State housing and infrastructure projects in Morocco drive growth in construction and real estate

After a slowdown in recent years, the construction industry – one of the country’s most dynamic sectors – saw a return to growth in 2014. Strong demand for housing, public spending on infrastructure and incentives from the Ministry of Housing and Urban Policy ( Ministère de l’Habitat et de la Politique de la Ville, MHU) have continued to help drive sector activity, although access to credit continues to restrict the volume of new developments. The industry is anticipating stronger growth in 2015 with further signs of recovery notable in the first quarter. Meanwhile, legislative measures, particularly a unified construction code, are set to substantially improve regulation of the sector by setting standards and increasing quality control as well as streamlining administrative procedures.

Indicators

The construction sector made up 6.6% of the country’s GDP in 2013, down slightly from 7% in 2009, and less than manufacturing (15.4% in 2013) but more than transport, storage and communications (6.2%), according to the African Economic Outlook. The pace of growth has slowed after peaking in 2007 at 11.7%, however, the sector experienced a positive shift with a return to growth at 4% in 2014 on the back of government investment in infrastructure and housing, after a contraction of 1.6% the previous year.

A total of 170,439 formal housing units were built in 2014 versus 166,556 units in 2013, representing an increase of 2% year-on-year (y-o-y). However, the number of construction permits authorised in 2014 fell to 48,721 from 87,624 in 2013, down 44%.

Materials

Unsurprisingly, the lower rates of growth in the construction sector in the years since the global financial crisis in 2008 combined with stagnation in the real estate market in recent years has affected building materials, with a decrease in demand in ceramics, brick, marble, steel and concrete products. Most notably, cement sales have dropped from 16.13m tonnes in 2011 to 14m tonnes in 2014. According to the MHU, sales fell by 5.4% in 2014, although this was slightly less than the 6.3% drop in 2013. Cement consumption was also down 5.4% y-o-y from 14.86m tonnes in 2013 to 14.06m tonnes in 2014. Nevertheless, on the back of a slight increase in price of Dh2 (€0.22) per 50-kg bag, sales began to increase at the beginning of 2015, with a rise of 2.42% by February (see Industry chapter).

According to Mehdi Sebti, director of Longometal, a leading firm in the distribution and processing of steel products in Morocco, “The informal sector is a major competitor in terms of building material production and distribution. I would estimate that between 20% and 30% of the sector is owned by informal operators.”

Employment

The construction and public works sector continues to be a major source of jobs, employing nearly 1m people in 2014. Though the sector gained a total of 55,000 jobs between 2008 and 2011, job losses of the more than 65,000 during the slowdown in 2012-13 brought the overall numbers back down again. Employment in the sector saw relatively little movement in 2014 with the loss of roughly 2000 rural jobs offset by a similar increase in urban positions. However, the prospects are brighter for the near future, with large infrastructure projects expected to contribute to the recuperation of jobs in the industry.

Regulations

The sector has been governed by a number of overlapping decrees and legislation, with rules enforced by a number of authorities from the local to the national level. The roles of these regulatory bodies have been loosely defined and key functions such as building inspection and worksite authorisation have been shared. Given the budget constraints the government is facing (see Economy chapter), the authorities in the construction sector have been making efforts in recent years to streamline procedures in order to encourage more private investment in the industry and thus sustain activity – with some success.

Although Morocco’s overall ranking in the World Bank’s “Doing Business” report, fell three places to 71st out of 189 countries in 2015, down from 68th in 2014, the country ranks well in some sector-specific areas. In dealing with construction permits Morocco comes seventh out of the 20 MENA countries measured, at 54th place overall, up one from 55th in 2014. This is after the UAE (fourth overall), Bahrain (seventh), Iraq (ninth), Saudi Arabia (21st), Qatar (23rd) and Oman (49th), but ahead of Algeria, Tunisia, Jordan and Egypt.

Obtaining a permit now requires 12 procedures and an average 94 days, at a cost of 3.7% of warehouse value, down from 15 procedures and 97 days in 2014. This compares favourably to neighbouring Algeria, which ranked 127th in this category and where the process requires 17 procedures and takes 204 days. In Tunisia the figures are 17 procedures and 93 days.

New Code

The MHU is expected to introduce muchanticipated measures to provide a more cohesive regulatory framework – and improve transparency and oversight – by the end of 2015. The unified construction code (Règlement Générale de Construction, RGC) has been in the works in some form or another since 2003, but is now awaiting parliamentary approval and is expected to come into force in 2015.

The need for the code is clear. Currently, in the absence of a mandatory and universal national code, purely private sector projects are self-regulated, leaving the door open to informal building, which currently comprises an estimated 25% of sectoral activity, though some firms have resorted to applying the French building code due to lack of an alternative system.

“The code aims to change practices that are currently used in Morocco to better organise the sector’s governance. It focuses on increasing security, stability and durability,” Mohammed Errouaiti, director of the Scientific and Technical Centre for Construction, told OBG.

In addition to decreasing legislative complexity, the code is designed to increase transparency and competition in the industry. It will define the roles and responsibilities of actors in the construction process; create quality control of construction materials; establish oversight mechanisms for construction procedures; set and enforce construction site safety conditions; and introduce a framework of sanctions for companies that do not comply with the regulations. Inspectors will be given the status of judicial officials under the new law, which will allow them to halt work and issue fines for sites that fail to comply with the standards.

The benefits of a more cohesive and nation-wide code are obvious, particularly as the country looks to boost private sector capital spending. “Clear rules and a regulatory platform on which everyone relies facilitate the task of investing,” Errouaiti said.

Other Regulatory Changes

In addition to advancing the RGC, authorities have introduced a legislative measure that stands to improve sector regulation considerably, making liability insurance compulsory for all construction sites in Morocco (see Insurance chapter). This regulatory instrument, which has been under discussion since 2011, is expected to reduce the amount of informal building, which now makes up a quarter of the market’s activity. The mandatory insurance stipulation will include two parts: worksite insurance to protect contracting firms and their employees against onsite injuries and damage to the property while under construction, as well as builder’s risk insurance to hold contractors responsible for the security of their construction projects for 10 years.

Another recent regulatory change involves imposing tax on cement production instead of sales. The government decided to make this change in response to companies’ strategies to avoid the tax on cement; when the tax was imposed on sales, cement groups could avoid it by absorbing their subsidiaries. Sales of cement to subsidiaries, and the proportional taxation revenue lost, made up around 16% of total cement production. Revenue from the tax on cement finances the housing solidarity fund for social housing. The revenue in 2013 for the fund was Dh2.3bn (€250.2m), up 6.5% from 2012, reaching a total of over Dh27bn (€2.9bn).

Social Housing

More pronounced following the slowdown in luxury and high-end residential activity, social housing has been the main driver of construction and real estate activity in recent years, accounting for around 70% of developments in 2014.

Addressing the shortage of affordable housing units for the low-income market continues to be a priority for the MHU, which is committed to reducing the national housing deficit. Standing at around 642,000 units in 2014, down from 840,000 in 2012, the shortfall is dropping. The government aims to reduce the deficit to 400,000 units by 2016 by building an additional 170,000 units per year. The number of social housing units built in 2014 fell short of that target, and saw a slight reduction to some 140,880, down 1.1% from the 142,501 units built in 2013. Demand for housing is expected to continue growing by some 150,000 units per year.

The large affordable housing programme comes on the back of schemes targeted at more broadly reducing informal construction and slums, such as initiatives like the MHU’s Cities Without Slums programme, launched in 2004 (see Real Estate overview).

To attract private sector investment into the development of affordable housing, the government provides both tax breaks and subsidises land. To qualify for the incentives, developers must commit to a minimum number of housing units. The floor was reduced in 2014 to 150 units to encourage small-scale developers into the market, down from the 500-unit requirement and the original 1500-unit minimum in 2010.

According to the Centre for Affordable Housing Finance in Africa, Addoha, one of Morocco’s largest real estate developers accounts for close to half of the lowcost housing being constructed in the country. New affordable housing units tend to be apartments in largescale projects located on land provisioned by the government in peripheral locations, often via Al Omrane, the state-owned housing developer.

Although the government has managed to make a dent in the overall shortfall of housing stock, particularly at the lower end of the spectrum, the need for more units remains particularly acute in rural areas of the country. The state’s social housing strategy is scheduled to continue until 2020.

Residential Development

Growth of the middle class has resulted in an increase in demand for mid-range housing. In response, the government has encouraged the construction of new cities to curb excessive urban sprawl in major cities such as Casablanca and Rabat. These large-scale projects include Tamesna, a 860-ha city 20 km south of Rabat which will house 250,000 inhabitants and involve more than Dh22.3bn (€2.4bn) in total investment; Chrafate, outside of Tangier, with 30,000 housing units planned on a 1299-ha plot of land for a population of 150,000 inhabitants and investment of Dh24bn (€2.6bn); Tamansourt, a Dh39.5bn, (€4.3bn) investment 7 km from Marrakech accommodating 51,000 units of 1140-ha once the city of 250,000 inhabitants is completed; Zenata in Greater Casablanca for 300,000 residents covering an area of 1860 ha; and additional cities being developed by OCP S.A., one of the world’s leading phosphate producers, in the Ben Guerir and Mazagan regions.

The 2013 Finance Act included a new fiscal scheme for mid-range housing, creating an additional framework for this segment on top of the existing value caps for low-income housing and social housing. A value-added tax exemption on a new acquisition and a mortgage guarantee fund, financed by the tax on cement, are also designed to encourage lower-income citizens to become homeowners.

Growing demand for mid-range housing represents an area of future growth in the sector. In 2014 over 6100 mid-range units were built, however, a total of 40,000 units were meant to be delivered in 2013-14. These units are now expected to be finalised in 2015.

Affordability

Affordability remains a challenge for the housing market in Morocco, with the shortage of land constraining development. “Land available for development in Morocco is scarce because cities expand horizontally, which drives up the price of land and makes it challenging to develop affordable housing for the middle class,” Mohammed Iqbal El Kettani, deputy director of the National Federation of Real Estate Developers, told OBG. Nevertheless, subsidised government land for the development of affordable housing is contributing to growth in the segment.

Financing

Access to financing for construction projects continues to be an obstacle to sector growth, though the situation is gradually improving. For several years banks faced liquidity constraints, which limited financing available for new projects, but liquidity has improved notably over the past few years (see Banking chapter). A lack of access to credit also continues to put pressure on the real estate market, though credit provided to the sector grew by 2.7% y-o-y in 2014.

Mixed Spaces

Mixed-use developments continue to contribute to sector growth. The Casablanca Marina mixed-space project on the coast of Casablanca will include residential and office space as well as luxury hotels, a 60,000-sq-metre mall, a convention centre, an aquarium and a marina. The project, designed to renew Casablanca’s historic centre, is in the construction phase with the mall expected to open by the end of 2016 and the 5000-seat convention centre expected to be complete by 2017.

Another mixed-space zone in the city, Casablanca Auda, will cover a total 4.5m sq metres, of which 2.5m sq metres will be reserved for residential space, 1.3m for business and leisure activities, as well as a 124-acre park. Developed by Bouygues Immobilier and state-owned Deposit and Management Fund (Caisse de Dépôt et de Gestion, CDG), one of the project’s key features will be Casablanca Finance City, a new financial district.

Indeed, over the coming years, Casablanca’s centre is set to benefit from a spate of modernisation projects under way, such as the new train station of Casa Port and the Casablanca Marina. Once these projects are completed, the attractiveness of the surrounding area is expected to increase substantially, possibly spurring additional construction activity.

Meanwhile, UAE-based Tasweek Real Estate Development and Marketing is planning a new mixed-space project in Agadir. The $55m development will consist of health, residential, retail and tourism elements. Another mixed-use project in progress consists of the development of the Bouregreg Valley between Rabat and Salé. Financed through the Wessal Fund, a finance mechanism established by the Gulf Cooperation Council and Morocco to support tourism development during the Arab Spring, the project will include residential units, hotels, a marina and cultural attractions.

Infrastructure 

The state is continuing to invest significant funds in several key areas, including transport, which is expected to maintain a stable supply of work for the industry. Morocco is expected to invest more than €10bn in the construction sector over the next five years with new building projects in transport and tourism, among other sectors. According to the Ministry of Equipment, Transport and Logistics (Ministère de l’Equipement, du Transport et de la Logistique, MET), the industry will receive Dh36bn (€3.9bn) for public works in 2015. Ports are expected to receive an investment of Dh12.84bn (€1.4bn) from the government in 2015, while roads and highways will benefit from Dh9.74bn (€1.1bn) and railways, Dh4.7bn (€511.4m). The National Ports Agency (Agence Nationale des Ports, ANP), which manages all ports except Tanger-Med under the MET, has proposed Dh74bn (€8.1bn) in public and private investment in port infrastructure from 2010 to 2030, predicted on an increase in maritime traffic to 290m tonnes by 2030, up from 71.2m tonnes in 2013. Projects to enhance capacity in over half of the ports are in the works to prepare for the anticipated increase in demand. Ongoing projects include expansions of the ports in Casablanca and Jorf Lasfar and improvements to the ports of Mohammedia, Sidi Ifni and Kenitra. A new port in Safi, supported by public sector financing, is on schedule to begin operations in 2017. The Dh4bn (€435.2m) port will have an annual capacity of 14m tonnes. The construction contract was awarded to Moroccan company group SGTM.

The city port in Tangier is also expanding its second terminal, Tanger-Med II, with the Dh8.4bn (€913.9m) investment set to be operational in 2016. The added capacity of 5.2m twenty-foot equivalent units (TEUs) brings capacity to 8.2 TEUs, making the port a leader in the Mediterranean and Atlantic for container traffic. Construction began in 2010 and is led by a consortium of France’s Bouygues Travaux Publics, Italy’s Saipem, Belgium’s Besix and Moroccan firm Somagec.

On land, road works continue in support of reaching the government’s target of 1800 km of highway to be constructed by 2015, with 1400 km already built. Completion of the national rural roads programme in 2014 saw the construction of some 2500 km access roads opening up rural areas. Autoroutes de Maroc is the agency responsible for overseeing the country’s highways, which have traditionally been financed through loans and toll fees. However, authorities are hoping for a higher level of participation from the private sector.

The national railway firm, Office National des Chemins de Fer, approved a capital budget of Dh7.5bn (€816m) for spending in 2015. Of this, Dh4bn (€435.2m) was allotted to the high-speed line now under construction, Africa’s first high-speed railway, with another Dh3.5bn (€380.8m) allocated to modernising the existing rail network. The spending plan includes expanding the existing link between Casablanca and Kenitra and also between Settat and Marrakech. The country aims to add 1500 km of high-speed railway by 2035. Funds will also be devoted to strengthening security and safety, building stations and acquiring new trains.

Air transport is also set to receive considerable public investment with the expansion of Casablanca’s Mohammed V International Airport as one of the major projects. Once the expansion works of terminals 1 and 2 have been completed in 2017 capacity of the airport will double from 7m to 14m. Airport upgrades are also ongoing in Fez, Marrakech and Nador in anticipation of an increase in visitor numbers.

Industry Projects 

OCP S.A. launched several industrial development projects at its Jorf Lasfar Industrial Complex in 2014, including a slurry pipeline connecting the Khouribga mines to the industrial platform at Jorf Lasfar. This is expected to support the doubling of the mine’s capacity, with an ability to transport some 40m tonnes of raw minerals annually and reduce phosphate delivery costs by 90%. The new terminal station represents an investment of Dh800m (€87m). “The capacity of OCP’s new phosphate slurry pipeline is roughly 40m tonnes per year, which makes it the first slurry pipeline with a capacity of greater than 3m tonnes per year. This is a landmark achievement for Morocco’s engineering and construction sector,” Abdelaziz El Mallah, managing director of Jacobs Engineering, told OBG.

OCP S.A. also completed a new phosphoric acid production plant, an investment of Dh700m (€76.2m), with an annual capacity of 450,000 tonnes. These developments are part of the company’s Dh130bn (€14.1bn) investment plan to modernise infrastructure and boost production capacity to 50m tonnes by 2020. Infrastructure projects for the company include a new 1320-MW thermal energy plant in Safi being built by Moroccan Nareva Holding and Japanese firm Mitsui. The facility is expected to be operational in 2015.

Power Projects

Authorities aim to boost national production of renewable energies to a capacity of 2000 MW each for wind and solar power by 2020. The country currently depends on fossil fuel imports to generate some 97% of its energy, while demand has increased at an average annual rate of 7% since 1998. The goal is to produce 42% of Morocco’s energy needs via renewable sources by the end of the decade, with plans under way to build five wind energy parks and five solar energy plants in the kingdom (see Energy chapter).

Development of new solar energy plants is part of the Morocco Solar Plan, which aims to attract €7.7bn in investment by 2020. The Moroccan Agency for Solar Energy, a public-private venture, was established in 2010 to lead this initiative. The first development is the Ouarzazate Solar Complex, the initial phase of which is being built by Saudi Arabia’s ACWA Power. In January 2015 the Saudi firm won the contract for the project’s second phase as part of a consortium with Spain’s Sener. The World Bank is contributing $519m to support the project, which will bring the total output capacity of the complex up to over 500 MW. According to press reports, state-owned Chinese firm Shanghai Electric is also planning to invest $2bn in construction of new solar power plants across Morocco over five years.

Plans also include a Dh31.5bn (€3.4bn) investment in wind energy by 2020. The Tarfaya wind farm, Africa’s largest with a production capacity of 300 MW, became operational in 2014. A joint venture between French firm GDF Suez and Moroccan partner Nareva Holding, the project required an investment of Dh11bn (€1.2bn).

Outlook

After four years of slower growth, stability is returning to the construction sector. Substantial government investment in public works and rising demand for mid-range housing are expected to boost the industry, while infrastructure development plans are expected to be a considerable source of growth.

The downward trend of cement sales is also expected to stabilise, provided project delivery continues, while the adoption of the unified construction code should also clarify legal and administrative procedures.