23 April 2006
A recent forum on Morocco's construction and public works sector shone the spotlight on the industry's recent strong performance but also tackled some of the trade's more difficult challenges.
The Construction and Public Works Forum's 2006 edition was organised in Casablanca in March by Morocco's the sector's national federation.
The meeting gathered a broad range of participants, including Prime Minister Driss Jettou and a number of ministers, as well managers of government organisations, bankers and industry professionals.
The reason for this keen interest is quite straightforward. The sector has done well over the past few years, with a total turnover estimated at around Dh41bn (3.76bn euros), while value added was up 5.7% last year, 3.4% in 2004 and 7.2% in 2003. Strong demand and comfortable margins except maybe in the social housing segment have helped the industry grow from strength to strength.
More importantly maybe, the future looks rosy for the sector, as the government is implementing a massive infrastructure and housing programme.
On the infrastructure front, works are already well advanced at the Tanger Med port, a mega project that entails a projected investment of Dh15bn (1.4bn euros). In addition, the King's initiative aimed at reviving the Tangiers region long neglected by the late Hassan II - has spurred growth in the region. One real estate developer recently told OBG that prices had skyrocketed by 30-40% in the year following the inception of the Tanger Med project in 2004.
With such high demand, it is clear that construction is ready for a bull run, with cement consumption up 11% per year on average in the region in 2004 and 2005 and showing no sign of abating.
Such a surge is also creating environmental challenges, with the local press denouncing a flourishing traffic of sea sand that is extracted illegally from Houara beach outside Tangiers, as the nearby Houara estuary, which is open for exploitation, seems to be running out.
The authorities are currently pondering ways to expand the legal supply of sand, while state owned dredging company Drapor is looking at the possibility to use the sand it removes from the country's ports to sell it to construction companies.
Meanwhile, Morocco's road network expansion programme is also boosting the public works sector, with some 160 km of highway and 1500 km of national road to be build each year. Other large infrastructure projects include new airports, ports and dams.
In addition, the country is bent on bridging the housing gap, with around 100,000 housing units built in 2005, the same target for the coming years and plans to increase this to 150,000 per year by 2009. The government signed conventions with 17 contractors in December 2005 for a total amount of Dh29bn (2.8bn euros), with a view to achieving the kingdom's objective to eliminate all slums by 2012.
Last but not least, the current tourism development frenzy is boosting demand for construction to unprecedented levels. Six coastal resorts are to be build by the end of the decade as part of the Plan Azur, and a number of high profile projects such as French group Accor's Casa City Centre in the kingdom's economic capital and Spanish group FADESA's Tangiers City Centre currently underway.
More recently, Gulf investors moved to the centre stage, with Dubai Holding and Emaar signing investment conventions with the government for a hefty total of $9bn (7.3bn euros) over the next decade.
Yet Morocco's construction and public works sector also faces a number of challenges, most of which are related to the weight of the informal sector and the predominance of family run small and medium sized enterprises (SMEs). Some 39% of the companies within the sector have less than Dh100,000 (9400 euros) in capital, while only 26% have over Dh1m (94,000 euros). As a result, only 67 companies are posting revenues over Dh50m (4.7m euros).
In terms of management, most construction SMEs are family run businesses, and they experience difficulties when looking for serious, long-term financing, mostly because of their lack of transparency. Besides, the widespread practice of late payments forces many companies to resort to short-term borrowing, so that they tend to bear high financial costs.
In order to change this, the authorities and the Caisse de Dpt et de Gestion (CDG) group concluded an agreement providing for the creation of a guarantee fund for SMEs in the construction sector.
Another flaw is the lack of qualified human resources, which has pushed many businesses to adopt production methods based on the abundance of non-qualified labour, thus hindering productivity. With executives and supervisors only accounting for 2% and 2.3% of the workforce, respectively, it is high time for Morocco to boost technical training in the construction and public works sector.
To address these concerns, most industry professionals seem to be relying on the framework agreement signed with the government on June 2004, which aims at encouraging more companies to get involved in large infrastructure projects.
Another aspect of this agreement is regulatory reform. This will entail overhauling the market overt code, which currently lacks transparency a weakness the government is currently tackling.
Yet the most difficult task for the authorities remains to promote concentration in the market, so as to boost the emergence of companies of critical size, which implies finding ways to encourage small businesses to merge. This might prove to be difficult, as most SME owners are reluctant to relinquish control over their company, not to mention the fact that many of these businesses are thought to actually be much more profitable than their official financial statements tend to indicate.
A recent forum on Morocco's construction and public works sector shone the spotlight on the industry's recent strong performance but also tackled some of the trade's more difficult challenges.
The Construction and Public Works Forum's 2006 edition was organised in Casablanca in March by Morocco's the sector's national federation.
The meeting gathered a broad range of participants, including Prime Minister Driss Jettou and a number of ministers, as well managers of government organisations, bankers and industry professionals.
The reason for this keen interest is quite straightforward. The sector has done well over the past few years, with a total turnover estimated at around Dh41bn (3.76bn euros), while value added was up 5.7% last year, 3.4% in 2004 and 7.2% in 2003. Strong demand and comfortable margins except maybe in the social housing segment have helped the industry grow from strength to strength.
More importantly maybe, the future looks rosy for the sector, as the government is implementing a massive infrastructure and housing programme.
On the infrastructure front, works are already well advanced at the Tanger Med port, a mega project that entails a projected investment of Dh15bn (1.4bn euros). In addition, the King's initiative aimed at reviving the Tangiers region long neglected by the late Hassan II - has spurred growth in the region. One real estate developer recently told OBG that prices had skyrocketed by 30-40% in the year following the inception of the Tanger Med project in 2004.
With such high demand, it is clear that construction is ready for a bull run, with cement consumption up 11% per year on average in the region in 2004 and 2005 and showing no sign of abating.
Such a surge is also creating environmental challenges, with the local press denouncing a flourishing traffic of sea sand that is extracted illegally from Houara beach outside Tangiers, as the nearby Houara estuary, which is open for exploitation, seems to be running out.
The authorities are currently pondering ways to expand the legal supply of sand, while state owned dredging company Drapor is looking at the possibility to use the sand it removes from the country's ports to sell it to construction companies.
Meanwhile, Morocco's road network expansion programme is also boosting the public works sector, with some 160 km of highway and 1500 km of national road to be build each year. Other large infrastructure projects include new airports, ports and dams.
In addition, the country is bent on bridging the housing gap, with around 100,000 housing units built in 2005, the same target for the coming years and plans to increase this to 150,000 per year by 2009. The government signed conventions with 17 contractors in December 2005 for a total amount of Dh29bn (2.8bn euros), with a view to achieving the kingdom's objective to eliminate all slums by 2012.
Last but not least, the current tourism development frenzy is boosting demand for construction to unprecedented levels. Six coastal resorts are to be build by the end of the decade as part of the Plan Azur, and a number of high profile projects such as French group Accor's Casa City Centre in the kingdom's economic capital and Spanish group FADESA's Tangiers City Centre currently underway.
More recently, Gulf investors moved to the centre stage, with Dubai Holding and Emaar signing investment conventions with the government for a hefty total of $9bn (7.3bn euros) over the next decade.
Yet Morocco's construction and public works sector also faces a number of challenges, most of which are related to the weight of the informal sector and the predominance of family run small and medium sized enterprises (SMEs). Some 39% of the companies within the sector have less than Dh100,000 (9400 euros) in capital, while only 26% have over Dh1m (94,000 euros). As a result, only 67 companies are posting revenues over Dh50m (4.7m euros).
In terms of management, most construction SMEs are family run businesses, and they experience difficulties when looking for serious, long-term financing, mostly because of their lack of transparency. Besides, the widespread practice of late payments forces many companies to resort to short-term borrowing, so that they tend to bear high financial costs.
In order to change this, the authorities and the Caisse de Dpt et de Gestion (CDG) group concluded an agreement providing for the creation of a guarantee fund for SMEs in the construction sector.
Another flaw is the lack of qualified human resources, which has pushed many businesses to adopt production methods based on the abundance of non-qualified labour, thus hindering productivity. With executives and supervisors only accounting for 2% and 2.3% of the workforce, respectively, it is high time for Morocco to boost technical training in the construction and public works sector.
To address these concerns, most industry professionals seem to be relying on the framework agreement signed with the government on June 2004, which aims at encouraging more companies to get involved in large infrastructure projects.
Another aspect of this agreement is regulatory reform. This will entail overhauling the market overt code, which currently lacks transparency a weakness the government is currently tackling.
Yet the most difficult task for the authorities remains to promote concentration in the market, so as to boost the emergence of companies of critical size, which implies finding ways to encourage small businesses to merge. This might prove to be difficult, as most SME owners are reluctant to relinquish control over their company, not to mention the fact that many of these businesses are thought to actually be much more profitable than their official financial statements tend to indicate.
© Oxford Business Group 2006
