Dh81bn ($8.4bn) by 2022, it will need to maintain a steady momentum of public investment. At the same time, efforts to upgrade the legal framework in order to enable effective PPP projects, formalise small-scale subcontractors and upskill the workforce will be required to raise productivity and increase the value of infrastructure projects.