Located in North Africa, Morocco is a Mediterranean economy positioned strategically geographically as it has had an important role as a historical trading connection for Europe and Africa. Morocco with a population of 32.2 million is home to a relatively large number at 18 percent of the population that live below the poverty line (that is, 1 US-dollar ‘USD’ per day) as demographics reveal that it is a young nation with 70 percent below the age of 30. Since the early 1980’s, the Moroccan government has implemented a program of economic reforms with the support of the IMF & World Bank with favorable results with recent high GDP growth rates, lower debt levels, low inflation although challenges remain in areas of unemployment and poverty.
POLITICS: independence for Morroco came in 1956 from France. Kingdom of Morocco follows that of a Constitutional Monarchy, chief of State is King Mohamed VI since 1999, Prime Minister Driss Jettou since October 2002. Prior to the King Mohamed VI, his father King Hassan II ruled Morocco for 38 years until his death in 1999. King Hassan II political leadership was that of a tight iron fist with minimal rights to its citizens. He spent lavishly on personal consumer goods during a time when Morocco would be considered that of a closed society to the world. Conversely, King Mohamed VI has a different view allowing for greater freedoms of speech and rights including those for women (ie. dress) and is championing human rights & democracy. The new King has implemented both political and economic reforms with the goal of building a modern secular state and smoothing the transition from closed to open society.
During the 1990’s, political reforms were implemented with the introduction of parliamentary elections. Morocco has a long historical relationship with its ally, the United States particularly in the war against terrorism. In year 2003, Islamic militants in suicide car bombings in the capital city of Rabat hit Morocco in a terror strike. Potential for renewed conflict as elements of rising extremist Islamic radicalism within Morocco and many other places in the world today are reality. However, King Mohamed VI is seen as more tolerant to Islamic opposition than his father.
ECONOMY: progressing forward, a developing economy that is slowly opening up to the world with the gradual removal of tariffs although trade protection is quite prevalent. During the 1990’s, economic performance for Morocco was poor averaging only 1 to 2 percent annual GDP growth coupled with several years of drought. As of year 2000, approximately 50 percent of the government budget went to public payrolls, 30 percent to interest payments and only 20 percent on social services. Major industry groups for Morocco include phosphate rock mining, textiles, tourism, leather, construction, manufacturing, etc. Exports mainly to the European Union ‘EU’ include textiles, agriculture, phosphates and low-tech electronics while imports reflect oil and telecommunications.
Trade agreements are in place for both the European Union and the United States (year 2002) including an ‘Association Agreement’ with the EU to help develop Morocco’s non-agricultural industries. Trade liberalization, privatization policies have reduced overall debt to GDP as privatization receipts from foreigners investing within Morocco which has helped to support the dirham with healthy capital inflows. At present, government spending remains high while the authorities rely too heavily on privatization surplus revenues as this source of income will not last forever. To help offset these revenues, an increase in tourism and other industries of the future such as hydrocarbon energy will replace the privatization income in the medium to long term. Remittances form an important source of foreign exchange income as it is worth upwards of 800 million USD per year in capital inflows. Morocco must improve the country’s education fortunes to allow the large youth segment to get new jobs from market reforms that will allow for increased FDI that will create these new jobs for future Morocco.
Economic Statistics
GDP using purchasing power parity is measured at 128.3 billion USD (2003) with corresponding GDP/capita at 4,000 USD. Market GDP is at 35 billion USD (2001), other total GDP figures quoted suggest a market GDP of 49.6 billion USD (2004) reflecting the depreciation of the US-dollar over the last 30 months. GDP growth for 2004 is estimated at 3 percent, 2003 came in at 6.5 percent of GDP due to good rainfall, 2002 at 3.8 percent, 2001 at 7.6 percent, year 2000 at 0.8 percent, late 1990’s was stagnant as drought occurred as GDP 1997 fell 2.3 percent. Low inflation conditions exist with year 2001 recording 3 percent, year 2003 at 1.2 percent and 2004 is projected slightly higher at 4 percent. Of concern is Morocco’s continual fiscal deficit that runs from 4 to 6 percent of GDP, with privatization receipts 2004 is estimated at 2.7 percent shortfall. Total debt to GDP stands at 67 percent (2004), external debt is at 17.3 billion USD (2003). Unemployment is at 19 percent (2003). The agricultural sector represents 20 percent of GDP but employs 40 percent of the labor force. Economic composition consists of agriculture at 23 percent, industry at 35 percent, services at 42 percent. Morocco runs a persistent trade deficit with exports at 8.5 billion USD (2003) and imports at 12.7 billion USD resulting in a trade shortfall of 4.2 billion USD. The current account however is in surplus with year 2004 estimated at 2.3 percent of GDP, 2003 at 3.1 percent, 2002 at 4.1 perecent. This results in an overall balance of payment account for Morocco with year 2004 estimate at plus 1.3 percent, 2003 came in at 1.8 percent of GDP due to strong capital inflows from investment and tourism.
POSITIVE: very good cellular phone coverage and Internet access although only 1 million users approximately. CONCERN: erradic rainfall which has led to drought in 2002, fishing disputes with Spain, fair literacy rate at 52 percent.
BANKING SYSTEM: central bank for Morocco is Bank Al-Maghrib which holds the country’s foreign exchange reserves at 14 billion USD (2003) equivalent. In 1993, private sector reforms touched Morocco’s banking industry along with other industry groups including utilities, telecommunications, transportation, etc. During year 2000, anti-corruption policies were introduced in order to clean up Morocco’s banks. Year 2003 recorded low interest rates with recent rates quoted for interbank at 2.25 percent as Morocco is experiencing low to moderate money growth. The Casablanca Stock Exchange has several banking stocks listed.
REGIONAL ANALYSIS: Algeria, Spain, Western Sahara
Minimal trade presently takes place with Morocco’s neighbour Algeria. Spain which is located only eight miles to the north of Morocco at its closest point between the two countries is a major trading partner. At present, Spain’s GDP/Capita is seven times larger than that of Morocco’s which is creating difficulties in the area of illegal immigration of sub-Saharan African’s & Moroccans via Morocco to mainland Spain and the Canary Islands (Spain). Border disputes within the Western Sahara region are prevalent. A guerilla rebel group called the Polisario Front is claiming that the Western Sahara region as their own, not Morocco’s. In 1976, Morocco annexed the Western Sahara region after Spain departed. A United Nation cease-fire agreement in 1991 between the Moroccans and Polisario Front was put in place with the expectation of an agreement yet to be reached by election.
KNOWLEDGE: Potential Hydrocarbon Industry and Phosphate Reserves
At present, Morocco has minimal hydrocarbon energy reserves as the country was a net oil importer during 2001 at 167,000 bpd. There is tremendous potential with vast areas of Morocco yet to be explored for hydrocarbon resources. A couple of years ago, King Mohamed VI announced prematurely an exciting new oil discovery in the desert near the Algerian border upwards of a 20 billion barrel oil resource although this is yet to be confirmed. Ironically, as the search for new energy resources takes place, Morocco does indeed have a very adequate infrastructure to support an oil industry as it has good roads, sea ports, etc. Several multinational firms have been exploring offshore in the surrounding waters of Morocco. The downstream oil industry is well developed with refineries and pipelines. Other energy sources include oil shale deposits in the Atlas Mountains and at Timahdit.
To date, very few wells have been drilled due to technical difficulties and shortage of monies. An estimated total of only 500 wells have been drilled within a huge area of exploration, basically represents no exploration. An average of 1 well to 1,500 square km has been drilled within two highly prospective regions of the ‘Offshore Sedimentary Basin’ and the ‘Moroccan Sedimentary Basin’. Regional geology is outstanding when one looks at Algeria and their reserve energy assets, a major hydrocarbon exporter. Exploration successes for Morocco include natural gas discoveries at the Gharb Basin in the north, a significant gas discovery at Meskala and on the coast within the Essaouira Basin where oil and natural gas production is underway.
Morocco is home to the world’s largest phosphate reserves holding 60 percent of the reserves in the production of phosphoric acid primarily for export markets including India. Year 1999 had estimated phosphate reserves for Morocco in the range of 60 billion tonnes. Current exports include both phosphate rock and phosphoric acid as phosphates are used to make fertilizers.
CURRENCY: ISO Symbol ‘MAD’, Moroccan dirham. At time of review on September 27, 2004, the dirham had an exchange value of 8.9644 MAD to the USD or 11.005 MAD to the Euroland euro ‘EUR’. The Central Bank Al-Maghrib pegs the dirham to a currency basket weighted on a trade basis, the basket does include the euro. The currency peg has been successful in keeping inflation low for Morocco. The dirham is fully convertible for current account transactions although restrictions are in place on the capital account. As measured by purchasing power parity, the dirham is considerably undervalued to the USD.
CURRENCY HISTORY: historical exchange quotes for the dirham include: year 1993 at 9.3 MAD to the USD, 1994 at 9.2, 1995 at 8.54, 1996 at 8.72, 1997 at 9.53, December 1998 at 9.261, January 2000 at 10.042, January 2001 at 10.591, February 2002 at 11.712, February 2003 at 9.94, January 2004 at 8.768 and August 2004 at 8.996.
CURRENCY FORECAST: Morocco like several other developing countries especially in Africa must adhere to the stability and soundness of institutions such as the courts and legal system to compliment its resource industry. The leveraging of wealth via natural resources can only be obtained with a prudent legal system and capital markets to facilitate this growth coupled with open favorable policies directed to foreign investors. Fortunately, King Mohamed VI has stated that he wishes to increase foreign direct investment ‘FDI’ as laws have been updated from the Hydrocarbon Law 2000 to attract further FDI - international investment for development of Morocco’s energy sector. On short term basis, the dirham is vulnerable to rainfall as the economy at present is predominantly agrarian based. Political risk includes divisional forces similar to Iran with government reformers pinned against conservative religious Islamists who stand against women rights and Westernization & modernization of Morocco. The potential for domestic Islamist uprisings cannot be ruled out or terror strikes in the disruption of Morocco’s development of its hydrocarbon industry. In the long term, BankINTRO.com is quite bullish on Morocco’s currency the dirham.
UPDATED: September 27, 2004
