Morocco Continues Growth on Strong Economic Fundamentals – Jean AbiNader
Will it be enough to provide needed jobs, improve GDP performance?
Jean R. AbiNader, MATIC
November 3, 2014
During the past week, several reports and interviews provided insights into Morocco’s economic performance, including challenges and strategies to expanding opportunities for growth. An article in the Business Standard noted an interview with World Bank Managing Director for Finance, Bertrand Badre, who said that “Morocco showed great institutional and economic stability amid the turmoil that has been going on over the past few years regionally.” He was referring to the financial meltdown of 2007-2008, resulting in a continued global slowdown, as well as the Arab Spring.
The article mentioned that “Badre also highlighted the construction of infrastructure and the advanced urbanization taking place in Morocco, which are ‘very important’ for the World Bank because of Morocco’s pivotal role in the West African and sub-Saharan region.” He also noted that the country must do more to diversify its economy to create more centers for growth and enable more stakeholders to participate in the formal economy. The reporter concluded that “Besides its macroeconomic, institutional, and economic stability, Morocco has an asset of location in the crossroads of sub-Saharan Africa and Europe, in addition to openness on the Atlantic.”
Another look at Morocco’s performance came from Fitch Outlook, the ratings agency. Under the headline “Fitch confirms Morocco’s Investment Grade with Stable Outlook,” Morocco’s state news agency reported that Morocco’s grade remained stable as a result of its “macroeconomic stability in an unstable international and regional environment and the resilience of GDP growth, despite a drop in the foreign demand of Europe.”
Once again, Morocco received recognition for its ongoing efforts to decrease its budget deficit, due to controls on current expenditures, reductions in subsidies, falling energy costs, “the consolidation of public finances, acceleration of exports by new industrial sectors, and improvement in the overall” business environment.
Strong Economic Medicine while Forward-leaning into Africa
Morocco’s exception to the tumult in the region was also noted in a Financial Times interview with Finance Minister Mohamed Boussaid. “Good news is a rare commodity in the Arab world these days. Violence is raging across Syria and Iraq, Egypt has retrenched into authoritarianism and Libya is in chaos. Even Tunisia, which is managing its transition to democracy with aplomb, is facing huge economic challenges. But in the far west corner of North Africa, Morocco has so far been spared much of the pain of the last four years.”
Morocco has managed to reduce its fiscal deficit from 7.4 percent of GDP in 2012 to 5.5 percent by the following year, “and remains on target for further reduction this year, as Rabat slashes subsidies and reforms its economy. The country’s economic and political stability – rare commodities in the region – have already brought returns. Tourists numbers were up by 7 per cent in 2013 as many Europeans, scared off by the unrest in Egypt and Tunisia, travelled instead to Morocco.”
The article went on to note the growth of automotive manufacturing and the positive response to the government’s “€1bn Eurobond – its first euro-denominated bond in four years,” as additional indicators of Morocco’s success. While the rest of the Arab world, racked by falling oil prices and increasing instability due to the impact of the conflicts in Syria, Iraq, Yemen, and their spillover to neighboring countries, “Many analysts predict Morocco will be North Africa’s best performing economy in coming years. Although growth slowed slightly this year because of low agricultural yields and weak growth in Europe – Morocco’s main export market — the International Monetary Fund (IMF) estimates GDP will grow at around 4.7 percent in 2015.”
Boussaid credits this success to “reforms begun more than a decade ago, including investment in major infrastructure projects and programmes for industry and renewables, particularly solar energy.” The minister also talked at length about Morocco’s partnership strategy in sub-Saharan Africa. Its goal is to become “a platform for production and export to African countries through Casablanca Finance City (CFC), a new regional finance hub.”
More than 60 multinational banks, insurance companies, professional and legal services, private equity, and asset management companies have signed up for offices in the CFC. Already headquarters for the African Development Bank’s new $3bn Africa50 Fund that will finance infrastructure on the continent, CFC hopes that up to 100 companies will be based in its special zone.
Still Tough Going Ahead
While the IMF has projected healthy growth for Morocco in 2015, the outlook for the rest of the region is not as positive, according to Marketwatch. Regional instability coupled with the continued weakness is the global economic system, are a drag on economic expansion, and Morocco feels this impact directly.
“One major contributor to recent socioeconomic ills has been double-digit unemployment rates in many Middle Eastern countries. But the IMF’s baseline gross domestic product growth projections aren’t high enough to reduce unemployment in a meaningful way, it said. Unemployment is of special concern among oil importers such as Egypt, Jordan, Morocco and Tunisia, which have some of the highest jobless rates in the region, especially among young people.”
The government has implemented a broad range of incentives to encourage agencies and investors to accelerate the pace of training and education to align workers’ skills with market needs. Yet the slowdown in FDI and the need to increase domestic private investment are constraining opportunities for job growth. “To solve the jobs riddle, Middle Eastern countries needed ‘deep, multifaceted transformation’ that buttressed the private sector and raised living standards. The region needs sustained, stronger and more inclusive growth to markedly reduce unemployment–a critical issue facing nearly all countries in the region,” said Masood Ahmed, IMF’s Director of the Middle East and Central Asia Department.
To maintain its momentum, Morocco is implementing a multifaceted growth strategy that focuses both on key sectors and driving job growth. It is tackling government policies and regulations to maximize flexibility in labor markets, property ownership, and public expenditures so that the private sector and people of Morocco have access to resources needed to expand economic opportunities and build a healthy, sustainable, and inclusive job market.