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Morocco's emerging sectors lead growth charge

Friday, October 03, 2014 > 09:21:52
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(Zawya)

Morocco's emerging sectors are leading growth in the North African country, as the increase in exports of automobiles and aeronautics overtakes those of key industries such as phosphates and textiles.

The government's industrial program aims to diversify export sectors, particularly in the food-processing, automotive and aviation sectors, and to encourage industrial offsets and import substitution, according to the International Monetary Fund.

In the first half of 2014, exports from automotive sector rose 37.2% year-on-year, electronic exports were up 25.2% and aeronautical exports increased by 14.1%,leading to a 5.2% surge in exports over all.

Excluding phosphates exports, which contracted 13.3% during the period, total exports grew 10.2% year-on-year.

The industrial program, that was initiated in 2009, had set itself ambitious goals of contributing MAD50 billion (USD 27.8 billion) to GDP, MAD 50 billion in private sector investment and raising exports by MAD 95 billion by 2015, according to the Moroccan Investment Development Agency.

The programme appears to have achieved some of its goals with exports from the industrial sector generating MAD 55 billion in the first half of the year. The industrial sector also generated USD 28 billion, or just under 30% of the country's GDP last year, according to World Bank data.

The new industries were also expected to create 220,000 direct jobs and reduce unemployment rate to 8% by 2015, however the figure stood at 9.5% in the first quarter of 2014.

The government has earmarked investments of MAD12.4 billion between 2009 and 2015 to jumpstart the sectors, with 34% of the funds dedicated to training Moroccans and 24% in incentives for investors.

Bank of Al-Maghrib (BAM), the country's central bank, is reported to have eased financing for very small, small, and medium-sized enterprises, especially those related to industrial sectors or companies focused on exports.

NEW MARKETS

Analysts believe these sectors will be crucial for the country to break away from the lethargic growth of the past few years. The agriculture and phosphate sectors, key sources of revenue and employment, have been struggling.

"The newly developed industries will play even bigger roles in years to come and will further improve the resilience of the economy to external shocks," the IMF said.

The kingdom's growth rate is expected to average 2.5% in 2014, with a 2.5% decline in the agriculture sector offsetting 3% growth in non-agricultural GDP, the central bank said in a September report.

"The agricultural productivity gap is expected to be negative and should remain so during the coming quarters as a result of the absence of inflation pressures by the demand," according to BAM's quarterly report.

Office Chérifien des Phosphates ( OCP ), Morocco's main exporter of phosphates, is seeking new growth markets and has signed a deal to finance a production unit for mineral fertilizer in Mali.

In addition, the company created a USD 2.3 billion joint venture with Gabon to build fertilizer production plants, one in each country, fed by Moroccan phosphoric acid and Gabonese ammonia, with the resulting fertilizer to be applied to undernourished soils across the region.

In April OCP Group, raised 1.55 billion in a debut international bond to help finance a USD 17 billion project to increase its global phosphate market share of 21% and invest in Africa and South America.

Companies' expansion in Sub-Saharan Africa are also positioning Morocco as a regional hub for investments between Europe and the continent, opening more doors for exporters. In February, King Mohamed signed 80 bilateral trade pacts with four African countries to facilitate intra-trade with its southern neighbors.

Maroc Telecom, the country's largest telecom operator, already has a foothold in French-speaking Africa, with stakes in mobile phone companies operating in Gabon. Burkina Faso, Mali, Mauritania and other investments in Benin, Ivory Coast, Central African Republic, Niger and Togo.

"Moroccan firms are also active infrastructure projects across Africa, including those in support of other investors," said the Atlantic Council, a Washington-based think-tank focused on trade.

These efforts to expand its trade networks allow Morocco to rely less on its main trading partner, the European Union.

REFORM DRIVE

A slew of economic reforms is adding to the country's economic momentum. In July, the IMF renewed a precautionary liquidity lifeline that gives the government facility to draw as much as USD 5 billion.

Although the government does not intend to drawdown from the facility, the liquidity line serves as a strong confidence boost for the economy.

"The [IMF] renewal is a reflection of Morocco's performance under the previous program, with subsidy reform enacted and wages and investment brought under tight control after rapid increases following the Arab Spring," said Fitch Ratings.

With improvement in tourism revenues and stagnation in remittances, Barclays thinks the current account deficit is likely to reach around 6.5% of GDP.

"On the financing side, FDI flows have fallen short of their 2013 level, retracting by 9.4%; however, disbursement of GCC aid and other debt financing flows allowed foreign exchange reserves to remain on an upward trending path," Barclays noted.

"At this pace, we project reserves increasing by close to USD 2.4 billion by December 2014 and end the year at around 4.5 months of imports."

While the draft budget for 2015 is still being prepared, Barclays expects the pace of fiscal reform to continue unabated in 2015 with the aim of rationalizing public spending and making it more efficient.

"But challenges remain," the Atlantic Council said. "Morocco still grapples with an often challenging regulatory environment, including capital controls, complex hiring and firing processes, and an unwieldy property registry."


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