Why Morocco attracts foreign investment

Sunday 16/10/2016
Employees of the French Renault group in Morocco work on a production line at the new second phase of the Renault factory in Tangier.

Since the early 2000s, Mo­rocco has proved to be an at­tractive country for foreign investors. Before the first Arab revolt in Tunis top­pled president Zine el-Abidine Ben Ali, Tunisians were only too happy to boast that their record in attract­ing foreign investors was second to none in the Arab world. That boast was somewhat exaggerated but the country’s record was impressive. That truth no longer holds and Mo­rocco’s allure for international in­vestors is not hard to explain.

In the midst of the turmoil in the Middle East, North Africa and much of Africa, Morocco looks — and is — stable. King Mohammed VI suc­ceeded his father 17 years ago and no major political or security upsets have been recorded. The monarchy weathered the Arab revolts through a mixture of political concessions, not all of which were cosmetic, and an iron (security) hand in a vel­vet (political and public relations) glove. The media are very tightly controlled. The Islamists have just won their second general election in five years but, as always, the buck stops at the palace. Key advisers of the monarch are as powerful as their predecessors were under the pre­ceding reign of Hassan II.

The sectors that have most ben­efited from the flows of investment, worth $3.9 billion in 2015 were the car and aircraft industries, specifi­cally from companies such as PSA, Stelia, Figeac, Aero and Delfingen.

France, Spain and Saudi Arabia re­main the leading sources of invest­ment but the African Development Bank and the European Develop­ment Bank are active. The opening of the Noor solar power plant, which has benefited from $660 million (for a total cost of $2.2 billion) from these two banks, has proved to be a landmark.

Renault’s decision to invest $1.6 billion in a giant car factory in Me­loussa near Tangier to produce 150,000 cars a year in 2012 was a sig­nal to the world that Morocco was succeeding in leveraging its proxim­ity to Europe and the crossroads of important maritime routes.

A note of caution is necessary: The car industry may have created 70,000 jobs in recent years but as many have been lost by the closure of many small domestic garment manufacturers. Foreign investment creates few jobs while the state spends a lot on infrastructure to at­tract the likes of Renault and Peuge­ot.

Furthermore, the state seems to be mistrustful of domestic inves­tors, which is a grave mistake. There is plenty of domestic capital in Mo­rocco, both human and financial. To which should be added the $100 billion of domestic capital held by Moroccans abroad which, if people were more confident about the fu­ture of their country, could be in­vested in the kingdom.

The successful launch and de­velopment of the intercontinental port have opened the area around Tangier in the poorer north of the country to investment and become a hub for car assembly and spare parts manufacturing. Aircraft parts manufacturing, which a few years ago attracted Canadian company Bombardier, remains concentrated around Casablanca.

Foreign direct investment (FDI) has been spurred by the develop­ment of roads in Morocco, which now reach south to Agadir and west to Oujda. Faster train service between Tangier, Rabat and Mar­rakech, a major magnet of tourism and international conventions have helped to expand le Maroc utile from a narrow coastal strip between Casablanca and Kenitra north of Ra­bat a quarter of a century ago to a much larger geographical area that stretches from Tangier to Agadir and inland to Oujda near the country’s frontier with Algeria.

All major investment decisions are made by the monarch, who can choose to wave certain rules in the investment code. The lines of deci­sion-making in Morocco function well in this respect and make major corporations, which invest in real estate, banking, tourism and manu­facturing, feel welcome. The senior civil service is well-educated and, on the whole, untainted by corrup­tion.

The same, however, cannot be said when small foreign companies are involved. They need powerful partners in Morocco. Furthermore, at the local level, corruption is much more common and negotiating the administrative layers of decision-making can be frustrating. For Mo­roccans without solid political back­ing it can be well-nigh impossible. Another caveat is to avoid sectors, such as food processing, in which the monarch’s economic interests are paramount.

Morocco also benefits from its policy of actively promoting its commercial and banking links with West African countries. Although this is not an easy game and requires tenacity, it has helped many Moroc­can companies and helped buttress Casablanca as a major hub of inter­national air traffic. The city is also building itself up as a regional centre of finance.

Beyond the bold statistics, the policy actively pursued by King Mo­hammed VI is encouraging more young Moroccan engineers, bank­ers and civil service to become more open-minded, more attuned to the world beyond the borders of what was, a generation ago, a very inward-looking country.

This does not detract from the fact that one-third of Moroccans are illiterate and that the wealthy seem to be getting wealthier while many Moroccans live on the bare es­sentials. If such obvious social dis­parities and lack of training are not addressed many jobs will not be cre­ated and medium-term stability will not be assured. Foreign investment without sufficient domestic invest­ment does not guarantee long-term stability.

The ultimate prize, that of a more open Maghreb, remains beyond Morocco’s reach as relations with neighbouring Algeria remain in deep freeze because the countries are at loggerheads over the interna­tional status of the Western Sahara. Commercial relations with Algeria, from which Morocco buys natural gas from a pipeline that runs from Algeria to the Iberian peninsula, not to mention a multimillion-dollar black market in goods between the two countries, remain far more im­portant than officials in Rabat like to admit. Morocco’s economic progress is slow, at times shaky, but real.