20/10/2017 – Country Focus / Morocco / Automotive / Clean Energy
Forging New Frontiers
Determined to diminish its deep-rooted reliance on agricultural output, Morocco is forging ahead with a strategic economic policy featuring new legislation to encourage foreign investment, subsidy reform, and the accelerated development of industry – with aspirations to become the largest car manufacturer in Africa while also ramping up the use of clean energy technology. Gemma Kent reports on the latest developments and projects that are driving Morocco’s diversification.
Last January, King Mohammed VI implored mosques across Morocco to organise prayers for rainfall, as the country grappled with its worst drought in 30 years. Cycles of drought have been a major cause for concern over the last decade, but the prolonged dry spell that started in late 2015 wiped out half of the 2016 wheat harvest and resulted in the loss of 15,000 agricultural jobs in the second quarter of the year, according to the High Commission for Planning (HCP). Statistics from the World Bank show that agriculture production, which still represents almost 15 per cent of Morocco’s GDP, contracted by around 10 per cent in 2016 and dragged overall GDP growth down to 1.1 per cent.
Morocco’s Economic, Social and Environmental Council (CESE), an independent institution, echoed the findings of the HCP and other organisations when it submitted its most recent annual report to King Mohammed VI, which highlighted the “vulnerability of the Moroccan economy to the vagaries of the climate.” Of course, Morocco’s close relationship with the weather works both ways, and with good rainfall since last autumn, the cereal crop is expected above its historical average and GDP growth is forecast to bounce back to 3.8 per cent in 2017.
While agriculture undoubtedly remains important to the economy, the North African Kingdom is in pursuit of a development model that is less vulnerable to weather fluctuations – and, accordingly, is focused on diversifying trade and investment to achieve growth.
A bridge to Europe
The private sector is playing a crucial role in Morocco’s economic development – as it is across most of Africa, where governments are seeking cash injections for infrastructure to support population growth and surging demand. With a GDP of around US$37 billion in the 1990s, Morocco had little money to spare after meeting its recurrent budgetary obligations, until a lucrative PPP opportunity emerged that took advantage of the country’s unique position on the Strait of Gibraltar, barely nine miles from the European mainland.
Tanger-Med port commenced operations 10 years ago and has since become the linchpin of Morocco’s policy of industrial development, acting as both a transhipment hub and a manufacturing complex comprising four export-oriented free-trade zones. The product of more than three billion euros (US$3.6 billion) in private industrial investment, Tanger-Med handled 2.96 million TEU of cargo in 2016 and is the second-busiest container port on the continent. Its capacity is slated to rise to 8.2 million TEU in 2019, when the Tanger-Med II expansion is completed, making it the largest transhipment hub in the MENA region.
With a focus on the automotive, aeronautics, electronics and textiles sectors, the port’s 5,000-hectare industrial platform hosts more than 750 companies and exported 5.5 billion euros (US$6.6 billion) worth of goods in 2016. Included among the hundreds of foreign enterprises making the most of Morocco’s low-cost local labour and close proximity to Europe is the French car manufacturer Renault, which has the capacity to produce 340,000 vehicles a year from its facility in Tanger Automotive City – the largest car factory in Africa – and exported its one millionth vehicle from the port in June this year. French car parts manufacturer Valeo is also investing 50 million euros (US$59.7 million) in a new factory in the industrial zone, while Japanese group JTEKT, the world’s largest provider of steering systems, recently confirmed that it will build a facility to directly supply PSA, Renault and other manufacturers – its first industrial settlement in Africa.
Tanger-Med has already attracted aeronautics industry giants including Bombardier and United Technologies Corp., while a further three aeronautics companies signed agreements earlier this year: Figeac Aero is setting up in Morocco for the first time, specialising in the machining and assembly of aeronautical parts and surface treatment to serve Airbus and Bombardier, while ADF Technologie Morocco and Tecaero Maroc will be involved in the design and manufacture of tools and pipelines. The sector achieved a turnover of MAD 9.2 billion (US$983 million) last year – an increase of 12.5 per cent compared to 2015.
The healthy export growth of Morocco’s new industries, especially in the automobile and aeronautic global value chains, could not compensate for the fall in international prices of phosphate, however – a traditional sector that still represents close to 18 per cent of the country’s total exports, according to the World Bank. The state-owned OCP Group nevertheless continues to dominate the global phosphate market, managing to increase turnover by seven per cent during the first half of 2017 to over MAD 23 billion (US$2.5 billion), despite a challenging international economic climate and acute decline of sale prices. According to the company’s recent export earnings report, OCP Group increased its exports by 44 per cent and completed a third fertiliser plant, new sulphur line and a power plant, and is nearing completion of the first phase of a major investment programme aimed at significantly increasing capacities while generating operational efficiency gains.
In order to attract investment for the development of its numerous other mineral treasures, which include lead, copper, manganese, gold, iron ore, zinc and silver, Morocco has come a long way towards modernising its mining sector. Indeed, April 2016 saw the implementation of a new mining code to replace the long-outdated code of 1951, as part of a wider national development strategy for the mining sector. According to the Oxford Business Group, the new law aims to triple non-phosphate industry revenues to more than MAD 15 billion (US$1.6 billion) by 2025, while it is also expected to increase investment in research and exploration tenfold to MAD 4 billion (US$428 million) and double the number of direct jobs created to 30,000. The new code certainly has the potential to weaken the current domination of mining behemoth Managem, and is set to play a key role in a new era for the Moroccan mining sector.
Doubling up on tourism
After the phosphate industry, Morocco’s second-largest foreign exchange earner is the tourism sector, which is the focus of King Mohammed VI’s ‘Vision 2020’ programme. Some 10.3 million tourists visited the country last year, and the government is aiming for 18 million visitors by 2020. The King’s successful implementation of the Vision 2010 programme saw tourist arrivals increase to 9.3 million visitors from four million in 2000, while the current scheme aims to double the size of the tourism sector, making Morocco one of the world’s top 20 tourist destinations by 2020.
In order to accommodate the anticipated influx of visitors, a stream of hotels are set to open in the country over the next few years, with two new Hilton hotels due to open in 2017. AccorHotels launched the first Fairmont in Morocco earlier this year, while the Fes Marriott Hotel Jnan Palace opened in January and Rotana has signed an agreement to manage a property in the country next year. Moreover, last December Moroccan chain Atlas Hospitality and FTI Group, one of Germany’s largest tour operators, formed a joint venture to invest US$108 million in the Moroccan hospitality industry, with plans to build a minimum of four new hotels in the next two years.
Since an open-skies agreement with Europe removed the limit on EU flights to Moroccan airports, a significant number of routes have opened up from key source markets such as Germany, France and Spain, and upgrades to airport infrastructure are being planned accordingly. A new terminal at Marrakech-Menara Airport was inaugurated last December, upping the airport’s annual capacity to nine million passengers from three million, but the Ministry of Equipment believes the airport will reach capacity saturation by 2025 and is planning a new airport to serve the city. Supporting infrastructure is also being built elsewhere in the country, with commercial commissioning of the Tangier to Casablanca high-speed railway planned for summer 2018. “This mega-project will promote Morocco’s entry into an advanced phase of highly specialised technology, while allowing it to be ahead of several countries and to set itself up as a model on the field at the African and Arab levels,” Minister of Equipment, Abdelkader Amara, told Morocco World News in August.
Making a bid for Africa’s clean energy crown
Perhaps the sector with the greatest potential for Morocco to achieve leadership among emerging economies, however, is renewable energy. The Kingdom has set out ambitious plans to ensure that 52 per cent of its power comes from solar, wind and hydro by 2030, with the added intention of exporting Moroccan expertise in renewables to the rest of Africa. Utilising a combination of funding from private foreign investors and international financial institutions such as the African Development Bank, together with new state policies that have slashed subsidies for fossil fuels, the centrepiece of the government’s renewables strategy is the US$9bn, 580MW Ouarzazate Solar Power Station (OSPS).
The first of three phases was connected to the Moroccan power grid in February 2016, and once completed it will be the world’s largest solar farm, with the World Bank noting that the plant will prevent 240,000 tons of carbon dioxide emissions annually – equivalent to removing 80,000 cars from roads. OSPS uses innovative technology to store concentrated solar energy at night, a method that will also be implemented and developed at an upcoming solar plant in Midelt, in central Morocco, which will combine concentrated thermal power and solar PV to create a 24-hour power supply from the sun.
A growing number of foreign investors are now taking an interest in Morocco’s burgeoning renewables sector, with US firm Nano PV planning a new solar energy plant in Tangier, while a wind farm in Taza built by France’s EDF Energies Nouvelles and Mitsui of Japan is set to come online this year. Siemens signed an agreement with the Moroccan government last year to build a US$120 million manufacturing facility for rotor blades for onshore wind turbines in Tanger Automotive City – the first of its kind in the Middle East and Africa – which is scheduled to open later this year. Moreover, the Moroccan Agency for Solar Energy (MASEN) has selected Saudi power engineering firm ACWA Power and China’s Chint group to develop three solar plants with a combined capacity of 170MW as part of the Noor PV I project.
The government also plans to install solar technology and energy-efficient lighting in 15,000 state-funded mosques over the next five years, and last year imposed a ban on plastic bags to curb pollution. On top of that, Morocco is set to build the world’s largest desalination plant that will run wholly on solar energy in a bid to offset water needs in the semi-arid southern region of Agadir. The US$364.6 million plant, which is being built by Spanish energy firm Abengoa, is expected to produce 450,000 cubic metres of water per day once completed, with OSPS meeting its entire power demand.
Getting the job done
Morocco is clearly becoming a green leader among developing nations, its growing network of more than 50 public and private solar, wind and water projects forming part of a concerted effort to reduce greenhouse gas emissions, curb pollution and enhance the country’s energy independence. Morocco is also putting certain developed countries to shame, however, with Climate Action Tracker ranking Morocco far ahead of the US and Canada in tackling climate change. While President Trump recently stated his plans to withdraw from the Paris Climate Agreement, last year Morocco signed the historic accord and hosted the COP22 UN Climate Change Conference to discuss its implementation.
The country’s renewables boom will be a boon for job creation, which remains one of Morocco’s greatest challenges. While unemployment decreased slightly in 2016 to 9.4 per cent, according to the World Bank, it is crucial for Morocco to set up mechanisms to reduce the volatility of rural incomes by financing non-agricultural project portfolios that create jobs and increase local demand during bad seasons. A report released early this year by FEMISE, a Euro-Mediterranean NGO, brought positive news, asserting that the renewables sector in Morocco could facilitate the generation of up to half a million jobs by 2040. Nonetheless, greater investments in the country’s precious human capital will surely be needed in order to promote further growth in the years ahead.
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