Oct 03 2011
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Morocco within the GCC: A new set of opportunities
More than 6,000 kilometers separate Morocco's capital Rabat from Oman's Muscat. Even Kazakhstan is closer. Yet, Morocco's foreign minister, Taeib Fassi Fihri, insists his country is "anxious to have good relations and strong cooperation with the GCC", that "the geographical distance is no obstacle to a strong relationship".
Morocco's per capita income stood at USD 3,252 in 2010, well below Saudi Arabia's per-capita GDP of USD 16,041, the lowest among GCC countries, according a Credit Agricole report.
However, despite the geographic and economic gaps, the GCC has extended a hand of cooperation to the kingdom of 32 million people in May 2011, by considering an offer of membership to the wealthy club. This was followed with a five-year economic development plan in the last meeting of GCC foreign ministers in September 2011.
Setting aside the speculation about the strategic motives behind this move, Morocco, the Arab world's oldest monarchy, which has witnessed some modest protests during the Arab Spring, would get an economic boost from joining the Council. This boost would ease the kingdom's budget and trade deficits and a soaring unemployment rate, thus lowering the risk of socio-political tensions in the country.
In 2010, the kingdom's economy grew by 3.7%, according to a recent report by the Economist Intelligence Unit. In 2011, the government committed itself to improving the economy and employment prospects for its citizens, in an effort to tame social unrest and to ease poverty-related tensions.
Morocco witnessed the latest protests on September 25, 2011, when thousands demanded political reform and more social justice. These protests were in response to calls of the February 20 Movement which took its name from its first day of protest inspired by the Arab Spring.
A pressing concern for Morocco currently is its rising budget deficit. The IMF's concluding statement of the 2011 Article IV Consultation on Morocco, indicated a worsening budget deficit for Morocco caused by the sharp increase in expenditures. The budget deficit may reach 5.5% to 6% of GDP due to an increase in expenditures amounting to 3% of GDP relative to the 2011 budget, largely due to an increase in food and fuel subsidies.
The government's pledge to stabilize prices through subsidies has been a burden on its budget. The subsidy bill reached 2.5% of GDP in 2010, and it is set to increase even further in 2011, due to the global increase in commodity prices, according to the EIU.
The government targets 6% annual average real GDP growth over the long term and has pledged to build 150,000 housing units annually until 2013. However, the EIU considers these targets overambitious due to the vulnerability of GDP growth, and hence government revenue, to the performance of the country's agriculture sector.
At the end of July 2011, Morocco's trade deficit rose by an alarming 21% over the same period of 2010, reaching around 106.5 billion Moroccan dirhams, compared with MAD 87.9 billion in 2010, according to Office des Changes official figures.
The deficit is attributed mainly to the soaring energy imports bill which increased by 39%, as well as agricultural imports, which rose by 58.5%.
With a potential inclusion in the GCC, Morocco can gain significant benefits on the energy front with special privileges like subsidized prices of crude oil and gas. This will lower the contraints of a high crude imports bill on its budget. The induction will also open up a larger market for Morocco's exports with more trade agreements and lower barriers.
"Morocco has always considered US and Europe as its main trade partners, given its strategic location at both the Mediterranean and Atlantic Ocean. Yet, from a geopolitical perspective, joining the GCC will inaugurate a new page in the history of Morocco's trade with the world and re-establish the old-rooted trade routes between East and West," Mhammad Biygautane, a researcher and expert in North African politics and governance at the Dubai School of Governance (DSG), told Zawya.
One of the major challenges facing Morocco is its high unemployment rate. "Morocco's young, well educated workforce struggles to find jobs in the country. The Gulf countries have been one of the most desired destinations for these young people to prosper and secure financial and professional stability," Biygautane said.
"Free movement of labor, if Morocco joins the GCC, will undoubtedly create more employment opportunities and establish an abundant source of remittances for Morocco," He said.
At the end of June 2011, the unemployment rate in Morocco increased to 8.7% from 8.2% a year earlier, according to Haut Commissariat au Plan (HCP). However, many analysts believe that the official unemployment figures understate the real rate.
Unemployment among degree holders is as high as 18% and almost one-fifth of those who completed vocational training do not have a job, reported local newspaper Maghrebia on May 13, 2011. Employment Minister Jamal Rhmani warned that the number of new job-seekers is set to double by 2016.
In the aftermath of the February 20 protests, Morocco's Economic and Social Council (CES) was tasked with addressing the issue of youth unemployment. However, Morocco needs to keep its economic growth target between 6% and 7% until 2020 in order to reduce unemployment to 6.7%, High Commissioner for Planning Ahmed Lahlimi said.
Remittances accounted for around 8% of GDP in 2010, and rose by 7.4% to MAD 26.8 billion in the first half of 2011, according to the EIU. Extending unhindered travel rights for Morocco's workforce to GCC countries upon induction to the Council would ease the unemployment crisis in Morocco and increase the flow of remittances to the country.
Foreign Direct Investment
According to the World Bank's latest 2011 data, Morocco, with a GNI Per Capita of USD 2,790, ranks relatively high in terms of ease of starting a business compared to other MENA countries.
Relaxing regulations of doing business even further for Gulf investors, upon joining the GCC, would even improve the investment sentiment in the kingdom and lure higher FDI into the country.
"Morocco witnessed increased investments by Gulf businessmen, particularly in its real estate and tourism sectors. Opening the boundaries of the country would increase GCC countries' interest in Morocco as an investment destination," DSG's Biygautane told Zawya.
The Gulf region's interest in investing in Morocco grew particularly after the 9/11 attacks and the consequent increased willingness to invest more in the Arab world. Emaar Properties, Pearl of Kuwait Real Estate Company, Dubai Properties, Al Qudra Real Estate and Qatari Diar are some GCC companies that invested heavily in Morocco. This list is set to grow if Morocco joins the GCC with easier laws governing investor relations among these countries.
Investment inflows dropped by 15% to MAD 10.9 billion in the first half of 2011, according to the EIU, but this figure would improve if Morocco becomes a member of the wealthy Council, due to higher prospects of increased investments from GCC countries.
Tourism receipts rose by 9.3% to MAD 24.7 billion in the first of 2011, according to EIU estimates. This figure is set to grow if Morocco joins the GCC, with an expected rise in the number of Gulf tourists.
"Morocco is already one of the favored destinations for Gulf tourists, given its diverse cultural heritage, its natural landscapes, food and weather. Yet, with facilitated cross-border travel, the Moroccan tourism industry would be set for further development upon joining the GCC," Biygautane said.
At the end of 2010, Morocco's government launched Vision 2020, a 10-year tourism plan with the goal of doubling tourist arrivals by 2020.
Joining the GCC would bring Morocco closer to its vision for its tourism sector, which is considered labor-intensive and accounted for around 14% of GDP in 2010, hence creating more employment opportunities in its economy.
"Joining the GCC will undoubtedly foster economic development and alleviate the burden of budget deficit in Morocco, create job opportunities for the young and well-qualified Moroccan youth, and establish stronger trade, tourism and investment relations among these countries," Biygautane said.
In light of the regional unrest, Morocco's success in dealing with its social and economic challenges will greatly influence popular sentiment. While a potential induction in the wealthy Gulf economic bloc would ease these challenges, the monarchy would still need to push ahead with political reform.
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