Morocco’s economy: new government faces old challenges

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The change at the top comes after the North African country’s economy slumped 7.2 percent in 2020. According to the International Monetary Fund, GDP is expected to recover by 4.5 percent this year and maintain an annual growth rate of less than 5 percent until at least 2025.

Even before the health crisis, economic growth slowed to below 3 percent in 2019, with structurally high unemployment. The country’s high commissioner for planning said in his latest August report that unemployment rose to 12.8 percent in the second quarter, compared to 12.3 percent earlier, with college graduates particularly hard hit, with 25.3 percent unemployed .

GDP grew by 1 percent in the first quarter, which indicates that the economy needs further stimulus. Tourism, a major forex generator, saw revenue fall 58.1 percent to $ 1.35 billion in the first half, according to the Moroccan Directorate of Financial Studies and Forecasts.

BUDGETARY STRENGTH

Still, Morocco is in a strong budget position compared to many of its emerging economies and regional competitors.

“Unlike Brazil or Russia, Morocco’s savings never seem to have been wiped out by hyperinflation or deep economic shocks,” said Charles Robertson, an analyst at Renaissance Capital. “Large domestic savings have resulted in Morocco’s lending ratio to GDP ratio, at 97 percent of GDP, being much higher than many emerging economies, and this has not been funded from abroad.”

The World Bank notes that Morocco “used” the COVID-19 crisis as an opportunity to modernize the economy.

“This reform program has the following pillars: (i) the creation of a Fund for Strategic Investments (the Mohammed VI Fund) to support the private sector; (ii) the revision of the social protection framework to promote human capital; (iii) the restructuring of the vast Moroccan network of state-owned companies, ”the World Bank noted.

“In addition, the government recently unveiled the terms of a new development model that emphasizes human development and gender equality, and the need to revive recent efforts to promote private enterprise and increase competitiveness.”

In May, Fitch Ratings affirmed its BB + rating with a stable outlook, noting the country’s macroeconomic stability, as well as low inflation and GDP volatility prior to the pandemic.

“We forecast a GG deficit (general government deficit), which also includes social security, local authorities and extra-budgetary units, of 6.5 percent of GDP in 2021, after 6.9 percent in 2020, compared to a forecast” BB “Median of 5.2 percent,” noted Fitch. “After the parliamentary elections in September 2021, we do not expect any major changes in fiscal or other economic policy.”

TRADING WITH GCC

Morocco’s trade and investment relations with the Gulf States have cooled in recent years due to a shift in priorities for both sides.

The GCC countries pledged US $ 5 billion in 2011 amid protests in Morocco, and Rabat was even considering joining the Gulf Cooperation Council one day.

But a change in leadership in Saudi Arabia and Morocco’s refusal to take sides in the diplomatic divide between Qatar and Saudi Arabia has changed the dynamic.

“Morocco has adjusted to the decline in support from the Gulf States and has taken a more active and responsible approach, including asserting its influence in Africa and making contact with new partners such as China and Russia,” said Carnegie Endowment for International Peace.

Saudi exports to Morocco fell to $ 898 million last year, compared to $ 1.22 billion in the same period in 2019. Exports from the UAE, the GCC’s second largest import source, have increased according to the International Trade Center in the Reporting period almost halved to $ 511 million.

Moroccan exports to Saudi Arabia (97.5 million US dollars) and the United Arab Emirates (92 million US dollars) were meager, so that the flow of trade was clearly in favor of the GCC countries.

Morocco forges closer trade ties with the southern European states of Spain, France and Italy – its three largest export markets. The country’s automotive sector is enjoying an increasingly strong partnership with European automakers, with the industry generating sales of $ 5 billion in the first half, an increase of 38% over the same period last year.

The country’s domestic industry has seen new investments from European manufacturers and is also benefiting from disrupted supply chains. The burgeoning electric vehicle market is increasingly being watched as STMicroelectronics, one of Europe’s leading semiconductor manufacturers, plans to inaugurate a new electronic chip production line for US electric car giant Tesla in Morocco. Inc.

While the post-COVID-19 economic recovery will be uneven, Morocco is likely to get away relatively unscathed, given its strong trade ties with EU countries, robust infrastructure, and favorable business environment.

(Writing by Syed Hussain; adaptation by Seban Scaria)

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© ZAWYA 2021


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