Morocco's Progress is Slow, Shaky but Real

Faster economic growth, a prerequisite to creating des­perately needed new jobs, remains constrained by three factors which have not re­ally changed over the years: a very low level of overall education hardly affects the yawning divide between a well educated elite and a third of all Moroccans who remain illiterate; an unreformed civil service - particularly at the local level, where average pay is low because the state seems incapable of offering good enough salaries to attract well trained people and a jus­tice system which needs root and branch reform if corruption is to be brought under control; a relative lack of trust in the ability of a younger generation of Moroccan entrepreneurs to launch new companies and a consequent lack of financial sup­port for them. Existing rules of engagement are usually waived for major international investors such as Renault, Safran and Bombardier but that is hardly a special to Morocco. However, local talent, particularly when projects are small and medium size, often goes unnoticed and unrewarded. Too often, the state gives the impression it helps those entrepreneurs it wishes to, not necessarily those who are the most deserving of help. This patronage system must give way much faster to a more mod­ern type of decision making if Morocco wishes to encourage the emergence of a strong autonomous private sector, likely to develop social, cultural and economic dynamism. That is why the system, though stable, still seems shaky.

The broader context

These challenges need to be set in the broader context of the ongoing debate about what is development. Until a genera­tion ago, it was widely assumed among specialists that the best way to speed development was for countries to skip some of the process of modernization by copying those coun­tries further along the path. Although discarded today, some projects in Morocco still operate on the premise that develop­ment can be accelerated by importing ‘best practise’ models from developed to developing countries. In the case of Mo­rocco the model was, until a decade ago or so, France. That is changing fast as a new generation looks further afield and a more pragmatic Anglo-Saxon attitude takes root.

There are two main ways members of organisations can demonstrate their legitimacy. They can either appeal to de­monstrable accomplishments such as their ability to fulfill their intended role in an effective manner or they can point at the fact that their organization looks like other similar insti­tutions around the world, which are seen as legitimate, and claim that similarity makes their institutions legitimate by proxy. This second approach is known as ‘isomorphic mim­icry’. The judicial system, the stock exchange and parts of the education system in Morocco have fallen into this trap. This creates a gap between visible institutions and the actors’ eth­ics in day to day affairs.

In Morocco, the monarchy carries considerable political and economic clout. Mohammed VI is considered legitimate by most of his people. His situa­tion is more comfortable than that of many of his peers in the region. The very central­ity of the monarchy, which embodies both the deep and the ornamental state, as defined by the 19th century British constitutional writer Walter Bage­hot, has a profound effect of the way the government and parliament function, indeed on the view the Moroccans have of themselves and foreigners have of Morocco. It influences the debates on the country’s future course. It sometimes sti­fles debate in the elite unless the king gives the lead: when that happens, the debate becomes legitimate.

When the monarch expresses no views, many Moroccans are most reluctant to express theirs. Nor are the king’s close ad­visers shy of using the weapon of lèse majesté when they want to avoid a debate or prevent one from going “too far”. Be that as it may, the monarchy’s role as a referee and driver of reform –or brake upon it- remains essential. The whole chal­lenge lies in the ability of Moroccan rulers to dissociate mon­archy as a stabilizing institution from the makhzen as source of bad governance and unfair policies. Morocco certainly is the darling of international lending agencies and of institutions such as the US Millennium Fund. This favour has as much to do with Western regional security concerns than with the country’s economic performance. Irrespective of its precise rate of growth or boldness in tackling economic reform, the kingdom retains precious support because it is perceived as an oasis of stability in a turbulent region.

Morocco has further burnished its reputation as a provider of security. This extends to religious security as it trains imams who return to their native West African francophone countries to preach a moderate version of the faith. Its security services are respected by their peers in the west though not always by ordinary Moroccans. This reputation underpins Morocco’s in­terests in the Western Sahara as few countries in the region wish to see any change in the status quo which has prevailed for four decades.

Infrastructure development

The development of motor­ways means that from Tan­gier in the north to Agadir in the south le Maroc utile as the French would put it has grown way beyond the 150 kilometres it occupied along the Atlantic coast between Kenitra and Casablanca twenty five years ago. This has encouraged private and public investment in a much broader geographical area than before. The railways have also been modernised. Critics however say that building a fast TGV train from Tangier to Casablanca is a misuse of scarce funds – a rich man’s toy and the result of undue French med­dling. Equally important has been the creation of the intercon­tinental Tanger-Med port. This has given as a huge boost to the economy of Tangier, attracted large foreign investments such as Renault which will produce around 300,000 cars this year. Peu­geot is following in Renault’s footsteps and will invest Euros 500 in a new car plant with the aim of producing 100,000 cars.

After independence in 1956, Morocco had turned its back on the Rif. The previous monarch had no liking for the re­gion for deep seated historical reasons. His son has sought to reach out to what was traditionally a poor region which was not historically close to the Alaouite dynasty. A good road along the northern coast has the added advantage of opening up the country’s poor Mediterranean region and integrating its economy nationally.

The port of Casablanca, the country’s economic capital, is being modernised and developed. Further south, Safi and Jorf Lasfar are benefitting from the large increase in exports of phosphate rock and derivatives. A slurry pipeline has been operating for two months which carries the wet rock by tunnel from the phosphate mines in Khouribga to the export terminal at Jorf will have the further advantage of reducing pollution. As Morocco sits on an estimated 75% of world phosphate rock reserves, the growth potential of this region is huge. Other units in Jorf and Safi produce fertilizers. The development of such ports symbolise Mo­rocco’s decision to develop export markets in Brazil and Africa. India however remains the phosphate company OCP Group’s main export market. A Liquefied Natural Gas (LNG) terminal is being built at Jorf Lasfar. Morocco today imports all the gas it needs from neighbouring Algeria but the need to diversify suppliers was deemed strategically and economically important.

New economic horizons

Turning to Africa and Brazil has been viewed in Rabat as a strategic necessity insofar. As any hope that relations with oil and gas rich Algeria could improve has evaporated. The cost of closed frontiers in the Maghreb –at least two points of growth every year according to the IMF- is no longer a fashionable topic of debate. Trading with developing econ­omies presents its own challenges. In the first quarter of 2015, emerging markets slumped to their weakest perform­ance since the 2008-9 banking crisis. They no longer offer a dependable boost to world trade. The flood of money which made its way into emerging markets in the period of low interest rates that followed the crisis are slowing to a trickle if not reversing. The weakness of growth, if not the outright recession in countries such as Russia, Brazil, Chi­na and India has a greater global impact today than seven years ago. The contribution of these countries to growth, and particularly trade growth, outstripped their weight in the global economy. Thus, the BRICS accounted for 15% of world trade between 2000 and 2014, but contributed 23% of its growth during the same period. The loss of this outsized contribution is being keenly felt.

Moroccan exports to sub Saharan Africa are probably too small to be affected. It can be argued that the need to grow more food –the key reason for buying more phosphate rock and fertilizers- remains as great as ever. Furthermore a com­pany like OCP Group is seeking to bring African producers of raw materials and feedstock together, bypassing the tradi­tional role of Western companies in the value added chain: phosphates from Morocco, gas and potash from other Afri­can countries could be marshalled to manufacture fertilizers in Africa at an affordable price for local farmers. Fertilizer prices on the continent are among the highest in the world and, as a result, farmers use a fraction of what their peers elsewhere use. Meanwhile the percentage of arable land is declining while the population is surging.

Since 2006 OCP Group –formerly known as Office Chérifien des Phosphates- has undergone a managerial revolution – from a sleepy state company, 10% of whose employees worked out of a black glass clad headquarters in Casablan­ca to a more nimble international company able to raise $2.85bn worth of investment grade (-BBB) rated bonds in New York recently. Its CEO, Mustafa Terrab does not suf­fer from isomorphic mimicry. After acquiring a doctorate at MIT and he worked for that quintessentially American private company, Bechtel. That taught him modern man­agement. OCP Group’s accounts are now audited and the company has rebuilt its operating method in order to en­sure that production is more flexible than in the past and follows the needs of its international clients. It is no longer a question of simply producing as much rock as possible and getting the stuff onto the market at whatever price.

The proportion of fertilizers in the export mix has also pro­gressed. In other words OCP Group is moving up the val­ue chain. Beyond its traditional customers (India foremost among them) the company has made serious strides in Bra­zil. The country is one of the major producers of soy beans, corn, sugar and coffee in the world and offers plenty of opportunities to increase food production and processing. It also offers a good launching pad for trading and invest­ing in other South Ameri­can countries. Africa is the company’s other new fron­tier. Food production and processing may be more recession-proof than other sectors as world population continues to increase and millions of people are lifted out of dire poverty.

Banking is another sector where Morocco has come a long way since 1983. Its two leading banks, Banque Marocaine du Commerce Extérieur and Attijariwafa Bank, have built a network of banks in Western Europe and more recently in Africa. The team around Mohammed Kettani has turned Attijariwafa second name bank into a force for modernisa­tion symbolised by its headquarters in Casablanca which house an important collection of modern Moroccan paint­ings. At BMCE, the man who spearheaded the group’s ac­tivities in Africa Mohammed Bennani has remained true to his initial conviction that private companies are key to shaping the new Morocco.

A younger generation of private entrepreneurs is follow­ing in the footsteps of their elders. They are also develop­ing companies in sectors which no one would have dreamt of a few years ago. Outsourcia has developed in off-shor­ing and e-learning. Saham, which focuses on insurance, is now present in 28 countries in Africa and has stakes in hundreds of companies across the continent. Holmarcom is a force to be reckoned with in food processing, insurance and agriculture and has invested in Senegal. Anwar Invest for its part has built up an impressive portfolio in the food industry and cement.