In a global environment characterized by uncertainty and increased risks, Morocco stands out among emerging markets. Its economic performance continues to strengthen while the country has successfully maintained social order, cohesion and stability.
Growth is projected to stabilize at about 3% in 2018-19, according to the IMF, and ultimately to accelerate to 3.8% in 2020 and 4.5% by 2024. At the same time, net FDI increased substantially to 2.5% of GDP.
Significant achievements have been made in improving the business environment and governance, and the country enjoys moderate inflation, gradually increasing economic activity and credit growth, and well-contained public expenditure and fiscal sustainability. Further reforms are also under way, which should continue the improvements to the business environment.
Morocco benefits from sound economic fundamentals and institutional policy frameworks, and policy and reform implementation has been generally positive.
The unemployment rate, however, remains close to 10% and is particularly high among the youth, while inflation reached 1.9% in 2018. Fiscal consolidation slowed in 2018, with the fiscal deficit stabilizing at 3.7% of GDP, due to strong VAT revenues and wage bill containment.
In terms of foreign trade, Morocco’s current account is characterized by large trade deficits, a tourism-driven surplus in services, and strong remittances. Exports continued to grow strongly in 2018. Apparel and textiles, mining, marine products, agricultural products and other manufactured products from Morocco are exported around the globe, which points to a healthy economy. In recent years, the composition of exports has gradually shifted toward higher value-added sectors, including automobile, aeronautics, chemicals, phosphate and textiles.
Tourism in Morocco is well developed, and focuses on the country’s coast, culture and history. Tourism receipts, at about 6.5% of GDP, have remained robust. Most tourists come from nearby countries, including 31% from France and 20% from Spain. However, they are increasingly visiting the country from further afield. Statistics released in November 2018 showed a 28% rise in tourist arrivals from the United States, reflecting the increasing awareness of Morocco as a safe and attractive holiday destination.
Moroccan banks are generally well capitalized and their liquidity position is favorable. The new legal frameworks for bankruptcy and collateral regime are welcome steps that will help reduce the relatively high non-performing loan levels. The country has a relatively sophisticated banking and insurance system, with several large banks expanding across Africa.
Regarding access to financial services, 69% of Moroccans aged 25 to 59 have at least one bank account. In addition, women’s rate of participation in banking was 40% as of 2018, a 3% increase from 2017. Young people aged 15 to 24 have also increased their level of participation, reaching 24%, while the older generation of Moroccan aged over 60 have the highest level of access to financial services, at 83%.
On the multilateral level, Morocco has been receiving policy support from the IMF in terms of financing facilities. Indeed, since 2012, the IMF has been actively engaged with Morocco through four two-year Precautionary Liquidity Line (PLL) arrangements. PLL helps meet the liquidity needs for countries that have sound economic fundamentals but with some remaining vulnerabilities.
The primary factor driving economic activity, and short-term fluctuations, in Morocco is demand for goods and services. Private consumption continues to be the main driver of growth, and this activity is also underpinned by strong farm income. Private investment is now gradually recovering following a decline in recent years (from 30.7% in 2008 to 22.8% of GDP in 2015).
- Unemployment declined slightly to 9.8% in 2018 (from 10.2% in 2017)
- Headline inflation reached 1.9% in 2018
- At the same time, net FDI increased substantially to 2.5% of GDP
It is generally held that to stimulate economic activity, Morocco needs more private sector-led growth and job creation to substantially reduce unemployment.
Morocco’s medium-term outlook remains favorable, with growth expected to reach 4.5% by 2024, and inflation is expected to remain subdued. There is confidence that past and ongoing structural reforms will lead to higher growth over the medium term.
Tighter global financial conditions and security tensions in the region are expected to have a moderate impact on the country, as has been seen recently. The impact of global protectionism and retreat from multilateralism is also anticipated to be medium or low, given the structure of Morocco’s trade and the authorities’ diversification efforts.
Morocco’s financial system remains sound with a satisfactory level of reserves. The country’s central bank has maintained a comprehensive policy stance towards swiftly addressing the needs of SMEs, which has helped unlock opportunities for an active Moroccan middle-class and entrepreneurs. Meanwhile, it is worth noting that a new investment charter is under preparation.
Moreover, according to a law adopted in November 2018, all legal procedures for starting a business should be accomplished electronically, and an electronic platform for this purpose was established in January.
The SOE sector’s overall performance is positive. A privatization programme with an estimated yield of some US$4 billion will be carried out during 2019-23 (half of the proceeds recurring to the budget and half to an investment fund). The program should also help revitalize the stock market and promote FDI.
Net FDI is estimated to have strengthened to 2.5% of GDP in 2018 and is expected to hover around 2% of GDP in the medium term, driven by ongoing and future investments in the booming sectors of aeronautics, chemicals and automobile.
Rankings and ease of doing business
Morocco’s attractiveness as a place to live and do business is increasing, offering considerable benefits including:
- a strategic partner of Mainland China for the Belt and Road Initiative;
- a strategic gateway to Europe, U.S. and Africa markets with free trade agreements;
- a regional financial and logistics hub for expansion across Africa; and
- a safe, stable, business-friendly environment, with a high quality of life.
Morocco has improved in terms of ease of doing business, which shows that its regulatory environment is more conducive to the starting and operation of operations locally. The country’s position in the World Bank’s Doing Business ranking rose from 128 in 2010 to 60 in 2019.
Morocco’s main progress was in the areas of starting a business, registering property, trading across borders, new bankruptcy law and resolving insolvency. In addition, recently adopted provisions of corporate laws are aimed specifically at enhancing the protection of minority shareholders, while the establishment in 2018 of a mediator’s office should promote out-of-court dispute settlements.
Context, outlook and risks
The Moroccan authorities are well aware of the fact that the current economic growth is not contributing enough to improve living conditions, reduce unemployment and maintain social stability.
This is why further priorities are in place aiming to improve the quality of the country’s education system, the flexibility of the labor market, female labor force contribution, and additional enhancement of the business environment.
At the highest political level, tremendous efforts are currently under way to grant the public sector further transparency, accountability and promoting e-government. At the same time, Morocco is sustaining a liberal doctrine of free market economy and pledging for a more dynamic private sector, with appropriate state regulation.