05 August 2006
As the kingdom adapts to the Emergence industrial development programme, recently published figures on Morocco's industrial output in 2005 reveal a mixed performance.
At present, the country's economy is faced several challenges. These include high energy prices, the end of the Multi-fibre Agreement (MFA), and the entry into force of the Free Trade Agreement (FTA) with the US.
Concern over these issues has prompted cautious behaviour from traditional business leaders and investors.
Overall, industry displayed encouraging resistance to this hectic environment, with manufacturing output growing 2.6% in volume, according to preliminary data from the Directorate of Statistics (the results of the Ministry of Trade and Industry's 2005 survey are expected to be released in September). Yet these results mark a continued slowdown in industrial growth, from 3.7% in 2003 and 3% in 2004.
The manufacturing sector typically contributes 17-18% of GDP. This figure has remained stable over the last five years, but Salaheddine Mezouar, the minister of trade, industry and economic upgrading, told OBG that the country aimed to boost output to at least 24% of GDP over the next 10 years, as the Emergence programme develops. By concentrating the state's limited resources on a small number of well-targeted, high-potential sectors, Emergence aims to spur the development of new export industries with the ability to be competitive in fast-growing niche markets, including aeronautics, auto-manufacturing and electronics, while promoting the competitive modernisation of traditional fields of activity.
The processed food segment grew 2.4% in volume in 2005, a 1.6-point drop from the previous two-year average, mainly due to the poor performance of beverages (-3.7% for wine) and tobacco (-4.2%). Apart from sugar (-1.4%), most segments recorded healthy growth, with processed fish and seafood up 11.4%, animal feed up 16.6%, and flour, pasta and couscous up 5.1% in volume. Some producers suffered setbacks on the domestic market due to a lack of competitiveness, product quality and differentiation. However, most traditional exports fared well, with olive oil skyrocketing 110% to $116m, while fish-meal also jumped 110% to $35.5m. Canned fish was up 15% to $413m, though canned vegetables dropped 7% to $123m.
The textile, leather and footwear segment lost 2.2% in the face of stiffening Chinese competition. Clothing output fell 4%, while textile and hosiery lost just 0.9%, with leather and footwear virtually stagnating. The results showed the sector's resilience in the face of the end of the MFA in January 2005. Exports partly recovered from a painful first half and limited the damage, with clothing down just 5.6% to $2bn, while hosiery fell 11% to $776m. Footwear even scored an impressive 13.7% jump to $191m, thanks to more fashionable women's models and the expansion of the male footwear segment. Although Morocco lost its rank as sixth-largest clothing exporter to the EU to Tunisia, the segment was buttressed by first-half 2006 export figures, which showed a 15.2% increase to $1.3bn.
Chemical industries recorded good results in 2005, with preliminary figures showing a 4.3% increase in production volumes. The kingdom's phosphate monopoly, OCP, significantly improved its exports, with phosphoric acid surging 20.6% to $870m, while phosphate (actually accounted for in the mining segment) jumped 22.1% to $520m. Natural and chemical fertiliser exports also grew, albeit more moderately (up 3.2% to $450m). Meanwhile, the output of paper, cardboard and wood products registered a 7.6% rise in volumes over 2005, with paper pulp exports jumping 39% to $57m. Pharmaceutical exports registered an encouraging 20.6% boost to $27.4m, although production virtually stagnated in volume terms.
Metallic and mechanical industries were up 3.2%, essentially due to the solid performance of metallurgy, up 14.4%. This was linked to a good year at leading steel producer SONASID, with revenue up 13% to $536m in 2005 on the back of sustained growth in construction and public works, with real estate and infrastructure programmes mushrooming throughout the country. Yet with the steel industry in turmoil over Mittal's hostile bid for Arcelor, few outside the industry paid attention to the latter's decision to increase its interest in Sonasid from 7.5% to 31% in a cash payment, based on the Moroccan steelmaker's 10% growth forecast.
This will allow Sonasid to benefit from Arcelor's purchasing power, as well as from a potential transfer of technical know-how.
Meanwhile, the 14.3% jump in car production volumes, due to the coming onstream of Renault Logan production in the summer of 2005 at the Somaca plant, was offset by an 18% drop in commercial and goods vehicles, also at Somaca. Renault increased its share in Somaca to 80% in mid-2006, and hopes to develop Logan exports under the Agadir Agreement, which provides for the creation of a free trade area between Morocco, Tunisia, Egypt and Jordan, to come into force as of October 2006. Overall, the transport vehicles segment lost 0.8% in volume.
Electrical and electronics manufacturing was up 4.3% in volume in 2005. The electrical materials segment jumped 4.3% in volume in 2005, although this aggregated performance fails to fairly represent the mixed year the industry has gone through. Output of electrical materials increased by 9%, lighting devices jumped 18% and batteries were up 4.3%, whereas electronics devices plunged 10% and electric cables lost 1.2%.
However, the export performance was disappointing, with electronic devices virtually stagnating at $627m, while electric cables lost 9% at $378m.
Overall, the industrial sector seems to be responding positively to the Emergence programme. The programme provided the industrial vision and visibility that Moroccan businessmen and foreign investors had long waited for, with significant investments announced in the first half of 2006 in key industrial areas.
The financing bottleneck is also easing, with banks modernising their approach to credit and risk evaluation, while a number of specialised investment funds have been launched.
The ongoing development of modern distribution and the implementation of a new intellectual and copyright law will keep boosting product diversity and quality. With a sector-specific framework agreement coming onstream and the launch of new export-oriented industrial and services zones as part of the Emergence programme, the sector seems firmly on track to record sustained growth over the coming decade. In addition, the launch of the Tanger Med port, set for the second half of 2007, could well usher in a fresh round of investment in the region and beyond.
As the kingdom adapts to the Emergence industrial development programme, recently published figures on Morocco's industrial output in 2005 reveal a mixed performance.
At present, the country's economy is faced several challenges. These include high energy prices, the end of the Multi-fibre Agreement (MFA), and the entry into force of the Free Trade Agreement (FTA) with the US.
Concern over these issues has prompted cautious behaviour from traditional business leaders and investors.
Overall, industry displayed encouraging resistance to this hectic environment, with manufacturing output growing 2.6% in volume, according to preliminary data from the Directorate of Statistics (the results of the Ministry of Trade and Industry's 2005 survey are expected to be released in September). Yet these results mark a continued slowdown in industrial growth, from 3.7% in 2003 and 3% in 2004.
The manufacturing sector typically contributes 17-18% of GDP. This figure has remained stable over the last five years, but Salaheddine Mezouar, the minister of trade, industry and economic upgrading, told OBG that the country aimed to boost output to at least 24% of GDP over the next 10 years, as the Emergence programme develops. By concentrating the state's limited resources on a small number of well-targeted, high-potential sectors, Emergence aims to spur the development of new export industries with the ability to be competitive in fast-growing niche markets, including aeronautics, auto-manufacturing and electronics, while promoting the competitive modernisation of traditional fields of activity.
The processed food segment grew 2.4% in volume in 2005, a 1.6-point drop from the previous two-year average, mainly due to the poor performance of beverages (-3.7% for wine) and tobacco (-4.2%). Apart from sugar (-1.4%), most segments recorded healthy growth, with processed fish and seafood up 11.4%, animal feed up 16.6%, and flour, pasta and couscous up 5.1% in volume. Some producers suffered setbacks on the domestic market due to a lack of competitiveness, product quality and differentiation. However, most traditional exports fared well, with olive oil skyrocketing 110% to $116m, while fish-meal also jumped 110% to $35.5m. Canned fish was up 15% to $413m, though canned vegetables dropped 7% to $123m.
The textile, leather and footwear segment lost 2.2% in the face of stiffening Chinese competition. Clothing output fell 4%, while textile and hosiery lost just 0.9%, with leather and footwear virtually stagnating. The results showed the sector's resilience in the face of the end of the MFA in January 2005. Exports partly recovered from a painful first half and limited the damage, with clothing down just 5.6% to $2bn, while hosiery fell 11% to $776m. Footwear even scored an impressive 13.7% jump to $191m, thanks to more fashionable women's models and the expansion of the male footwear segment. Although Morocco lost its rank as sixth-largest clothing exporter to the EU to Tunisia, the segment was buttressed by first-half 2006 export figures, which showed a 15.2% increase to $1.3bn.
Chemical industries recorded good results in 2005, with preliminary figures showing a 4.3% increase in production volumes. The kingdom's phosphate monopoly, OCP, significantly improved its exports, with phosphoric acid surging 20.6% to $870m, while phosphate (actually accounted for in the mining segment) jumped 22.1% to $520m. Natural and chemical fertiliser exports also grew, albeit more moderately (up 3.2% to $450m). Meanwhile, the output of paper, cardboard and wood products registered a 7.6% rise in volumes over 2005, with paper pulp exports jumping 39% to $57m. Pharmaceutical exports registered an encouraging 20.6% boost to $27.4m, although production virtually stagnated in volume terms.
Metallic and mechanical industries were up 3.2%, essentially due to the solid performance of metallurgy, up 14.4%. This was linked to a good year at leading steel producer SONASID, with revenue up 13% to $536m in 2005 on the back of sustained growth in construction and public works, with real estate and infrastructure programmes mushrooming throughout the country. Yet with the steel industry in turmoil over Mittal's hostile bid for Arcelor, few outside the industry paid attention to the latter's decision to increase its interest in Sonasid from 7.5% to 31% in a cash payment, based on the Moroccan steelmaker's 10% growth forecast.
This will allow Sonasid to benefit from Arcelor's purchasing power, as well as from a potential transfer of technical know-how.
Meanwhile, the 14.3% jump in car production volumes, due to the coming onstream of Renault Logan production in the summer of 2005 at the Somaca plant, was offset by an 18% drop in commercial and goods vehicles, also at Somaca. Renault increased its share in Somaca to 80% in mid-2006, and hopes to develop Logan exports under the Agadir Agreement, which provides for the creation of a free trade area between Morocco, Tunisia, Egypt and Jordan, to come into force as of October 2006. Overall, the transport vehicles segment lost 0.8% in volume.
Electrical and electronics manufacturing was up 4.3% in volume in 2005. The electrical materials segment jumped 4.3% in volume in 2005, although this aggregated performance fails to fairly represent the mixed year the industry has gone through. Output of electrical materials increased by 9%, lighting devices jumped 18% and batteries were up 4.3%, whereas electronics devices plunged 10% and electric cables lost 1.2%.
However, the export performance was disappointing, with electronic devices virtually stagnating at $627m, while electric cables lost 9% at $378m.
Overall, the industrial sector seems to be responding positively to the Emergence programme. The programme provided the industrial vision and visibility that Moroccan businessmen and foreign investors had long waited for, with significant investments announced in the first half of 2006 in key industrial areas.
The financing bottleneck is also easing, with banks modernising their approach to credit and risk evaluation, while a number of specialised investment funds have been launched.
The ongoing development of modern distribution and the implementation of a new intellectual and copyright law will keep boosting product diversity and quality. With a sector-specific framework agreement coming onstream and the launch of new export-oriented industrial and services zones as part of the Emergence programme, the sector seems firmly on track to record sustained growth over the coming decade. In addition, the launch of the Tanger Med port, set for the second half of 2007, could well usher in a fresh round of investment in the region and beyond.
© Oxford Business Group 2006
