New industrial policy in Morocco stimulating growth in many segments

Although affected by a trading slowdown in recent years, indicators in the second half of 2014 have displayed some signs of recovery in Morocco’s industrial sector. According to preliminary data released by the High Planning Commission (Haut Commissariat au Plan, HCP), the sector’s value added, excluding oil, refining increased from 0.8% in 2013 to 1.8% in 2014.

Acceleration Plan

While certain subsectors like aeronautics and the automotive industry have made significant strides over the past decade, others like textiles and pharmaceuticals have lagged behind. To encourage wider growth across the sector, the government introduced a new industrial policy in April 2014 known as the Industrial Acceleration Plan (Plan d’Accélération Industrielle, PAI).

The PAI aims to bring the sector’s contribution to GDP from its current 14% to 23% by 2020 and create 500,000 new jobs. It is expected to derive a large part of its success from its development of “ecosystems”, or productive industrial clusters, aimed at stimulating growth and enhancing competition of the sector’s various components. This approach is expected to ensure technology transfers as well as further business integration to improve quality and productivity.

Success Emerged

The PAI follows past efforts to develop industrial activity under the 2009-15 National Pact for Industrial Emergence (Pacte National pour l’Emergence Industrielle, PNEI). The PNEI targeted the development and the modernisation of six key export industries, collectively referred to as the world crafts of Morocco (métiers mondiaux du Maroc), including aeronautics, auto-industry, agro-industry, offshoring, textiles and pharmaceuticals.

Between 2008 and 2011, up to 110,000 jobs were created in the industrial sector, while its exports rose on average 22% a year. Further to this, infrastructure was improved through projects like the Tanger Med port, and access to land was facilitated by the creating of integrated platforms that helped attract manufacturers such as Renault, Boeing and Bombardier.

“The PNEI has allowed us to establish the foundations for the development of Moroccan industry,” Abdelaziz Meftah, director of the Moroccan Association for Automotive Industry and Trade (Association Marocaine pour l’Industrie et le Commerce de l’ Automobile, AMICA), told OBG. “The sector has moved on to a whole new level. We no longer talk of an affordable workforce, for instance, but rather of qualified labour and adequate infrastructure.”

The PAI aims at capitalising on the achievements accomplished under the PNEI, particularly in the automotive and aeronautics industries, while also focusing on the country’s traditional segments such as the textile and pharmaceuticals industries, which have experienced slower growth in recent years. Moreover, the Industrial Development Fund (Fonds de Développement Industriel, FDI) has been created under the PAI as a Dh20bn ($2.18bn) public fund to allow for the consolidation and modernisation of Morocco’s industrial fabric. The FDI will also work to develop the sector’s capacity to substitute its need for imported goods, while incentivising the transition of businesses from the informal to the formal sector.

Making Headway

Efforts to support growth and attract investment have been paying off. Foreign companies have been drawn in particular to aeronautics and the automotive industry. “Headway made in certain sectors under the PNEI has been partly achieved on the back of combined efforts and cross-cutting policies of various ministries and sector players,” Adnane Loukili, partner at consultancy Mazars, told OBG. “For sectors which have met with success, mechanisms were set up for optimised collaboration between operators and public authorities and action plans were defined to develop training, ease access to land and facilitate the process of setting up shop in-country,” he added. For instance, the Moroccan Association of Aeronautics and Aerospace and AMICA act as the main representatives between operators of their respective sectors and the government.

Small Businesses

While small and medium-sized enterprises (SMEs), which account for 95% of businesses in Morocco, have benefitted from recent government incentives, notably the Moukawalati, Imtiaz and Moussanada programmes, which partially guarantee bank loan financing, support the growth of promising SMEs and improve the productivity of SMEs, respectively, output from this sector has nonetheless been hampered by obstacles common to many emerging markets. These include difficulties in accessing finance and land, a lack of skilled labour, cumbersome bureaucracy and a growing informal sector.

To this end, the ecosystems targeted under the PAI aim at bringing large-scale firms and SMEs closer together to reduce fragmentation, promote industrial integration into larger supply chains, and encourage subcontracting to local small businesses. The first ecosystem was formed in the automotive industry in 2014. “While a number of multinational firms are present in Morocco and are capable of expanding their activities, there is a significant number of domestic SMEs which have developed competencies and are in line with international standards,” AMICA’s Meftah told OBG. “The idea now is to involve them in this burgeoning business and help them develop their operations around existing and potential foreign firms.”

Zones

The PAI also targets the creation of new industrial parks using the model of the Tangiers Free Zone (TFZ) with a one-stop window to ease administration for tenants. Established in 1999, the 400-ha industrial park had by 2013 managed to attract €2bn in investment, host up to 500 companies and create 45,000 jobs. Similarly, Tangiers Automobile City, a subsidiary of TFZ, is located in Chrafate and represented a Dh860m (€93.57m) investment, while the Atlantic Free Zone is a 340-ha zone located in Kenitra, north of Casablanca. Fiscal incentives to spur investment and which apply to all free zones include a tax exemption during the first five years of operations and a reduced rate of 8.75% over the following 25 years.

Trade Relations

The rise in manufacturing activities has helped sustain overall exports and bolstered Morocco’s efforts to strengthen its trade balance. A great deal of business has been facilitated thanks to the free trade agreements (FTAs) Morocco has signed with up to 56 countries. For example, the landmark FTA with the US signed in 2004 – the first signed by the US within the region – led to a 2.5-fold increase in Moroccan exports to the US in 2013 versus 2003, to $977m. Closer to home, however, negotiations for a Deep and Comprehensive Free Trade Area (DCFTA) between the EU and Morocco have been ongoing since 2013. This accord aims at broadening the scope of the current Association Agreement governing trade relations between the EU and the kingdom since 2000. In addition to providing a free trade area, the DCFTA aims primarily at aligning Moroccan legislation with that of the EU in trade-related areas and will include trade in services, intellectual property rights, investment protection and the adoption of EU industrial standards, technical regulations and sanitary measures.

Automative

According to preliminary data from the Office des Changes, the auto industry saw its exports increase by 26.2% in 2014 over 2013, reaching Dh39.8bn (€4.3bn) and placing the industry, for the first time, as the kingdom’s leading exporter, rivalling phosphates, agriculture and textiles. The PAI target is to bring the sector’s exports to Dh100bn (€10.8bn) by 2020. In terms of employment, the sector expects to create up to 90,000 new jobs over the next five years, up from employing 80,000 people at present. In terms of output, the sector produced 400,000 cars in 2014 – with Renault alone producing 227,579 vehicles. The PAI aims to reach a target of 800,000 cars by 2020.

The automotive sector is made up of 160 industrial units, located for the largest part to the north-west of the country, in the Tangiers area where a number of specialised industrial and free zones have been set up. Renault, which entered the market in 2012, holds a controlling position in the two main car manufacturing factories, Société Marocaine de Construction Automobiles and a factory at Mellousa which manufactures the firm’s low-cost Dacia brand. The site at Mellousa produced 174,245 vehicles in 2014, up from 100,000 the previous year. Further to this, PSA Peugeot Citroën is also expanding its business in Morocco, aiming to increase output to 200,000 units to meet growing demand, up from an initial production capacity of 90,000 engines and vehicles.

As business expands, one of the main objectives outlined in the PAI strategy is bringing the integration rate from its current 45% to 60% by 2020 through the development of sector ecosystems to further broaden the local supply chain. Four ecosystems to support the pooling of resources have been earmarked for development and include cabling, battery, vehicle interior and seats, and deep drawing of sheet metal.

The past decade has seen a dense network of component and cabling suppliers emerge as a result. The cabling segment alone generated Dh17.2bn (€1.87bn) in export revenue in 2014, according to the Office des Changes. Given the relatively small size of the local market, however, the industry will need to look further outward to bolster its exports and capture new market shares. “Morocco’s automotive wiring industry has the capacity to respond to the needs of all kinds of car manufacturers,” Abdeslam Benjelloun, general manager at automotive component maker Yazaki Kenitra, told OBG. “The government could prospect more among international companies – including luxury carmakers – which could further boost an automotive industry that is already very dynamic.”

Established Tier 1 and Tier 2 suppliers working with European investors have maintained their focus on supplying industrial platforms in countries like Brazil, Mexico and the US. Expansion plans in 2014 included US-based Delphi, which opened its third factory specialising in car wiring in the Atlantic Free Zone of Kenitra. The manufacturing plant is expected to create 1650 jobs and generate Dh870m (€94.7m) in turnover. Spain’s Grupo Antolin opened a second manufacturing unit at the end of 2014 in Tangiers specialised in sewing car seat covers, while German Leoni invested €7.5m in a new automotive wiring factory in Berrechid in October 2014. The PAI strategy also aims at attracting new investment into the sector in a bid to reduce existing and potential needs for imported raw materials. This is also expected to afford the industry the possibility of developing more complex jobs to shift from manufacturing parts to manufacturing entire automotive components, for instance.

“The idea is to move away from the perception of simply being a manufacturing country and get on to a superior level focusing on higher value addition and enhanced know-how,” Salma Adnan, AMICA’s communication and marketing manager, told OBG.

Aeronautics

Morocco’s aeronautics sector has made remarkable strides over the past decade and today some of the world’s major players have come to set up manufacturing bases in the country. These include Safran, Bombardier, Boeing and Airbus, among others. As of 2013, the sector had generated $1bn in turnover and accounted for 6% of total exports.

While the PNEI oversaw the establishment of the industry’s main foundations through the creation of dedicated industrial platforms such as Midparc and specialised training institutes such as the Moroccan Aerospace institute (Institut des Metiers de l’ Aeronautique, IMA), the PAI aims at fostering consolidation within the sector through its approach to form productive ecosystems and move activities up the value chain. Recent years have seen several operators expand their production capacities to meet the burgeoning industry’s needs in a more cost-efficient manner.

The ecosystem approach rolled out under the PAI should see further integration between subcontractors, suppliers and component providers to meet demand but also stimulate innovation to allow for more complex professions to emerge (see analysis).

Textiles

After several years of sluggish performance, the textiles industry is showing signs of recovery, with exports rising by 5% in 2014, according to preliminary figures from the Office des Changes. The dismantling of the multi-fibre accord in 2005, which increased competition from Asian manufacturers, followed by the reduction of demand in the wake of the global economic crisis in 2008, both contributed to the slowdown seen in the last decade. A shift in focus from exports to the domestic market over the past three years among Asian producers and the gradual recovery of the global economy has enabled Morocco to reclaim market share (see analysis).

A major benefactor of the PAI strategy, the sector has identified six ecosystems for development and include fast fashion, denim, technical textiles, home and lifestyle use textiles, knitwear and distribution. Once in place, these ecosystems are expected to attract investors, and suppliers of raw materials in particular, to form productive industrial clusters and ultimately reduce the import bill for these goods.

The Domestic Market

Changes in consumption habits and improved purchasing power should help support growth for local producers, albeit to a modest extent. Although a wide range of multinational companies operate from within the country, there are only a few brands that source locally and cater to Moroccan consumers. “The habits of Moroccan consumers are changing quickly, with urbanisation being one of its main drivers,” Abdelkhalek El Youbi, general manager of the bottled water company Eaux Minérales d'Oulmès, told OBG. The kingdom’s most popular brands include Marwa, a women’s clothing store established in 2003 and present in three different countries, and Diamantine, which has around 80 stores locally and specialises in traditional garments.

Pharmaceuticals

Morocco has the second-largest pharmaceuticals manufacturing industry on the continent after South Africa, with up to 70% of domestic demand for medicine met through local firms. The high costs of medicines have kept consumption levels low, with annual spending per citizen around Dh400-500 (€36-40) compared to €61 in Algeria and €98 globally. Recent attempts to improve access to medicines include the national Medical Assistance Regime introduced in 2009, which aims to improve access to health care by providing 27% of the population with insurance. This was followed in 2013 by the government’s decision to reduce the price on hundreds of medicines. As of 2014, up to 800 medicines have seen their prices lowered (see analysis).

Manufacturers have sought to expand in sub-Saharan Africa. In 2013 Moroccan Sothema inaugurated West Africa Pharma, a manufacturing unit in Senegal that produces generic drugs for the Senegalese market and member countries of the Economic Community of West African States. In 2014 the Moroccan firm Cooper Pharma – which has invested in more than 10 countries across Africa – signed an agreement with Côte d’Ivoire to set up a drug production unit as the firm tries to consolidate its regional presence.

In early 2015 Cooper Pharma alongside Morocco’s Pharmaceutical Institute entered a joint venture agreement with Mumbai-based Cipla to open a production unit specialising in medicine for respiratory and neurological diseases. The unit in which the Indian firm holds a majority stake (60%) is expected to be delivered in 2017. While this accord will strengthen Cipla’s presence in the kingdom, it will also benefit from its strategic location as a gateway to Africa.

Agro-Industry

Agribusiness is Morocco’s second-largest industrial sub-segment, representing around 27% of industrial GDP and employing up to 143,000 people (see Agriculture chapter). Key growth segments in recent years include cereals, dairy and poultry, bolstered by efforts under the country’s Green Morocco Plan (Plan Maroc Vert) to enhance investment in the sector and strengthen collaboration between upstream and downstream activities.

To that end, six key agricultural sites, Meknes and Berkane in the country’s north, Tadla and El Haouz in the interior, and Agadir and Gharb on the Atlantic coast, were identified for development in a bid to establish a favourable business environment through better access to land, while boosting value added. As of mid-2015 two out of the expected six have been completed (see Agriculture chapter). A state-backed investment project is also expected to be signed by the end of 2015 to enhance the competitiveness of Moroccan foodstuffs in the face of rising domestic and international competition. Processed Moroccan products are largely sold locally, accounting for just 12% of total industrial exports. Mainly comprising canned goods and olive oil, the accord will help diversify the structure of the country’s processed food exports and expand market shares. Changes to export procedures have also helped, for instance the removal of the “engagement de change” in 2014.

The country will still need to overcome several obstacles to realise its potential. “One of the challenges for the agro-industry is to be able to respond to all income levels. To do so, packaging and marketing are essential reaching a variety of consumers,” El Youbi said. Irregular access to inputs, rising competition fuelled by imports from the 56 countries with which Morocco has concluded FTAs, and a proliferating informal sector are other challenges.

While these constraints have impeded business development in recent years, the sector has nonetheless witnessed some major acquisitions in recent years. In 2012 French Sofiproteol acquired a 41% stake in state-owned Lesieur-Cristal at a price of Dh1.3bn (€141.4m). Moroccan biscuit producer, Bimo, was acquired by American Kraft Foods in 2013 for a total of $151m. More recently, French Danone announced in November 2014 its plans to acquire a further 21.75% of shares in Moroccan dairy firm, Centrale Laitère, for €278m, increasing its stake to 90.86%.

Phosphates

The extraction and processing of phosphates are dominated by OCP S.A., which was formerly the state-owned Office Chérifien des Phosphates. The firm is the largest player in the mining sector in terms of output and revenue (see Mining overview), as phosphates make up 90% of mining activity in Morocco and contribute as much as 6% of total GDP.

OCP S.A. is carrying out a Dh130bn (€14.1bn) industrial development plan to increase output and modernise production. The installation of the 235-km Khouribga-Jorf Lasfar slurry pipeline was the highlight of the firm’s realisations in 2014, allowing for the direct transportation of phosphates from its Khouribga mines to its production sites in Jorf Lasfar. On the back of declining phosphate prices, boosting value addition through the production of enhanced fertiliser has become key and demand is likely to expand as countries seek to increase agricultural output to meet food needs (see Agriculture chapter).

Steel

The steel industry’s performance has suffered from various setbacks in recent years. Oversupply on the international market led prices to drop from $1300 per tonne in 2007 to $300 in 2012. The medium-term outlook is bright, given the many construction projects under way, although the industry was affected by payment delays, which went from five months in 2013 to seven months in 2014.

Morocco’s sole producer of hot-rolled steel sheets, Maghreb Steel, which employs 2000 people, was affected in 2012 by the alleged dumping of European and Turkish producers of steel below the price on the Moroccan market. The crisis had struck the company after years of investment to expand production capacity and coincided with the inauguration of its Mohammedia facility in 2012, estimated at a total cost of Dh5.7bn (€620.2m) with an established production capacity of 1m tonnes. The firm’s turnover has suffered as a result. The government intervened in November 2013 by imposing an anti-dumping import duty which has since been reviewed given the demands of other sector operators.

ArcelorMittal, present in Morocco via Moroccan steel manufacturing company Sonasid in which it holds a 32% share, contested the government’s decision, but a compromise was met in June 2014 to half the import rate to which the firm had been subjected to 11.06%. Sonasid made net income of Dh123m (€13.4m) in 2014, up from Dh86m (€9.4m) in 2013, a rise of 47%. Other European and Turkish producers, however, have respectively been subjected to revised rates of 22.11% and 11% – down from 29.12% – as of September 2014. These rates will apply over the next five years on all imports of hot-rolled steel sheets.

In 2014 the industry saw the arrival of Chinese Shandong Shangang. Estimated to cost more than Dh1.3bn (€141.4m), the firm’s production unit in the TFZ is set to produce 250,000 tonnes of steel and generate 228 jobs. Exports to Europe will comprise 70% of the company’s production, while the remaining 30% will be sold on the African market.

Cement

Several major cement companies operate in Morocco, namely Moroccan Ciment de l’Atlas, Swiss Holcim, French Lafarge Maroc, Brazilian Asment Témara and Italian Ciments du Maroc. The industry’s total combined capacity is estimated at 22m tonnes. Planned large-scale infrastructure projects range from the extension of both tramway systems in Casablanca and Rabat, to the Nador West Med port project.

Cement sales have dwindled in the past three years, dropping from 16m tonnes to 14m tonnes due to sluggish performance in the construction and real estate sectors. According to the Ministry of Housing, cement consumption decreased by 5.41% in 2014. Despite the slowdown, Italcementi’s subsidiary, Ciments du Maroc invested Dh170m (€18.5m) in a cement facility located in Jorf Lasfar expected to have an annual production capacity of 450,000 tonnes. The sector also saw the advent of a new company, Atlantic Ciment, a subsidiary of Moroccan holding Anouar Invest, in May 2014. The new firm concluded a deal worth Dh3bn (€326.4m) with Chinese Chengdu Design & Research Institute of Building Material Industry to establish a production facility in Settat. The factory is expected to be complete in 2018, with an annual production capacity of 2.2m tonnes.

Outlook

The PAI is expected to continue diversifying the sector and to move activities up the value chain in the coming years. “Under the PNEI, Morocco succeeded in attracting foreign investors, and therefore we should now focus on developing local operators by encouraging them to form joint ventures with these foreign players, for instance, to better understand and master a given profession,” Loukili told OBG. Plans for investment in aeronautics and the automotive segments bode well for the sector’s future, while efforts to revive the textile and pharmaceuticals industries, as demand picks up again, should help put the PAI on the right path to achieving its goals.