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Confronting Challenges to Economic Growth in Morocco – J. AbiNader, D. Forscey

 

Moroccan American Trade & Investment Center (MATIC), by Jean AbiNader and David Forscey (Washington,  DC, April 19, 2012) — In the coming months, MATIC will take a look at a core issue being confronted by the new government in Morocco: the challenges to economic growth ranging from a mismatch between the educational system and the job market, to issues facing entrepreneurs, investors, and the government in attracting much needed investment dollars. While the previous government encountered these issues, the projected fall in agricultural production in 2012 due to drought conditions, the negative impact of the EU economic setbacks onMorocco, and continued job related demonstrations in various cities have reinforced the focus on economic growth for the new government.

We will look at four topics in this series: the Moroccan economy in 2011, before the new government assumed power in 2012; the economic development program and budget passed by the new government to stimulate growth and provide employment; key players and programs addressing economic growth issues; and the interplay between Moroccan priorities and regional economic opportunities.

2011 – Indicators drifting downward
As 2011 drew to a close,Morocco’s ability to sustain its hitherto impressive growth rate of 4-5% began to decline. Although the unemployment rate dropped to 8.5% in the 3Q from 9.1% and inflation was also on a downward trajectory owing partially to a decrease in food imports, poverty and unemployment remained at unsustainable levels.

The IMF credited Morocco with “several years of sound macroeconomic policies and political reforms” that insulated it from the 2008 global financial crisis. But it also urged Rabat tackle its mounting subsidy bill and head off a potential debt crisis. The government responded to the Arab uprisings by expanding social welfare programs, increasing food and energy subsidies, and raising public sector wages – all adding to deficits that the government could not maintain. In addition, the global recession hurt demand for Moroccan exports, further aggravating its trade deficit and remittances from the Moroccan diaspora.

Both the IMF and the OECD pressed for further improvements to business regulations, corruption, and economic diversification. The government responded with $206 million public-private sector initiatives in telecommunications, transport, finance, and property development that have promising responses from international investors. Yet challenges carried over into 2012. The decline in agricultural production, which employs 40% of the labor market and contributes 15% to GDP when rains are abundant, started the setbacks. Morocco’s dependence on foreign energy supplies limited Rabat’s options as energy prices shot up, adding impetus to the government’s efforts to rapidly ramp up renewable energy programs, and wealth disparity became more evident based on the government’s own analysis.

Heading into 2012, the new government found that it was not immune to demonstrations demanding immediate jobs and reforms. This background sets the stage for the economic program passed by Parliament in mid-April, and is the subject of the next segment.

Jean AbiNader is Executive Director at the Moroccan American Trade & Investment Center; David Forscey is a Researcher at the Moroccan American Center

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