Morocco remained relatively immune vis-à-vis the global financial crisis throughout 2008. However, a significant slow down in the economic activity was reflected in recent indicators and the “emergency plan” put forth to face the repercussions of the global crisis focused on selected segments of the manufacturing sector while failing to prevent a downward trend in the economic indicators,” explained Dr Lahcen Achy, Professor of Economics at the University of Rabat and Researcher at the INSEA (Institut National de Statistiques et d’Economie Appliquée) during a roundtable hosted by the Carnegie Middle East center, on Tuesday April 24th.
Overview of the Moroccan Economy:
Morocco is a middle-income country with 32 million inhabitants with a per capita amounting to $2000. The agriculture sector employs nearly 40% of the Moroccan population, yet the manufacturing sector remains the major component of the GDP, along with the services sector and tourism. The real estate sector accounts for 10% of GDP. The economic system of the country is characterized by a large opening towards the outside world. Europe remains the primary trade partner of Morocco (60-70%). Within Europe, France is the main trade partner followed by Spain, Britain, Italy and Germany. Over the last years Morocco signed many Free Trade Agreements that will lead to the total dismantling of all trade barriers within three years. Among the various FTA that Morocco has ratified with its main partners are the US-Morocco FTA, Agadir Agreement and the Gafta. Note that Morocco has less than 10% trade with the Arab countries.
The Outcomes of the Financial Crisis on Morocco:
The impact of the financial crisis on the Moroccan economy is reviewed over three stages. The first stage reflects the end of 2007 and the three first quarters of 2008. At the time there was no clear external shock although Morocco is very dependent on oil imports. The economic growth was high (around 6%) and driven by domestic demand and public infrastructure. Domestically, and despite the deteriorating financial situation in the US and Europe, the banking credit in Morocco was still growing, the stock market was expanding and unemployment was declining. In addition to these positive indicators, Morocco was unaffected by the international crisis. The positive outlook was due to three pillars: a solid banking sector, a healthy stock market with mostly local investors and a restricted capital account. Moral: Morocco has made the right choices in the past years and it is reaping the benefits of its wise reforms instituted previously.
The second stage is marked by the fourth quarter of 2008; parallel to the recession in Europe, Morocco’s main trade partner, the slow down symptoms were detectable in the stagnation of the real estate market, the downward trend in the stock market and the decline in the volume of the transfers from the Moroccan Diaspora. So far, the impact was not reflected in the local indicators and it was expected to be very limited since the Moroccan growth was mainly driven by domestic demand (domestic consumption and domestic investment).
Hence, the Moroccan government sought to prevent any deterioration in the economic activity and put forth a very ambitious program of public investment for 2009, which is expected to compensate for any decrease in external demand. In addition, a finance law was introduced in early 2009 to cut income taxes. The measure was expected to boost domestic consumption.
The last and final stage begins in early 2009, the repercussions of the international financial crisis started to be felt in the Moroccan economy: a significant decrease in exports of garment and leather products, some manufacturers started to close down because of the exchange rate effect of the BP that lost 40% of its value. Others have no visibility for the future and the real estate market, notably the luxury segment, is declining. Despite all these negative aspects, Morocco was still denying any externally borne crisis. The potential impact of the crisis is expected to be very limited, yet the government expressed its readiness to support the sectors that may be hit by the crisis and announced a very optimistic 5% growth rate for 2009, while maintaining its investment program. The main action was reflected in the establishment of the “Strategic Intelligence Committee” (SIC), a joint body between the public and the private sectors that was in charge of drafting an “Emergency Plan” to fend off the negative external pressures and uphold the Moroccan economy.
The Emergency Plan:
After the first meeting of the SIC the idea of an “emergency plan” emerged and the first draft was put forth before the Cabinet in January 15th, 2009. The final version of the “anti-crisis” plan was endorsed by the government on February 24, 2009, without any parliamentary ratification or involvement. The prompt action prevented any public debate. The rationale behind this action: the temporary international crisis was faced worldwide by quick actions of both the Governments and Central Banks to support the various economies. In Morocco, some sectors that have clear long term strategies were facing difficulties. Although the entire economic sectors were declining, the Emergency Plan covered only two sectors: the textile and leather industries (representing only 20% of manufacturing firms, 39% of the employment and 39% of exports) and the automobile industry (roughly 1% of manufacturing firms, 10% of employment and 17% of exports). The rest: 79% of manufacturing firms, 51% of employment and 17% of its exports, was left uncovered, with no mention of any reason for this exclusion. The implementation started on January 2009 for a period of six months renewable once.
The plan focused on three axes: social, financial and commercial measures.
The main objective of the social measures axe was to uphold employment and social coverage of employees at the 2008 level: it was translated in the settlement of 100% of the employer’s social security contributions by the government. However, only a portion of the companies were eligible to benefit from this plan: those that enjoy a sound fiscal administration and social security coverage.
The objective of the financial measure covered by the plan was to ensure access to financing, in this framework, the state provided a guarantee of 65% of extended credit banks to companies. The measures were aimed at allowing the textile manufacturers and the leather and automobile industry to benefit from this plan.
The third objective was to support Moroccan exports by launching a targeted communication campaign in Morocco’s traditional markets. The government provided 80% of the marketing expenses to reinforce or diversify markets. Another measure was implemented: reducing the export insurance premium from 3% to 1%. The last measure was to increase the share of exports covered by risk insurance from 50% to 80%. Companies eligible to benefit from these commercial measures were those enjoying a fiscal administration and social security plan with a promotional program for six months. One must note that very limited information is available on the efficiency of the plan. Finally, the major actors involved in the emergency plan are: official authorities (Government and Central Bank), political parties (opposition), trade union, labor unions and the civil society.