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Good Economic News Across Multiple Sectors, While Government’s 2018 Budget Has Important Business-related Provisions – Jean R. AbiNader

Jean R. AbiNaderMATIC
November 17, 2017

Jean R. AbiNader, Exec. Dir., Moroccan American Trade and Investment Center

Jean R. AbiNader, Exec. Dir., Moroccan American Trade and Investment Center

As the fiscal year-end approaches, Morocco is registering strong growth across a number of sectors. In the film industry, the Financial Times reported that “Last year the country earned an estimated €33m from foreign film and television productions.” The country’s unique geography enables it to replicate almost any Middle East location, and its skilled technicians, business friendly permit system, and low prices continue to make it an attractive go-to site.

Recent films include Army of One, Hologram for a King, and Body of Lies. Anchored by the famed Atlas Studios, covering some 322,000 square feet, television has also found Morocco to be quite friendly. Currently, Homeland and Prison Break – Sequel, are shooting segments in the Kingdom.

Meanwhile, mobile internet usage is up by 35% in Q3, building on the 31% growth in Q2. The number of users stands at 21.25 million as of the end of September, including almost 6.5 million 4G users. The country’s overall internet penetration rate is up from 50% a year ago to nearly 65% today while total mobile connections reached 44.25 million.

According to a research report on the tile industry in Morocco, total sales should reach $2.7 billion over the period 2016-2024. “Flooring materials typically used in Morocco are locally manufactured, low-quality ceramic tiles and cement tiles. However, the trend is likely to change in the next few years, due to shift in consumer preference toward aesthetic, full-body and glazed porcelain tiles. Glazed porcelain tiles are ideal for living rooms and kitchens primarily due to their elegant look and longevity.”

The report notes that ceramic materials currently dominate the bathroom materials segment followed by natural stone and porcelain. “Construction is one of the important industries in Morocco. The rise in the number of households and growth in tourism have propelled new construction projects for residential and commercial purposes,” which is only more good news for the tile industry.

On the automotive front, US-based Lear Corporation, one of the earliest parts suppliers to set up in Morocco, has announced the opening of its fifth factory, to be located in Tangier Auto City. It is a leading global supplier of automotive seating and electrical distribution systems. Covering more than 65,000 square feet, the factory will employ over 500 full-time employees in addition to the 11,000 employed in other Lear facilities.

According to Matt Simoncini, President/CEO of Lear Corporation, “This transaction will further enhance Lear’s position as a global leader in automotive seating and will create significant value for our shareholders.’’ Lear currently supplies, among others, Ford, GM, BMW, Fiat, Chrysler, the VW group, Jaguar, Land Rover, Renault, Nissan, Daimler, and Hyundai.

Good news in the banking sector for Société Générale, which was recognized by the UK international magazine EMEA Finance as the Best International Bank of Morocco at the African Banking Awards 2017. It also received, for the second time in a row, the title of Best Investment Bank in Morocco, and its management subsidiary, Sogecapital Gestion, won Best International Bank in Morocco for asset management.

Fast Fashion is a key growth area for Morocco’s textile industry. As labor prices rise in Asia, political instability raises concerns with Turkey as a supplier, and time constraints force rethinking of textile production models, Morocco is increasingly attractive to European manufacturers, especially as “a sourcing hub for Europe’s fast fashion industry, “ according to Draper’s, the UK industry magazine. It points out that “The textile and clothing industry is an important one for Morocco. It employs 183,000 people, representing 26% of the country’s industrial jobs, and produces 1.1 billion garments every year.”

The Moroccan Association of Textile Manufacturers (AMITH) has growth targets of an additional 100,000 employees and over $550 million by 2020. Mohamed Tazi, director general of AMITH, points out that the export market will continue to grow because Morocco can meet the needs of both reactive, quick turnaround producers and those who compete on value. The key is being able to enable “retailers to order the right quantities of the right product.”

Several favorable provisions of the 2018 draft finance law have been highlighted in an article in Jeune Afrique, and include: revised corporate tax rates, transferability of pension deductions, tax amnesty for foreigners residing in Morocco, return of the “flat tax” on urban land, and strengthening the fight against tax fraud.

Moroccan employers are hopeful of proposed changes to the 2016 progressive corporate tax rates. According to companies, the current system encourages obfuscation of income information in order to qualify for lower rates. The 2018 law has new tax rates that hopefully will eliminate the temptation to engage in “acrobatic accounting.”

Regarding pension insurance, it will now be easier for a company to transfer premiums across different insurance companies, thus enabling employees to carry their pensions with them.

Rather than force foreign residents in Morocco to disclose their gross income if they reside in Morocco for more than 183 days a year, which is seldom honored, the new law gives these residents choices on how to meet their obligations by paying a standard rate on capital gains and other assets. The draft budget law provides for the application of a single tax of 20% on the capital gains from the transfer of a non-improved urban land, regardless of the duration of ownership of the property, rather than the four-year ownership previously required.

On the thorny question of tax fraud, the key element is a VAT-tracking system that will eliminate opportunities for companies to misrepresent their VAT obligations by giving the government the ability to trace transactions through more detailed statements attached to the tax return.

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