Early Devastating Effects of the Crisis on the National Economy: The Textile Industry on the Brink
2 December 2008
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If the absence of a barometer dedicated to measuring business climate and economic trends is sorely lacking – as is a thermometer for employment – the fact remains that the first direct effects of the international economic crisis (particularly for EU and French countries) are hitting several sectors of the national economy. While the government has acknowledged the decrease in tourism activity and the contribution of Moroccans residing abroad (MREs) through currency transfers, other economic sectors are starting to be seriously impacted. Indeed, what is the state of our economy? The vitality of our businesses? Tensions in the labor market? The morale of the leadership and executives? Which sectors are most affected? And geographically, what is the situation? Are the rumors about the delay (or cancellation) of Renault Nissan's arrival in Tangier having economic repercussions on the northern region? This range of questions fuels discussions and debates among political actors and entrepreneurs.
During a recent visit to Morocco, François Faure, Deputy Country Risk Manager at BNParisbas, stated that the post-crisis discourse of leading economists has significantly evolved. "A year before the economic crisis began, they agreed that emerging economies were growth economies. In recent months, they have changed their minds," he said. Why did people think that emerging countries could resist? According to François Faure, for three main reasons. First, the recovery in commodity prices. Second, the influx of capital into emerging countries (thanks in particular to the increase in bank loans from major international banks). Third: the strong growth of emerging economies such as China or Brazil. However, this economic reality is no longer really current.
In Morocco, sustained growth (around 6%) will not prevent certain sectors of the economy from being exposed to the effects of the global crisis. Thus, early signals do not bode well. Today, sectors such as textiles, construction, tourism, and automobiles are (very) affected. "This is a direct consequence of the international crisis because these are sectors that are open to the world. Currently, many multinationals in real estate are waiting. Some have even completely stopped their activity, particularly in Rabat," says Salma Khairane, in charge of business consulting for a multinational company. This leads to questions about the (large) projects announced by groups such as Samah Dubai or Emmar. In addition, there are uncertainties about the promised installation of companies specializing in offshoring and New Information Technologies (NIT). "We constantly repeat that Morocco is a low-cost country, full of opportunities. This is not necessarily an absolute truth. Investors are increasingly aware. And Morocco is directly competing with countries like Egypt or Romania," she adds with bitterness. "I am Moroccan and I fight daily to convince foreign investors, but sometimes I have to face reality. In particular, the shortage of human resources (HR) which is a limiting factor for investment," continues Salma Khairane. According to her, Morocco's competitiveness in terms of salary scales is lower compared to Egypt, for example. The salary of an engineer (or project manager) is estimated at around 12,000 dirhams currently, compared to 8,000 DH a short time ago. This represents a wage inflation of around 20%.
Direct Consequences of the Crisis on the Textile Industry
For the textile sector, the problem related to HR is not the "only" blocking factor. Irregular orders, commercial uncertainties, and lack of visibility have become the lot of entrepreneurs in the sector. According to the most optimistic scenarios, activity should continue its downward trend for a period of six months. As for the scenarios expressed by the "pessimists' camp," the deep crisis facing the sector could extend until the end of 2009. "The real problem today is not manufacturing, but selling," says a business leader, tired of swimming against the tide. He adds, "China, India, and Tunisia have already put in place recovery plans. What are we waiting for? We are content to be the last in the class," he says. A statement echoed by the president of the Moroccan Association of the Textile and Clothing Industry (AMITH) who is asking for "aid to get through the crisis without problems. We must expect five or six lean months during which we must not lose our production capacity. Otherwise, we will not be able to recover market share when the clients return." However, the sector suffers from heavy structural handicaps, with 80% of its raw material needs coming from Europe. As a result, the delay (approximately 10 days) for inputs is not helping the professionals in the sector. Particularly the "Fast Fashion" industry. The current clothing trend.
The result? Production units on the brink. We are talking about the closure of industrial sites and production lines (Richbond would be in this case, according to corroborated information). For the city of Rabat alone, the textile sector would have recorded a net loss of 150 million dirhams in turnover. "In addition to the decline in consumption in the United Kingdom, we are severely affected by the devaluation of the pound sterling, which has fallen by 25% since September 2007," indicates a member of the AMITH section for the region. Other direct consequences are social issues. In the administrative capital, the number of 2,000 jobs destroyed is the most frequently cited figure. In other words, the process of job "destruction" is underway. The effect of the international economic crisis is not only...psychological. It has managed to slip through the net.
Rachid Hallaouy
Posted online on February 13, 2009
lanouvelletribune.com
During a recent visit to Morocco, François Faure, Deputy Country Risk Manager at BNParisbas, stated that the post-crisis discourse of leading economists has significantly evolved. "A year before the economic crisis began, they agreed that emerging economies were growth economies. In recent months, they have changed their minds," he said. Why did people think that emerging countries could resist? According to François Faure, for three main reasons. First, the recovery in commodity prices. Second, the influx of capital into emerging countries (thanks in particular to the increase in bank loans from major international banks). Third: the strong growth of emerging economies such as China or Brazil. However, this economic reality is no longer really current.
In Morocco, sustained growth (around 6%) will not prevent certain sectors of the economy from being exposed to the effects of the global crisis. Thus, early signals do not bode well. Today, sectors such as textiles, construction, tourism, and automobiles are (very) affected. "This is a direct consequence of the international crisis because these are sectors that are open to the world. Currently, many multinationals in real estate are waiting. Some have even completely stopped their activity, particularly in Rabat," says Salma Khairane, in charge of business consulting for a multinational company. This leads to questions about the (large) projects announced by groups such as Samah Dubai or Emmar. In addition, there are uncertainties about the promised installation of companies specializing in offshoring and New Information Technologies (NIT). "We constantly repeat that Morocco is a low-cost country, full of opportunities. This is not necessarily an absolute truth. Investors are increasingly aware. And Morocco is directly competing with countries like Egypt or Romania," she adds with bitterness. "I am Moroccan and I fight daily to convince foreign investors, but sometimes I have to face reality. In particular, the shortage of human resources (HR) which is a limiting factor for investment," continues Salma Khairane. According to her, Morocco's competitiveness in terms of salary scales is lower compared to Egypt, for example. The salary of an engineer (or project manager) is estimated at around 12,000 dirhams currently, compared to 8,000 DH a short time ago. This represents a wage inflation of around 20%.
Direct Consequences of the Crisis on the Textile Industry
For the textile sector, the problem related to HR is not the "only" blocking factor. Irregular orders, commercial uncertainties, and lack of visibility have become the lot of entrepreneurs in the sector. According to the most optimistic scenarios, activity should continue its downward trend for a period of six months. As for the scenarios expressed by the "pessimists' camp," the deep crisis facing the sector could extend until the end of 2009. "The real problem today is not manufacturing, but selling," says a business leader, tired of swimming against the tide. He adds, "China, India, and Tunisia have already put in place recovery plans. What are we waiting for? We are content to be the last in the class," he says. A statement echoed by the president of the Moroccan Association of the Textile and Clothing Industry (AMITH) who is asking for "aid to get through the crisis without problems. We must expect five or six lean months during which we must not lose our production capacity. Otherwise, we will not be able to recover market share when the clients return." However, the sector suffers from heavy structural handicaps, with 80% of its raw material needs coming from Europe. As a result, the delay (approximately 10 days) for inputs is not helping the professionals in the sector. Particularly the "Fast Fashion" industry. The current clothing trend.
The result? Production units on the brink. We are talking about the closure of industrial sites and production lines (Richbond would be in this case, according to corroborated information). For the city of Rabat alone, the textile sector would have recorded a net loss of 150 million dirhams in turnover. "In addition to the decline in consumption in the United Kingdom, we are severely affected by the devaluation of the pound sterling, which has fallen by 25% since September 2007," indicates a member of the AMITH section for the region. Other direct consequences are social issues. In the administrative capital, the number of 2,000 jobs destroyed is the most frequently cited figure. In other words, the process of job "destruction" is underway. The effect of the international economic crisis is not only...psychological. It has managed to slip through the net.
Rachid Hallaouy
Posted online on February 13, 2009
lanouvelletribune.com
