How Morocco can attract Foreign Direct Investment

Introduction

Morocco, The unstable North African region has faced a transformation in its economy. It has been able to reach a leap in doing the business index of World Bank. It stood at 71st rank out of the total 189 economies of the world; previously it lay at 130th spot which showed that it has been able to stand out. This ranking has caused Morocco to gain the attraction of the private sector which led to the inflow of foreign cash into the country. 2014 was the year of great success which enabled Morocco to gain second largest destination for foreign direct inflow in North Africa and third largest in the entire African continent. This year also Morocco has been able to gain the attention of investors from around the world.

Figures for foreign direct investment

The constant flow of foreign direct investment has been a major achievement of Morocco for the recent years; this has become possible with the national privatization plan. This involves the conversion of foreign debt into investments and public service commissions. There are many other sectors which have become dominant with the foreign investment like banking, industry, tourism and energy. Although a modest level of FDI can mark a sturdier contribution towards the economic takeoff. A policy of foreign investment has also being pursued which targets the sub-Saharan countries.

The global recession brought with itself the major decline in FDI. After that in 2014 and 2015, Morocco has been able to gain a major inflow of foreign direct investment which exceeded 3 billion US dollars.  However, in 2016, the inflow fell by almost 36% as compared to previous years. But then it became stable, this stability has helped Morocco to attract foreign investors. A project for economic modernization was being launched to lift the level of FDI.

Casablanca is expected to become the international financial center. A solar power station Ouarzazate’s construction can roughly cost around 2 billion euros. A new investment charter was being implemented in 2016 which aims to restructure the investment activities and to develop the free trade zone in total 12 regions of the country. In 2017 also to rank out of the Morocco has been able to gain the 68th rank in World Bank’s published business rankings.

FDI and key factors in Morocco

There are many factors that can affect the level of FDI in Morocco.

Geographical location

Morocco is very lucky to be located between Europe the largest economic hub and sub-Saharan Africa which is the most rapidly growing economy, this makes Morocco a strategic trading hub.

Morocco’s infrastructure is very well managed. It has well-established ports, transport, telecommunication and this all plays a major role in facilitating investment.

Regulatory policies

Another important factor is the regulatory policies being followed in Morocco. These policies include privatization policies, tax-exempt free trade agreements with other countries like EU, US, Turkey and Arab nations. These policies help in securing the confidence of investors and attracting foreign investment into the non-agricultural economy like textile.

What can Morocco do to have a more stable economy with increased level of FDI?

A more stable and resilient Morocco’s economy can be achieved by setting

  • middle term goals
  • strengthening ties with Arab and Asian countries, this will help in diversifying the portfolio
  • Immediate strategy to be adopted should be the industrial clustering of aeronautics, information technology, automotive, and electronics.
  • The interaction between the research centers and the firms can be beneficial on both the micro as well as the macro level.
  • The logistic infrastructure which includes the transportation and communication networks should be aligned effectively
  • Investment assistance from Moroccan government should be provided to the private sector
  • Improvements in economic and social setups of the country directly affect the inflow of FDI. The large unemployed youth can throw a bad impact on the investors. Morocco has an increasing number of free trade agreements and a huge workforce which can be an attraction gaining point and can bring huge economic transformation in the coming years. One thing needed to be done the training of youth to harvest the available opportunities.

Why and why not to invest in Morocco

Strengths

  • Morocco provides a very stable and active legal framework for the investors
  • The salaries of labor are very low as the labor is found in abundance. This can save a huge wage cost for the investors.
  • It has a very strategically designed geographical location between EU and sub, Saharan Africa
  • Youth labor and well-trained workforce
  • Facing a very high growth
  • Steps were taken by government to motivate and to restrict the flow of foreign investment
  • An investment charter was being adopted by the government in 1995 based on which a company exemption for VAT and corporate taxes were being provided.
  • For the industrial sector, an emergence plan is being made which creates an infrastructure offering premises for the turnkey
  • For offshoring facilities, the telecommunication cost has been set below 35% by the government, below the market rate and also training grants for up to 7000 USD are being provided to the Morocco employee for the initial three years of its employment.
  • The government is reviewing a new investment incentive regime which is expected to help to increase the level of FDI in Morocco.

 

Weaknesses

  • A very limited domestic market despite huge investment and high growth
  • The economy of the country is still very dependent on the agricultural sector
  • Morocco has a very delayed and slow bureaucracy for decision making and other legal procedures.
  • There is a tremendous lack of transparency in government’s procurement procedures.

Openness to FDI

In the recent years, it has been analyzed that Morocco’s government is working efficiently to encourage the inflow of foreign investment and to facilitate it macroeconomic policies are being implemented with trade liberalization. Many structural reforms are also being made, investment in infrastructure to provide an investment friendly environment and also incentives for investment are also provided. Morocco is working to position itself as the economic gateway to the sub-Saharan Africa; therefore many multinational companies are now planning to relocate their main and regional headquarters to Morocco. Endorsement of joint principles for international investment and joint principles of information and communication technology was done by Morocco in partnership with the Middle East and North Africa. It helped in transferring the signal to the investors around the world that Morocco open approach to foreign investment and economic growth. To boost the domestic economy, the government requires the investors to consume domestic material in the production of final goods and technologies. Also, some major lenders originated by the government come with the local material requirement as the content for production, specifically in some certain sectors of production.

 

 

Agreements with other nations, and the trade policy

For the United States, Morocco has developed a free trade agreement. And for the European Union, it has developed an Association agreement which says to eliminate the tariff and for some cases will reduce the tariff rate on the imports coming from US and EU. A quadrilateral agreement is being signed with Tunisia, Jordan, and Egypt which comes under the Agadir Declaration. Also, an FTA is being signed with Turkey and Canada as well.

Morocco is also known to be the first country to be granted with advanced status with the European Union. For the deep and comprehensive free trade agreements, Morocco has entered into the fourth round talks with the European Union. It is also seeking for the bilateral memorandum of understandings with other nations like America, Africa, Latin, and Asia to expand foreign investment and trade. To access the benefits it has generated from these trade policies, Morocco government has now held on the new Free trade agreements for a while.

Regime for Foreign exchange and currency convertibility

This is a regime designed specially to attract the foreign investors and for the Morocco people who are living abroad and wants to invest in Morocco. This helps in facilitating the foreign investment, repatriation of generated income and the profits made on the investment.

If a foreign investment is being made, it can be transferred without any tax deductions and with no duration limits. Income than can be generated in the form of dividends, rental income, interest and attendance fees. Repatriation of capital contribution from convertible currency, net transfer capital gains and contributions from the debt convertible accounts can be made easily. The document required for the transfer of income or dividends must include a balance sheet, profit and loss income statement, annexed documents of the fiscal year for which the transfer is being asked for and the statement of extra accounting adjustments implemented to get the taxable income.

A very stable macroeconomic condition followed by the stable financial condition has been achieved with the exchange rate peg. It helps in achieving the price stability, and also provides insulation to the economy from the nominal shocks. This peg was set at the 80/20 split eurodollar unit, and it is now being changed to 60/40 eurodollar unit. This reflects the evolving trade relations. IMF also plays a major role in advocating the flexible exchange rate; this allows Morocco to become more efficiently responsive towards shocks while maintaining the competitiveness.

The political conditions

The ultimate power and authority in Morocco lie with the king, which made it a monarchy with proper judiciary, parliament and constitutional government. The country is known to be politically stable, and qualified democratic reforms are being made. A Non-NATO allows being designated to Morocco by the US government to maintain a healthy relation. Although Morocco continues to face the terrorist threat and many series of bombings are being sighted in Casablanca, Marrakesh, etc. counterterrorism policies are being made and implemented which are generating excellent results. The aggressive investigation regarding terrorism has successfully dismantled the terrorist calls and is working to maintain a peaceful environment.

 

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