Morocco's economy: New government faces old challenges

Even before the health crisis, economic growth had been slowing to below 3% in 2019 with structurally high unemployment

  
Image used for illustrative purpose. Morocco, Tangier, view of Old City from harbour

Image used for illustrative purpose. Morocco, Tangier, view of Old City from harbour

Getty Images/Dede Burlanni

The defeat of the long-ruling Justice and Development Party (PJD) in the election held in September, and the success of the National Rally of Moroccan Independents (RNI) comes at a time of unique challenges for the Moroccan economy.

Morocco’s King Mohammed VI appointed Aziz Akhannouch, leader of the National Rally of Moroccan Independents (RNI), as head of government and asked him to form a cabinet. The new leader, an energy tycoon worth $2 billion, according to Forbes, will be tasked with boosting the Moroccan economy and spearhead a post-COVID recovery.

The businessman, who is CEO of energy company Akwa Group, had pledged in his campaign to create one million jobs, expand health insurance and raise salaries in the country’s education sector. Given that RNI secured 105 seats, it will need to form a coalition government in partnership with other parties to secure a majority.

The change at the top comes after the North Africa country’s economy plunged 7.2 percent in 2020. GDP expected to rebound by 4.5 percent this year, according to the International Monetary Fund and maintain a below 5 percent annual growth rate till at least 2025.

Even before the health crisis, economic growth had been slowing to below 3 percent in 2019 with structurally high unemployment. The country’s High Commissioner for Planning said in its latest report in August that unemployment rose to 12.8 percent in the second quarter, compared to 12.3 percent previously, with higher education graduates especially hard hit with a 25.3 percent unemployment.

GDP eked out gains of 1 percent in the first quarter, suggesting the economy will need more stimulus. Tourism, a key forex generator, saw revenues decline 58.1 percent in the first half of the year to reach $1.35 billion, according to The Moroccan Directorate of Financial Studies and Forecasts.

FISCAL STRENGTH

Still, Morocco is in a strong fiscal situation compared to many of its emerging market and regional peers.

“Unlike Brazil or Russia, it would appear that Morocco’s savings have never been wiped out by hyperinflation or deep economic shocks,” according to Charles Robertson, analyst at Renaissance Capital. “High domestic savings have meant Morocco’s lending to GDP ratio is much higher than many EM countries at 97 percent of GDP and this has not been financed from abroad.”

The World Bank notes that Morocco has “seized” the COVID-19 crisis as an opportunity to revamp the economy.

“This reform program has the following pillars: (i) the creation of a Strategic Investment Fund (the Mohammed VI Fund) to support the private sector; (ii) the overhaul of the social protection framework to boost human capital; (iii) the restructuring of Morocco’s large network of State Owned Enterprises,” the World Bank noted.

“In addition, the government has recently unveiled the terms of a new development model that places significant emphasis on human development and gender equity, and on the need to reinvigorate recent efforts to incentivize private entrepreneurship and boost competitiveness.”

In May, Fitch Ratings affirmed its BB+ rating with a stable outlook, noting the country’s macroeconomic stability and low inflation and GDP volatility pre-pandemic.

“We forecast a GG (general government) deficit, which also includes social security, local governments and extra-budgetary units, of 6.5 percent of GDP in 2021, after 6.9 percent in 2020, compared with a forecast 'BB' median of 5.2 percent,” Fitch noted. “We do not expect material alterations to fiscal and other economic policies after the September 2021 parliamentary elections.”

TRADE WITH GCC

Morocco’s trade and investment ties with Gulf states have cooled in recent years due to a shift in priorities for both parties.

GCC states had pledged $5 billion in 2011 amid protests in Morocco, and Rabat was even contemplating joining the Gulf Cooperation Council at one time.

But a change of leadership in Saudi Arabia and Morocco’s refusal to take sides in the Qatar-Saudi diplomatic rift has altered the dynamic.

“Morocco has been adjusting to the decrease in Gulf support, adopting a more active and self-reliant approach that includes asserting its influence in Africa and reaching out to a new set of partners including China and Russia,” according to Carnegie Endowment for International Peace.

Saudi exports to Morocco slipped to $898 million last year, compared to $1.22 billion during the same period in 2019. Exports from the UAE, the second largest GCC source of imports, almost halved to $511 million during the period, according to the International Trade Centre.

Moroccan exports to Saudi Arabia ($97.5 million) and the UAE ($92 million) were paltry, leaving the trade flow firmly in favour of GCC states.

Morocco is forging closer trade ties with southern European states Spain, France and Italy – its three largest exports markets. The country’s auto sector enjoys increasingly strong partnership with Europe’s auto manufacturers, with the industry generating revenues of $5 billion in the first half of the year, a 38% increase compared to the same period last year.

The country’s domestic industry has seen new investments from European makers and is also taking advantage of disrupted supply chains. Increasingly, it is eyeing the burgeoning electric vehicles market, as STMicroelectronics, one of Europe's leading semiconductor manufacturers, plans to inaugurate a new production line in Morocco to manufacture electronic chips for U.S. EV giant Tesla. Inc.

While the post COVID-19 economic recovery will be uneven, Morocco is expected to ride it out relatively unscathed given its strong trade ties with EU states, robust infrastructure and a favourable business environment.

(Writing by Syed Hussain; editing by Seban Scaria)

seban.scaria@refinitiv.com

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© ZAWYA 2021


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