Private and public initiatives strengthening Morocco's ICT sector

Morocco’s economic expansion has been positively impacting its IT sector in recent years. This is reflected both through the fast-growing telecoms industry, in addition to the consolidation of a strong services outsourcing sector, which has attracted foreign and local investment. Although IT is increasingly viewed by the domestic business community as a way to boost growth rates, a large portion of small and medium-sized enterprises (SMEs) in the kingdom lack adequate incorporation of IT into their day-to-day operations. Private sector dynamics coupled with government-led policies are trying to change this, and are slowly increasing the role of IT within the country’s business sector.

Sector Structure

Despite some important improvements over the years, Morocco still has room to cover in some aspects of its relationship with new technologies, especially within its business sector. Although the World Economic Forum, in its “Global Competitiveness Report 2014-15” ranked the country 57th out of 144 countries in terms of the availability of the latest technologies, it faired much worst in terms of firm-level technology absorption, at the 75th position. Much better ranked was the impact of foreign direct investment as a means to bring new technology into the economy, in which Morocco was ranked 45th, reflecting the positive role that integration in international markets has had in the sector over the past decade and a half.

Multinationals such as Dell, IBM or Hewlett Packard (HP) have established operations over the past decade. However, Morocco’s IT sector remains fragmented, with 10% of companies accounting for 80% of the sales volumes, according to Mokhtar Tazi, general manager at Maroc Numeric Cluster, a private-public grouping aiming to improve financing for IT startups, with the majority of firms consisting of smaller domestic operators involved in software development, systems integration, outsourcing and network architecture.

The IT sector is currently valued at Dh13.5bn (€1.5bn), according the Maroc Numeric Cluster. A January 2015 report by International Data Corporation (IDC), a consultancy and research firm focusing on the technology sector, predicts Morocco’s IT market will expand up to 8.5% in 2015.

Internet Expansion 

Much of the expansion of the IT sector over recent years has been led by the growth of internet subscriptions, which rose from 1.2m in 2009 to 10m by December 2014, according to figures by the ANRT. The market is divided between the three telecoms operators, with Maroc Telecom holding a 57.7% market share, followed by Méditel at 25.5% and Inwi at 16.8%. The majority of internet subscribers, roughly 91%, access the network through 3G technology, with only 9.8% doing so via ADSL, and about 0.02% through other means. However, ADSL connections have been growing steadily, posting a 17.6% climb in 2014, and more dynamism is expected to come out of a recent decision by the sector watchdog to force Maroc Telecom, which currently has 99.9% of the ADSL internet market, according to ANRT figures, to share its last-mile infrastructure with other operators.

Labour Pool

Human resources have become a pivotal issue for the industry’s future development and expansion in international markets. “Human resources are a major challenge in Morocco. IT academic programmes in universities and engineering schools are mainly focused on technical skills and not enough on management and soft skills. The graduates are not well prepared for professional life: they don’t know much about how a company operates,” Mahdi Bouzoubaa, general manager at Sigmatel, an IT services firm, told OBG.

Outsourcing Sector

Taking advantage of a geographic positioning within two to three time zones of Europe, sub-Saharan Africa and several Middle Eastern markets, Morocco has cultivated a sizeable off-shoring and outsourcing sector, aided by government programmes. As of early 2014, the sector employed 70,000 people and was the 6th most important economic activity in terms of export earnings, according to the Moroccan Association of Customer Relations (Association Marrocaine de la Relation Client, AMRC).

Despite the important role the sector plays in the Moroccan economy, the year 2013 saw a slowdown, marking the first year of negative growth in the sector after several years of double-digit expansion. Earnings fell from Dh7.4bn (€805.12m) in 2012 to Dh7.2bn (€783.4m) in 2013, according to the AMRC. The slump was caused by several factors: a less favourable economic environment for some of Morocco’s European customers, namely in France, and the emergence of new offshoring destinations with lower costs.

Staying on Top

The outsourcing and offshoring industry has underperformed in relation to government expectations. Within Morocco’s industrial strategy, the sector was expected to account for 100,000 jobs and Dh20bn (€2.2bn) by 2015. Given the challenges of meeting those goals by the end of the year, the Ministry of Industry, Commerce, Investment and the Digital Economy has established a new action plan, hoping to take the offshoring and outsourcing sector to up to Dh16bn (€1.7bn) in earnings by 2020, and create an extra 40,000 jobs. Part of the new strategy will focus on improving Morocco’s competitiveness as an offshore destination, in terms of costs, labour availability and location. The government brokered an agreement between the outsourcing sector and telecoms operators to reduce the price of international phone calls, which will have a 50% discount for new contracts and a 25% reduction on existing ones, according to the AMRC. These are in addition to existing incentives; since they act as exporting companies, outsourcing firms continue to benefit from income and corporate tax exemptions for the first five years of operations and favourable rates for the subsequent 20 years.

Zoning

Establishing dedicated zones and clusters for key services and industries has been an underlying strategy for the Moroccan government in recent years, with the IT sector no exception. The establishment of the technological parks began with the two major cities in the kingdom, Rabat and Casablanca. Casanearshore Park was established in Casablanca in 2007 and currently has 100 firms operating within its 300,000-sqmetre space, which represented a total investment of Dh3.4bn (€370m), according to the park’s administration. Already the biggest technological park in North Africa, Casanearshore hosts names such as Accenture, Dell, Altos Origin and HP, with 20,000 employees working in the park as of early 2015.

Further north, the Technopolis Park in Rabat also has a working space of 300,000 sq metres, where it hosts 30,000 workers and 76 firms. Total investment to establish the technology centre was Dh3.2bn (€348.2m). Authorities expect both Casanearshore Park and Rabat’s Technopolis to each contribute Dh5bn (€544m) annually to GDP by 2015.

The government is hoping to replicate the success of the two parks with smaller technological clusters in mid-sized cities around the kingdom, to expand job creation opportunities outside of the two major cities in the country, and to encourage the growth of outsourcing operations in smaller cities with lower fixed costs. The latter point is crucial if Morocco is to remain competitive against lower cost Middle East and subSaharan African countries. “Morocco is no longer a low-cost destination. Tunisia, for example, produces more technicians than engineers, and so has become an attractive low-cost market. Morocco is more of a qualitative market, so we need to keep raising the level for more value-added IT services provision,” Tazi said.

The third technological park in the country opened in the northern city of Tétouan in 2012, and is managed by Tanger Med, which also oversees Morocco’s newest port facility. The park will eventually develop into a 100,000-sq-metre office space area.

Fez Shore in the city of Fez has 131,000 ha of equipped office spaces, and MedZSourcing, which also manages the technological parks in Casablanca and Rabat, expects Fez Shore to have a 50% occupation rate in the first half of 2015. The latest addition to Morocco’s IT park network is Oujda. The first section of the park came online in mid-2013, opening 50,000 sq metres of equipped office space. The whole park covers 107 ha and amounted to an initial investment of €500m.

Government Policy

Much of the drive for the development of Morocco’s IT sector coming from the public sector has been concentrated on the Digital Morocco 2013 strategy, launched in 2009 and supported by a Dh5.2bn (€565.8m) budget. The Digital Morocco 2013 plan established several goals, and aimed to give a big push to increase the way Moroccan businesses interact with technology. One of the goals of the programme was to increase IT expenditure by Moroccan businesses from 0.5% of earnings to 1%. Part of this has been done through new financing mechanisms for private SMEs as well as larger state-owned firms to increase use of IT. State support for IT usage allowed for the establishment of a reimbursement system to cover up to 60% of IT acquisition costs by businesses, to a Dh400,000 (€43,520) threshold.

Another important element was to improve support for Moroccan start-ups to create a favourable environment for IT entrepreneurship. This is currently done by two main vehicles. One is the Maroc Numeric Fund (MNF), created in 2009 with a total value of Dh100m (€10.88m). Put together by the state-owned Deposit and Management Fund in cooperation with three of Morocco’s biggest banks – Banque Central Populaire, BMCE Bank and Attijariwafa Bank – the fund invests Dh1m (€108,800) to Dh4m (€435,200) in start-up IT businesses with the possibility of additional capital, taking shareholding positions in the firms. In the first trimester 2015, MNF had invested in 12 businesses, such as Virtual Building Solution, a software company specialising in solutions to improve management of real estate assets and Education Media Company, a platform focusing on online education. Another fund, through the Moroccan Centre for Innovation has Dh400m (€43.52m) to support emerging businesses with loans and grants, including IT ventures.

Support is provided through zero-interest loans to firms in their initial phases, by financing 50% to 90% of expenses or specific research and development projects, with financing amounts of up to Dh4m (€435,200).

Outlook

Closely aligned with international trends in terms of technological adoption and investment flows into outsourcing service provision, the Moroccan IT sector has visibly expanded in recent years. Nevertheless, some constraints in implementation have caused delays. Accelerating the process and bringing a greater number of services online will increase IT adoption by Moroccans and help improve the relationship between the state and the citizens. Much of this will also need more public investment in IT. Despite the considerable role that private consumption in IT services and equipment will have in the coming years, authorities have signalled that under the Digital Morocco Strategy 2020, the government will aim to promote greater investment in data centre capacity and cloud computing. “The expansion of cloud computing can have a positive impact on SMEs,” Abdellah Idrissi, CEO of Sicotel, told OBG. “Particularly in terms of modernising operations, by reducing the costs of technology.” Still, while IT outsourcing needs to climb the value chain to keep growing and improve its competitiveness, in the medium term, sector growth depends on human resources.