Infrastructure and housing developing driving growth in Morocco's construction sector

Supported by housing demand and infrastructure plans, Morocco’s construction companies have been able to maintain steady performances despite the negative effects of a host of local and international factors. The economic downturn in Europe and regional instability have dampened investment flows to the sector in recent years, while lower levels of credit to the real estate industry from banks have posed additional challenges on new mixed-use projects. In the transition from 2016 to 2017, Morocco’s construction sector was further affected by the political sphere, with the formation of a new government proving challenging in the aftermath of 2016 elections. “About 80% of the work in construction and infrastructure comes from the public sector. The delay in forming a government was reflected in payments as well as the launch of new projects,” Jad Benhamdane, senior business analyst at BMCE Bank of Africa, told OBG. Although, this may be temporary as public involvement rises again. “Morocco saw a significant slowdown in public investments between April and July 2017. However, given that numerous tenders have been on standby, public investments started to pick up again by August 2017,” Driss Elrhazi, CEO at local construction firm Sogea Maroc, told OBG.

Despite these challenges, the need to further expand the country’s transport and energy infrastructure, as well as government efforts to reduce the housing deficit, will continue to underpin the construction sector over the long term. Construction accounted for about 6.6% of GDP in 2015, according to the latest figures from the French Chamber of Commerce and Industry of Morocco. The sector is also an important employer, accounting for 9% of the active Moroccan workforce and creating approximately 36,000 new jobs in 2016, according to international media reports.

INFRASTRUCTURE DEVELOPMENT: The authorities have committed a considerable amount of funds to modernising infrastructure. This has positively affected the construction sector both in terms of the consumption of construction materials, and the volume of projects involving international and domestic construction and engineering firms. “When you look at small infrastructure projects, there are a lot of local Moroccan firms adding to competition. But if you look at bigger projects, you will see large-scale international companies,” Hicham Kabbaj, deputy general manager at Jacobs Engineering, told OBG. “Morocco has been very stable in a region beset with instability, and this has attracted a large number of international firms.”

According to industry media, the country invested over $15bn in revamping its basic infrastructure between 2010 and 2015. The coming years should witness a continuing flow of construction projects, focused on port expansion, railway networks, and energy production and transmission. “We expect to see a healthy flow of sizeable infrastructure projects that will continue to positively impact the engineering and construction part of the market,” Kabbaj added.

ROADS: Expanding Morocco’s road network has been a government priority. Over the past two decades, a total investment of Dh55bn (€5.1bn) has allowed for the establishment of almost 1800 km of roads, which now connect 70% of the country’s cities. The Ministry of Equipment, Transport and Logistics has already drawn up some of the main goals of the coming road development plan. To be implemented through to 2035, the new strategy aims to build an additional 3400 km of motorway and 2100 km of expressway. The plan expects to mobilise funds of up to Dh96bn (€8.9bn).

Meanwhile, construction on prominent projects has been advancing. The 143-km highway connecting El Jadida to Safi was completed in 2016, and includes six interchanges and three bridges. In addition, the expansion of the Casablanca-Berrechid highway is under way. Commencing in mid-2016, the estimated $62m project aims to reduce congestion in the outskirts of Casablanca. Meanwhile, in Casablanca, construction of a new 1.9-km road tunnel with 2.3 km of access roads began in early 2017. The tunnel, which aims to ease rush-hour traffic jams in Morocco’s busiest city, is estimated to cost over $80m.

RAILWAY AMBITIONS: In a bid to reduce the level of congestion in the kingdom’s growing urban centres, transport authorities have turned to tramway systems. In the capital Rabat, the existing tramway line is set to undergo a Dh5.6bn (€518.6m) extension that will add 29 km to the current network by 2022. The development of Casablanca’s tramway system is moving along as well. In 2016 Casa Transport, the body in charge of managing the city’s tramway system, awarded the contracts for the extension of line 1 and the building of the city’s second tramway line. Combined, work on these two projects is set to cost Dh4.15bn (€384.3m).

Turkish contractor Yapı Merkezi, which participated in building the city’s first tram line, won a €83m contract to build the second line, which will run for over 14 km and include 20 stations. In late 2015 French manufacturer Alstom won the Dh1bn (€92.6m) contract for the provision of the line’s rolling stock. Engie, also of France, received the contract to supply signalling technology, CCTV equipment and fire detection equipment for both the first line extension and the new second line. Construction of Casablanca’s second tram line is set to last until the end of 2018.

Further expansion of the city’s tramway system will result in additional tenders over the coming years, with Casa Transport aiming to extend the system to as many as seven lines. Contracts for the initial design and engineering of lines 2 and 4 were launched in 2016.

The country’s ambition to establish a network of high-speed train links between some major urban centres will present the construction sector with a significant volume of opportunities. The first of these railway links – between Casablanca and Tangiers – is close to being completed, and is expected to start moving passengers in the summer of 2018. In the coming years, the authorities want to establish similar high-speed lines between Rabat and Oujda, and extend the first line to link Casablanca all the way to Agadir.

PORT EXPANSION: As Morocco deepens its links with international markets, the kingdom’s port infrastructure will continue to undergo maintenance and expansion. In addition to the ongoing development of the second phase of the Tanger-Med port, several other port facilities across the country will require expansion work, representing an important source of activity for infrastructure construction. Under the 2030 Port Strategy, 17 ports along the country’s Atlantic and Mediterranean coasts will receive as much as Dh74.9bn (€6.9bn) in building, expansion and upgrade work. Some of these investments are already taking place, with development work stretching from 2012 to 2030.

One key project is the construction of the new Kenitra Atlantic deepwater port, being developed in two phases at a total cost of Dh8bn (€740.8m). The new facility will replace the previous Kenitra port that was closed in 2013. In late 2016 authorities announced that Dh5bn (€463m) would be allocated in the 2017 budget in order to establish the overall port infrastructure, with the second phase of the project set to be built through a private-public partnership agreement. Along the Mediterranean coast, construction of Nador West Med began in 2016 after a consortium including local firm SGTM Construction, Turkish company STFA Group and Luxembourg-based Jan De Nul won the contract to build the first phase of the project in March 2016. The new port is set be operational by 2021, with the first phase projected to cost as much as Dh7.6bn (€703.8m).

ENERGY PROJECTS: Morocco has made significant efforts to diversify its energy production capabilities; an important part of its energy policy is to increase the role of renewable energy sources. Wind, solar and hydro energy are expected to account for 52% of electricity production by 2030, according to national plans. The first step was taken in early 2016, when the kingdom inaugurated the 160-MW Noor I, the first phase of a solar power plant in Ouarzazate. Two more phases of the Noor project are already under construction and together should add 350 MW of new generation capacity to the solar complex by the end of 2018.

Wind is also becoming an important part of the country’s energy mix. In March 2016 a $1.2bn contract to build a handful of wind farms across the kingdom was won by a consortium that included Morocco’s Nareva Holding, Germany’s Siemens Wind Power and Italy-based Enel Green Power. The project will establish wind production units in Laâyoune, Essaouira, Midelt, Bouhdour and Tangiers for a total of 850 MW of capacity. Other wind projects are set to come on-line in the coming years, spurred by Law No. 13-09, which allows private business to build and operate clean energy production infrastructure, and sell surplus output to the National Office for Electricity and Potable Water (Office National de l’Electricité et de l’Eau Potable, ONEE).

Hydroelectric power is set to account for an additional 580 MW of energy-generating projects in the country. In early 2017 Morocco signed a deal with Qatar for the financing of a new $150m dam in the kingdom’s Guelmin region to be developed between 2017 and 2025. Morocco’s most ambitious dam project is the construction of the new 350-MW pumping station at Abdelmoumen in Taroudant, which is set to come into operation in 2021, according to ONEE.

BUSINESS CLIMATE: In hand with the volume of infrastructure projects set to come on-line, key changes may stem from a new law regarding payment delays. Coming into effect in September 2017, the regulation reduced the payment timeframe for public contracts from 90 to 60 days (see Economy chapter). “The new law will have an impact on a whole ecosystem involving companies, suppliers and cement producers – all that revolves around the infrastructure sector. Thus, its ability to accelerate the mobilisation of financial resources could be very important,” Karim Gharbi, partner and head of research at CFG Bank, told OBG.

Increasing the pool of qualified human resources will also support sector expansion. In January 2016 King Mohammed VI inaugurated a new training institute in Settat. The facility was established by Morocco’s Office for Professional Training and Employment Promotion in coordination with sector professionals. The new school has the capacity to receive 2000 students who can train in 21 different sector specialisations. The project’s total investment amounted to Dh312.5m (€28.9m). ”The biggest challenge for companies remains human resources,” Youssef Adnani, director-general at Bureau Veritas, told OBG. “In the certification industry, for example, the experts consulted are either local and external, mostly from India or Europe.”

CONSTRUCTION MATERIALS: Strained economic times have proved difficult for building materials producers. The segment carries weight in the construction industry, employing around 400,000 people and accounting for an annual turnover of Dh40bn (€3.7bn) in 2016. According to figures from the Moroccan Federation of Construction Materials, domestic production fulfils 90% of the country’s needs. However, Morocco’s high energy costs make local production less competitive than that of some of its neighbours. Moreover, specific segments have been affected by the signing of a free trade agreement with the EU, which makes it easier for the kingdom’s northern neighbours to supply construction projects. Although other segments are faring better, cement production continues to attract new capacity, as a handful of plans to build new cement factories are implemented. The country’s cement consumption reached 13.8m tonnes in 2017, down from 14.2m tonnes in 2016 (see Industry chapter).

HOUSING DEVELOPMENT: Government efforts to improve living conditions in cities, as well as satisfy the housing needs of a growing population, are translating into structured urban plans. With most of the country’s big cities unveiling their own urban development plans up to 2020, the considerable amount of planned infrastructure work is presenting new opportunities. The building of new homes, especially those targeting the higher-end market, has helped mobilise resources; however, the difficulty developers have in accessing financing has meant that implementing new, large-scale residential projects has sometimes encountered roadblocks. It can also be challenging to find properties that can support a development operation, especially in Marrakech. “The underlying problem in real estate was that the offer surpassed the level of demand or was, in some cases, ill adapted to cater to that demand,” BMCE Bank of Africa’s Benhamdane told OBG.

Still, in the long run, housing development plans are expected to play an important role in driving construction sector activity. According to government figures, Morocco’s housing deficit was around 400,000 homes at the end of 2016, translating into a need for 120, 000-140,000 homes to be added annually. Agreements have been established between the private sector and the government to make development attractive, and accelerate construction of housing for lower- and middle-income Moroccans (see Real Estate overview).

A flagship project to improve living conditions in Moroccan urban centres has been the Villes Sans Bidonvilles (Cities Without Slums) programme, which was launched in 2004 with the goal of eliminating slums from the kingdom’s major cities. The programme had a budget of Dh32bn (€3bn) – of which Dh10bn (€926m) would come from public sources – to improve the housing conditions of some 380,700 Moroccan families. By 2016, 55 out of 85 target cities across the country had been declared free of illegal settlements.

Although the programme has not been without its challenges with the main criticisms including the quality of housing, a lack of surrounding infrastructure and the financial burden whereby homebuyers are indebted to pay 30% of their incomes over 25 years.

OUTLOOK: Difficulties facing the sector continue to be mitigated by the government’s commitment to infrastructure projects. Due to their importance for the economy, the transport, tourism and energy sectors will likely continue to see new projects move forward, securing an ample flow of activity. However, competition from foreign firms vying for a piece of the Moroccan market is expected to rise. Nevertheless, foreign and local operators will likely benefit from overall improvements in regulation and market conditions.