Morocco: Yes, We Plan

By Nicholas Norbrook in Tangiers and Casablanca

Posted on July 21, 2013 21:00

The government is squaring the circle of state planning with market dynamics. This fresh version of the developmental state tries to deliver jobs and low-cost housing without removing incentives for the private sector. A new generation of Moroccan companies will put this approach to the test.

Standing on the roof of a white, six-storey apartment block in Sidi Moumen, you can see the newly built tram slip away from you, glinting in the sunlight like a strange futuristic fish, all iridescence and curves. In every direction, similarly sized blocks of flats are stacked neatly in rows up the gentle green hills. Some are slightly more upmarket homes, but most are part of a new brand of social housing that has enabled people for whom it was hitherto impossible to own their own home.

The government has detailed plans for almost every sector of the economy. There is strong urban planning but also Plan Halieutis for restructuring the fishing industry,Plan Vert to help the country move away from poorly irrigated wheat farming towards higher-value crops, Plan Azur to attract 10 million tourists a year to six new resorts, and a plan for increasing solar energy generation. The list is long, with concrete goals and often a dedicated bureaucracy.

Morocco has moved from having 40 percent slum housing to less than 10 percent in under a decade. “Social housing is now two-thirds of our turnover,” says Karim Belmaachi, the director of engineering company Alliances, which has built housing blocks in Sidi Moumen. “And while lots of Gulf investors have backed off because of the financial crisis, the social [housing] sector is booming.”

The housing scheme took off after the government introduced a new law in January 2010. Contractors now get tax breaks and subsidies on land, but in return they must sell each unit for $25,000. The state stands behind the home buyer so that the banks agree to lend. Should the mortgage payer default, the state will own the property and can sell it at a market price – often substantially above $25,000.

The state also imposes a tax on cement, around Dh0.15 ($0.02) per kilogram, to finance the subsidies. Given the spike in business for the cement companies, grumbling is minimal, though rising.

For Zin Bekkali, chief executive of Silk Invest, the effects are cascading throughout the economy. “Once you have a roof over your head, you can start spending on other things like education, food and consumer goods,” he explains. The banks have benefited, and local contractors make the doors and fittings for some apartments.

Often built on the peri-urban land around cities, new towns and cities are appearing across the country, not just in the rapidly urbanising belt between Rabat and Casablanca. The fillip to the economy has been such that analysts are now worried that l’économie du béton (the concrete economy) risks an overheating and bust similar to that seen in Spain in 2007.

There are also larger development goals at work in Sidi Moumen. In 2003, a series of bombings killed more than 45 people in Casablanca. The suicide bombers were from the slums of Sidi Moumen.

The following year, King Mohammed VI made his “cities without slums” speech and targeted 85 cities and towns for upgraded housing. Bringing the tram to this eastern suburb of Casablanca and building social housing are part of a strategy to reconnect communities that the authorities had previously ignored.

The World Bank and International Monetary Fund find Morocco hard to classify. There is clearly a developmental state at work: a state able to bend the will of its entrepreneurs into delivering some of its development priorities at the same time as making money, which is antithetical to Bretton Woods teachings on free markets.

Although there was some counter-cyclical spending during the global downturn and North African uprisings – including wage rises and an oil subsidy that is burning a hole through the current account – “the economy has been conservatively run since the 1990s, with low inflation, low interest rates and low budget deficits, including two years of surplus during the crisis,” says Attijariwafa Bank’s co-chief executive Ismail Douiri.

The state controls large and systemically important holding companies, such as the Société Nationale d’Investissement (SNI) – now merged with its subsidiary Omnium Nord Africain and both controlled by the Moroccan royal family – and the Caisse de Dépôt et de Gestion (CDG). This trio makes up the outriders for the country’s industrial policy.

But the ratings agencies are broadly supportive of such a state role. “A well-run state- owned company is better than a badly run private-sector company,” says Patrick Raleigh, Standard & Poor’s Morocco analyst.

Bend, Don’t Break

The fact that the palace holds the political reins has allowed planners to avoid election-cycle pressures. This can deliver East Asian-style results or lead to decades of stagnation, depending upon the enlightenment of the monarch in question. Rather than crumbling like regimes further to the east, Morocco’s monarchy was more supple in the gales of the North African uprisings in 2011.

Mohammed VI delivered a new constitution, boosted the role of parliament and accepted the arrival of the country’s first Islamist prime minister, Abdelilah Benkirane, in the November 2011 elections. Rather than being allowed to bask in revolutionary glory, the Parti de la Justice et du Développement-led coalition now has to deal with the fiscal fallout of increased fuel subsidies, a large pension shortfall and fiscal and trade deficits. Dragged into the mainstream, Morocco’s Islamists are now compromising like other ruling parties before them.

For the palace, this political theatre is a sideshow to the main event, the emergence of Morocco as a fully developed economic power, taking a leadership role in the Maghreb. Mohammed VI has courted Gulf peers and travelled sub-Saharan Africa to develop markets and procure finance.

The government uses institutions like SNI and the CDG to help companies and sectors it sees as strategic. It upgraded an industrialisation plan developed with the McKinsey consultancy in 2003 and relaunched it as the Pacte National pour l’Emergence Industrielle in 2009. In the plan, six areas are targeted for support: the automobile, electronics, aeronautics, textile, agribusiness and business process outsourcing(BPO)sectors.

The plan calls for the creation of 70,000 jobs by 2015, adding Dh13bn in turnover across the six sectors.

The government has developed a series of infrastructure upgrades and an array of special economic zones in which investors receive tax breaks and other incentives. The most successful of these has been next to the Tanger Med port, which attracted French car-maker Renault as an anchor client. Several auto-part makers are now in the zone, and Renault is producing two entry-level models, with a production line that will eventually hit 400,000 cars per year.

State intervention can sound too good to be true, recalling the collapse of the Soviet centrally planned economies. But Youssef Saadani, the director for economic research at the CDG, relates how Morocco has managed to stay flexible.

“It was in the middle of the 2000s that we realised that the zones managed by the state were not working well – the quality of the infrastructure, the maintenance, the tax regime, the regulatory burden… in essence problems linked to the state. And there was also a lot of property speculation going on around the zones,” explains Saadani. “The solution was to bring in the private sector or create public-private partnerships.”

The CDG is a key institution in the mechanics of long-term state planning, at the frontier between state and market. “We accompany the state in this sort of development but also have an obligation to be profitable,” says Saadani.

State/Market Balance

An example of the re-tailoring of the state/private-sector balance is the new training centre that Renault has designed, called Institut de Formation aux Métiers de l’Industrie Automobile (IFMIA). The state provided €8m ($10.29m) for its construction. IFMIA has already trained more than 5,000 students, 4,200 of whom work for Renault.

“We are training workers for the whole sector,” explains Moulay Youssef Sbai, director of the IFMIA. “And as Renault training needs go down, we are bringing in the suppliers and other partners.” There are three other training institutes for the auto industry, with more planned for other sectors.

The Agence Marocaine de Développement des Investissements (AMDI) tries to attract investors to Morocco. “Being competitive in the auto sector is not just about the cost of labour,” says AMDI’s head of investment, Ahmed Fassi-Fihri. “It’s about having a network of suppliers around, who can support the first-tier auto-part suppliers and car manufacturers.”

The same holds for aeroplanes. Canada’s Bombardier announced in late 2011 that it would build a $200m manufacturing facility in the CDG- backed MidParc Casablanca free zone dedicated to the aeronautics sector – next to numerous suppliers such as Aircelle, SERMP and Ratier-Figeac.

According to Jennifer Blanke, senior economist at the World Economic Forum, traditional fears about statist industrial policy are related to crony capitalism: whatever ‘winners’ the government picks for promotion, either via barriers or subsidies, will end up in the hands of politically connected businesspeople.

The Moroccan government seeks to avoid this by supporting entire sectors instead of individual companies – although the demonstrators who protest weekly outside parliament have their own opinions about cronyism in corporate life.

There are risks inherent in policies that support the export sector too. International companies can gain advantages, while local companies that are not located in export processing zones have to weather Morocco’s difficult business climate, where getting property is tough, bureaucrats demand baksheesh to process paperwork “and banks won’t look at you if you don’t already have two years of company accounts,” says Kamal Youbi, chief executive of Green-Fields, a technology start-up.

Saadani agrees that there is the risk of creating a two-speed economy. But while there will always be different schools of thought – some calling for structural re- forms across the whole economy, others trying to create ‘centres of excellence’ – he believes “the answer, of course, is to try to do both”.

Fassi-Fihri points to the new commission headed by the prime minister that is set to tackle problems in the business climate.

What of the other oft-cited danger in state support: that a sense of business initiative will be eroded by state planning? “If you go and see our neighbours, you will realise that we are a country of entrepreneurs here,” says Thami Ghorfi, the director of Casablanca’s leading business school, ESCA.

“Today we have Moroccan banks – which are all private – on the international market. We have entrepreneurs who are bidding for electrical generation contracts on the international markets against German and French competition,” he argues.

‘Going Out’ Strategy

South Korea – which chose a similarly ‘strong state’ approach to its development – was able to avoid the traditional problem of crony capitalism by exposing its companies to what Joe Studwell, author of How Asia Works, calls “export discipline”.

In essence, firms that showed strong exports were given preferential access to cheap credit and protected domestic markets. Those firms that were unable to compete internationally soon fell by the wayside.

State protection was balanced by a market mechanism to winnow out poorly performing companies.

Morocco may have an analogue mechanism to this, akin to China’s ‘going out’ strategy, where Beijing encourages companies to expand globally to secure markets and gain experience.

One of the striking features of recent years has been the willingness of Moroccan companies to expand into sub-Saharan Africa, pushed by the palace.

This applies especially to financial institutions, though there are also service-sector companies such as civil engineering company Somagec, Royal Air Maroc and Maroc Telecom, as well as construction companies Alliances and Groupe Addoha.

The latter two companies are engaged in an offensive to win housing construction contracts across Africa.

Alliances signed a 7,000-unit deal in Côte d’Ivoire in December 2012, while Addoha announced projects in Guinea, Burkina Faso, Cameroon and Gabon last year.

While the competition between Nigerian and Moroccan banks should be the financial story of the coming decades in West Africa, Addoha’s chief executive Anas Sefrioui – one of Africa’s richest entrepreneurs – has also begun to take on another of Africa’s richest men, Nigeria’s Aliko Dangote, by setting up cement operations in countries where Addoha has won construction contracts.

At its best, this is also promoting economic integration.

Attijariwafa Bank now runs business-matching conferences, where clients in different countries meet and forge ties.

“Most of them were looking mainly to Europe for suppliers, and they were often surprised to find that there are suppliers in neighbouring countries that can provide the same quality at lower prices,” says Attijariwafa’s Douiri.

The bank could set up a Gabonese supermarket with an Ivorian agribusiness; it would then happily provide the trade finance. A win-win-win for the bank and customers, as Chinese diplomats might say.

It is also a sign that Moroccan private initiative is alive and well.●

This article was first published in the June, 2013 edition of The Africa Report, on sale at newsstands, via our print subscription or our digital edition.

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