Morocco: A New Destination for Foreign Investment
27 May 2014
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Text: For most Chinese people, Morocco is a distant and unknown land, with a very vague image. But what is this country really like? What level of economic development has it achieved? What opportunities does it offer to Chinese investors? To answer all these questions, I joined the delegation of Chinese journalists invited to Morocco by the Moroccan Agency for Investment Development (AMDI). This meeting focused on Morocco's economic development, particularly foreign investment.
A Promising African Country
The Moroccan economy is mainly based on agriculture. It also has natural resources, most notably phosphate, with proven reserves of nearly 60 billion tons, representing 75% of the world total. In 2011, Morocco's GDP was $99.241 billion, with a GDP per capita of $3,083. Note that the country's GDP has increased by an average of 4.9% over the past five years. With growing economic globalization, Morocco is striving to transform its development model by expanding domestic demand, strengthening infrastructure construction, supporting manufacturing industries such as textiles, automobiles, and chemicals, and focusing on emerging industries such as information technology and clean energy.
International trade and foreign investment, which meet the needs of this economic transition, are playing an increasingly important role in Morocco. The Moroccan government has therefore implemented preferential policies to attract foreign investment. In 2011, the country attracted $2.52 billion in foreign direct investment (FDI), compared to $1.57 billion in 2010, an increase of 61%. This amount represents one-third of the combined FDI of North African countries and 6% of total FDI into the African continent. This is why, in 2012, fDi Intelligence, an expert division of the Financial Times Group, chose Morocco – ousting South Africa – as the most attractive African destination for FDI in 2011-2012. In its 2012 report, Best Practices in Global Investment Promotion, the World Bank commends Morocco's progress in attracting FDI and ranks it among the top countries in this area. Furthermore, in its recent report entitled Regional Economic Outlook for the Middle East and North Africa, the IMF indicates that Morocco remains among the region's top-performing economies.
In recent years, the Moroccan government has implemented a series of modern laws and regulations, is committed to simplifying the investment process for foreigners, actively encourages economic liberalization, and improves the business climate. Thanks to these multiple efforts, in its Doing Business 2012: Doing Business in a More Transparent World report, the World Bank ranked Morocco among the countries that have most facilitated trade. The study compares the regulations to which businesses in 183 different economies are subject.
A Hub Between European and African Markets
Located in northwest Africa, Morocco borders Algeria to the east and southeast. It borders Western Sahara to the south and the Atlantic Ocean to the west. To the north, the Strait of Gibraltar and the Mediterranean Sea separate it from Spain. At its narrowest point, only 14 km separate Morocco from the European coast.
Its geographical proximity to Europe allows for reduced transportation costs and time when trading goods. By plane, from Casablanca, it takes only 1 hour and 15 minutes to reach Madrid and 2 hours and 45 minutes to reach Paris. By boat, it takes only 35 minutes to sail from the port of Tangier Med to the Spanish ports of Algeciras or Tarifa, and it is possible to reach Barcelona in 24 hours. Its privileged position makes it a crossroads of major trade routes connecting America, Africa, Europe, and the Middle East, as well as a platform for exchanges between the three major European, Arab, and African markets.
According to Hind Saïdi, Head of the Investment Department, and Driss Sekkat, Head of the Strategic Marketing Department, at AMDI, Morocco is the first country south of the Mediterranean Sea to have signed a free trade agreement with the European Union. It has since ratified a similar agreement with the United States. Morocco now hopes that Chinese investors will see the advantages offered by this platform, to become a transit point for Chinese exports to Europe or Africa. However, it should be noted that in the trade of processed products for export, only goods with 40% added value originating from Morocco can be certified "made in Morocco" by the Moroccan chambers of industry and commerce or customs. It is important to know that only these goods can benefit from the favorable treatment provided by the free trade agreement, to finally be exported to the European and American markets.
Therefore, to take full advantage of the incentives offered by the Moroccan government, Chinese companies should invest in the electronics, automotive, and textile industries, which the local authorities wish to encourage, or in other high value-added industries. As for Chinese companies that have already established distribution channels in Europe and Africa, they could transfer their production lines to countries like Morocco to avoid tariff barriers and save costs.
Take the example of the textile industry. According to Mohamed Tazi, President of the Moroccan Association of Textile and Clothing Industries, the cost of Moroccan labor is not high, but the production chain is not complete. Some important links are missing, such as the production of accessories. If Chinese companies set up their factory(ies) in Morocco, they will be able to, on the one hand, reduce the cost of transporting goods, and on the other hand, serve the local market by completing the production chains. Somitex is a Moroccan family business that manufactures clothing and has long supplied Marks & Spencer, the largest British clothing retailer. Its president, Abdelhai Bessa, said: "We lack accessory suppliers. If Chinese manufacturers set up in Morocco, we will gladly engage in long-term cooperation with them, sharing our partners and access to the European market."
In an interview with the delegation of Chinese journalists, the Chinese ambassador to Morocco, Sun Shuzhong, when asked about Sino-Moroccan economic relations, stated: "Morocco could serve as a springboard for Chinese companies wishing to export to European and African markets."
Moroccan-Style Free Trade Zones
To attract foreign investment, Morocco has established three types of investment zones: integrated industrial platforms, industrial zones, and free zones. Among these, free zones are the most remarkable. Currently, Morocco has five, the largest being the Tangier Free Zone, located in the port city of the same name. This free zone, the first established by Morocco, also has extensive experience in attracting investment and management. The Atlantic Free Zone in the province of Kenitra is another example. Others are located in Rabat, Casablanca, and Oujda.
Similar to the Shanghai Free Trade Zone, which has recently been in the spotlight in China, Morocco sets a series of rules for its free zones, generally established in port cities where transport is convenient and the economy is more developed. Companies established in free zones, whether Moroccan, foreign, or mixed, benefit from preferential tax policies. They are exempt from corporate income tax and income tax for the first five years. For the following twenty years, they are subject to corporate income tax at a rate of 8.75%, while 80% of their income tax is exempted. The more a company exports, the more tax-exempt it will be. In addition to these advantages, companies within the free zones can benefit from a variety of subsidies granted by government funds.
Unlike the management model adopted in Chinese free trade zones, companies established in free zones must export at least 70% of their products; the remaining less than 30% are intended for the Moroccan market. This regulation aims to encourage exports, in order to restore the balance of trade. In 2013, Morocco's trade deficit reached 196.39 billion dirhams ($23.38 billion), compared to 202.06 billion dirhams in 2012 ($24.05 billion), a slight decrease of 2.8%.
According to AMDI, to date, no Chinese company has established itself in one of the five Moroccan free zones.
Chinese Companies in Morocco
As Morocco aims for economic restructuring, Chinese companies are beginning to enter the market quietly. According to Ambassador Sun Shuzhong, out of the approximately thirty Chinese companies established in Morocco, the majority operate in the IT or telecommunications sectors. This is particularly the case for Huawei and ZTE. Other companies work in infrastructure and public works, building roads, bridges, and ports.
Thus, there are not many Chinese companies in Morocco. Ambassador Sun cites two reasons: "First, human exchanges between China and Morocco are very low. Chinese entrepreneurs are not very familiar with the Moroccan market. They are not familiar with its environment or its investment policies, and are unaware of the advantages this country offers. Second, the visa application process is long and expensive. Just to explore the Moroccan market on the ground, a Chinese investor has to wait two or three months to obtain a visa, and many lose patience before then. The Chinese and Moroccan governments are currently studying the possibility of an agreement to facilitate exchanges between citizens of the two countries. Since March 2014, holders of a Chinese official passport no longer need a visa to enter Moroccan territory. In addition, a first direct air route between the two countries should open during the year. I hope these advances will accommodate Chinese investors and entrepreneurs."
Among the Chinese companies established in Morocco, Huawei is the "number one." Already covering 70% of the Moroccan market, its annual turnover currently stands at $180 million, with a growth rate maintained at 10%. This company employs more than 400 people, 75% of whom are Moroccans, and indirectly creates about 3,000 jobs. In 2012, the company inaugurated the Huawei Morocco Academy, its first French-speaking training center.
"In the telecommunications sector, the relatively mature Moroccan market has sub-networks in Africa, where it exerts great influence," explains Xu Xujing, CEO of Huawei Morocco. For ten years, the Huawei group has been multiplying business opportunities in Morocco, and can attest to the relatively high level of education of the inhabitants and the experience of subcontractors, conditions conducive to the development of telecommunications operators. Compared to the African market as a whole, it is easier to recruit competent employees in Morocco. Huawei is committed to employing a large number of local people to succeed in its relocation. In 2013, Huawei Morocco signed an agreement with the Moroccan Ministry of Higher Education, undertaking to offer 50 to 100 internships to new Moroccan graduates and to subsequently hire 20% of the best among them.
Huawei is well aware of the policies implemented by Morocco to stimulate foreign investment. According to Xu Xujing, his company is currently studying its possible establishment in the Casablanca financial city. Intended for Moroccan and foreign companies seeking to operate locally or in the markets of French-speaking African countries, this zone will offer tax and financial advantages to financial institutions, consulting firms, and multinationals whose regional headquarters are located in Morocco. If the conditions provided by this financial city are attractive enough and its development is progressing well, perhaps Huawei will move its North African headquarters to Morocco.
Xu Xujing also commented on the concrete difficulties faced by Chinese companies. According to him, if Chinese companies are not abundant in Morocco, it is because they do not know the Moroccan situation, do not pay enough attention to it, and de facto consider it like any other African market. In addition, applying for a work visa in Morocco is a long and tedious process. Huawei Morocco has even recruited two people specifically to handle visa formalities for a hundred Chinese employees.
Currently, some 3,000 foreign companies are active in Morocco, a country they see as a springboard to explore wider opportunities. Chinese companies can benefit from Morocco's geographical advantages and the opportunities offered by its government, which is calling for an economic transition. Investing in Morocco allows, on the one hand, to create more jobs in this country and thereby increase public revenue; and on the other hand, to increase China's share in the Moroccan economy and raise Sino-Moroccan economic and trade cooperation to a new level.
CHEN JING
French.china.org.cn
Published May 27, 2014.
Posted online May 27, 2014.
