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Economy of Morocco

Since the early 1990s, Morocco has embarked on a major economic restructuring programme aimed at raising living standards, cutting unemployment and boosting growth.


In pursuit of these goals, successive governments have made efforts to attract domestic and overseas investment, which has obliged them to tackle a string of other problems - such as reducing red tape and corruption, updating the financial system and privatising telecommunications, water and power.

Macroeconomic stability, coupled with low inflation and relatively slow economic growth, has characterized the Moroccan economy over the past several years. The Jettou government continues to pursue reform, liberalization, and modernization aimed at stimulating growth and creating jobs.

From 2002 to 2006 Morocco averaged economic growth of 4.8 percent a year--not a significant rate for a country whose population is growing at 1.5 percent a year.

The year 2006 has proven to be a prosperous one for the kingdom, with real GDP growing some 8.1%, compared to 2005's 2.4%. Good rains produced growth in the agricultural sector, which remains key to the Moroccan economy, though competition from Egypt and Turkey is increasing in that sector.

Despite criticism among exporters that the dirham has become badly overvalued, the country maintains a current account surplus. Foreign exchange reserves are strong, with over $16 billion in reserves, the equivalent of 11 months of imports at the end of 2005.

The combination of strong foreign exchange reserves and active external debt management gives Morocco ample capacity to service its debt. Current external debt stands at about $15.6 billion, or 27.8% of GDP.

Tourism, transport and telecoms all registered strong growth in 2006 as well. Growing consumer demand in the domestic market has been helping to boost the economy, due in part to higher rural productivity and a tightening job market.

Confidence in the local market has also grown, with a substantial increase in consumer credit. Both foreign and local investment continued to rise in certain sectors and unemployment fell as more jobs were created in the service, construction and industry sectors.

Nepotism, bureaucracy, corruption and an arcane taxation system hold back the Moroccan economy.Meanwhile, rolling back the state in terms of cutting public expenditure has also been a priority, alongside labour market reform. Both of these have been praised by international bodies such as the IMF and World Bank, but have led to frequent confrontation between the unions and the government, which since 1998 has been centre-left dominated.

Agriculture employs about 40% of Morocco's workforce, which suffers from a high (near 20%) unemployment rate. In the rainy sections of the northeast, barley, wheat, and other cereals can be raised without irrigation.

On the Atlantic coast, where there are extensive plains, olives, citrus fruits, and wine grapes are grown, largely with water supplied by artesian wells.

Morocco also produces a significant amount of illicit hashish, much of which is shipped to Western Europe. Livestock are raised and forests yield cork, cabinet wood, and building materials. Part of the maritime population fishes for its livelihood. Agadir, Essaouira, El Jadida, and Larache are among the important fishing harbors.

Casablanca is by far the largest port and an important industrial center. Significant industries include textile and leather goods manufacturing, food processing, and oil refining. In the northern foothills of the Atlas Mts. there are large mineral deposits; phosphates are the most important, but iron ore, silver, zinc, copper, lead, manganese, barytine, gold, and coal (the only sizable coal deposits in North Africa) are also found.

Marrakech, Meknès, and Fès are the most important centers in the mineral trade. A few oases in southern Morocco, notably Tafilalt, are all that relieve the desert wastes. Tourism also is important economically, as are cash remittances from Moroccans working in France.

Morocco's coastal areas and the mineral-producing interior are linked by an expanding road and rail network, and port facilities are being further developed.

The main exports are clothing, fish, inorganic chemicals, transistors, minerals, fertilizers (including phosphates), petroleum products, fruits, and vegetables. The chief imports are crude petroleum, textiles, telecommunications equipment, wheat, gas, electricity, and plastics. France, Spain, and Italy are the leading trade partners.

Morocco produces textiles, phosphate and citrus fruit for export. Tourism is also a big part of the economy. The United Nations' Human Development Indicators, which combine various economic, educational and health indexes, rank Morocco 123rd out of 177 countries.Employment, however, remains overly dependent on the agriculture sector, which is extremely vulnerable to inconsistent rainfall. Morocco's primary economic challenge is to accelerate growth in order to reduce high levels of unemployment and underemployment. While overall unemployment stands at 11%, this figure masks significantly higher urban unemployment, as high as 33% among urban youths.

The IMF, World Bank and Paris Club backed structural adjustment programmes followed by the administration first seeing dirham convertibility established for current account transactions in 1993. This marked the beginning of a phased restructuring of the financial sector, which from 1994 was joined by a phased liberalisation of basic item imports.

In 1995, the investment code was reformed, and in 1996 an Association Accord was signed with the European Union (EU). This came into force in 2000, with the EU long established as the country's main trading partner - taking some 75% of Morocco's exports and providing 60% of its imports. France alone accounts for about a quarter of the country's imports and a third of its exports.

Meanwhile, the privatisation programme gained momentum in 1999 and 2000 with the sale of a 35% stake in Maroc Telecom (MT), the telecommunications provider. Morocco was one of the first Arab countries to begin a programme of state sell offs, and it has one of the most ambitious programmes, with 114 enterprises identified for sale in 1993.

However, progress has been slow since then, and the programme stalled again soon after the MT stake sell off. It is now hoped that the sale of a further 16% stake in MT, the state tobacco company, several sugar firms and a clutch of power generation and water management facilities will revitalise the programme.

Revenues from sell offs may also go to addressing a key problem for the Moroccan government - reducing the budget deficit. In 2002, this was estimated at around 6.1% of GDP. Another difficulty is the key agricultural sector, which was depressed by drought in the late 1990s, seriously holding down economic growth overall.

Rainfall has long been a key factor in the country's economic health. While the government is trying to shift economic activity toward industry and commerce, agriculture still remains crucial, employing 40% of the workforce, although producing only 12-16% of GDP in recent years.

Morocco's energy resources are small, with hydroelectricity limited by water shortages and coal almost exhausted. Discovery of oil deposits in the Haut Plateau region in 2000 did give a brief boost to hopes that there might be significant reserves in country, but little has been found since, although there is still some hope that off shore reserves may be significant.

Manufacturing currently accounts for some 18% of GDP and employs some 20% of the workforce. Traditionally, the sector has been dominated by clothing and textiles, but is now a key target for government efforts to diversify, increasing employment and foreign investment.

In 2001, in Casablanca the first of four planned technology parks opened, with a number of foreign electronics firms - such as Thomson, Microsoft, Compaq and Oracle - making investments in Morocco in recent years. Meanwhile, contributing some 52% of GDP in 2000, the services sector is now large and well developed, employing some 45% of the workforce.

In the financial sector, the central bank is the Bank al Maghrib, with an interbank foreign exchange market set up in 1996, although capital movements in general remain partly restricted.

The four largest Moroccan commercial banks are Banque Commerciale du Maroc (the largest), Credit Populaire du Maroc (or Banque Populaire), Banque Marocaine du Commerce Exterieur (BMCE) and Wafabank. In addition, the state has a 33% stake in the Banque nationale pour le developpement economique.

Since May 2000, the Casablanca Stock Exchange (CSE) has also been listed by Morgan Stanley Capital Markets, with the CSE one of the few regional bourses to have zero restrictions on foreign participation. With some 55 listed companies, it remains small, with an MCAP of around $10m.

Although most of the country's economic activity remains concentrated in the Casablanca-Rabat axis, efforts are also being made to develop the country's regions. In August 1999, the government announced an initiative to channel revenue from its successful GSM license auction into a fund that would be used to develop housing projects in remote areas. Per capita GDP in places such as the Western Sahara often drops to below $200, illustrating the depth of the regional problem.

Tourism is also a major industry for Morocco, and a major source of foreign exchange. The government also wants to see visitor numbers keep rising - 2.5m tourists came in 2003 - and began its "Plan Azur" in 2003, aimed at developing tourism on the Mediterranean coast.

Formidable long-term challenges for the government also include preparing the economy for freer trade with the EU. With a literacy rate of only 51.7% and an unemployment rate of 19% the government is focusing on improving education in order to boost living standards and job prospects for Morocco's youth.

The current government is continuing a series of structural reforms begun in recent years. The most promising reforms have been in labor market and financial sectors, and privatization has accelerated the sale of Global System for Mobile Communications (GSM) licenses in the last few years.

Morocco also has liberalized rules for oil and gas exploration and has granted concessions for many public services in major cities. The tender process in Morocco is becoming increasingly transparent. Many believe, however, that the process of economic reform must be accelerated in order to reduce urban unemployment.

In January 2006, the bilateral Free Trade Agreement (FTA) between the United States and Morocco went into effect. The FTA represents an important step towards the President Bush's vision of a Middle East Free Trade Area and is the first in Africa.

The U.S.-Morocco FTA eliminated tariffs on 95% of bilateral trade in consumer and industrial products with all remaining tariffs to be eliminated within nine years.

The negotiations produced a comprehensive agreement covering not only market access but also intellectual property rights protection, transparency in government procurement, investments, services, and e-commerce. The FTA provides new trade and investment opportunities for both countries and will encourage economic reforms and liberalization already underway.

Industry

Moroccan industry is quite varied. Food processing and fishing remain major activities, yet the country is moving into industries as divergent as aeronautics and textile production. The sector has some way to go before maturing, with many small family operations with limited services and little to no research and development capabilities.

Marrakech is set to hold the country's first business-to-business exhibition for aeronautical industries and services in October 2007. Meanwhile, local production of Renault/Dacia's Logan has boosted the automotive industry.

One-third of industrial GDP is contributed by the chemicals sector alone, itself dominated by production of phosphate by-products, but investment in the sector has stagnated in recent years, prompting industry leaders to call for the development of specialised zones to house chemical industries.

Morocco's leather goods are beginning to draw attention from Europe and these goods enjoy duty-free entry on the US market thanks to the free trade agreement (FTA).

The country's largest industrial concern is the phosphate giant, OCP, with probable phosphate reserves in the country amounting to 58bn tonnes - the largest in the world. A major part of these reserves is located in the Western Sahara, with the mine at Boucraa of primary importance.

There is also a significant allied phosphate derivatives industry producing chemicals and fertilisers. Morocco is also the world's largest exporter of both raw phosphates and processed products.

The US government has also financed an entity called New Business Opportunities to help Moroccan industries take advantage of the FTA, while the Moroccan government helps them to market their goods abroad.

The totally privatised cement industry is benefiting from the myriad construction projects currently underway, including those in tourism and new government housing schemes.

Last Updated on Monday 4th August 2008