FT SPECIAL REPORT

Morocco
Gateway to Africa
Tuesday October 12 2021 www.ft.com/reports

Recovery effort begins to bear fruit Inside

Worry over weakness

of opposition in Rabat
Yet some hope the pro-
After a sharp dip, the he says, “was the most obvious thing business government
economy is expected to that hit us in the face”.
Another vulnerability, he adds, was will increase investment
grow by 4.5 per cent in the extent to which “small and medium Page 2

2021, writes Heba Saleh companies are undercapitalised and

rely on bank debts”.
The World Bank says poverty in the

F
or the Moroccan economy,
2020 was especially tough:
bringing not only Covid-19 but
also drought. Now, though, a
recovery is taking hold, under-
pinned by a strong vaccination pro-
gramme and an agricultural rebound
due to good rains.
Gross domestic product had con-
tracted by 6.3 per cent in 2020 amid
lockdown restrictions, the collapse of
tourism and plummeting demand in
Europe — the destination for much of
Morocco’s manufacturing and agricul-
tural exports.
However, after this rapid recession —
the kingdom’s first since 1997 — the IMF
expects the economy to grow by 4.5 per
cent in 2021.
“So far, we are seeing a relatively
strong recovery,” says James Swanston,
economist at Capital Economics, a Lon-
don-based consultancy — although he
notes that travel disruption still weighs
on the hospitality sector.
Agriculture is set to bounce back
strongly. It accounts for 10 per cent of
Morocco’s GDP, and provides liveli-
hoods for around a third of the popula-
tion, which means growth remains
Rosy outlook: pandemic exposed the vulnerability of sectors such as tourism but growth is predicted to return — Getty
vulnerable to climate conditions, such
as the droughts of 2020 and 2019. But
good rains after those two dry years
have led to projections that agricul-
tural output would rise by 19 per cent
this year, Swanston says — adding
around 2.2 per cent to GDP growth.
Yet the pandemic also exposed weak-
nesses in the Moroccan economy, ana-
lysts say, from the vulnerability of tour-
ism to the large number of people who
live off the informal economy and have
no protection against adverse events.
Ahmed Reda Chami, an economist
and former minister who heads the Eco-
nomic, Social and Environmental Coun-
cil, a think-tank, notes that the state
extended support to some 5.2m house-
holds during the pandemic whose
breadwinners worked in informal busi-
nesses. The size of the informal sector,
north African country deepened as a
result of Covid-19, but state support to
informal workers prevented even more
hardship.
“After several years of declines, the
poverty rate . . . is estimated to have Tourism struggles
increased from 5.8 per cent in 2019 to 7.1 despite vaccine gains
per cent in 2020, an increase that could Many restaurants
have been larger hadn’t it been for the
government’s cash transfer programs,” shuttered while visitor
according to the bank, which expects numbers remain low
poverty to decline in 2021, but not to Page 3
pre-pandemic levels.
Coronavirus led to the shuttering of
many small companies while larger Banks provide lifeline
groups were left scarred. Businessmen to small businesses
and analysts, however, credit
the authorities with acting fast to con-
Removal of government
tain the damage. pandemic support could
Moody’s, the rating agency, in an April see the return of risk
note, described the government’s Page 4
response to the health crisis as “swift
and comprehensive” and said it posi-
tioned “the economy well to grow when
Clean energy dividend
international demand recovers”. evades local citizens
Some 51 per cent of Moroccans were Prioritising exports to
fully vaccinated at the end of September Europe could lead to
under an efficient national campaign,
the success of which has been attributed reliance on coal for
to the determination of Mohammed VI, domestic needs
Continued on page 2 Page 5

Carmaking prowess a result

of shrewd state planning
Automotive
Sourcing powertrains locally
could provide a fillip for
jobs, writes David Pilling
Each year, Moroccans buy about
160,000 new cars — a relatively small
number for a population of 36m. Yet,
despite modest sales, the kingdom has
gained critical mass as an automotive
manufacturing hub.
In 2018, it surpassed South Africa as
the biggest exporter of passenger cars
on the continent.
“Just as you’ve seen the car industry
move into eastern Europe, then the next
logical step is north Africa,” says David
Cowan, chief economist for Africa at Cit-
ibank. Exports in 2019 hit roughly
$10bn and, although they dipped in
2020 after a pandemic-related demand-
and-supply crunch, they have recov-
ered this year.
About 80 per cent of the roughly
400,000 cars produced are sold to
Europe, with France, Spain, Germany
and Italy the top destinations. Other
markets include Turkey and the Middle
East, with a smattering going to the rest
of Africa — a market now theoretically
more accessible thanks to the African
Continental Free Trade Area, a trading
bloc that came into effect this year.
The Moroccan car industry now
directly employs some 220,000 people,
most of whom work for roughly 250
suppliers that have sunk roots in the
country since carmakers began to gain
real traction more than a decade ago.
The presence of companies such as
Valeo of France, Varroc Lighting Sys-
tems of the US and Yazaki and Sumi-
tomo of Japan shows that Morocco has
had some success in forcing a backward
integration of the industry, by stipulat-
ing the use of locally-based suppliers.
Marc Nassif, managing director of
Renault in Morocco, the biggest manu-
facturer in the country, says the French
company sources parts from seats to
axles — almost everything bar power-
trains — from local suppliers. He esti-
mates about a third of the companies
are Moroccan while the rest are foreign
suppliers based in the country.
Local content accounts for 60 per cent
of the final product, he says, a figure he
expects to rise to 65 per cent.
“The state is extremely demanding
Renault-Nissan plant in Melloussa
but also extremely supportive,” says
Nassif, who argues that Morocco’s
much-trumpeted tax breaks and invest-
ment incentives — which he says are
actually less generous than those
offered by some other countries — are
not the main reasons for success.
As well as good infrastructure — most
recently a new high-speed rail link
between Casablanca and Tangier, where
the bulk of Renault production takes
place — he highlights consistency of pol-
icy. Manufacturers can go to a “single
window” in the trade and industry min-
istry rather than battling against com-
peting bureaucratic fiefdoms, he says.
‘Just as you’ve seen the car
industry move into eastern
Europe, then the next
logical step is north Africa’
In terms of exports, they also benefit
from a suite of Moroccan free trade
agreements with Europe, the US, Tur-
key, the United Arab Emirates and else-
where. Locally recruited staff are
trained at Moroccan technical insti-
tutes, another sign of a determination to
push up the value chain.
How Morocco has moved from an
insignificant car manufacturer just a
few decades ago to one challenging the
likes of Poland, the Czech Republic and
even Italy is a story of state intervention.
One article on the subject was titled,
“Yes, We Plan”.
Joe Studwell, an expert in industrial
policy in both Asia and Africa, regards
the growth of Morocco’s car industry,
particularly in conjunction with the
development of Tanger-Med, an indus-
trial port complex, as an example of
what governments can do when they are
serious. He says the key is to provide
state oversight with rigorous private-
sector competition and a strong focus on
exports to foreign markets where short-
falls in either efficiency or quality are
ruthlessly exposed.
Geography also helps. “If you are in
Tangier you are just across from Spain,
but you have a totally different cost
structure,” he says, referring to
Morocco’s proximity to Europe and its
cheaper wages.
Labour costs are about one quarter of
those in Spain and lower than in eastern
Europe. For entry-level cars like
Renault’s Dacia brand, where labour
makes up a higher proportion of the
vehicle cost, that is a key incentive for
locating in Morocco, says Nassif.
There are strong signs the industry
will expand further. In 2019, Peugeot
opened a $600m plant in Kenitra, north
of Rabat, which has started to produce
the Peugeot 208 and will have capacity
to make 200,000 vehicles by the end of
the year. BYD, a Chinese electric vehicle
manufacturer, has signed a memoran-
dum of understanding with the govern-
ment to open a plant in Kenitra that
could mark a further technological step
change. Hyundai, the Korean carmaker,
which recently quit Algeria, may now
consider setting up in Morocco, accord-
ing to reports.
Still, there is room for caution, says
Cowan of Citibank. “If I were to walk you
around the factory in Tangier, there are
not many people. There are a lot of
robots. The unemployment numbers
have not substantially budged.”
For the car industry to have a bigger
impact on jobs and income, he says, yet
more progress must be made on sourc-
ing high-value components locally —
including batteries and perhaps eventu-
ally powertrains. “How to develop an
auto components industry that feeds
into production? That’s their next chal-
lenge and that to me will be the make-
or-break of this as a project.”
2 ★ FINANCIAL TIMES Tuesday 12 October 2021

Morocco Gateway to Africa

Politics Some argue the pro-business government

could be good for investment, writes Heba Saleh

Critics sound
alarm over
weakness of
opposition
T
he massive election defeat
in September of Morocco’s
moderate Islamist Party of
Justice and Development —
which had led its govern-
ment for a decade — marks the end of an
era that began amid the Arab uprisings
in 2011.
To reduce the risk of unrest as the
region’s pro-democracy protests
extended to Morocco, King Mohammed
VI ceded more powers to the elected
parliament, although ultimate control
remained in his hands. Appointing an
Islamist party to lead the government
would have been unthinkable before
2011 but, as under concessions set out in
an amended constitution, the king com-
mitted to choosing a prime minister
from the biggest party in parliament.
More recently, however, as voters and
royal circles turned against the Islam-
ists, the government has reverted to
parties close to the palace, signalling
even more royal control of policy, some
observers say. “It is like we have gone
back to before 2011,” says Mohammed
Masbah, head of the Moroccan Institute
for Policy Analysis. “A page has been
turned. The Islamists are not just out-
side power, they are outside the game.
With the number of seats they got [13 of
the 395] they have become irrelevant.”
The new prime minister is Aziz
Akhannouch, an oil importer, billion-
aire businessman and member of the
elite, whose National Rally of Independ-
ents (RNI) party swept to victory in last
month’s polls.
Some analysts argue Akhannouch,
who has been agriculture minister since
2007, and his RNI colleagues, who
include several businessmen, will be
able to launch reforms to improve the
investment climate.
Critics, on the other hand, are con-
cerned about the weakness of opposi-
tion within parliament. They also fear
conflicts of interests arising from plac-
ing powerful members of the business
community in charge of government.
“Pro-business parties are back — and
that gives us hope that we will return to
the more pro-reform 2011-16 stance,”
wrote Charlie Robertson, global chief
economist at Renaissance Capital, in a
note after the election. He was referring
to the fiscal reforms and subsidy cuts
enacted by the first PJD government,
some of which, he said, were rolled back
by the party’s next government.
Other members of Akhannouch’s coa-
lition are the Party of Authenticity and
Modernity, founded by a friend of the
king, and Istiqlal, an old nationalist
party involved in the independence
struggle against France. The coalition
has a comfortable majority with 270 of
the 395 seats in the assembly.
“There will be almost no opposition
Aziz in parliament, which does not exist in
Akhannouch, any democracy,” says Masbah. “In
president of Morocco, there was always a kind of bal-
Morocco’s RNI ance — even if the opposition was weak.
party, which We will have a very strong government
swept to victory that can get through any law, and it will
in September’s include businessmen with major inter-
polls ests.”
Getty Images The new prime minister has promised
to create 1m jobs to revive the economy
after the pandemic, via a public works
programme and support for entrepre-
neurs.
The PJD has alleged irregularities in
the election, which has been denied by
the interior ministry. Observers say the
deep-pocketed RNI was able to deploy
patronage networks of local notables in
the countryside to ensure it got the vote,
a usual practice in Morocco.
Even so, some say that, after 10 years
leading the government, the PJD had
lost popular support — even among its
core Islamist constituency — and that its
defeat at the polls was a genuine reflec-
tion of perceptions that it was ineffec-
tive and unable to fulfil earlier election
promises to stand up to corruption and
autocracy.
“They appeared to be clearly unable
to manage the economy, and they
lacked the will to push a democratic
interpretation of the constitution,” says
Karim Tazi, a businessman. “Their only
preoccupation was to be accepted by the
palace and they did not use all the pow-
ers they had.”
Analysts cite examples that alienated
voters, including the normalisation
agreement with Israel signed last year
by Saadeddine Othmani, the PJD prime
minister, in a quid pro quo for US recog-
nition of Moroccan sovereignty over the
disputed territory of Western Sahara.
The disappearance of opposition in
parliament also comes against the back-
drop of a crackdown on the expression
of dissent in recent years that has seen
several independent journalists jailed
after prosecutions for sexual crimes.
Human Rights Watch described the
rape trial of Omar Radi, an investigative
journalist, as an abuse of the justice sys-
tem “to silence one of the few remaining
critical voices in Moroccan media”. He
We will have was sentenced in July to six years in
a very prison.
Moroccan officials have said that no
strong one is tried for expressing views and
government those prosecuted had broken the law.
Omar El-Hayani, an elected member
that can get of the local council of Rabat, the capital,
through any representing the Democratic Left Fed-
eration, says the absence of opposition
law, and it and the crackdown on media could
will include threaten stability.
“The danger is that opposition moves
business to the street. There will be people who
people will oppose the liberal economic
reforms the government will undertake.
with major Or we could see more actions like the
interests boycott of 2018,” he says.

Pandemic A former agriculture minister since

2007, Akhannouch was chair and chief
executive officer of Akwa, a Moroccan
exposes conglomerate that works primarily in
energy but has interests in other sectors.

vulnerabilities After the election, Akhannouch

announced that he was withdrawing
from all management of his family busi-

in economy nesses. He is also the president of the

Continued from page 1
the monarch, to ensure speedy vaccine
coverage and minimise damage to the
fragile economy.
The authorities also launched meas-
ures aimed at ensuring the survival of
businesses, including reducing interest
rates, deferring taxes and providing
credit lines to those in difficulty.
“We had a very advantageous restruc-
turing of our bank debts at a lower rate
and with longer maturity,” says Karim
Tazi, a businessman, who heads Rich-
bond, an industrial group that employs
3,000 people. “We were also able to
reschedule taxes and all social security.”
“What also really helped was that our
outstanding bills to public sector com-
panies were paid,” he adds. “Usually,
they take years to settle but, during
Covid, they paid — which gave us a
breath of oxygen.”
With the worst of the impact of coro-
navirus believed to be over, Tazi says his
company is now “working at a level
comparable to 2019, month by month,
in terms of turnover”.
Before the pandemic, the contribu-
tion of manufacturing to the economy
had risen to 15 per cent — the result of
state efforts to increase higher-value
exports, especially in the automotive
sector. Morocco worked hard to insert
itself into global supply chains, with big
investments from the likes of France’s
Renault and Peugeot PSA. Car exports
dipped in 2020 but rose again by 25 per
cent to $5.76bn in the first eight months
of 2021, according to the Office des
Changes, which publishes trade statis-
tics.
The government-backed direct and
indirect measures to support the econ-
omy have together amounted to 6.3 per
cent of GDP, “one of the larger economic
support packages in the region”, accord-
ing to Capital Economics. This has wid-
ened the budget deficit to 7.7 per cent of
GDP, however — the highest level in 30
years. Public debt has also jumped to 76
per cent of GDP.
As a result, the consultancy expects
that, in the near term, “fiscal austerity
will hold back the economic recovery”.
The size of the informal
economy was the most
obvious thing that hit us
in the face
With a new government elected in
September, led by Aziz Akhannouch, a
billionaire businessman, analysts are
waiting to see if the new administration
will implement the recommendations
of a much-touted report on economic
development commissioned by the king
and made public earlier this year.
National Rally for Independents, a party
close to the palace that won the largest
number of seats in the election and
includes many businessmen.
Drafted by a commission of high-pro-
file business leaders, economists, aca-
demics and civil society leaders after
extensive consultation with citizens, the
economic report proposes a blueprint
for “a new development model” based
on “objectives that are ambitious yet
realistic”.
These include doubling GDP per cap-
ita by 2035, investing in human capital
by improving healthcare provision and
educational attainment, and bringing
down the informal employment rate to
20 per cent.
The report identifies current systemic
weaknesses that it says hold back the
country, such as the absence of strategic
vision and “judicial insecurity and
unpredictability”.
It makes recommendations to mod-
ernise the economy and open it up to
entrepreneurs by reducing bureauc-
racy, and addressing unfair competition
and other barriers to entry.
Some, however, are worried that
strengthening competition might not be
a priority for the Akhannouch govern-
ment. Tazi, who was on the commission
that drafted the report, says that the
new prime minister did not mention the
report while campaigning.
But Chami, also a member of the com-
mission, says the report had royal back-
ing and as such it would not be
neglected.
“The most dramatic outcome that can
happen is that they move ahead without
taking into account the recommenda-
tions of the report. However, I believe
that the king mentioning it publicly on
two occasions and asking stakeholders
to embrace it, makes it unlikely any
future government would discard it.”

Contributors
Heba Saleh Maxine Kelly For advertising details, contact:
North Africa correspondent Commissioning editor Mark Carwardine on +44(0)20 7873
4880 or mark.carwardine@ft.com, or your
David Pilling Steven Bird usual FT representative.
Africa editor Designer

Layli Foroudi Alan Knox

Freelance journalist Picture editor All editorial content in this report is
produced by the FT. Our advertisers have
Jonathan Wheatley no influence over or prior sight of the
Emerging markets reporter articles.
Tuesday 12 October 2021 ★ FINANCIAL TIMES 3

Morocco Gateway to Africa

Tourism struggles despite vaccine progress

Marrakesh water sellers: in 2020,
Travel Many eateries tourist arrivals fell by 78.5 per cent
Getty Images
and shops have yet to
reopen while visitor
numbers remain low, who couldn’t travel to Morocco would
writes Layli Foroudi travel vicariously through my jour-
neys,” she says. She sometimes pro-

T
he pandemic hit Morocco
just as bike tour company
Marrakesh Green Wheels
was entering its peak sea-
son in the spring, when the
heat is less harsh. Everything was can-
celled and the company has not had a
single booking or a penny of revenue
since. Now, founder Adel El Filali has
stopped waiting for tourists to return.
“Forget about tourism until it is back,
you can’t rely on it at all,” says the 31-
year-old, who has started working in
fashion production, while his co-
founder works in a call centre. Instead,
they have been active in organising
cycling activities for locals on a volun-
tary basis.
Morocco’s orders are open and vacci-
nated visitors are exempt from quaran-
tine but, in the Marrakesh old town,
many restaurants and shops have yet to
reopen their doors because footfall
remains low.
The toll of the pandemic on tourism,
which, according to the World Bank,
contributes 11 per cent of the country’s
GDP and accounts for 17 per cent of the
workforce, was felt both locally and
nationally.
While other sectors of the economy
are starting to rebound, tourism will
“continue to suffer”, says Yasmina
Abouzzohour, research fellow at the
Harvard Middle East Initiative. Back in
2020, she warned that “banking on the
tourism sector to accelerate economic
recovery will lead to disappointing
results”.
A more than halving of tourism reve-
nues in 2020 was an important factor in
the country’s recession — its first since
1995. Overall, Morocco’s GDP declined
by 6.3 per cent during 2020, according
to Capital Economics and, while the IMF
says growth is expected to accelerate to
4.5 per cent in 2021, the services sector
is projected to lag behind.
Morocco started prioritising tourism
as an economic sector in the early 2000,
Just before the pandemic in 2019, for-
eign tourist arrivals were at 7m people,
compared with 2.2m in 2002. But, in
2020, tourist arrivals fell by 78.5 per
cent. The National Federation of the
Hotel Industry predicts 2021 will be
worse than 2020 for the sector overall.
Despite the slow recovery, “the
recently disclosed New Development
Model [the country’s social and eco-
nomic strategy] emphasises tourism as
a strategic sector”, says Javier Díaz Cas-
sou, an economist with the World Bank.
He adds that tourism received extensive
public support.
Workers in the tourism sector were
eligible for 2,000 dirhams (€200) a
month from the government. However,
the fact that many workers do not have
a contract, along with other administra-
tive issues, has meant that many people
fell through the cracks — and, in any
case, the sum would barely cover rent in
Marrakesh.
“They stopped paying [in July 2020]
and said ‘open the restaurants’ — but for
which clients?,” recalls Rachid Joualla,
49, a waiter at La Tanjia restaurant,
which currently receives 30-40 guests a
day, compared with around 200 before
the pandemic.
As bookings and visitor figures plum-
meted, Marrakesh-based social media
influencer Yasmina Olfi, who posts
about travel, saw an increase in her
Instagram following and in invitations
from hotels across the country. “People
moted places for free as “it was a duty
for people who have a large community
to showcase beautiful places and
encourage local tourism”.
But this hasn’t translated into real-life
experiences. Hundreds of Riads — tradi-
tional houses that have been converted
into boutique hotels — have gone with-
out bookings for more than a year. The
Riad Dar Zaya in Marrakesh was hit
with large-scale cancellations in August
after the government reintroduced a
9pm curfew, says Yassine Alaatchane,
the hotel’s manager. “The government
asked Riads to give discounts for local
guests, but Moroccans don’t like old
houses because we know these houses.”
Morocco is hoping that tourism will
benefit from the normalisation of rela-
tions with Israel, says Riccardo Fabiani,
north Africa director for the Interna-
tional Crisis Group. On July 25, 2021, the
first direct flight flew from Tel Aviv to
Marrakesh, carrying 100 passengers.
“The flight was hugely talked about,”
says Fabiani. “They are hoping to capi-
talise on flows of Moroccan Jews coming
back to their ancient old homes and
sanctuaries.”
But, in the Marrakesh Mellah, the
Jewish quarter, the blue-and-white-tiled
courtyard of the Slat al-Azama Syna-
gogue is empty and local market sellers
have not seen any more tourists than
usual.
“A couple of groups came this year,”
says Abdul Boussabir, a 54-year-old
spice seller, who closed for months dur-
ing 2020. “But Moroccan Jews have
always come here. It’s the same as
before, [or] even less.”
Bike enthusiast El Filali tries to stay
optimistic. “This is not the first time
The government stopped Marrakesh has lost tourists,” he says,
paying support and said referring to a 2011 terrorist attack that
killed 17 people in the main city square,
‘open the restaurants’ — Jemaa el-Fnaa. “It will pick up, but this
but for which clients? is a long one. Even with the vaccine,
things are still not moving.”

Morocco asserts its power

as diplomatic spats simmer
Foreign relations
Dispute over the contested
Western Sahara territory
sets Rabat against
neighbours and EU trading
partners, writes Layli Foroudi

At the centre of an instalment in

Morocco’s giant Noor solar station in
Ouarzazate stands a 243m tower. It
houses a receptor that generates elec-
tricity from the sun rays, which are
reflected on to it by 178 sq m of panels.
“Until a year and a half ago, we would
have been in the presence of the tallest
edifice in Africa – until the construction
of the Grand Mosque Algiers [265m],”
notes Mustapha Sellam, site director at
Masen, the publicly funded company
that runs the complex, during a visit.
But the primary motivation for the
country’s push towards renewables,
which began in 2009, was not so much
to build record-breaking structures, as
to reduce the kingdom’s reliance on oil
and gas imports. Its oil-rich neighbour,
Algeria, cut diplomatic relations on
August 24, citing “hostile actions”.
While the north African rivals have
very few economic links, this rift could
result in the severing of a gas pipeline
that delivers natural gas to Spain and
Portugal via 500km of Moroccan land,
and gives Morocco 7 per cent of the gas
as a transit fee. The contract is set to
expire on October 31.
This latest diplomatic spat marks a
deterioration of already frosty relations
between the two countries: tensions
over the Western Sahara were reignited
in December when former US president
Donald Trump recognised Morocco’s
claim over the contested territory. Alge-
ria, meanwhile, backs and hosts Polisa-
rio, the movement demanding inde-
pendence for the territory.
Washington’s move was a triumph for
Morocco and part of a quid pro quo deal
that required the normalisation of its
diplomatic relations with Israel. This
has also raised hopes — especially on the
Moroccan side — for a possible eco-
nomic exchange with Israel, says Ricca-
rdo Fabiani, project director of north
Africa at International Crisis Group.
Following the US decision, however,
which is in violation of international
law, Morocco expected others to follow
Standing tall: the Noor III tower at the Ouarzazate solar plant — Getty Images
suit. This “led to a sense of embolden-
ment” and what Irene Fernández-Mo-
lina, lecturer in international relations
at the University of Exeter, describes as
“miscalculations” from Morocco.
While 23 mostly African countries
have opened consulates in the Western
Sahara since 2019, according to the
Moroccan Ministry of Foreign Affairs,
European countries — in particular
Spain and Germany — have not shown a
readiness to follow suit.
In the wake of Trump’s move, the
Spanish foreign minister Arancha
González Laya reaffirmed Spain’s posi-
tion in support of a UN-brokered solu-
tion involving both sides. Then relations
worsened further when Spain allowed
‘The economic interests in
Morocco and the European
interests in the stability of
Morocco trump everything
else’
Polisario leader Brahim Ghali into the
country for medical treatment.
Similarly, Germany took a critical
stance on the US’s move and called a UN
Security Council meeting to discuss the
matter. In March, Morocco cut contact
with the German embassy in Rabat and
recalled its own ambassador from Ber-
lin in May over “antagonistic activism”
on the Western Sahara issue.
For now, all German partnerships are
on pause, including €300m pledged by
Masen for a green hydrogen project.
Another of Masen’s stations is located in
the Western Sahara region of Laayoune.
Analysts suggest all sides are trying to
mend relations. “Overall, the economic
interests in Morocco and the European
interests in the stability of Morocco
trump everything else,” says Fabiani.
European countries were recently
given a reminder of their reliance on
Morocco to ensure stability and control
migration when a record 6,000
migrants — including 1,500 minors —
were able to cross its border into Spain’s
Ceuta enclave on a single day in May.
Relations with European countries
are still positive, though. Moroccan and
European representatives opted for a
measured response to a EU court deci-
sion in September that ruled against the
legality of trade and fishing activity in
the Western Sahara under EU-Morocco
agreements. That decision disputes the
validity of the EU’s previous legal work-
around in which it claimed to have the
“consent” of the Sahrawi population.
“We remain fully mobilised to con-
tinue full co-operation between the EU
and Morocco,” said Josep Borrell, EU
high representative for foreign affairs
and security policy, in a joint statement
with Nasser Bourita, Morocco’s minister
of foreign affairs.
There is a two-month period for lodg-
ing an appeal against the ruling. “They
[Morocco and the EU] are avoiding a
high-level diplomatic crisis like the one
declared by Morocco in 2016,” says
Fernández-Molina. “But it is a precari-
ous situation and there needs to be a
change in the [EU’s] approach since
they can’t use the same creative solution
as last time.”
4 ★
Lenders help shore up SMEs during pandemic
Banking Removal of
government underpin
to support lending could
see return of risk, writes
Jonathan Wheatley
T
o the good fortune of
Morocco’s small businesses,
the country’s banks were
ready to help them through
the pandemic before it had
even started.
In early 2020 — when coronavirus
had not yet become a global emergency
— the government unveiled an 8bn
dirham ($900m) fund to finance small
and medium enterprises over the fol-
lowing three years, along with other
measures to simplify and speed up busi-
ness loan applications.
The measures turned out to be a life-
line. “The banking sector has been
really instrumental in financing the
local economy,” says Jamal El Mellali,
associate director for financial institu-
tions at Fitch Ratings in London. “Pri-
vate sector credit growth in the first half
of 2021 was 5 per cent, which is quite
dynamic considering the economic con-
ditions.”
Then, when the coronavirus crisis
arrived, the initial measures were
quickly superseded by two larger pro-
grammes, — Damane Oxygène and
Damane Relance — which together
extended loans at subsidised rates,
amounting to more than 65bn dirham
by the end of June this year.
Government guarantees covering 80
per cent of loan values under the initial
scheme were extended to as much as 95
per cent under the two pandemic pro-
grammes — which gave banks the confi-
dence they needed to keep private sec-
tor lending growth in line with recent
averages, according to El Mellali.
Morocco was hit particularly hard by
the pandemic, in part because of its rela-
tively high reliance on tourism. Of the
six major economies in the Middle East
and north Africa, it suffered the second
most severe downturn in 2020 — a con-
traction of 6.7 per cent, smaller only
than the 8.6 per cent seen in Tunisia,
according to S&P Global Ratings.
Activities related to hotels and restau-
rants were 57 per cent below pre-pan-
demic levels last year, according to S&P
— the biggest contraction in the region.
Now, though, S&P expects the econ-
omy to grow by 5 per cent this year, and
by more than 3.6 per cent for each of the
next three years — putting Morocco’s
recovery behind only that of Egypt in
the region.
Even so, Goksenin Karazog, S&P’s
director of financial services ratings and
analytics for central Europe, the Middle
East and north Africa, reckons support
from the banking sector is likely to come
under strain.
“We expect credit growth to lose
steam as the state-guaranteed loan pro-
grammes finish and their boost
FINANCIAL TIMES
Morocco Gateway to Africa
reduces,” he says. Damane Oxygène
ended at the end of last year and
Damane Relance closed at the end of
June 2021.
That will be especially tough on small
businesses, which employ about half of
the Moroccan workforce, produce about
a third of the country’s exports, and
deliver about a fifth of the value added
in the economy and of government cor-
porate tax revenues, according to Fitch.
‘We expect credit growth to
lose steam as the state-
guaranteed loan
programmes finish’
That may mean an increasing reliance
by Moroccan banks on their overseas
operations. The three biggest banks —
Attijariwafa Bank, Banque Marocaine
du Commerce Extérieur and Groupe
Banque Centrale Populaire — control
about two-thirds of the domestic mar-
ket but have between a quarter and a
third of their assets in sub-Saharan
Africa, according to Fitch.
Taha Jaidi, head of strategy at Attijari
Global Research, a subsidiary of Atti-
jariwafa, says that, after more than a
decade of internationalisation, “Moroc-
can banks are brilliantly distinguished
by displaying one of the best long-term
returns of the global banking sector”.
Nevertheless, says Fitch, the greater
appetite for risk among Moroccan
banks willing to operate in countries
Casablanca hub’s fortunes tied
to national economic strategy
Business
As sign-ups to the city’s
finance zone slow, CFC is
opening offices in Dubai and
London, writes Layli Foroudi
The white lattice tower of Casablanca
Finance City — the zone intended to
become Morocco’s economic capital —
was the only one on the skyline in 2019.
And it remains the only completed
building there. But it has since been
joined by a host of cranes and half-built
residential and commercial blocks.
Located on the site of the old city air-
port, the CFC was launched in 2010 to
establish the country as a “gateway to
Africa”, and to take advantage of its
political and geographical proximity to
Europe.
But, while 200 companies in sectors
such as telecoms, infrastructure and
transportation have now signed up to
join the financial hub — with 35 already
the tower — interest in the project has
slowed as Covid-19 swept the globe,
frustrating its medium-term ambitions.
In 2020, only 15 companies signed up
for the CFC status, compared with 40 on
average in previous years.
Morocco’s economy is still recovering
from losses in 2020 and the bounceback
so far has been led by external demand
from the EU, especially for automobile
and agri-industrial exports, according
to Javier Diaz Cassou, an economist at
the World Bank.
In addition to the impact of the pan-
demic, Morocco has also gone through
legislative changes aimed at removing
the country from the EU’s “grey list” of
countries that are deemed to lack trans-
parency and to have unfair tax competi-
tion rules.
Many of the rule changes concern the
CFC’s tax regime, in particular. Under
the new law, effective from January
2021, CFC companies will be subject to
15 per cent corporate tax after a five-
year exemption period, up from the pre-
vious rate of 8.75 per cent. In addition,
those businesses are not subject to regu-
lation on the movement of capital in and
out of Morocco and are not obliged to
hire local staff.
However, Said Ibrahimi, chief execu-
tive at the CFC, says: “The decline [in
interest from companies] was not due to
the CFC new tax regime, but rather due
to the [Covid] crisis. He adds that the
Private sector credit growth in Morocco
Per cent
2016 2017
Source: Fitch Ratings
Morocco endured second-sharpest contraction
among Mena region’s major economies
Rebased (Q4 2019 = 100)
105
100
95
90
85
Small 80
businesses
employ roughly 75
half the Q4 Q1
2019 2020
workforce Source: S&P Global
Getty Images
such as Ghana and Kenya means they
tend to have a lower quality of assets
than other domestically focused banks.
The downside for the latter group —
including banks such as Banque Maro-
caine pour le Commerce et l’Industrie
and Crédit du Maroc — is that their mar-
ket is comparatively saturated and stag-
nant. It is also highly concentrated, with
about a third of activities in the retail
sector and another third in trade, serv-
ices and construction.
That leaves the banks “exposed to a
few specific sectors and to high single-
name concentration risk”, says Karazog.
“Despite some improvements, these
risks remain elevated,” he adds.
On the positive side, funding for the
sector is relatively cheap, with more than
three-quarters sourced from low-cost
Casablanca Finance City
regime is now compliant with EU rules.
“[Due to the pandemic] we were forced
to stop our international roadshows and
all trips were suspended for over a year.”
Morocco reintegrated into the African
Union in 2017, after leaving the group
more than 30 years earlier when the AU
accepted the disputed Western Sahara
territory as a member state.
The kingdom’s pivot south — where
the government has encouraged local
companies to look for opportunities on
the African continent — was largely
politically driven initially, says Isabelle
Werenfels, north Africa specialist at the
Berlin-based research institute Stiftung
Wissenschaft und Politik (SWP).
The shift had “the goal of getting
Morocco’s claim over the Western
Sahara accepted”, she suggests, refer-
ring to the country’s disputed claim to
sovereignty.
“And, then, over the last decade it
became economically interesting due to
growth numbers in Africa
and Morocco’s frustration with the
absence of economic integration within
the Maghreb and restricted access for
goods and persons to Europe.”
Greenfield investment flows out of
Casablanca increased from $61m to
$5bn between 2010 and 2015, mostly to
Sub-Saharan Africa, according to fDi
‘We were forced to stop our
international roadshows
and all trips were
suspended for over a year’
Tuesday 12 October 2021
5
4
3
2
1
0
2018 2019 2020 2021
(H1 only)
Egypt
Morocco
Qatar
Saudi
Arabia
Tunisia
Q2 Q3 Q4 Q1
2021
deposits. The rest comes from Morocco’s
capital markets, which are narrow by
advanced-economy standards but suffi-
ciently well developed to be a ready
source of borrowing for the government
and the banking sector.
But the sector faces a difficult time at
least into next year. The rate of impaired
loans at the country’s seven largest
banks rose to 9.7 per cent at the end of
2020, up from 8.7 per cent at the end of
2019. Fitch believes the true picture was
even worse, as banks were allowed to
delay classifying loans as impaired, to
support businesses in difficulty.
This year promises to be no better. El
Mellali says the proportion of non-per-
forming loans has continued to rise, as
the pandemic pushes more businesses
into default.
intelligence, a Financial Times sister
publication. However, 2020 was
marked by a stark year-on-year
decrease in Morocco’s outbound foreign
direct investment to $492m, down by 45
per cent, most of which affected invest-
ments in the African continent.
According to an internal survey, CFC
companies experienced a 30 per cent
decline in turnover during 2020. Fol-
lowing the broader pattern in other
countries, businesses in the hospitality
and aviation industry were hit most
severely by the pandemic while the tele-
coms sector fared well.
Even though Europe was more
severely hit by coronavirus than
Morocco, the resources available for
recovery programmes in Africa have
been more “limited and incomparable
with the measures put in place by devel-
oped countries”, says CFC’s Ibrahimi.
Nevertheless, he notes that some
countries have been able to take advan-
tage of the crisis to restructure global
value chains and strengthen regional
integration via the African Continental
Free Trade Area (AfCFTA). The $3.4tn
economic bloc came into effect in Janu-
ary and aims to facilitate the movement
of goods and services on the continent
and boost intra-Africa trade.
While the pandemic was marked by a
drastic decrease in investment, it
pushed ‘south-south’ economic part-
nerships — in sectors ranging from med-
ical equipment, agricultural technology
and renewable energy — further up
Morocco’s agenda, explains SWP’s Wer-
enfels.
As international supply chains
became less reliable, “there was this dis-
cussion that Africa should produce for
Africa, and Morocco picked up on
that as it is in a good position to deliver
on this in various domains”, she says.
Moroccan fertiliser company OCP
launched an emergency programme in
Africa during the pandemic, for exam-
ple, and Morocco started producing its
own masks and medical equipment,
which it sent to African countries.
Given that some CFC companies are
still working remotely and have
rescheduled projects in Africa, includ-
ing plans to set up offices in Casablanca,
the city is “adapting to the new normal”
and opening representative offices in
Dubai and London.
“Even though our companies are not
back to their normal activity trend yet,
we noticed a slight recovery in 2021,”
says Ibrahimi.
Tuesday 12 October 2021 ★ FINANCIAL TIMES 5

Morocco Gateway to Africa

Renewables Regulations that prioritise the export of green power to Europe could lead to a reliance on coal for domestic electricity needs, writes Layli Foroudi

Strategic importance: green power is high on the agenda of the country that imports close to 90 per cent of its energy — Alamy

Clean energy dividend evades local citizens

M
orocco undershot its
renewable energy target
by 5 percentage points
last year, when green
power accounted for 37
per cent of its electricity. But, with a tar-
get of producing just over half its energy
from renewable sources by 2030, the
country still has one of the most ambi-
tious clean energy programmes in the
Middle East and north Africa region.
As the climate crisis pushes govern-
ments and companies to reduce their
emissions and reliance on fossil fuels,
Morocco is positioning itself as a clean
energy leader with the potential to
export energy to Europe and new tech-
nology to Africa.
Yet there are worries that an overly
export-oriented renewable energy sec-
tor could be to the detriment of the local
energy transition — and to the Moroc-
can population.
Climate observers view Morocco
kindly, says Karim Elgendy, associate
fellow at Chatham House and founder of
Carboun, which advocates for sustaina-
bility in Mena cities. “[Morocco’s] emis-
sions are less than two tonnes per per-
son — that is less than the world aver-
age,” he notes. “So, for them to say they
are going to do their bit, is encouraging.”
Egypt is aiming to achieve 42 per cent
renewable energy by 2035, Saudi Arabia
is targeting 50 per cent by 2030 while
the UAE wants to reach 44 per cent by
2050.
The renewable energy sector is of par-
ticular strategic importance for
Morocco, as it is a country that imports
close to 90 per cent of its energy. Rocket-
ing oil prices prompted Morocco to
launch its own energy strategy in 2009.
Rabat “was putting in place many devel-
opment projects across sectors, in
Green power’s presence grows remains stagnant?” he says, adding that However, production of green hydrogen The fuel is being pursued as a solution
in Morocco’s energy mix the renewable sector has potential but has yet to take off and a German-Moroc- to decarbonise industries that are diffi-
needs to function at “a lower cost and can partnership called Power-to-X has cult to convert to electric, says Bauke
Electricity generation (%)
with more advanced technologies”. been paused due to diplomatic tensions ‘GDP per inhabitant has Baumann, director of the Heinrich
0
Solar 7% At the end of 2020, As well as falling short of stated tar- between the two countries. Saudi Ara- been stable. What is the Böll Foundation Rabat office. “There is a
37% of the installed gets, Masen has been criticised for its bia, meanwhile, is trying to get a foot- huge demand for [green hydrogen] and
Wind
13% capacity was from use of the expensive “concentrating hold in the clean fuel export market and utility if the revenue of it will come. The question is: just at what
20 renewable sources solar power” (CSP) technology — which has started building a $5bn hydrogen citizens remains stagnant?’ speed, and in which countries, with
Hydro with a total of channels the sun’s rays to drive steam plant in its new megacity, Neom. which technology?”
17% nearly 4,000MW of turbines that generate electricity — in
operational projects the Noor mega-project.
40 out of a total of The company’s annual deficit on the
10,600MW Noor CSP units is estimated at 800m
dirhams (€75m) due to the gap in the
60 real cost per kW of energy and the cost
Other of that sold to the National Office of
63%
Electricity and Drinking Water (ONEE),
according to a CESE report last year.
80 Still, European countries have been
looking to southern neighbour Morocco
to help achieve their decarbonisation
100 goals as part of the bloc’s Green New
Deal. There are currently two cables
Morocco seeks to slash the through which Morocco and Spain can
amount of energy it imports send electricity in either direction. Until
Current energy dependence now, they have been mostly used to send
is nearly 90% electricity from Spain to Morocco,
although this began to change in 2019.
2020 A British company, Xlinks, has also
announced plans to export energy from
Morocco to the UK via what will be the
2040 world’s longest undersea electric cable.
The 3,800km link will transport energy
2050 from a private wind and solar farm with
the capacity to produce 10.5GW of
0 20 40 60 80 power.
2040 and 2050 figures are estimates However, regulations that prioritise
Sources: CESE; Economic Social and the export of clean energy to Europe
Environmental Council (CESE)
could result in a reliance on coal-fired
electricity for domestic needs, accord-
institution. This calculation includes ing to a report by the Heinrich
output from the disputed Western Saha- Böll Foundation, an NGO affiliated to
raha territory — where, in 2018, Masen the German Green Party. In addition,
opened an 80MW photovoltaic solar the water-intensive process of green
plant, in Laayoune. hydrogen production could increase

industry, in aeronautics — we needed
electricity to be able to develop our
country”, recalls Fatema Hamdouch,
strategy and monitoring director at the
publicly funded renewable energy com-
pany Masen, which manages solar, wind
and hydropower projects.
Morocco’s renewable energy sector
has the potential to produce 500TW per
year, or equivalent to that of Nigeria or
Venezuela in gas and petrol, according
to the Economic Social and Environ-
mental Council (CESE), a government
B
ut while Morocco has set its
sights high, progress has been
slower than hoped — and
investment in big projects has
not translated into better eco-
nomic outcomes for Moroccan citizens,
observes Rachid Aourraz, an economist
with the Moroccan Institute for Policy
Analysis.
“In the decade 2011-2020, the GDP
per inhabitant has been stable — what is
the utility if the revenue of citizens
pressure on Morocco’s already scarce
water resources.
Green hydrogen — often touted as
“the new oil” — is produced by splitting
the elements in water using electrolysis,
powered by renewable energy. It takes
nine litres of water to produce 1kg of
hydrogen. The pure hydrogen can be
used as an energy source, as well as to
store and transport energy.
Morocco’s energy ministry predicts
the country could capture 4 per cent of
the future global hydrogen market.

Winds of change: renewable energy is used in electrolysis to create green hydrogen — Reutera/Alamy Stock Photo
6 ★ FINANCIAL TIMES Tuesday 12 October 2021