Morocco Growth strategy for 2025 in an evolving international environment

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Marlene Powell
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2 Morocco Growth strategy for 2025 in an evolving international environment Bruegel, March 5, 2015 Pierre-Richard Agénor & Karim El Aynaoui 2

3 02 I. Achievements and limitations of the current growth strategy

4 Strategy characteristics 03 Rapid Growth, close to the potential rate; Improvement of access to basic infrastructure, increase in life expectancy; Poverty and vulnerability reduction, despite persistant unemployment even though results in terms of distribution are less convincing.

5 Morocco: Growth rate of real GDP and non-agricultural GDP, (In annual percentage) 04 15,0 Average: Moyenne: 3,2% Average: Moyenne: 3,7% Average: 4,7% Average: 4,4% Moyenne: 4,7% Moyenne: 4,4% Average: 3,9% Average: 4,1% Moyenne: 3,9% Moyenne: 4,1% 10,0 5,0 0,0-5,0-10, PIB Non-agricultural non agricole GDP Produit Gross Domestic intérieur Product brut (GDP) Source : High Commission for Planning (Haut-commissariat au Plan), Statistics Division

6 Morocco: Quarterly minimum wage in nominal and real terms, (In Moroccan dirhams (MAD) per hour) 05 Nominal SMIG Real SMIG (minimum wage) Source : Bank al-maghrib (BAM), Department of Studies and International Relations

7 Morocco s Investment rate (in GDP percentage) 06 Source: Bank al-maghrib (BAM), based on data from the High Commission for Planning (HCP)

8 Growth driven by internal demand 08 Internal

9 09 II. Increasing difficulties

10 Morocco: Evolution of investment efficiency 10 Source : Ministry of Economy and Finance

11 Morocco: Overall Budget balance and current account balance (in % od GDP) 11 Source: calculated on the basis of data from the Ministry of Economy and Finance and the Exchange Office

12 Morocco: Unemployment rates by skill level, 2002 and 2013 (Percentage) 12 Source: High Commission for Planning (Haut-commissariat au Plan), Statistics Division

13 Morocco: Unit labor cost, real effective rate exchange rate and current account, Source: International Monetary Fund (2012).

14 Morocco: Ranking according to various business environment criteria, Source: Source: World Bank (2015)

15 Limits of the current model of economic growth 20

16 III. Proposed reforms 02

18 23 1. An appropriate composition of public investments between basic infrastructure (roads, energy, telecommunications systems, water and sanitation) and advanced infrastructure (advanced NICT s) Possibly in a context of these expenses overall level decrease, dictated by budgetary consolidation

19 24 2. Skilled labor -intensive activities, based on national innovation Require fast access to information to exploit the opportunities offered by new markets And promotion of international knowledge networks development To promote innovation : the creation of a public program like " STARTUP Chile ".

20 25 3. Strengthening policies to promote quality education (both in the commercial and secondary sector) and continuous training. 4. Labour Market Reforms to reduce the relative cost of labor, and reduce the mismatch of knowledge So as to encourage the adoption of more intensive production methods and advanced technology allow a better exploitation of opportunities created by global markets

21 26 5. The specific policies regarding strategic production sectors, including agriculture, manufacturing, phosphates, and renewable energy 6. Strengthening the role of the domestic financial sector in the financing of small and medium enterprises, both in terms of production activities that innovation activities And in its ability to support the process of globalization of Moroccan nonfinancial companies...

22 27... Especially in their regional strategy. Promote also a greater competition in the financial sector to accelerate the development of market financing ( non-bank ), expand savings and expansion of the financing of the economy. 7. Further liberalization of the capital account and the adoption of a more flexible exchange rate regime...

23 28... In order to reduce imports and help redress the balance of payments, to regain cost competitiveness and facilitate the absorption of external shocks. 8. emphasis on regional strategy to capitalize on the geographical position of Morocco in the context of the new international division of labor To gradually relocate light manufacturing activities based on imitation and intensive unskilled labor...

24 29... To the countries of sub-saharan Africa (especially Frenchspeaking countries ) to take advantage of low labor costs and promote the "upgrading " of the country. To implement the regional strategy, FDI Moroccan companies will have to increase significantly. It may also require - at least initially - the goverment support, direct and indirect.

25 9. The adoption of monetary, fiscal and macroprudential policies to adapt and strengthen the capacity of the macroeconomic framework Mitigate (in association with a more flexible exchange rate regime ) fluctuations in the growth rate observed around the potential growth rate Maintain stable rates current and anticipated inflation and reduce the procyclicality of the financial system and risks to financial stability.

26 31 Greater flexibility in monetary policy and the introduction of countercyclical macroprudential instruments would prove essential As well as greater coordination between monetary and fiscal policy. An explicit fiscal rule would also enhance the credibility of fiscal policy.

28 Obstacles to home-grown innovation (unsecured property rights, labor market distortions; limited access to high-speed telecommunications, inadequate financing. Sources of Middle-Income Traps Decreasing returns to physical capital. Relative scarcity of cheap labor, upon which manufacturing expanded. Slowdown and exhaustion of productivity gains associated with imitation activities (learning-by-doing gains).

MOROCCO STATISTICAL SNAPSHOT

MOROCCO STATISTICAL SNAPSHOT 2016 ABOUT THE SNAPSHOT The Morocco Statistical Snapshot presents the main development and economic data and key indicators under the following topics: demography, education,