NewsNorth AfricaMorocco's winds of change

Fri,20Oct2017

Posted on Wednesday, 16 November 2016 16:54

Morocco's winds of change

By Celeste Hicks in Casablanca and Nicholas Norbrook

Morocco is at the vanguard of pushing international financial institutions to invest in green power project. Photo by Paul LANGROCK/ZENIT-LAIF-REA

A remarkable political balancing act has allowed Morocco to keep competing structural forces in play rather than in conflict. In business too, the government is keen to ensure its interests and those of the business community are in harmony

 

“The people want a second term!” chanted a partisan crowd. Overcome with emotion, Morocco’s prime minister, Abdelilah Benkirane, wiped his eyes during a political rally for his Parti de la Justice et du Développement (PJD) in Taroudant, ahead of the 7 October legislative polls.

Times change, even in North Africa, which was for many decades the home of stay-put authoritarian regimes. The PJD, an Islamist party, won power comfortably and uncontroversially for a second term in office, beating out the palace-backed Parti Authenticité et Modernité by 125 seats to 102.

Even a few years ago, this would have been unthinkable. It is not just in squaring political Islam with a democracy that the country is setting the pace in the region. Of its peers on the continent’s northern rim, only Morocco has managed to conjugate a state-driven command economy with a vibrant private sector.

Even while underwriting new industrial sectors like renewable energy, the government has pushed through prudential reforms to help balance the budget. Morocco’s democracy is a managed one, with the prerogatives of the monarchy, represented by King Mohammed VI, influencing the political scene. The PJD-led government brought the deficit down from 7.2% of gross domestic product (GDP) in 2011 to around 3% today. This was done while the economy averaged growth of around 4% – several points higher than its neighbours.

One measure that helped cut government spending was the removal of fuel subsidies. Long considered an important part of promoting social stability, in 2011 they were costing the state Dh41.4bn ($4.2bn) annually, equivalent to around 5% of GDP. In 2014, Benkirane’s government finally took the plunge.

But far from creating riots on the streets as many had feared, the removal of subsidies passed with barely a flicker of recognition. Once prices were fully liberalised at the end of November 2015, fuel prices at the pump actually fell.

LUCK AND JUDGEMENT

Economic analyst Zouhair Ait Benhamou explains the government’s choice: “The government had the most incredible good luck in the timing of this move, with the world oil price crashing to lows of $40 a barrel in 2014 […].

The PJD has suggested that it was a brave move to remove subsidies, but in fact they had no choice. They couldn’t afford to keep doing it.” There was also some luck in inheriting a fully fledged industrial policy that had already lured Renault to build cars in Tangiers.

Morocco’s minister of trade and industry, Moulay Hafid Elalamy, says that local content provisions have not stifled investment: “We have made them produce 60% of the car locally, rising to 80%, which means that the engine block will be made in Morocco – no mean feat.”

The country's combination of good infrastructure, free-trade zones, tax holidays and an increasingly dense ecosystem of secondary and tertiary parts manufacturers in northern Morocco, has prompted Peugeot to start work on a $630m factory in Kenitra that will produce 200,000 cars a year for export to Africa and the Middle East.

Morocco’s predictable policy framework, as boring as it might sound to politicians hungry for plaudits, is in part responsible for such deals. That framework has worked in aeronautical engineering, too. ­Boeing is the latest to join the crowd, announcing on 27 September it would be sourcing $1bn in parts from companies based in Morocco.

At a stroke, that would double the country’s current aeronautical exports. And Boeing is not alone in looking to Morocco. In 2013, Bombardier Aerospace broke ground on a $200m investment in the Casablanca Aeronautics Park. Morocco’s export capacity has been greatly helped by the expanding Tanger-Med port on the Mediterranean coast.

Currently handling some 3m twenty-foot equivalent units (TEUs) per year, the port is undergoing an expansion to have the capacity to deal with some 8m TEUs per year. And beyond the manufacturing sector, Morocco’s service sector is expanding, particularly in the high-tech sector. One example of this is Casablanca Technopark, another state and private-sector collaboration, where many innovative companies are hatched with the help of a startup incubator.

TECH SUCCESSES

Omar Balafrej, who heads the Technopark until he takes up his new job as a member of parliament in the next legislature, points to the successes he has seen emerge from the institution over the past few years.

They include M2t, a mobile-money processing platform that has spread its wings into Tunisia and sub-Saharan Africa, and ValuePass, now the country’s leading SAP software integrator.“And the difference between us and the free zones in the north is that 85% of our companies here are focused on the local market,” says Balafrej.

Nevertheless, other traditionally important sectors have fared less well. As the wider North African region suffers from negative publicity following terrorist attacks at Tunisian tourist hotspots, Morocco has seen a drop in the number of tourist arrivals – at least 5% down for the first half of 2016 compared with the previous year.

Some hotels in tourist spots such as Ouar­zazate have reported they are regularly only filling about 20% of available beds. At the same time, sluggish growth in Europe following the 2008 financial crash has had a heavy impact on spending by Moroccans living abroad, particularly on property, which has historically been seen as a safe investment.

Several of the country’s biggest real estate developers, including Addoha and Alliances, have been brought to their knees by debt crises in recent years. This points to a serious flaw in Morocco’s plans. For all the will to build up national champions, like Japan and South Korea did to drive their economies, the government has not always had the discipline to force companies into productive modes.

“It’s the danger of the ‘cement economy’,” says Balafrej, who points to the fact that Moroccan banks prefer to lend to fast-money sectors like real estate rather than value-­creating sectors like manufacturing.

GREEN VISION

Other sectors have their own problems. Morocco’s sole oil refinery, SAMIR in Mohammedia, has been closed since August 2015 due to a debt crisis.

This has left Morocco, which has no hydrocarbon production of its own, reliant on imports from the world market. But energy may yet be harvested from the skies, not pumped up from the ground.

As the Morocco hosts the COP22 this month, the country has begun a renewed offensive to secure special climate funds to help develop renewable energy and climate-change mitigation and adaptation programmes.

Over several years, many international financial institutions (IFIs) have built up a solid relationship with the Moroccan government. Through a number of high-profile projects such as the Noor solar complex at ­Ouarzazate, it has set its sights on emerging as a leader in developing green technologies.

Mafalda Duarte, head of the $8.3bn World Bank-based ­Climate Investment Funds (CIF), says the country is moving in a good direction: “Morocco is serious and has laid out its vision.”

Morocco’s King Mohammed VI recently announced a target of providing 52% of the country’s ­energy needs from renewable sources by 2030. “Our role is not just to provide concessionary finance but also to de-risk the establishment of these new technologies in developing countries,” the king explained.

In the case of solar, funding from development banks has been crucial because the Noor project involves concentrated solar power (CSP) technology, which is less popular than other technologies. Rather than the more widely used photovoltaic (PV) panels, the Noor I plant in Morocco’s desert is an enormous park of mirrors, which reflect the sun’s rays to heat liquid running through pipes; this in turn powers turbines. 

FALLING PRICES

In 2012, there was just 1.9GW of CSP capacity installed globally, mostly in South Africa, the United States and Spain. Noor I has added 160MW to that capacity.

In comparison, there is now an estimated 227GW of PV generating capacity globally. Funding for phases one, two and three of Noor came from a variety of sources, including the Moroccan government, the European Investment Bank and the African Development Bank.

The CIF also supported it to the tune of $435m. “This money is designed to help scale up the technology so that costs will fall,” says Duarte. “This might not necessarily happen if left to the market.” And to a certain extent, it has worked.

The cost per KWh in the long-term power purchase agreement for Noor I fell almost 25% from an expected $0.24 to almost $0.17/KWh. For the subsequent phases, the price was locked in at $0.16.

However, CSP is yet to prove that it can catch up with the success of PV, which has seen prices fall to an impressive $0.03/KWh in a recent project announced in Dubai. Even wind power has seen dramatic falls, the Nareva/Enel Green Power 850MW wind park across three sites in Morocco will deliver electricity at $0.03/KWh.

An industry insider explains the risks of the government’s strategy: “The costs of CSP are coming down but just not fast enough compared to other technologies […]. It may be cheaper than expected, but those costs will ultimately be passed on to the Moroccan consumers.”

With Morocco hosting COP22, the country is trying to get more out of its partnerships with IFIs. There has been a bias towards high-profile infrastructure development, with less interest in less ‘sexy’ areas such as financing adaptation projects to guard against the impact of climate change.

“Perhaps a better challenge for IFIs is to find ways to invest in the projects that no one else wants to do,” says the Morocco country director of the European Bank for Reconstruction and Development, Laurent Chabrier. “We can save so many emissions through better treatment of waste. But who wants to invest in that?”

EL NINO'S EFFECTS

And perhaps nowhere is this need to focus on the smaller scale more vividly illustrated than in agriculture.

In the 2016-2017 growing season, Morocco has received around 42% less rain than average, with this drop attributed to El Niño and climate change. With around 85% of Morocco’s agricultural land primarily rain-fed, farmers faced a catastrophic planting season.

The harvest is expected to show a 70% fall on the previous year. Against this vulnerability, agriculture minister Aziz Akhannouch has launched a new initiative known as Adaptation of African Agriculture. He hopes to get it adopted as a key component of any agreement signed at COP22.

The project is aimed at improving soil and water management in order to increase output and absorb carbon dioxide. While the involvement of IFIs is clearly welcomed in Morocco, the country’s banks are also keen to play the middleman role in delivering these small-scale solutions.

“With COP22 on the horizon, there’s a lot of money floating around for these ideas at the moment” says Tariq Sijilmassi, the head of Crédit Agricole Maroc, a bank that has a large number of rural farmers as customers. “The challenge is to transform these pledges into workable solutions for farmers. They know what they need, and policies written in offices in Washington are not always the answer,” Sijilmassi explains.

If Rabat can continue to play its role brokering deals between state and market – and between Islam and democracy – perhaps encouraging global finance to take a farmer’s-eye view will be the next conjuring trick driving change in North Africa. 

From the November 2016 print edition



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