Morocco: economic picture brightens

Summary: Morocco has faced tough economic challenges with COVID taking a toll but government action helped limit the damage as a billionaire gets the nod from King Mohammed VI to serve as his next PM.

London-based Capital Economics, in a recent assessment (subscription only) has given the Moroccan economy a better than passing grade that comes with the optimistic assertion GDP will grow by 9% this year and by 3.8 to 4% in 2022 -23. It bases its positive assessment on a number of factors including the country’s handling of the COVID crisis, growth in the agricultural sector and a subdued but still healthy automotive sector.

The pandemic picture in the country has improved after a spike in mid- August that saw active cases reaching close to 82,000 with deaths on the 19^th of August hitting a pandemic-high of 127. By Sunday those numbers had fallen to 33,500 and 58 respectively, in a population of 37.4 million. Through the run of the pandemic Morocco has recorded a total of 905,000 cases and 13,500 deaths. To put those numbers into some perspective, the UK with a population of 68 million has recorded a total of 7.23 million cases and 134,000 deaths.

The government responded more robustly to the pandemic than other MENA countries (the Gulf states aside) with 50% of the population having received at least one dose of Sinopharm or Oxford/AstraZeneca, a figure that puts it ahead of most African countries. As Capital Economics notes there are plans for domestic vaccine production and a supply agreement deal has been reached with Pfizer/BioNTech. And the vaccination of 12 to 17 year-olds has begun.

Still, the kingdom’s tourism industry which pre-pandemic generated roughly 11% of GDP and directly employed half a million, took a battering. According to an IMF study in August 2020 the kingdom’s tourism sector was the fourth-worst impacted globally. The losses to the economy, both direct and indirect are said to have amounted to US$7.2 billion. But the situation has improved this year, mid-August spike not withstanding.

King Mohammed VI intervened in June and ordered the lowering of air ticket prices for Moroccan citizens living abroad. He also oversaw the lowering of other transportation prices, including car rentals. Hotel prices have dropped on average by 30%. Still travel restrictions imposed by the UK and the EU meant that tourist numbers though improved this summer were still depressed.

On the agricultural front, the news too is of improvement after Morocco suffered through a severe drought in 2020. As Capital Economics’ Jason Tuvey notes in his report:

While Morocco has taken steps in recent years to shift agriculture to cultivate crops more suited to its climate, wheat remains its largest crop and output of the cereal fell 36% last year to its lowest level since 2007. Weather conditions have improved and the High Commission for Planning projects that agricultural value added will rise by 19.1% this year. This would add around 2.2%-pts to headline GDP growth.

The automotive sector, though hampered by a global shortage of semi-conductors, continues in good health. As we reported in our newsletter of 15 March, the industry has been supported by innovative government strategies that include financial incentives, an emphasis on domestic training and vocational development and a big push into the electric car market. That, and the kingdom’s adjacency to Europe (Morocco’s location means it can deliver cars to Spain in a day and to the rest of Europe in two days) mean that the goal of reaching 160,000 jobs, from the current 150,000, and a million cars annually by 2025 is well within reach.

Dampening the optimism are signs that fiscal policy will tighten in part to help manage a budget deficit that jumped to 7.7% of GDP, a figure not seen since the late 1980s. Granted a large chunk of the deficit was as a direct result of King Mohammed’s decision to inject US$1.6 billion into the economy to ameliorate the COVID impact. And his government is following up with a commitment to widen the tax base, while chasing fraudsters and corporate tax avoiders. According to an Oxfam report published in 2019 and titled “An egalitarian Morocco, a fair taxation,” the government loses US$2.5 billion of taxes annually due to the tax-avoidance practices of multinationals. The report, in reflecting on the kingdom’s poverty gap, also noted: “In 2018, the three richest Moroccan billionaires alone have a wealth estimated at $4.5 billion.” Morocco World News posited the three were the Minister of Agriculture Aziz Akhannouch, BMCE Bank CEO Othman Benjelloun, and real estate magnate Anas Sefrioui.

Mr. Akhannouch is tipped to become the Moroccan prime minister with the king appointing him head of government and asking him to form a cabinet after his RNI party took the largest number of seats in elections on 8 September. An extremely wealthy businessman may be just the sort of leader the king wants as he moves forward on his plans to strengthen the economy using the key tourism, agriculture and automotive sectors as building blocks.  Even so, both he and his new PM will need to keep a close eye on narrowing the poverty gap that the Oxfam report highlighted.