F IL COPYJ INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION ECONOMIC DEVELOPMENTS AND PROSPECTS MOROCCO

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1 Public Disclosure Authorized Public Disclosure Authorized RESTRICTED Report No. This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. EMA-Z7a INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized ECONOMIC DEVELOPMENTS AND PROSPECTS IN MOROCCO Public Disclosure Authorized September 30, 1970 Europe, Middle East and F IL COPYJ North Africa Department to

2 CURRENCY EQUIVALENTS 1 Dirham (DH) = $ Million DH = $ 197,400 $1.00 = DH 5.o6 $1 million DH 5,O6O,OOO ABBREVIATIONS BNDE - Banque Nationale pour le Developpement Economique CmX - Caisse de D6pot et de Gestion CIH - Cr6dit Immobilier et Hotelier CNCA - Caisse Nationale de Credit Agricole CNSS - Caisse Nationale de Securite Sociale COSUMAR - Compagnie Sucriere Marocaine et de Raffinage COTEF - Complexe Textile de Fes- CT - Centre de Travaux DERRO - Developpement Economique Rural du Rif Occidental OCE - Office de Commercialisation et d'exportation OCIC - Office Cherifien Interprofessionnel des Cereales OCP - Office Ch6rifien des Phosphates ONCF - Office National des Chemins de Fer ONE - Office National d'electricite ONMT - Office National Marocain de Tourisme ONT - Office National de Transport ONTS - Office National du The et du Sucre ORMVA - Offices Regionaux de Mise en Valeur Agricole REI - Rggie des Exploitations Industrielles SAMIR - Soci 6 t6 Anonyme Marocaine Italienne de Raffinage SOCAP - Societe de Cr6dit Agricole et de Prevoyance SUBM - Sucrerie de Beni-Mellal SUNAB - Sucrerie Nationale du Beht SUNAG - Sucrerie Nationale du Gharb SUTA - Sucrerie du Tadla TPS - Taxe sur les produits et taxe sur les services n.i.e. - not included elsewhere

3 This report was prepared by a mission wbich visited Morocco from April 4 to May 1, The mission was composed of: Emond Asfour, Chief of Mission; Robert Armstrong, General Economist; Claude Brochu, Agriculturist, FAQ; Anthony Dawson, Manpower Specialist, ILO; Giulio Fossi, Planning Specialist; Wolfgang Joppich, Agricultural Economist, Consultant; Djordje Jovanovic, Economist; and Walter Stolber, Flscal Specialist. Some of the findings of an industrial mission from the Bank which visited Morocco at the same time were utilized in the part of the report dealing with industry and mining.

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5 TABLE OF CONTENTS Pate No. BASIC DATA SUMMARY AND CONCLUSIONS... i 1. RECENT ECONOMIC PERFORMANCE Introduction Economic Growth..., 2 Savings and Investments... 3 Private Investment..., 5 II. POPULATION, MANPOWER AND EMPLOYMENT... 7 Population and Family Planning Manpower... 8 Employment Emigration Employment Planning and Policy Employment in Rural Areas Promotion Nationale and Public Works Low Cost Housing Other Sectors Unemployed Youth Wages III. AGRICULTURE Summary...,., Production and Trade Inputs and Supporting Services..21 Marketing and Price Policy..23 Land Tenure..24 Investment Program..26 Cropping Pattern in Developed Irrigation Areas.. 27 Programming and Preinvestment Studies. 28 IV. INDUSTRY, MINING AND POWER..30 Power.. 30 Mining.. 30 Manufacturing Industry. 32 Structure and Growth.32 Constraints to Growth of Manufacturing. 33 Investment.36 Industrial Development Policy. 37

6 TABLE OF CONTENTS (Cont'd) Page No. V. TOURISM VI. THE PUBLIC SECTOR Summary Public Savings and Investment Public Investment Financing Government Expenditures Budget Revenues and Expenditures Local Government Finance Potential for Increasing Public Savings VII. MONEY, PRICES, CREDIT AND INTEREST Slumary Money Supply Prices Banking and Credit Interest Rates VIII. EXTERNAL TRADE AND FINANCE.65 Summary External Trade The E.E.C. Agreement and Direction of Trade. 67 Services and Transfers The Capital Account Exchange Reserves Mediur-Term Prospects External Debt and Creditworthiness NOTES ON DEVELOPMENT PLANNING Prograing Units Budgetary Coordination Regional Development NOTE ON INCENTIVES FOR PRIVATE INVESTMENT Fiscal Incentives Credit Incentives Promotion... 86

7 BASIC DATA Area: : 172,000 sq. miles Population : 15.5 million Rate of growth ( ), total : 2.9d per annum Political Status current : 3.2% per annum : Independent Kingdom sinoe 1956 Gross Domestic Product at market prices (1969) : DH 15.8 billion or $3.1 billion Rate of growth, in real terms (per annum) : 2.6% : 6.4 Per capita (1969) : DH 1,050 or $207 Structure of GDP (' of total) Agriculture Electricity 2 3 Mining 5 5 Industry and handicrafts Construction and public works 4 5 Commerce Transport and other services Government Total Investment and Savings (% of GDP) Average 1969 Gross investment of which: fixed investment (12.3) (13.8) stock changes (0-5) (-0.9) Gross domestic savings Resource gap Resource gap as % of total investment Central Government Transactions (Cash basis) (in millions of DH) Current Surplus Government development expend Debt repayment Other accounts Total deficit financed from: Foreign loans Internal borrowing, net Treasury deposits Central Bank

8 Money and Credit (end of period, mill. DH) Money supply (including ±uasi-mone ) 4,108 4,468 5,223 5,691 Credit to the Government 1,541 1J868 2,257 2,777 Credit to the private sector 1,976 2,118 2,621 2,564 Prices Balance Cost of living index (1958/59 a 100) of Payments Conversion : $1-5.o6 DH Relationship to large customs areas- : Association with EEC effective as of September 1, (DH million) Exports 2,168 2,146 2,278 2,450 Imports 2,2241 2,431 2,587 2,641 Trade Balance (goods) Tourism (net) Other services Interest, dividends and transfers Current Account Balance Export Earnings Concentration (% of total exports of goods and non-factor services) Phosphates Citrus Tourism receipts External Public Debt (in US$ million end of 1969) Total IBM/DA Total debt outstanding, including undisbursed /1& Total debt outstanding, disbursed only /1 Debt service in /- Ratio of debt service to exports of goods and services in b% Foreign Exchange Reserves and IMF Poaition (in millions of US$) Gross reserves (public and private) Net reserves (including IIF) IMF quota IMF drawings outstanding

9 SUMMARY AND CONCLUSIONS 1. Following a decade in which Morocco's gross domestic product increased at an average rate of 2 percent per annum in real terms, it rose by 7 percent in 1967 and by 12 percent in In 1969, a 10 percent drop in agricultural output below the 1968 record harvest and a 5 percent growth in that of other sectors resulted in an overall growth of 0.4 percent (and 3.3 percent at current prices). Per capita output reached $207. Construction and industry showed the best rate of growth in 1969, and mining output increased by 3 percent only. The overall and sector targets of the Plan were surpassed in the first two years of the Plan in all sectors except mining. In 1970, GDP is expected to grow by about 4.5 percent. 2. With the higher output level in 1968 and 1969, both private and public consumption rose at a fast rate (7.5 and 9.5 percent respectively, at current prices, compared with 3 percent per year in the previous five years). Drawing on stocks helped maintain the high consumption level in The rate of total savings (except when large cereals stocks were accumulated in 1968) remained at the level of percent of GDP. Total fixed investment on the other hand rose steadily, reaching DR 2.2 billion, or about 14 percent of GDP in The rise in investment as well as in savings occurred largely in the public sector, while the private sector, according to available but imperfect estimates, showed little change in the absolute level of either. A consistently lower level of private investment considerably below private savings reflected in part substantial domestic borrowing by the government. A higher rate of savings and investment by both sectors is an essential condition for achieving a significant growth of per capita income. 3. While public investment in recent years was concentrated in water control, irrigation, transport and mining (and to a lesser extent in industry, electric power and tourism), private investment was concentrated in construction, tourism and industry. Substantial fiscal and credit incentives have stimulated private investment in tourism and industry, and in the last two years private investment in irrigated agriculture has also increased. Demand is rising for educational, health and social services and for housing, rural electrification and water supply, and a review of the small allocations to them in the Plan is needed because of their role in stimulating the traditional rural areas and providing employment, as well as satisfying pressing educational and social needs. The planning process should also be strengthened by setting up programming units in the executing ministries and by improving budgetary coordination and making arrangements to implement the regional development policy. 4. Unemployment is a growing problem. Unemployed workers are currently estimated at over 700,000 or over 12 percent of the labor force, and an estimated 150,000 additional workers enter the labor market each year, but only a part find employment. Employment in investment projects and public works programs rose little in 1968 and 1969, while the effect on employment of the large agricultural projects is modest at present (perhaps 10,000 a year) and will take years to be

10 - ii - fully realized. Employment created by industrial projects is very small and employment in mining actually fell. However, employment by government increased by about 8,000 and employment in construction of houses and hotels also expanded in Emigration of workers to Europe has also created relief; in 1969, registered emigrant workers (mostly to France) were double the 1968 level and reached 24,000, and the level is expected to rise in A greater effort is needed, however, to check the growth of unemployment, which could reach 900,000 workers, or 14 percent of the labor force in 1973, even if the public works program is doubled and agriculture is assumed to absorb over one-third of the additional labor force. A modest family planning program aiming at reducing the birth rate from 50 to 45 per thousand in five years (which would check a further rise in the rate of increase) is progressing very slowly, and its effect on the employment situation will only be felt in the long run. In the immediate future, measures to accelerate employment should be implemented. 5. In agriculture, the record cereals crop in 1968 and above average crop in 1969 and 1970 create a base for higher savings and growth than envisaged by the Plan. Sugar beet production, with its support price and assured market, met the ambitious target but other cash crops showed smaller progress. In view of the expansion in irrigated cropped area by 10,000 ha in 1969 and an expected 25,000 ha per year from 1972, greater diversification of crops is needed to meet growing marketing problems. In the traditional rainfed areas the fertilizer scheme slowed down but the creation of farmer groups and the land consolidation schemes showed progress. Productivity schemes and livestock raising in rainfed areas should be concentrated in selected favorable regions where extension service could be more efficiently utilized. 6. The Agricultural Investment Code of July 1969 could becooe an Important step in agricultural development and land reform, following the 1966 decree on redistribution of ex-concession land and the 1962 laws concerning consolidation of farms. The code provides for redistribution in 5-ha plots of collective land, and of religious trust land in irrigated zones, and gives authority for redistributlng private land in these zones against compensation. Decrees identifying the land to be expropriated for redistribution have not been issued yet. The Code declares as a main objective "creating the maximum number of viable holdings which can make best use of irrigation water, and benefitting from this development the largest possible number of farmer families." 7. Electricity production increased by 14 percent in 1968 and by 10 percent in Phosphate exports rose by 1.7 percent in 1969 and prices were maintained following a drop in Although production capacity is being increased, pressure on prices is expected to continue as world production capacity rises faster than demand. Output and exports of minerals other than phosphates declined, except for the exports of iron ore stocks. Output of manufacturing industry increased by 9 percent in 1969 and 5 percent per year during , following a decade of slower

11 - iii - growth. Textiles, leather, construction materials and metal industries expanded most, but that of the fertilizer industry declined. Besides general economic policies to expand the domestic market for industrial products, the future growth of industry demands exploitation of the new opportunity to export manufactured products to the EEC countries on the same terms as they export to each other. Specific export bonuses and export credit guarantees may be considered to tide over the period of establishlng new markets. In addition to the existing fiscal incentives and credit facilities, the stagnant rate of investment in industry by private entrepreneurs should also be stimulated by reducing heavy government controls where possible and by expenditures on economic and feasibility studies. 8. Tourism expanded rapidly in 1968 and 1969 and at a rate which makes probable the achievement of the Plan target of 1 million visitors in The number of visitors rose by 20 percent in 1968 and by 29 percent in 1969, reaching 620,000. Tourist expenditures were of the order of $100 million, or about double Moroccan expenditures abroad. Construction of hotels has been stimulated by demand and by fiscal and credit benefits, but is still concentrated in the higher category hotels. In 1969 an international airport was opened near Casablanca and internal air services were expanded. However, in addition to cost and price reductions needed to compete with other Mediterranean countries, improvements are also required in internal road transport services, quality of hotel services, publicity, training and in economic and market research. 9. Fiscal restraint and strict credit control have helped to maintain prlce stability since Some inflationary pressure appeared in late 1968 as a result of the harvest-induced liquidity, and in early 1969 also as a result of higher indirect taxes. The policy of recent years to restrict the overall volume of bank credit, mop up part of new deposits with banks by statutory bond purchases and limit central bank lending to government and banks has helped maintain price stability and the authorities intend to continue with it. The official discount rate remained unchanged for many years, and concessionary interest rates have been charged on investment credit in agriculture, industry and tourism. These concessionary rates, together with fiscal benefits and equipment grants have stimulated private long term investments in tourism but have not been accompanied by a rise in private investment in industry. 10. The public sector performance improved considerably in 1969, thus continuing a development which started in Capital expenditures of the public sector reached DH 1.5 billion and its savings DH 0.9 billion. Of this, the savings of the central government were DR 520 million compared with DE 230 million in 1968 and DH 20 million in This rise was largely achieved as a result of collection of arrears in 1968 and of new taxes imposed in DH 1 billion (or 84 percent of the target) was spent by the central government under the Plan. The Plan expenditures for the remaining years have been raised by 25 percent. If this target is to be achieved and borrowing from the Central Bank reduced

12 - iv - further, then the share of public savings would have to be increased, and both domestic and foreign borrowing would have to rlse. 11. The resources gap (i.e. the deficit in the goods and non-factor services account of the balance of payments) fell from its peak of DH 340 million in 1967 to DR 220 million ($43 million) in This improvement in 1969 was due mainly to reduced wheat imports, high olive oil exports and increased receipts from tourism and workers' remittances. A net capital inflow of DH 325 million permitted net foreign exchange assets (private and public) to rise to $82 million, or the equivalent of one and a half months' imports. Given the uncertainty affecting some main exports, the balance of payments' vulnerability to adverse weather conditions, and the need to make repurchases from the IMF in the coming years, the level of exchange reserves is considered inadequate. 12. If fixed investment is to continue to rise by 10 percent a year, the rate achieved from 1964 to 1969, then the annual current account deficit may reach the level of DH 900 million by 1976 (including about DH 200 million in interest on external debt). This projection implies a 1.1 percent annual increase in per capita consumption or that the savings rate would rise from its stable level of about 12 percent of GDP to a level of 14 percent by It also assumes attainable growth rates of exports (4 percent a year compared with 2 percent during ) and of receipts from tourism (10 percent a year starting from an inflated base) and workers' remittances (6 percent a year). The annual current account deficit added to an expected total debt amortization of DH 450 million and a desirable annual addition of DH 50 million to reserves would mean a total gross external finance requirement of DH 1.4 billion a year ($270 million) in 1976, of which DH 1.2 billion ($240 million) would be in long term public capital. The gross receipts of foreign public capital from 1966 to 1969 averaged DH 600 million ($120 million) per year. 13. Morocco's total external debt in January 1970 was about $840 million (DH 4.2 billion). Of this, the public guaranteed external debt payable in foreign currency reached $568 million (DH 2.9 billion) and that which is repayable in local currency totalled $242 million (DH 1.2 billion). Unguaranteed suppliers' credit to the private sector was estimated at $28 million (DH 141 million). Bank/IDA loans constituted 10 percent of the first category, suppliers' credit 8 percent, and 75 percent were loans from governments. External public debt service payments rose from $18 million in 1964 to $65 million in Payments due on debt outstanding at the end of 1969 will remain around the 1969 figure during the next four years. The debt service as a proportion of exports of total goods and services rose from 3 percent to 8.4 percent in the same period. By 1976 the debt service ratio may reach 12 percent (on the above assumptions) and could be close to 20 percent In the early 1980's. The continuation of concessionary aid in the next few years is therefore needed if the debt burden is to be prevented from rising at a fast rate to an excessively high level.

13 I. RECENT ECONOMIIC PERFORMANCE Introduction 1. The first decade of Morocco's independence, , saw in its first part, the transition from the protectorate regime to independence, and in its second part the establishment of an administrative and financial framework within which indigenous economic development can proceed. Thus, while the outflow of colons and capital marked the economic situation following independence, the establishment of a national currency, a central bank, a development bank, and of two development plans ( and ) marked the following years. However, in these years, income grew at half the rate of the natural increase in population, budget deficits were substantial, capital flight (and slower migration) continued, and despite substantial foreign aid, exchange reserves fell to verv low levels. Beginning in 1965, the government made efforts to raise revenues (notably through a levy on sugar), restrain current expenditures and embark on more ambitious development programs ( and ). However, poor harvests made the achievement of the first plan impractical and created a balance of payments crisis, while good harvests (includinp a record harvest in 1968) and increased government efforts to raise revenues have helped achieve in large part the targets of the second plan, and raised thie share of public savings in its financing. At the same time, an improved trade balance, higher receipts from tourism and emigrant remittances and a slowdown of capital flight reduced the great pressure on the balance of payments in Since 1965, the increased attention to domestic economic problems were not significantly disturbed by internal or external problems. In 1969 and early 1970, most of the pending questions with France, Algeria and Mauritania were resolved and efforts were made to reactivate economic cooperation among thie Mag,hreb cotntries. In early 1970, there was a more active and somewhat wider participation in discussing government policy bv groups outside government, specifically in the "Conseil Superieur de la Promotion Nationale et du Plan" and in a conference on education in Ifrane. Wider political participation is anticipated following the amendment by referendum of the 1962 constitution in July The new con- StitutiOnI provides for a cabinet which is appointed and presided over by the Eling and for a House of Representatives whose legislation is subject to approval bv the King. The King mav return passed bills for a second reading. or may directlv submit decrees to a referendum. The members of the House of Representatives are to be elected for six years in part by universal suffrage and in part by communal councillors, and colleges representing professional associations and salaried groups. It is expected that 240 members will be elected in August 1970 and 90 out of 150 appointed by local government councils and professional associations. 3. Fundamental problems facing economic growth in Morocco include the fast rate of population and labor growth in relation to the growth of employment opportunities, and the slow rise in productivity, particularly in the vast, traditional, rural areas. The government is aware of these problems and attempts to alleviate them through various policies related to erployment and migration of labor, and through investment projects

14 (largely irrigation, transport and public works) and through promotion of tourism and industry. An additional requirement however, is to stimulate and motivate a higher level of activity in these stagnant regions through acceleration of land reform and faster extension of modern amenities and services, such as electricity, piped water, feeder roads, education and health. Higher priority should also be given to labor intensive projects and activities. Economic Growth 4. Following a decade in which it increased at an average annual rate of only about 2 percent, Morocco's gross domestic product in real terms rose by 7 percent in 1967 and by 12 percent in 1968, when an exceptional harvest accounted for about two-thirds of the rise. In 1969, a 10 percent drop in agricultural output and a 5 percent growth in that of other sectors resulted in an overall growth of GDP of 0.4 percent in real terms (3.3 percent in current prices). Although agricultural output in 1969 (in real terms) was 10 percent below the 1968 record, it was approximately 20 percent above the average for the period. All other sectors showed real growth above 1968, particularly construction and public works (9 percent) and industry and handicarfts (6 percent). Output of other sectors increased by 5 percent, but mining recorded only a 3 percent rate of growth (Table 2.1). 5. Real per capita output declined in 1969 by about 3 percent, though private per capita consumption apparently rose by as much as 5 percent in real terms; this was made possible partly by drawing on the large cereals stocks accumulated in 1968 and by the large increase in 1969 in the receipt of workers' remittances from abroad (Table 2.2). 6. For the first two years of the Plan, the average GDP growth of 6 percent thus exceeded the Plan's target of 4.5 percent per annum. This is largely accounted for by an 8 percent average annual rise in agricultural product (against 2.1 percent projected in the Plan), which is in turn largely explained by favorable weather. Plan target rates of growth have also been exceeded in the energy, industry and government sectors whereas shortfalls have occurred in other sectors, particularly mining. 7. For 1970 the Government anticipates an overall real growth rate of GDP of about 4.5 percent in real terms (Table 2.1), the increase being accounted for by about a 5 percent increase in agricultural product, (as generally good weather, notwithstanding destructive floods in the Gharb in January 1970, promises a good cereals crops), a 10 percent rise in mining (as phosphate exports are projected to increase substantially), an 8 percent increase in energy and 6 percent increase in both industry and construction (reflecting recently growing investments by both private and public sectors). However, slower growth is projected for commerce, transport and other services (although tourism is expected to increase by more than 15 percent) and no change in real terms is forecast in government outlays. It is not unlikely, however, that mining will not reach

15 - 3 - the target while both services and government will exceed it, with the overall growth rate being near the official projection. 8. A number of significant developments over recent years may be discerned in the composition of expenditure on the gross domestic product (Table 2.2). In the period , when prices were stable and GDP increased at an average rate of 3 percent per year, private consumption in current prices appears to have also grown at an average annual rate of about 3 percent while public consumption rose by only 1 percent annually. In 1968 when GDP rose by 12 percent and in 1969 when prices rose by 3 percent, the rise in consumption was much more rapid, private consumption rising by an average of 7.5 percent annually at current prices, and public consumption by an average of 9.5 percent. The latter rise, which occurred despite no change in salary scales, was due in part to promotions and annual increments and in part to the expansion in the number of employees. Fixed investment, which had averaged only DH 1.4 billion in the years , or about 11 percent of GDP, also jumped to an average of nearly Dl] 2 billion, or 13.5 percent of GDP in the period In addition, exports of goods and non-factor services, which had been stagnant from , rose by 9 percent in 1968 and 10 percent in Higher import demand was reflected, however, in a resources gap of percent of GDP in the years , compared with a small gap or an export surplus during The net inflow of resources from abroad reached a peak of DH 340 million or 2.5 percent of GDP in 1967 (reflecting large wheat imports and higher investment expenditures) but fell to 1.9 percent of GDP in 1968 and 1.4 percent of GDP in 1969, reflecting mainly higher exports. 9. For 1970 the forecast is for another substantial rise in private constumption (though by less than in ), a small increase in public consumption, about an 8 percent rise in fixed investment and an increase in the resource gap to more than 2 percent of GDP. Savins and Investments 19). Data on savings (and particularly private savings) should be interpreted with caution. Nevertheless, available figures as summarized below indicate that total gross savings have increased significantly above the low of 1966, reaching DH 1.8 billion or 12 percent of GDP in The most pronounced increases have been in public savings, which more than doubled from D)H 410 million in 1966 to reach nearly Dil 900 million in 1969 equivalent to 5.6 percent of GDP (see Ch. VI). Private savings in the form of addltions to cereals stocks also increased substantially in 1968 but were drawn upon in 1969, thus helping to maintain a high consumption level. As a proportion of GDP, gross savings have moved upward only sliglhtly, from 10.1 percent in 1966 to 11.5 percent in which was lower than the 1965 ratio. The relatively low rate of private savings remains one of the poor performance aspects of the economy.

16 -4 - Gross Investme.nt and In Value (DH million, current prices) (provisional)(forecast) Gross Fixed Capital Formation ( Public ME 1Th7 Private oo Changes in Stocks Resource Gap Gross Domestic Savings Public n.a Private n.a As percentages of Gross Dohsatic Product Gross Fixed Capital Formation Public Private Changes in 3tocks Resource Gap Gross Domestic Savings Public n.a ? Private n.a

17 Gross fixed capital formation as reported in the national accounts, rose steadily between 1964 and 1969 at an average annual rate of nearlv 10 percent per year. In absolute amounts, investment increased from an average of DH 1.4 billion in to about 2.2 billion in As a proportion of GI)P, the rise was from about 11 percent in to about 14 percent in Of this 10 percent was accounted for by the public sector and 4 percent by the private sector. The largest increase in fixed capital formation occurred in 1967 when the Central Government's fixed investment outlays rose by DII 340 million above the 1966 level. These outlavs continued to rise in 1968 and 1969 under the framework of the current Five-Year Plan, exceeding Dil 1 billion in the latter year. This was very close to the target of the Plan, which aimed originally at DBi 5.05 billion investment outlay over the period. The target for has now been revised upwards by about 25 percent, with most of the net increases allocated to irrigation, other agriculture, and transportation projects. Of the Government's investment outlays in 1969, about 49 percent was devoted to irrigation and other agricultural projects, 14 percent to transport, 6 percent to industry, 5 percent to education, and about 4 percent each to energy, tourism and mining. 12. Local Government investment expenditures (not included elsewhere) have increased steadily from DH 100 million in 1966 to reach DH 150 million in though this was below the level of local investment in Investment bv the public enterprises (not included elsewhere) of DH million in were considerably above the average for the period Public enterprise investment in 1970 is projected at about DH 430 million - or about one-fourth of the total public investment forecast for this vear. Private Investment 13. The data on total private investment, as shown above, like those on private consumption and savings, are derived as residuals in the national accounts and should be interpreted with caution, particularly with respect to apparent year-to-year fluctuations. The limited information available, however, indicates a total volume of private investment averaging around D) million over the past several years, with a substantial rise in 1967, a fall in 1968, and a recovery again in It appears likely that the figure reported above for 1965 is too low, the drop in 1968 seems overstated and the rise in 1969 understated. 14. Data concerning the sectoral distribution of private investment are particularly scarce and unreliable, especially since Morocco is an extremely "mixed" economy, with private and public sectors jointly participating in almost every branch of activity. However, a very approximate and indicatove estimate has been made for private investment in three sectors as shown below (in DII millions):

18 Agriculture Tourism Construction (excl. industrial) As may be seen, investment in agriculture is believed to have risen considerably in 1968 and Tourism investments appear to have increased more than four-fold between and the trend of steady increase in this sector seems likely to continue into the early 1970's. No trend in private construction was evident from the data for , but there was a sharp rise in 1969, and the evidence of construction permits granted points to a continued acceleration in It is not possible to estimate private investment in industry with any reasonable degree of accuracy. As an extremely rough approximation, it may have averaged of at most DH 200 million per year in the period , with a peak in 1967, a sharp drop in 1968 (reflecting probably the lagged effects of the droughts), and some recovery in Some indication of private investor activity and interest (though not of actual outlays) is given by the following data from the two Moroccan agencies most concerned with industrial investment in the private sector: the Investment Commission and the Banque Nationale pour le Developpement Economique (BNDE). Most private investors seek approval from the Investment Code (see Note on Incentives for Private Investment), while most private investments in industry receive financing from BNDE (in DH million) Investment Comission Approvals Semi Public Private of which: private industrial and mining BNDE, Approvals, mostly private operations est. As may be seen, no particular trend is evident, though assuming an average one year lag between approval and investment, the pattern of Investment Coomission approvals points also to a peak in 1967, and little change from 1968 to 1969.

19 ri. POPULATION, MANPOWER AND EMPLOYMENT Population and Family Planning 17. Morocco's population at mid-1970 was estimated at about 15.5 million, 98 percent of whom were Moslems. Jewish Moroccans were estimated to number less than 50,000 and foreign residents were estimated at around 150,000 (Table 1.1). The Moslem population has increased by an average of 3.2 percent annually over the past decade, while the Jewish population fell by about 120,000 and the foreign population by 250,000 since The size of the foreign population is thought to be stabilizing at about its present level. Moroccan workers abroad are estimated at 200,000 and registered emigration of Moroccan workers reached 24,000 in According to the population census of 1960, two-thirds of the Moslem population were below 30 years of age and 45 percent were below 15. The urban population, representing 30 percent of the total in 1960 is estimated to have been rising by about 5 percent annually. Life expectancy is estimated at about 47 years. 19. A demographic census expected to take place in 1971 will cover comprehensively the main characteristics of population, migration, the labor force, education and housing. It will also yield new information on the rural population, and will provide a base for improved economic and social planning over the coming decade. 20. With an estimated rate of natural increase of 3.3 percent per annum, the Moroccan population would increase by six million in the coining decade and would double within the span of a generation (22 years). Moreover, falling mortality rates may be expected to lead to a continued rise in the rate of population growth in the absence of successful birth control efforts. 21. The Government has become increasingly aware of the long run economic and social implications of this population growth. In particular, unemployment, which is currently estimated at over 700,000 would become much more difficult to control. A pilot program for national family planning was initiated in 1966, and a modest family planning program was incorporated into the Five-Year Plan. The principal target for the Plan period is the reduction of the birth rate by 10 percent (from 50 to 45 per thousand), to be achieved mainly through the insertion of a half-million intra-uterine devices (IUDs) plus the distribution of other means of contraception to an additional 100,000 persons. 22. Progress in implementing this program has been extremely slow. Fewer than 20,000 IUD insertions were achieved in , compared with a Plan target of 85,000. In 1969 only 17 percent of the IUD target was realized, while there were 10,000 new acceptors of other contraceptive means. The principal factors accounting for these failures appear to

20 - 8 - have been related to a lack of continuity and organizational deficiencies, as well as to a shortage of personnel (for both clinical and informational functions). Adequate financing has been made available from external sources. Very little progress has been made in the training and inlforinational areas, as intended in the Plan. Some administrative improvements were made in the first half of 1970, and acceleration of the progran may be expected in the latter half of the Plan period. liowever efforts will have to be greatly intensified, and a stronger policv directive made if any significant impact on the birth rate is to be aciiieved. Manpower 23. Like most developing countries, Morocco has more unskilled labor than it can employ but lacks skilled and high level nanpower. In additioil, productivity is low and underemployment is widespread among a majority of the employed, who are in agriculture. Emigration absorbs only a small part of the annual increase of the unskilled labor, while the policy is to reduce dependence on foreign skilled and high-level manpower. Unemployment may reach 900,000 or about one-sixth of the labor force Oy To face this problem, continued expansion and improvements in education and training and an acceleration of family planning are essential requirements for the long run. Greater efforts are also needed in the short run to encourage the more labor intensive economic activities, and to create relief through emigration and expanded secondary and higlher education and training. 24. The number of economically active population is estimated in 1968 at 5.57 million (or 38 percent of the total population) and the increase in their number by 1973 is estimated at 765,000. About half the increase in the economically active population is expected to occur in the urban areas, due to both the shift in population and the expected rise in the participation of women. Employment, on the other hand, is expected to rise by 555,000 during the plan period. The residual, who can be considered unemployed, would thus rise from about 700,000 in 1968 to 900,000 in 1973 (see Table below and Table 1.2). These estimates, rough as they are, show that the rate of unemployment, which was 6.8 percent in the 1960 census year rose to 12.4 percent in 1968 and is expected to rise more slowly to 14.2 percent in It is noted that the estimates of economically active population, and hence of the rate of unemployment, are affected among other factors by the assumed changes in the number of the young people (particularly in the 15 to 24 year group) who attend secondary schools and higher educational and training institutions, rather than join those seeking work. From 1964 to 1968 the number of the male students among these rose by about 85,000 (from 136,000 to 221,000) or the equivalent of about 14 percent of the rise in the population of working age and 37 percent of the increase in the number of employed. These ratios indicate the important direct contribution which can be made to the employment problem by raising the proportion of boys at school, apart from the contribution which the appropriate training can make towards meeting the strong demand for skills.

21 -9- Population, Labor, Employment and TJnem,nloyment, 1960 & 1966 and Forecast -for 1973 (in thousands) Census Estimate Forecast Total Population Econondcally Active Population Urban Areas o (Men) (825) (U120) (1300) (women) (153) (285) (470) Rural Areas (Mn) (2083) (2710) (2870) (Women) (14214) (1460) (1700) Employed (including Promotion Nationale) Unemployed (residual) Ratio of unemployed to active population 6.8% 12.4% 14.2;-

22 In addition to unemployment, Morocco shares with the developing countries the problems of low productivity and of underemployment, particularly in the rural areas. The low literacy level in the rural areas and the seasonality of rainfed cultivation may be blamed for their low productivity. In the urban areas, poor housing and health conditions of a large segment of the working class are also reflected in low productivity. 27. The Moroccan worker, however, has been recognized both by employers in Morocco as well as in Europe as steady, hard-working and of good character. Employers in Europe have expressed preference for Moroccan immigrant workers. The labor force is also mobile; in addition to emigration, workers move within the country in response to seasonal requirements of agriculture and of agricultural and fish processing industries. Industrial and mining workers (over a tenth of the labor force) and emigrant workers are accustomed to the discipline and tempo of industrial conditions; but returning migrants do not always use their acquired industrial and language skills. Employment 28. The change in the number and distribution of employed workers among the various sectors will be known exactly only after the results of a 1971 population census are produced. Official estimates show that employment increased at the rate of 1.9 percent per annum between 1960 and 1968 (1.7 percent if the Promotion Nationale public works program is excluded). The Five Year Plan envisaged an increase in employment at the rate of 2.2 percent per annum (Table 1.2). This rate of growth may be exceeded slightly in fact in view of the better than expected performance so far in services, construction and commerce. 29. Out of the estimated addition of about 150,000 to the labor force in 1969, possibly two-thirds found employment or emigrated abroad. No exact dati is available in new employment opportunities created in 1969 nor on the net increase in unemployment. Registration of persons seeking work at 23 Employment Offices of the Ministry of Labor was of the order of 70,000 in 1968 sad 1969 and was largely in the categories of unskilled and office workers (Table 1.3). Employment Offices, on the other hand, placed 36,000 workers in jobs in 1968 and 26,000 in 1969, largely as unskilled workers. While these data are of limited coverage and significance, they indicate clearly, nevertheless, the pressure of demand for work by unskilled and office workers. 30. In 1969 employment probably increased in all sectors except in agriculture, due to the poorer harvest, and in mining (from 27,700 to 26,600) due to the slowdown of the lead, zinc and iron mines. Employment in other sectors is partially reflected in the placement figures of the Employment Offices and reported hiring by employers (Table 1.4). They indicate rising employment in construction, textiles, transport and some services.

23 Emplovment under the public works program "Promotion Nationale", which started in 1961 and benefits largely the rural unemployed, dropped slightly from the equivalent of 79,000 man-years in 1968 to 77,000 manyears in 1969, or about 80 percent of the level foreseen in the Five Year Plan. The shortfall occurred largely in the programs of the Ministries of Agriculture, Public Works, Education and Health. Increasing employment of labor by the provincial authorities under this program, as well as its greater use in the urban centers as envisaged by the Plan, would help to approach the target. Emigration 32. The Government considers emigration a measure of relief for unemployment particularlv in the poorer regions and a source of foreign exchange receipts from the emigrants' remittances. Also, the government would like to facilitate emigration of unskilled labor from the regions of Morocco in which additional employment is most acutely needed and to discourage the emigration of workers with skills which are in short supply in Morocco. The total number of emigrant workers abroad may be about 200,000 of whom about 130,000 work in France, 14,000 in Netherlands and about 8,000 in each of Belgium and Germany. 33. To protect emigrant workers and improve control, Morocco has concluded bilateral agreements with five countries and also social security conventions with two of them to provide for the transfer of family allowances to Morocco (Table 1.5). It has also appointed social affairs officers in its embassies in Algeria, Belgium, France, Libya, Spain and Germany who can, inter alia, attend to the welfare of Moroccan migrants and to the needs of employers for such migrants. The bilateral agreements provide for a procedure under which the Government of the receiving country will convey to the Moroccan Ministry of Labor the numbers of Moroccan workers required by its employers. The Moroccan Ministry presents a list of candidates among whom the authorities and employers can choose the number they require and sometimes the employer may give the names of workers he wants. The contract between the employer and each worker having been approved by the Ministry of Labor, a passport can then be issued to the worker. The Moroccan Government tends to channel emplovment toward economically depressed regions and to encourage the outflow of unskilled labor. Many emigrants have a particular target in mind, such as buying a house, or a piece of land, or become selfemployed in commerce, handicrafts or other business, and return when they reach this target. This seldom leads, however, to the utilization of acquired skills in local indurtry. 34. The statistics of emigrants registered by the Ministry of Labor (Table 1.5), relate only to workers recruited through these group or nominative procedures. There are no statistics of the unregistered emigrant workers nor of those who return to Morocco each year. In 1969 registered emigrant workers totalled 24,000 compared with 1,200 in 1968 and 9,000 in Two-thirds went to France, while Libya, Germany, the United Kingdom

24 and Netherlands accounted for the remaining one-third. Unofficial emigration was substantial, particularly to France before 1967, when it may have added more than 80 percent to the official figures; since then the French authorities' conversion of the status of Moroccan visitors to that of migrant workers has been reduced to about 8,000 in 1967, and to 6,000 and 2,000 in 1968 and 1969 respectively. 35. In 1970 and following years, emigration of Moroccan workers is expected to increase substantially. It is expected that the flow of emigrants to France will continue to increase and that the total (official plus unofficial) might reach 25,000 by the end of the year. It is also expected that the proportion of official emigration to Germany in the total will rise considerably now that the 1963 agreement with Germany has been extended to cover all other sectors besides mine workers. (Of the 7,754 Moroccan registered workers 70 are employed in agriculture, 1,777 in metallurgy, 1,368 in mining, 721 in manufacturing, 1,716 in building and construction, 250 in comerce, 181 in services, 792 in transport and 879 in the public sector.) The signing of a migration agreement with the Netherlands in May 1969 was followed by an increase of registered workers going to that country. 36. A marked increase in the relatively small number of emigrants to the United Kingdom also occurred during the last two years following the withdrawal of Spanish workers from Gibraltar. On the other hand, the substantial flow to Libya may now be reduced due to the change of government, and emigration to Belgium used to be substantial to supply labor to the mines, but they have mostly closed and a small flow is now required. Also, Morocco has not shared in the heavy flow of foreign workers to Switzerland, where one third of the labor force is foreign, nor is it likely to in future in view of the Swiss Government's policy of reducing foreign labor. Employment Planning and Policy 37. The Moroccan Government is aware of the seriousness of the problem of unemployment. However, more extensive and vigorous measures are required to make an effective impact on the growing problem. An important step would be to establish a normative target for the expansion of productive employment in the next Plan - as distinct from the minimal forecast contained in the present one - and to formulate specific measures to achieve this target. 38. Preparations are being made. Precise data on the labor situation will be collected in a census in 1971 and in related industrial and agricultural surveys. Periodic sample surveys of the labor force would be needed to supplement this information in the future. In addition, information could be channelled from employment offices and from the provincial manpower commissions, which were foreseen in the Plan but have met only recently. These commissions, composed of representatives of the government services concerned (including the inspectorate of labor, the employment offices and vocational training centres) and of employers

25 and workers, can provide the government specifically with information of employers' needs for different categories of skilled manpower which would be valuable in the process of formulating training policy and measures. The national manpower council, also foreseen in the Plan, is composed of the Ministers of Labor, Interior, Planning, Industry and Mines, Commerce, Handicrafts and Promotion Nationale, Public Works, Communications, Agriculture and Agrarian Reform, Tourism, and representatives of the employers and workers. This council could become the body which would formulate the employment policy, set targets and coordinate measures for the forthcoming Plan. (i) Employment in Rural Areas 39. In view of the numbers living on the land, agriculture is the single most significant sphere for employment policy. The Government has assigned priority in the current Five Year Plan to agricultural development and favors rural development as a means of stemming rural exodus. Emphasis has been placed on irrigation schemes which create intensive and less seasonal demand for labor. From 1972 onward, about 25,000 hectares a year will be brought under irrigation. A family can be supported on about 3 to 5 hectares of irrigated land, according to the cropping pattern. This would mean, directly, an improvement in livelihood for about 6,000 families each year. Considering the high average cost of irrigation per hectare, the declared aim of the Agriculture Investment Code to benefit the maximum number of families from the irrigation projects is of special significance from the point of view of employment policy. Acceleration of distribution of ex-concession land and of the redistribution of collective and religious trust land (see Chapter III) will probably result in a substantial net addition to employment. In connection with this, it is important to verify that small-holdings make good use of labor as compared with large holdings. However, the least capital-intensive method of employment promotion on a large scale in Morocco probably lies in the improvement of rain-fed arable farming by consolidation of land holdings, use of better seeds, increased application of fertilizer, expanded and improved extension services and deeper soil cultivation to increase the water storage capacity of the soil. Animal husbandry can be considerably developed both in irrigated and rain-fed land. In some high rainfall areas this would not reduce the cultivated area (see Clapter III). World Food Program aid would be useful in the promotion of animal husbandry. Expanding the afforestation and fruit-tree planting program (especially olives) can also add substantially to employment but they are not always justifiable on economic grounds alone. 40. The Plan (Vol. I, p. 119) refers to a labor-investment scheme (l'epargne-travail) under which workers would acquire rights to a share in future output rather than a full current wage for certain works which ultimately increase productivity in their own environment. Forestry work is a sphere in which this idea has been successfully applied by a bilateral food aid programme elsewhere and it might be tried, perhaps in association with World Food Program aid, in Morocco.

26 Employment in fishing can be considerably expanded if fishing boat capacity is increased and large modern boats are acquired. This would also lead to greater employment in fish canning and other activities allied to fishing. 42. Other steps to promote rural employment and reduce seasonal unemployment include the improvement and expansion of Promotion Nationale and the development of rural handicrafts, including artisanal workshops to supply agricultural tools and consumer goods to small-holders. (ii) Promotion Nationale and Public Works 43. Promotion Nationale (P.N.) has provided a significant volume of employment and some economically useful accomplishments over the last decade. To be improved P.N. needs the benefit of management and supervisory training facilities. Project formulation staff at the provincial level and appraisal and control staff in the Rabat P.N. office of the Ministry of Promotion Nationale and Handicrafts need to be strengthened. A large number of economically sound projects could then be prepared. Improved supervision and the application of work study (time and motion study and improved organization and methods) might restore the confidence of the technical ministries in P.N. and lead them to make further use of P.N. labor once again. Work study may also be usefully applied in earth moving, road building, irrigation development, anti-erosion measures and other work done by public works contractors, so as to increase the competitiveness of labor with machine wherever the difference of cost is not great. 44. While work requiring use of heavy equipment and due to be completed on a rigid schedule is generally more suitable for execution by contractors, more work might economically be undertaken without the use of heavy equipmnt after work study if the efficiency of labor-intensive methods is increased. P.N.'s reliability for completing work on schedule might be increased by recruiting labor which can be employed the yearround, in addition to seasonal labor recruited on a daily basis during slack periods in agriculture. 45. All projects undertaken by P.N. whether on behalf of technical ministries or directly organized by the P.N. authorities should be formulated by the technical ministries entirely on sound economic and technical lines, in full coordination with their own programmes. This would eliminate the preparation of P.N. projects which conform to mainly social criteria and would increase the economic justification of P.N. (iii) Low Cost Housing 46. It was proposed in the current Five Year Plan that P.N. might be extended to undertake slum clearance and other urban projects in addition to its rural projects but in fact it has not yet done so. It might also help in the implementation of urban housing schemes. In the cities, where the housing problem and the unemployment situation are serious,

27 acceleration of low-income housing construction would create significant employment opportunities in the cities and ease the social urban problem. This mav be done by expanding credit facilities at low interest rate. for the construction of low cost housing and by simplifying the formalities for this type of investment, or possibly also as part of a labor-investment scheme mentioned earlier. The town planning service of the Ministry of Interior has prepared a scheme to improve urban housing. It finds that there should be an attack on all fronts at once, because piecemeal efforts to replace particular shanty-towns or slums will not benefit existing occupants since they will sell their right to the improved accoiuodation to others who are better off. This urban housing scheme would require new legislation at present under consideration as well as financing, in which bilateral financial aid and aid from the World Food Program (W.F.P.) would be sought 1/. The W.F.P. already supports a rural housing program of the same Ministry. (iv) other Sectors 47. The Five Year Plan envisaged an increase over the period 1968 to 1973 of one thousand workers in the mining sector and only about 22,000 workers in industry and handicrafts (Table 1.2). In fact employment in mining (26,000 in 1969) has continued to fall since 1964 due both to the development of capital intensive production methods in phosphate mining and to the slowdown of most other mining activities. Employment in the traditional handicrafts, which is considerable (over 200,000) was expected to be reduced significantly. In this case, the projection of the growth of both industry and handicrafts by a net total of 22,000 by 1973 would seem optimistic. 48. On the other hand, the Plan's projections of the addition of 5,000 workers in construction and public works by 1973 may prove too conservative, in view of the expected increase in development expenditures in the last three years of the plan and the revival of private house and building construction. It is also felt that the projections of additional employment in services (57,000 by 1973 or at the rate of 3 percent per year) should be easily exceeded in view of the higher average rate of growth of the economy, the higher than average growth of the urban centers, and the fast growth of the tourist sector. (v) Unemployed Youth 49. The inter-ministerial committee on unemployed youth set up under the auspices of the Ministry of Youth, Sports and Social Affairs has not yet completed its work. It has called for an inquiry into the needs of 1/ See "ProJet de Dahir Portant Loi-Cadre del'amenagement Urbain et Rural," Direction de l'urbanisme et de l'habitat, , and "Loi-Cadre de l'amenagement Urbain et Rural: Implications Financieres," C.E.R.F., December 1969.

28 unemployed youth aged 14 to 18 years and is planning the conversion of youth centers into training centers with the cooperation of UNICEF and ILO in the development of training methods (methodes audio-gestuals) suited to those without primary education who need a combination of elements of basic education as well as pre-vocational training and stimulation (animation). The training prepares them to enter a vocational training center or benefit from on-the-job training scheme in a work-place. This experimental approach will test whether they can be better prepared for work and for training than even those who have reached the secondary level in education. Older youths, from the age of 18 onward, are liable for 18 months' military service if called which gives them training as well as an opportunity to serve. Wages 50. Wage rates and earnings data are unreliable and incomplete. Wage rates and earnings of workers with little or no skill are much lower than in Europe. In textiles, Moroccan hourly average earnings are not much above those of Hong Kong or Taiwan and are below those of Japan. 'fhe same is not true of salaried personnel. Salaries in trade, banking and clhemical manufacturing are much closer to the levels of Europe. For managerial, supervisory, professional and technical manpower, which are rare skills in Morocco, earnings are higher than in Europe. This factor adds greatly to the total payroll of enterprises which obtain the majority of their personnel cheaply. 51. Wage rates and earnings have not risen very rapidly. The bargaining power of the trade unions is limited, their power being weakened by the extent of unemployment. The floor of legal minimum wages has not been raised during the last eight years (Table 1.6). Rates of remuneration in the public sector have been kept at the same level since independence in 1956, except for specific categories of high skills. The cost of living however was stable from 1965 to 1968 and increased by 2.9 percent in The stability of prices, particularly for foodstuffs has relieved the upward pressure on wages. Fringe benefits include social security contributions (12.5 percent of wage paid by the employer and 2.5 percent by the worker), accident insurance premiums, remunerated public and annual holidays, sickness and maternity leave, gratuities, and, in the case of expatriate personnel, expenses of transfer, home leave, etc. Since fringe benefits tend to be proportional to earnings, while the proportion increases from a floor of about one-fifth to much higher proportions for higher salary groups, they add considerably to the cost of high level manpower. Generally, the labor legislation does not impose an undue cost burden.

29 III. AGRICULTURE Summary 52. Good climatic conditions resulted in a record cereals crop in 1968, and while output in 1969 and 1970 was above average, it was about one third below the 1968 level. Sugar beet production met the ambitious plan target but other cash crops (other than olives in 1968) showed smaller progress. In light of the expected substantial annual increases in the areas to be developed (about 25,000 hectares from 1972), greater crop diversification is needed in the future in the large irrigation zones to avoid difficulties in the marketing of certain crops (citrus, tomatoes, milk) and/or reduction in Government revenues (sugar beet). In that respect, attention should be given to cotton and to promoting oil seeds and meat production for which markets exist. 53. Protection from low prices of imported milk and butter is needed to absorb the growing domestic milk production. Lowering of the internal barley price near to the world market level would minimize present annual financial deficits of the Cereals Office (OCIC). Efofrts of the Export office (OCE) in the search for new export markets should be supplemented by private initiative of citrus growers associations and food processing industries. Support to oil seed production should be continued, but the Incentives to sugar beet production, including the producer price, should be gradually reduced. 54. Public investment remains concentrated in barrage construction and irrigation (Table 5.4). About 10,000 hectares were added to irrigated cropped areas in 1969, which represents about 7 percent of the total irrigated area in the modern sector. Significant efforts have been made to bring about in the future a more positive impact of investment efforts on production: in the large irrigation schemes, the time lag between the construction of the main canals and the internal equipment has been reduced considerably. In the traditional rainfed area, the fertilizer scheme has slowed down but the creation of farmer groups and the implementation of pilot land consolidation schemes showed progress. Concentration of the various productivity schlemes in selected rainfed areas (Chaouia, Doukkala, I;ssaouria, Tadla) is recommended. 55. Coordination of the work of the various departments in the AinisLry of Agriculture wliclh deal with studies and programming is lacking and dispersed efforts have led to duplication and/or undertaking low priority studies. More attention should be paid to the utilization of avallable information and to the preparation of specific studies which lead to viable prolects. A programming unit should be attached to the Ceneral Secretary of the Ministry. 56. The Agricultural Investment Code, issued in July, 1969 could Ilecome an important step in agricultural development and land reform following the 1966 decree providing for redistribution of ex-concession

30 land and the 1962 laws concerning consolidation of farms. The code provides for the redistribution of collective land in 5 hectare plots, the redistribution of religious trust and collectlve land in irrigated zones and gives authority to expropriate private land against compensation in these zones for redistribution. Decrees identifying the land to be expropriated have not yet been issued. Production and Trade 57. Agriculture contributes percent of the gross domestic product, 54 to 58 percent of total annual export value (Tables 7.1 and 7.2); 70 percent of the population derive their livelihood from agriculture. Of the cultivable area ( million ha of which 550,000 is irrigated) percent is under cereals and legumes, 5-7 percent under tree crops and percent are kept fallow. In years of low rainfall cereal and legume cultivation is reduced and fallow land increased. 58. In years of heavy rainfall - as during the 1969/70 campaign - serious flood damages occur in the Sebou river basin. The adverse effect on sugar beet and grain production in that region is offset by good cereal yields obtained in other areas. Flooding in 1969/70 affected 150,000 ha. causing an estimated loss of 84 million Dirhams in fixed capital and current and future output. Measures for flood protection are under consideration. 59. In 1969, average yields obtained and total production for the principal cereals and legumes were 25 to 35 percent below the 1968 record (Tables 7.2, 7.3). These products have not shown an upward trend during the last ten years and their average yield remains low, principally due to low standards of production techniques. Their gross returns are below most other crops, offering reasonable returns only in the modern sector, where good yields are obtained. The Government has fixed wholesale grain prices (Table 7.4), thus stabilizing consumer prices for food grains and bread. For the farmer, grain prices continue to fluctuate around government fixed prices, following the seasonal supply-demand situation. Legume prices are uncontrolled. Thanks to the large stocks from the exceptional crop of 1968/69, soft wheat imports in 1969 were small. Locally produced hard wheat was absorbed by local industries and households. Barley was largely consumed locally and a small surplus was exported at a loss due to low world market prices. Legume exports increased in 1968 and Due to favorable spring rains 1970 grain and legume production should be slightly above the 1969 crop. 60. During 1969 acreage and production of sugar beets continued their fast growth, stimulated by good yields - until now untroubled by pests - and by guaranteed prices and market. Cultivation is made under contract with sugar mills at a guaranteed price of DH 60 per ton for percent sugar content. The rise in sugar consumption slowed down substantially following the consumer price increase in 1964 (from DH 1.05 to OH 1.90 per kgm). At present, 64 percent of the sugar supply is imported, so that there remains room for increased production of sugar beet or sugar cane. Taking

31 into account the present area under sugar beet the 1970 production will exceed 1 million tons and will probably achieve the Plan target of 1.6 million tons by Citrus exports in 1969 totalled DH 389 million (17 percent of total exports) as compared to DH 420 million in The drop in exports in 1969/70 was due to rainfall damage as well as to lower export prices, particularly exports to France which were affected by Spanish competition, by the devaluation of the franc and by higher duty under the EEC agreement. The area under citrus now totals 66,000 hectares; 35,000 people are employed in primary production and about the same number in grading, packing, processing and transport. Due to high returns, the citrus area has expanded at the fast rate of about 1,500 ha. per year largely by private enterprise in the Souss region, where early maturity fetches favorable prices. Citrus production will continue to increase following recent plantings. Continuing improvements in quality control are required to strengthen the position of Moroccan citrus fruits in the traditional markets of France and Western Europe and to expand exports to Scandinavian and Eastern European countries. 62. Both the area planted with cotton and production continued to recover in 1969 from their decline in 1966 and This decline was due to the competition of sugar beet in the large irrigation schemes, aggravated by low cotton yields mainly caused by ineffective pest control. At present cotton yields of up to 2 tons are achieved in some irrigation schemes but the average is 1.4 ton/ha. High quality long staple cotton is readily exported. In 1970, the resumption of cotton production in the Tadla and Doukkala irrigation zones promises a substantial rate of increase in production. 63. At present, 76 percent of the local consumption of edible oils and fats is imported. The 1969 olive crop was substantially below the previous exceptional year. The large surplus of olive oil for the 1968 season raised exports in 1969 to DH 91 million. In 1970, favorable spring rains should produce an olive crop well above the preceding year. Production of sunflower, the most important oil seed, almost doubled in 1969, thanks to post flood plantings, thus recovering from the sharp decline between 1964 and 1966, caused by disastrous damage by birds. The proportion of such damage should be very much reduced if sunflower is grown in large areas. Production, however, remains below 10 percent of imports of vegetable oil. Following recent efforts to promote the cultivation of sunflower and safflower, including price incentives, it is expected that production of oil seeds will increase during coming years. Improvements in productivity can be achieved through better extension service as already applied by the technical staff attached to SEPO (Societe pour l'exploitation des Produits Oleogineux) which operates a mill and plants presently 900 ha. of sunflower. 64. In 1969 exports of fresh vegetables, at DH 213 million were about 5 percent below the preceding year. Exports of preserved fruits and vegetables including juices added up to another DH 128 millions.

32 The decline since 1957 in the area under grapes and in wine production continued in 1969 due to low export prices for wine. The 1969 season was also seriously affected by climatic conditions. Stocks have been cleared by a large order recently made by France, raising exports to DH 37 million compared with DH 24 mi ti-; in Exports and Prices for wine are expected to continue tc face divffculties and a continued decline in area, production and exports is to be expected. 66. Livestock plays an important part in rural economy by exploiting 10 million ha. of natural grazing ground and another 4.5 million ha. of bush and forest land hardly suited for other forms of agricultural production due to shallow soils or marginal rainfall. The animal population includes 15 million sheep, 8 million goats and 3.3 million cattle; the latter accounting for the greater part of current milk and meat production. The traditional sector is marked by overgrazing of communal grazing grounds causing oil erosion and low quality standards of livestock products. Yet traditional livestock production, mainly of sheep and goats continues to represent in many regions the small farmers' savings and security against years to crop failure, as well as the main source of protein supply to the population. The growth in the number of cattle in the modern sector continued in 1969, together with the cultivation of fodder crops, centered around the cities and In the irrigation perimeters. Processing and marketing of meat is not adequately organized and milk marketing faces current difficulties in the light of competition with canned milk and butter imported at low prices. 67. The only significant change in livestock development is to be found in dairy production. Artificial insemination schemes around Casablanca and distribution of improved cows to the farmers in the large irrigation perimeters have induced a significant increase in the supply to dairy factories, but have created marketing difficulties for the Tadla area. A three year study on livestock development in the eastern regions is being undertaken by a private consultant firm. Another large scale study on meat production and market prospects will start soon. In addition to the possible meat development in the large irrigation zones, attention should be paid to the rainfed region of Tanger-Tetouan, where climatic conditions would allow cattle development without irrigation. The same would apply to the Middle Atlas region and the northern slopes of the High Atlas (beef, cattle and sheep). 68. Exports of canned fish, mainly to Europe, reached DH 124 million in 1969, slightly below those of the preceding year. 15,000 families derive their livelihood from fishing. The average annual catch of 265,000 tons by 400 fishing boats could be substantially increased with the addition of modern equipment, particularly since the prospects for export of fish meal are favorable. 69. Afforestation has been carried out at a pace of 10,000 ha. a year, and conservation works have covered 15,000 ha. a year (including the DERRO scheme). The proportion of raw cork in the exports has shown a tendency to increase, in light of preferential agreements benefitting

33 cork industries in Spain, Portugal and Algeria. The Moroccan authorities expect the total volume of exports to remain at the present levels over the next five years. Inputs and Supporting5ervices 70. Farm labor is plentiful, except during peak seasons in irrigation perimeters. Though the legal minimum wage for male unskilled labor of DH 3.9 per day has remained unchanged since 1938, the typical wage is reported to have increased from about DH 4/day in 1961 to about DH 5.5/day paid actually, representing a 4 percent annual increase within 8 years. High wages for labor during the peak season have promoted mechanization particularly in the irrigation zones. In 1969 the number of tractors sold was 1,682 against 2,333 in 1968 and a level of 1,000 in previous years. In government operated tractor stations, charges to farmers cover only operating costs. Lack of sufficiently trained operators and supervision staff frequently results in immobilization of farm machinery. As a result, the aim is to reduce the number of tractor stations and to encourage the acquisition of tractors by farmer groups through subsidies and credits. Fertilizer application fell in 1969 partly because late spring rains hampered distribution. It is expected, however, that the steady increase since 1963 will be resumed in 1970 (Table 7.5). The increase of fertilizer application is stimulated by the extension service in the irrigation perimeters and by the "operation engrais" in the rainfed area where fertilizer was distributed at 15 percent below market price. 71. Agricultural extension is sufficiently dense in the irrigation zones (e.g. one extension worker to about 170 farmers in Tadla), but in the rainfed areas about 800 extension workers serve more than one million farmers. Supplying inputs and tractors on hire to the farmers is performed by 84 Work Centers (Centres de Travaux), 201 sub-centers and 59 branches (antennes) which are spread over the whole country. Because it would seem more advantageous to concentrate available extension efforts in a limited number of favorable rainfed areas, the distribution of the extension staff in the existing "Centres de Travaux" (CT) should be revised. The opening up of two training centers at the level of extension workers in addition to the four existing ones, is also recommended. 72. Agricultural research is carried out by a staff of 153 agricultural engineers of university level and 300 of technical level on 22 experimental stations. During recent years Its main achievements included the successful introduction of sugar beet, breeding of Tadla 16 variety of long staple cotton which is better suited to local conditions than any other variety and selection and testing over 10 years of the two high yielding Italian varieties of soft wheat (908 and 397). Mexican wheat varieties are under observation. In addition to the selection of virus and fungus resistant varieties (citrus and tomatoes), agricultural research should concentrate on crops diversification possibilities under irrigation. There is a particular need to test alternative crops like groundnuts, sunflower, castor bean, etc. in the Massa region.

34 Agricultural training institutions, with the exception of the 4 agricultural training centers, are running far below their capacity, failing to attract sufficient students. An analysis of present output of schools and projected demand for different levels revealed a tendency to train too many agricultural assistants (adjoints techniques) and too few extension workers (agents techniques). 74. Private banks, dealers in agricultural supplies and equipment as well as money lenders and merchants for the small farmer on village level, continue to play their part as sources of credit to the farmer. The government program for agricultural credit is carried out by the Caisse Nationale de Credit Agricole (CNCA) with its 15 regional offices (CRCA), by 55 Caisses Locales de Credit Agricole (CLCA) and by the Societe de Credit Agricole et de Prevoyance (SOCAP). 1/ For all of them CNCA assures the overall accounting. During the last year, CNCA strengthened its organization by training and increasing its staff and opening new branches. The introduction of computerized accounting allows weekly control of credits and of repayments and a monthly balance. The rate of repayments on time of CNCA credits in the 1969 season was 79 percent. Since raising CNCA interest rates in 1965, former losses of CNCA were recovered and profits of DH 5 and 2.5 million were made in 1968 and 1969 respectively. The rate of interest for short term credits of CLCA is a flat rate of 2 percent retained when paying out the credit and another 2 percent after 6 months, which corresponds to about 6-8 percent per annum, depending on the period after which repayment by the farmer is actually effected. The rate for medium term credits is 4.5 percent, charged by CLCA and 6 percent charged by CNCA, whereas private banks are reported to charge 8 percent. Though the increase of CNCA interest rates in 1965 was necessary to assure the profitability of operations, some of the present interest rates may need revision in order to promote specific types of investment. CNCA mentioned that considerations are under way to increase its rates of interests for highly profitable investments such as the production of citrus, cotton, sugar beet, milk and meat, and to lower it for less profitable investments. In view of increasing demand for credits, CNCA is looking for additional funds. 75. The Societe de Credit Agricole et de Prevoyance (SOCAP) serves at present 700,000 small famrers and applies an interest rate of 3 percent and a credit limit of DH.,300 per farmer. Since security requirements are less stringent the average loan recovery rate has been 62 percent and with differences between regions and seasons. SOCAP has insufficient staff in the country districts. The 93 branches are each staffed 1/ At the end of 1969 outstanding credit to agriculture by private banks amounted to DH 530 million (of which 60 million medium and long term), and by the CNCA to DH 290 million (of which DH 50 million medium and long term). Farmers with an annual taxable income between 1,400 and 4,000 dirhams are supplied with credits by CLCA, while those below that limit are served by SOCAP and those above this limit are served by CRCA. CNCA headquarters decide about credits of an amount above DH 40,000.

35 with one low paid secretary and one accountant, who is also the local tax collector. Twice a year they are supported bv an additional officer to set up the list of credit demands and the list of repayments to be collected from each client. To handle an increased amount of credits would require a substantial strengthening of its organization, thus raising its costs. SOCAP's activitv is to be regarded as a social as well as an economic operation. Marketing and Price Policy 76. Government regulates marketing and prices of the most important products through specialized governmental agencies. These are OCIC (Office Cherifien Interprofessionnel des Cereales) for wheat and barley; OCE (Office de Commercialisation et d'exportation) for citrus fruits, vegetables, fish and preserves thereof, for wine and cotton: ONTS (Office National du The et du Sucre) for sugar; COMHA (Cooperative Maroccaine des Huileries Alimentaire) for edible oils. Free and unregulated prices exist for corn, rice, legumes, olive oil and others. The guiding principles of government price policy can be summarized as follows: (1) Prices of bread and oil are stabilized by price fixing and control on the wholesale level, so that consumer prices over the last years were kept stable, but prices paid to the farmer fluctuate around fixed prices. There is a widespread feeling in Morocco that an increase in the consumer prices of bread and oil is socially and politically not acceptable. (ii) To assure repatriation of earnings in foreign exchange from exports, OCE was invested with the exclusive right to export the most important commodities. (iii) To create funds for irrigation dam construction, the consumer prices of sugar was raised in 1964 from 1.05 to 1.90 DH/Kg. 77. OCIC, charged with stabilizing grain prices for the consumer, has suffered losses of DH 8.50 and 48 million during the years 1968 to 1970 respectively. Losses incurred by OCIC are highest in years of favorable grain crops due to the fact that in these years the quantity of barley to be exported at a loss (of about DH 7.5/Qu.) increases and profits from importing soft wheat at low world market price level (also of about DH 7.5/Qu.) are low. To reduce OCIC deficits, which are met by government, lowering the barley support price near to the world market level (17.5 DH/Qu) can be considered. This would hardly touch the small producer who has no surplus for sale. 78. OCE, exclusively handling exports of major agricultural and fish products, ensures the repatriation of foreign exchange and has helped find new markets in Eastern European countries. Its search for expanding markets in Western Europe should be supplemented by private initiative. OCE charges of 1 to 3 percent seem to be high in view of the fact that several processed commodities are meeting marketing difficulties due to high costs of production. 79. COMHA handles imports of edible oils and oilseeds and their distribution to local refineries. It retains the difference between import price and sale price to refineries of oil seeds and vegetable

36 oils and pays a cash subsidy to producers of oil seeds (at the rate of DH 0.12/Kg for sunflower and DH 0.18/Kg for safflower). 80. Raw sugar imported by ONTS, as well as raw sugar prepared from beets by Moroccan sugar mills, are refined locally. The wholesale price of refined sugar ex local factory (which includes a large tax element earmarked for construction of irrigation dams) is fixed at DH 1,840 per ton. Imported raw sugar costs about DH 400 per ton while the cost of producing raw sugar locally (in one large mill) is about DH 900. To reduce the cost to the economy it would be necessary to decrease both the support price of sugar beets as well as the cost of production of raw sugar. The reduction of the support price of sugar beets should stimulate the unsubsidized cultivation of long-staple cotton for exports. 81. In 1969 government subsidies for farm inputs and equipment amounted to DH 18 million against DH 15 million in 1968 (Table 7.6). A further increase is projected for The range and rates of subsidies were newly fixed by the Code des Investissements Agricoles dated July 25, Higher subsidy rates are given to farmer groups (groupements) than to individual farmers. Higher rates should also be applied to planting and re-grafting of table olive trees and to locally produced selected vegetable oil seeds. Land Tenure 82. Data on land-nwnership from different sources vary. More precise data will be available After the census on land ownership and size of holdings, which is planned for Agricultural activity is largely conducted under rainfed conditions where some 1.2 million small farmers apply traditional methods of production. Collective ownership of grazing grounds is the main reawon for widespread over-grazing with its negative side effects of soil erosion, low output and poor quality of livestock production. The modern -sector comprises some 800,000 ha., or about onesixth of the cultivated land, but it produces the greater part of cash and export crops. About half the area in the modern sector is owned by Moroccans, one quarter is ex-concession land held now by the government, and about one quarter is owned by foreigners. 83. An aspect of the change in the land ownership pattern is the arrangements which have been made since independence for the use of foreign-owned land by Moroccans. Due to uncertainty about their future, other foreign farmers hesitate to make new investment, and their used equipment is not replaced. Many of the new Moroccan farmers invest in remunerative citrus plantations. Also, in the irrigation perimeters large-scale farmers buy land from small farmers who are tempted to sell by the speculative prices offered for land which could become irrigated. 84. Former French concessions (lots de colonisation), originally covering about 250,000 ha. and administered since 1965 by the provincial governors, are not fully exploited. Only part of the old equipment has been renewed and financing production and sales results in heavy Interest payments. In accordance with the land reform law of July 4, 1966, all

37 ex-concession land under annual crops should be distributed to landless laborers against payment of its price over a period of 20 years. From 1966 to 1969, 24,000 ha. (half of which is in irrigated perimeters) have been distributed, and the Plan envisages the distribution of 75,000 ha. during the 5 year period. Technical studies have been completed on another 27,000 ha which are ready for distribution in the rainfed area. The law stipulates that the size of holdings must ensure an initial income to the farmer of DH 3,500 per year. In practice, the size of distributed holdings is 4 to 5 ha of irrigated land or 15 to 20 ha of rainfed land. New settlers are provided with credit for basic equipment and for the first cultivation period (seeds, fertilizer, tractor services). By its integrated approach, the operation has been generally worked best in the irrigation perimeters, although unbalanced cropping patterns or an insufficient size of holding has resulted in low net returns to the farmers in some areas (Gharb, Souss). The pace of distribution could also be accelerated. 85. Major legislation was issued in 1969 relating to agricultural reform. The agricultural investment law (Code des Investissement Agricoles) published on 25th of July 1969 is a code of laws defining the oligations of government and of farmers for joint efforts to develop agriculture in irrigated and rainfed areas. The subsidies to different agricultural investments are also defined and are already being applied by the Ministry of Agriculture. In the irrigated perimeters, the farmers are expected to contribute directly at the rate of DH 1,500 per ha and through annual payment of water dues to the cost of development (except of Tafilalet and Ouarzazate regions and with the exemption for small farmers owning up to 20 ha.). The proper use of land which is improved in the irrigated and flood zones is made obligatory. The Code deliniated seven irrigation perimeters in Basse Moulouya, Gharb, Doukkala, Tadla, Haouz, Tafilalet, Oued Mellah (with a total area of 500,000 ha) and one flood protection zone (assainissement) in the Gharb (with an area of 150,000 ha.); other irrigation perimeters and zones of flood protection and drainage, range improvement and land consolidation in rainfed areas may also be defined in the future. Land reform in the irrigated zones is a declared main objective of the Code which aims at "creating the maximum number of viable holdings which can make best use of irrigation water, and benefitting from this development the largest possible number of farmer families". The law authorizes expropriation against compensation in these zones of private land, such lands to be identified by decrees. It also authorizes transfer to the State of religious trusts (habous) and provides for the redistribution of collectively owned land (about 550,000 ha.) to claimants in holdings of at least 5 ha. 86. In view of the Code's declared aim to create the maximum number of viable holdings and benefit the largest number of families in defined irrigation perimeters, it would seem necessary, as a first step, to prevent the transfer of land in these perimeters to owners of large holdings (e.g. over 5 hectares) until the decrees expropriating improved lands are issued and the area to be redistributed is defined. Consideration may then be given to limit the maximum holdings in these zones to a reasonable and economic size.

38 Consolidation of small holdings regulated by the 1962 laws and its application simplified in the code, has been restricted so far to the larger irrigation perimeters. It could also produce substantial benefits in rainfed areas. About 110,000 ha. have so far been consolidated of which 34,000 were done in 1968 and The code authorizes the definition of consolidation zones in rainfed areas as well. Such zones should preferably be concentrated in areas of best potential rather than scattered over the country, and guiding principles for its application can be drawn from the experience of a pilot scheme (PRAM) underway in 5,000 ha. south of Casablanca. Investment Program 88. The Five Year Plan does not include physical targets of production. In the "Compte Rendu d'execution du Plan" targets and achievements are compared in financial terms. Physical results are measured in terms of kilometers of canal and number of hectares cleared, levelled, etc. It is therefore difficult to assess the exact pace of development in the large irrigation perimeters, and more so the impact of schemes to increase productivity in the rainfed areas. However, from observation and from available da±a it appears that the addition to cropped area in the large scale irrigation schemes (Tadla, Doukkala, Moulouya, Haouz) has increased from about 5,000 ha. in 1968 to 6,500 ha. in 1969 and an expected 9,000 ha. in The new areas prepared (levelled and equipped) for irrigated cultivation in these schemes were larger reaching about 14,000 hectares in each of 1968 and This compares with the plan targets of 18,000 ha. in 1968 and 14,000 ha. in Major irrigation-expansion occurred in Doukkala and Haouz. In the Doukkala area, this was the result of the setting up of a sugar factory. In the Haouz area the problem of traditional water rights has been successfully handled, and tremendous efforts have been made to reduce the time lag between the construction of main canals and the installation of internal equipment. 90. In the implementation of small and medium size irrigation schemes, a more integrated approach involving careful feasibility studies on a limited number of zones has replaced dispersed construction of irrigation networks. This useful step necessarily slowed down the implementation of the Five Year Program which aims at irrigating 50,000 ha. New areas actually irrigated under this program amount in to 5,000 ha. of small irrigation schemes and 5,000 ha. in medium size irrigation schemes. However, a speeding up of development may now be possible in light of the newly available studies. 91. In the rainfed areas the impact of the various productivity schemes on cereal production (fertilizers, land consolidation and ploughing) cannot be measured in isolation from the effect of the favorable climatic conditions. An official sample survey indicates that yield increase obtained for hard wheat in areas benefitting from the fertilizer scheme was 7.2 and 3.9 quintals per ha. for 1968 and 1969 respectively;

39 a minimum increase of 2.5 quintals per ha. is required to cover the fertilizer cost to the farmer. However, no major change should be expected to occur in the productivity under rainfed conditions in the traditional sector unless a package program is implemented (land consolidation, seeds multiplication, fertilizers, mechanical ploughing). In spite of efforts made through various schemes (operation labor, operation engrais) favorable results in some areas are likely to have been balanced by adverse results in other regions (large distribution of fertilizers without sufficient supervision). This is the reason why Morocco, supported by USAID intends to concentrate its action in limited specific areas where rationalization of crop rotation can be included in the productivity scheme. The PRAM team is also dealing with this aspect of development and land consolidation is underway on a 5,000 ha. area south of Casablanca. In addition, each CT (Centre de Travaux) has already selected a priority development area where a package program is being implemented. The opportunity provided by the first achievements in the field of land consolidation should be taken to broaden the scope of this pilot scheme and to extend it to the best potential areas (Doukkala, Essaouira, Oued Zam, Tadla). This could pave the way to a much better impact of inputs on producticity. Cropping Pattern in Developed Irrigation Areas 92. The Government has put emphasis on the construction of large irrigation networks, and expects that the annual rate at which new areas are equipped will easily reach 25,000 ha. from 1972 (Sebou, Massa in addition to Doukkala, Tadla and Haouz). The economic justification of almost all large irrigation schemes is based on replacing low return crops (cereals) either by high return crops (citrus, cotton, tomatoes, etc.) or by import substitution crops involving price incentive to the farmers (sugar beet). In some cases, the justification hinges on the assumption that the increasing marketing difficulties can be overcome without too great a sacrifice in prices. In the case of sugar beet, import substitution increases the cost to the economy and reduces government revenues. It would seem, therefore, necessary to review carefully the actual cropping pattern in the irrigated perimeters as additional areas are put under irrigation. 93. Greater attention should be given to crops which theoretically give less return but for which market prospects are reasonably good. In particular, experiments should be conducted with sunflower seeds and groundnuts which could be introduced in the crop rotation. The production of vegetable oil would not face any marketing demand. On the other hand, the current expansion of tomato production for export (e.g. 3,000 ha. in the Massa zone which could produce about 90,000 tons) is likely to fact marketing difficulties. 94. In the four large zones which have been developed over the last seven years, the cropping pattern includes bersim and alfalfa to feed pure Dutch cows. Production of animals by the "Regional Offices" and distribution of cows among farmers has increased over the last three

40 years, so that during the peak period of lactation, tile existtng dairy factories cannot now absorb all the supply. This is partly due to the competition of the traditional milk-trade, but imported canned milk and butter at low prices is also a limiting factor. This situation will be aggravated as additional irrigated land is allocated to fodder crops. Therefore, together with protection from temporary dumping of butter a progressive shift from milk to meat production seems necessary. Marketing efforts would be directed first to the tourist hotels in Morocco. In the meantime, export market prospects should be studied. Programming and Preinvestment Studies 95. In principle, coordination of studies and programs is the responsibility of the Direction des Etudes et des Affaires Generales (DEAG), but in fact all "Directions" make their own studies and project preparation and real coordination is almost nonexistent. Therefore, dispersed efforts lead to low priority studies or duplication. In addition, existing studies are not properly used and available information is not fully utilized. The tendency of the various services to launch new comprehensive studies should be restrained in favor of short and specific studies leading to project implementation; for example, the necessity of developing meat production in some specific areas (irrigation zones, Tetouan area) should be given priority over a general study of meat and marketing covering the whole country, which would be out of date when completed. 96. Setting up an effective planning unit witlhin the Ministry of Agriculture is needed. This unit should be more concerned with project preparation and short term programning than with planning. Close contacts should be kept with the PRAM team (UNDP project Phase II), the terms of reference of which will include programming in the rainfed areas. It would be advisable to attach the unit as well as this team to the General Secretary. 97. In view of the above analysis it is considered that several preinvestment studies should be given high priority: (a) Review of available information from comprehensive studies already completed: for example, the government should take advantage of the preliminary studies made by the second UNDP Sebou project, to prepare specific studies in some priority areas (e.g. Fes-Meknes). Otherwise it is likely that the considerable amount of existing information will be wasted. (b) Review of crop development under irrigation, in the light of the expected large increase in the area to be developed annually and taking into account the increasing difficulties of marketing certain crops. This would be especially relevant to the proposed irrigation development in the Oum Er Rbia basin, on which choice of development priorities among three large perimeters (Tadla, Doukkala, Haouz) will depend.

41 (c) Comparative economic analysis of proposed small and medium size irrigation schemes, before launching detailed technical studies on each project; existing information on most schemes would provide enough data to make a proper selection. Technical assistance may be provided by the FAO/IBRD Cooperative Programme in the light of the Government interest in getting Bank financing. A possible irrigation development should also be taken into consideration in the Souss area, and the UNDP Souss project should concentrate on the identification and the preparation of a small or medium size irrigation scheme within the traditional sector. Considerable improvement could be achieved through shallow wells and small irrigation networks - as already achieved in the modern private sector. (d) Preparation of land consolidation schemes in the rainfed areas with the hiighest potential (Chaouia, Tadla, Doukkala, Essaouira) based on first results achieved in the Chaouia region; the Ministry of Agriculture staff with assistance from the PRAM team and USAID could continue to be responsible for the study. (e) Study of meat marketing; in a first phase efforts would be directed to the internal market (tourism) in view of preparing meat development projects in some large irrigation perimeters. In the meantime, an export market study would be undertaken (Middle East, Europe), to justify livestock development in some potnetial rainfed areas (Tanger, Tetouan, Middle Atlas).

42 IV. INDUSTRY, MINING AND POWER 98. During the past decade, power, mining and manufacturing industry have grown at under 4 percent per year and have maintained practically unchanged their 20 percent share in GDP. Less than 3 percent of GDP in 1969 was contributed by the power sector, less than 5 percent by mining and about 12 percent by manufacturing and handicarfts (Table 2.1). Power grew fastest during the last decade, achieving a 6 percent average annual growth compared with 4.2 percent for manufacturing and only 2 percent for mining. The three sectors employed almost 500,000 workers or 10 percent of total employment in Of these, less than 20,000 were employed in the power sector, less than 40,000 in mining and quarrying, and about 440,000 in industry and handicrafts, of whom about 160,000 were employed in modern industry (with more than 10 workers) and the remainder in handicrafts and small workshops. Power Mining 99. Production of energy increased by 10 percent in 1968 and by 7 percent in 1969 (Table 8.1). Electricity production and oil refining showed particular bouyance while coal mining and the very small crude oil output declined (Table 8.2). Coal mining suffers from production and export difficulties as well as the poverty of the deposits, and is subsidized to the extent of DR 30 per ton by the government. Current output is largely consumed by electricity and cement plants. Future demand by the large (165 MW) Jerada power plant will be equal at its completion by 1976 to total current output of 400,000 tons per year. An alternative source of fuel may be gas imported from Algeria. Extensive exploration concessions for petroleum have been granted in 1969 and 1970 but so far no discoveries have been made. Output of refined petroleum products based largely on imported crude grew at 7.5 percent a year since 1965, reaching 1.5 million tons in Electricity output - predominantly hydroelectric - increased by 14 percent in 1968 and by 10 percent in 1969, thus exceeding the 8 percent targets of the Five Year Plan. However, while the main urban and industrial areas are adequately served with electric power, the greater part of the rural areas are barely served at all. Over 90 percent of electric energy is produced by the public enterprise Office National d'electricite (ONE) and some is produced by the municipalities. ONE's expansion has been financed by government contributions (40 percent), by cash surplus (25 percent) and by suppliers' and some local credit (35 percent) The mining sector accounted for 4.7 percent of GDP in 1969 but supplied 32 percent of exports. It includes a few big mines and a large number of small ones. The government owns or has substantial participation, through the Bureau de Recherche et de Participation Miniere in most

43 of these mines, and European interest in substantial (Table 5.7). Phosphate rock accounts for over 70 percent of total value of mining output and of mineral exports. Production and exports of phosphates were stagnant during the period 1964 to 1966 but picked up slowly since then (Table 8.2). In 1969, production reached 10.7 million tons and exports 10.2 million tons, which were 1.4 and 1.7 percent higher than in 1968, respectively. Exports (valued at $110 million or 27 percent of world phosphate trade) went to 35 countries, among which France, Belgium, UK, Spain, Poland and mainland China were the most important. Export prices had dropped by 6 percent in 1968 but remained constant in The state-owned phosphate monopoly (OCP) aims at exporting 11 million tons in 1970 and more than 17 million tons by 1976 (compared with the Plan target of 16 million tons by 1972). Reserves are the largest known in the world and an investment program of over $120 million is planned to help expand capacity to achieve this target, in addition to an equal amount invested in the last four years in renovations and improvements. Morocco's phosphate rock is soft and of high grade and can be more easily processed than that of its main competitors, the USA and Tunisia. Production methods and equipment are modern and efficient and land transport routes are relatively short. In addition, a new open pit (Grand Daoui) with low production cost is expected to start operating this year. However, heavy pressure is exerted on prices as a result of excess world supply capacity in relation to demand, although the latter is expected to grow at about 9 percent per year in the coming decade. Rio de Oro, whose large phosphate deposits are also of high grade and easily accessible, is expected to add 3 million tons capacity starting in 1971 to be increased to 10 million tons by 1980, and other main producers are expected to expand their production at a fast rate. To maintain its share in the world market and maintain its profits in the face of falling prices, Morocco's phosphate industry will have to continue its efforts to raise productivity and reduce production costs and to search for new marketing arrangement. Means should also be explored to reduce the unfavorable sea freight costs to Europe Besides phosphates, Morocco produces a variety of less important metal ores, which altogether accounted for 30 percent of mineral output and exports. These include lead, which represented 11 percent of total value of mineral production in 1969, and iron ore, coal, manganese and zinc ore, each of which accounted for about 3 percent. Other minor mineral ores accounting for 1-2 percent of total value were pyrrhotine, cobalt, copper and crude oil (Table 8.2). Production of all the above minerals has declined in recent years and continued to decline in 1969 (with the exception of zinc ore). The value of exports of these minerals ($40 million) remained stable in 1969, thanks largely to iron ore, which sold accumulated stocks The decline in the output of minerals other than phosphates is due largely to exhaustion of deposits. An iron ore concentrator and pelletizing plant is projected to raise production and the value of the product, but replacement of equipment and extension of mining from open

44 pit operation to underground operation is needed. Lead/zinc production is expected to drop sharply as the two largest mines (which produce onethird of lead and 90 percent of zinc output) are exhausted and closed by A medium size (10 million ton) but marginal grade lead deposit (3.1 percent mineral content) has been discovered in Haute Moulouya, but additional exploration is needed. The government aims at encouraging further exploration and renovation of mines for these and other minerals through extending to mining the provision in the Investment Code allowing a tax deductible reserve fund for the purchase of equipment (see Note on Incentives for Private Investment). In addition, starting in 1970, the 5 percent export tax was reduced to 0.5 percent for all mineral exports other than phosphates Large iron ore deposits exist south of the Moroccan border at Gara-Djebilet in Algeria, and agreement has been reached in principle between the two governments to jointly exploit these resources, benefitting from the relatively short distance across Morocco to the Atlantic seashore A very small part of mineral output undergoes processing in a simple way before being exported or used in local industry. Coal is largely used by electricity and cement plants, and crude oil is refined locally. Also, about 40 percent of the smelted lead is used by domestic industry and high cost pyrrhotine output is used to produce sulphuric acid for further use in the fertilizer industry (by Maroc-Chimie). About 4 percent of phosphate output is converted to 300,000 tons of superphosphates (70 percent of which with a value of $10 million are exported, mainly to Cuba and Bulgaria) and partly used in the production of phosphatic fertilizers for export. A higher degree of processing of the mineral ores for export should be aimed at and prepared for by studies of economic and marketing feasibility. In the case of the fertilizer/superphosphates a special effort is needed to increase the profitability of this capital-intensive industry and explore means of economically utilizing the accumulating byproducts (pyrrhotine ash). Manufacturing Industry Structure and Growth 106. Morocco has a long tradition in the field of handicrafts, particularly of textiles, leather goods and metal transformation. Modern manufacturing industry was started on a small scale before the Second World War, mainly by French entrepreneurs and was expanded later in the years before independence. It included fish canning and processing, fruit and vegetable canning, cement and building materials, textiles, paper, smelting, sugar refining and a variety of other light industries. Since independence in 1956 the government has established on its own or in association with foreign capital some relatively large industries (superphosphates-fertilizer, oil refining, sugar mills, car and truck assembly, and tires) and private citizens have invested in textiles, tanning and a variety of small scale industries. Modern industry is at present largely owned by government and French enterprises and partly by

45 Moroccan and other foreign private entrepreneurs. Industry is concentrated in the coastal zones of Casablanca-Mohammedia, Safi and Rabat. Textiles and handicrafts are also found in Fes and Marrakech, and sugar mills in the irrigated zones Consumer goods industry (predominantly food and textiles) accounts for about two-thirds of total value added by manufacturing and handicrafts, while processing of intermediate goods (predominantly leather, chemicals and metal processing) accounts for about one-fifth. Only one-tenth of value added was contributed by capital goods industry (mainly cement and smelting). These ratios have changed little since 1958 (Table 8.4). The share of handicrafts however, has declined from an estimated 32 percent of the total in 1958 to 29 percent in 1964 and 28 percent in Of the value added by handicrafts in 1969, it is estimated that about 30 percent each came from textiles and metal transformation (60 and 75 percent of the industrial group, respectively), 20 percent from the food group and over 10 percent from the leather group The growth of industry since independence has been slow but slightly faster than that of GDP. Value added by manufacturing indusstry and handicrafts has grown (at 1960 prices) from DH 1 billion in 1958 to DH 1.58 billion in 1969 or at the average rate of 4.2 percent per year, compared with an average growth rate of 3.3 percent for GDP. However, gross output of manufacturing industry as measured by the index of industrial production shows a faster rate of growth, particularly since Output has grown at an average annual rate of 3.6 percent from 1958 to 1965 and by 6.1 percent since 1965, compared with 2.7 and 4.6 percent respectively for value added. The discrepancy between the two sets of growth rates indicates a rising proportion of non-factor inputs (or a decreasing value added element) in the output of industry In 1969 the index of industrial output showed a rise of 9.4 percent above Although the industrial index does not cover handicrafts, traditional milling and oil pressing and excludes also several of the larger industries such as sugar milling, car assembly, tires and refining (included in the power sector), it gives nevertheless a realistic though not exact indication of the rate of expansion. Manufacturing industries which showed the highest rates of growth in the last two years included sugar refining, beer, dairy industry, textiles, leather and shoes, paper, plastic materials, cement, red bricks, superphosphates, paint, chemical cleaners, cables, betteries, metal furniture, lead and iron foundries, as well as car assembly, tires and sugar milling (Table 8.3). Industries whose output declined included vegetable oil, cereal milling, ceramics, sulphuric acid and fertilizers. Constraints to Growth of Manufacturing 110. The main economic constraints to a faster growth of industry in Morocco can be identified as the small size and the slow growth of the domestic market, the scarcity of aggressive local industrial entrepreneurship, the small amount of foreign investments, the extensive

46 government controls and the insufficient supply of experienced indigenous management. Availability of capital and cost of inputs cannot be considered an important obstacle to growth, as cheap credit is available, wages of skilled or easily trained labor are low, and a wide variety of raw materials in agriculture, fishing, and mining are available, though supply problems exist The slow rate of growth of industrial output before 1965 is partly attributable to the slow growth rate of domestic demand, which itself was partly the result of the departure of expatriate high-income groups from the country. The positive eflect of demand growth on industrial production is conversely reflected in the higher rate of output growth in 1968 and 1969 when a 6.2 percent average rise in GDP and an 8 percent average rise in consumption were associated with a 7 percent rise in the output of manufacturing industry. With the reduced net emigration of foreigners, the domestic market for industrial products has become more sensitive to the fluctuations in the income of the rural population who represent about 70 percent of the total. Except in years of very good harvest, the subsistence income of the rural areas creates only a small demand for the products of modern industry. It should be added that the rapid growth in the number of tourists since 1967 has stimulated demand for handicrafts as well as manufactured products About 90 percent of the output of manufacturing industry and handicrafts is sold in the domestic market, and the rise in this output since independence has been predominantly absorbed domestically. It is estimated that exports of manufactured and handicraft products (excluding wine, oils and fats), which represented 12 percent of the total value of manufacturing output in 1960, fell to about 10 percent of that total in In value, these exports rose from $60 million to $90 million during this period. Several factors have influenced the slow development of exports. Old industries which produced mainly for the French market (generally by French enterprises) before independence (wine, fish products, fruit juices, cork products, foundries) have faced a reduction of preferences and quota allotments in recent years and their exports have stagnated or dropped with the stagnation or reduction in output (except for the fruit juice industry). Newer exportoriented industries, particularly fertilizers and pulp, have added substantially to exports but face cost problems. Handicrafts, particularly leather and textiles, are not yet adapted to exporting to developed countries. Only some of the other import-substituting industries (e.g. textiles) have satisfied the local market and have an incentive to look for external markets, while few private local or foreign investors have so far shown interest in exploiting the factor advantages (e.g. cheap labor and credit) to manufacture specifically for export The partial association with the EEC (Ch. III), while aiming to reduce further French preferences, has offered Morocco duty free and quota free entry of its industrial products to the Community countries (except for products specified in Annex II of the Rome Treaty, fish

47 products, refined olive oil and cork products). This presents an opportunity with a great potential for the development of Morocco's industry and its exports. Seizing the opportunity would particularly require, in addition to existing incentives, the emergence of a more aggressive local entrepreneurship and efforts to attract foreign private enterprise to manufacture products or components in Morocco for their established markets in Europe Scarcity of aggressive entrepreneurship in the industrial field is a function of several interrelated factors. The largely Frency (and few Spanish) traditional industrialists, with insecure feelings about their future, have shown no enthusiasm for expansion since independence (but the utilization of blocked accounts for investment in industry and tourism has occurred). The indigenous entrepreneurs have had limited experience in modern industrial activity (outside textiles, food processing and leather) and tend therefore to prefer investments in proven areas, such as real estate and commerce, where high returns can be expected; a land speculation and building boom in the last two years has accentuated this tendency. The profitable opportunities in industry are not as obvious as in commerce and real estate, the value of expensive pre-investment and feasibility studies are not fully appreciated, and the long-term horizon of returns from industrial investment reduces its attractiveness. In addition, the traditional form of ownership, that of closely held or family owned enterprises rather than shareholders' companies, acts as an obstacle to the formation of large industrial enterprises by private capital New foreign investment in general, including investment in industry, has remained relatively small (DH 20 to DH 40 million per year) despite substantial government incentives and guarantees, and despite the readiness of government to participate in the capital and to advance credit at low interest rates (see Note on Incentives for Private Investment). The largest foreign investors have been traditionally French. US interests have participated in a tire factory (General Tire), Italian interests in a petroleum refinery and a car assembly, Belgian interests in sugar refining and Spanish interests in food processing and paper production. The hesitation of new foreign investment may be partly due to the multiplicity of government controls, particularly exchange control and licensing and to its extensive powers to manage prices (power which are exercised in the case of fuel, power, transport and a variety of foodstuffs); fiscal incentives and tax and exchange control guarantees A are themselves subject to negotiation and agreement for each individual project. It may be partly attributed also to the market constraint, which however has been relaxed to an important extent with the opening of the EEC market since September Labor is abundant and wages are low in Morocco as compared with Europe and even with some underdeveloped countries. Minimum wages range by locality from $1.10 to $1.35 per day. The 200,000 Moroccans working in Europe enjoy a reputation of reliability and ability. However, skilled workers in Morocco are scarce and tend to emigrate for lack of

48 opportunities, but it should be possible to attract some of them back into industry on their return. Lower wages in Morocco are also offset to some extent by the relatively high cost of management staff who are largely foreign. The training and expansion of the indigenous management group is an important rquirement for a more rapid industrial growth Other industrial inputs pose no major problem although insufficient or discontinuous supply seems to lower the efficiency or restrict the growth of such industries as fish processing, sugar, vegetable and fruit processing, vegetable oil, and paper pulp industries. These are, however, surmountable problems which require investments in the appropriate field, e.g. in modern fishing boats and an appropriate policy. Fuel costs are relatively high, and no differentiation in electric power rates is made for the large consumers. The road sea transport and communications systems are well developed and water supply is generally adequate. Investment 118. There are no reliable estimates of investment by manufacturing industry in Morocco. A rough indicator of the size and pattern of such investments may be found in the approval of the Investments Commission (Table 8.4). While most large industries apply for such approvals so as to benefit from the provisions of the Investment Code, handicrafts and many small industries do not apply and since 1967, investments in flour mills and vegetable oil factories are not approved and approvals of textile projects have been reduced. In addition, imports of capital equipment are generally not subject to approval. These approved investments fluctuated from year to year, depending largely on the volume of investment by the public sector. Investments in Manufacturing Industry and Mining Approved by the Investment Commission (DH millions) Public & semi-public n.a Private n.a Total Industrial fixed investment is financed in roughly equal parts from local and foreign sources. Local sources include equipment grants given by the government to approved projects but the bulk is made up of local public and private funds. External sources include loans extended by the World Bank to the BNDE as well as other long-term loans and suppliers' credits. The supply of funds for viable industrial projects seems to be adequate. Share capital in marketed securities, however, is small.

49 Sources of Financing Fixed Investments, Projects Approved by the Projects Approved Investment Commission by the BNDE DH million Percent DH million Percent Internal Funds (share capital), internally generated funds, shareholders' advances) External Funds (medium and long-term loans, suppliers' and equipment loans) Equipment grants , At the end of 1969 outstanding loans by BNDE totalled DH 170 million, of which DR 22 million were medium term and the rest long term (Table 6.3). The type of assistance and projects approved by the BNDE are summarized in Table 8.6. A small amount of medium term investment credit and all working capital is supplied by the commercial banks. In February 1970, outstanding credit to Industry (including mining, water and power) totalled DH 1.2 billion of which about DH 270 million was long and medium term and DH 940 million short term (Table 6.4); the commercial banks' share was about DH 100 million medium term and DH 900 million short term. The larger part of these loans and credits went to the food, textiles and construction materials industries. There does not seem to be any lack of short term credit to industry. Industrial Development Policy 121. Industry has not been given high priority in the current Plan. Government policy as explained in the Plan is to leave industrial development to the private sector but encourage those investments which help develop the regions, create maximum employment and are oriented towards exports. Priority is given to light industries and medium scale industries with high value added, at the expense of large-scale industries and assembly plants which had been given high priorities in earlier Plans and which are difficult to justify under Moroccan conditions The means to achieve these aims are the extension to private investors of cheap credit, fiscal benefits and equipment grants, exemptions from customs duties, and preparation of marketing studies. The government itself invested directly in sugar mills, a large textile mill (Compagnie Textile de Fes, COTEF) and a metal foundry, as planned, and it expected the private sector to invest in these industries as well as in cement, chemicals, an alpha plant, plastics, paper, porcelain, fruit juices and other similar projects. These projects were expected to add 22,000 workers or only 5 percent to industrial employment.

50 The government has established an extensive and generous system of promotion. incentives and guarantees to private investors in industry. These are essentially contained in the Investment Code of 1960 which authorizes fiscal exemptions and exchange and fiscal guarantees. They are supported by subsidized credit, extended by the BNDE, and by direct participation by government of governmental agencies such as BEPI. These policy measures concern tourism, mining, and transport as well as industry and are given in some detail in the Note on Incentives for Private Investment Protection of industry started in 1957 when a uniform tariff of 12.5 percent on all imports was replaced by a differentiated tariff combined with some quantitative restrictions. Since then the protection level has risen particularly on textiles, clothing, beverages, metal products, glass, paper, cement and vehicles (see Ch. VI and Table 5.2). Imports of industrial equipment pay duties if the investment is not approved by the Investment Commission, and the average weighted duty on all equipment imports is about 13 percent. Imported raw materials are not subject to duty and intermediate goods pay generally low duties. The protective level of tariffs is reinforced by quantitative restrictions on a wide variety of goods and by the wide difference in the tariff rates on the finished goods and the imported inputs. However, there is some ground to believe that the price difference between domestic manufactures and imported goods cif is less than the duty for a large number of such goods (e.g. vehicles, radios, television sets, textiles, cement). This would indicate that tariffs on such goods serve a revenue purpose as well as a protective purpose. Such a situation leaves open, however, the possibility of high prices and inefficient production where competition among domestic producers is not strong enough Promotion of exports of manufactures is limited. Export incentives should be broadened and efforts to expand foreign markets should be intensified. At present, exports of manufactures benefit - in addition to the general fiscal and other incentives given to industry - from a refund of the 12 percent sales tax, a refund of duties paid on certain imported inputs (particularly on preserved food) and a temporary admission scheme (mainly on inputs of textiles and packaging materials). Some industries benefit from preferential energy rates (e.g. subsidized coal for the cement industry). In the credit field, export credit paper is rediscountable at the Central Bank at 3 percent on ly if exports are sold outside the Franc Zone. However, to encourage production for export it would be desirable to simplify and speed up the application of the existing incentive schemes. The appropriateness of granting specific export bonuses to individual industries during the period of securing new markets should also be studied. In addition, an export credit guarantee scheme now under study may also help industries in opening such markets The government also helps with marketing. The OCE, which markets abroad agricultural products including processed fish, processed vegetables and fruits and wine has a principal role in the promotion of

51 these major exports. This role need not, however, exclude private entrepreneurs from exploring and securing new markets within the framework of existing exchange regulations.

52 V. TOURISM 127. Both 1968 and 1969 were years of rapid growth in the tourist sector, and the outlook is for both tourist demand and the supply of tourist facilities to grow rapidly for at least the next several years. Stopover visitors to Morocco in 1969 numbered a record 621,000, or 29 percent above the level of 1968, which was itself 20 percent above The number of stopover visitors more than trebled over the period while the number of cruise visitors nearly doubled in the period. Visitor Arrivals, Year Stopover Visitors Cruise Visitors Total Visitors Number Percentage Number Percentage Number Percentage ('000) Increase ('000) Increase ('000) Increase There have been some notable changes in the composition of visitors by nationality. Between 1963 and 1969, for example, the share of United States' visitors rose from 6 percent to 15 percent and the share of Algerian visitors fell from 14 percent to 7 percent. The share of French and British visitors remained relatively unchanged at roughly 25 percent and 13 percent, respectively. Seasonal variation in the number of stopover visitors is less pronounced than in other Mediterranean countries, as about 40 percent of total visitors in 1969 arrived in the three months period July-September and about 60 percent in the five month period June-October. Half of the arrivals enter at Tangiers, 17 percent at Ceuta, 15 percent at Casablanca, and 8 percent at Oujda. 37 percent came by sea, 35 percent by air and 28 percent by land The gross foreign exchange earnings from tourism are reported in the official balance of payments data at DH 614 million in 1969, or 36 percent above the 1968 level. These figures are provided by the Secretariat of Planning and are based on estimates of per capita tourist expenditure which are up to 30 percent higher than other independent estimates. The tenuous, character of these exchange earning estimates reflects the general lack of exact information about the Moroccan tourist industry. Until more reliable information becomes available on such fac- -tors as hotel occupancy ratios by month, patterns of tourist expenditures, import components of investment costs, etc., planning for the development of this sector will remain handicapped.

53 The number of visitors in 1969 approached the target of 640,000 aimed at by the Five-Year Plan. The Plan aims at one million stopover tourist visits by 1972, the achievement of which would require a continuation of the 17 percent average growth rate recorded since This appears an optimistic but feasible target The achievement of the target will require, however, a continuation of the progress achieved in the hotel sector. The Plan's target for accommodations is to increase the country's hotel bed capacity from 20,000 in 1967 to 50,000 by the end of The projected outlay for these additional 30,000 beds is DH 670 million - an average cost of some DH 22,000 per bed. The additional hotel capacity actually completed in 1968 and 1969 was only about 4,300 beds (at an investment cost of DH 99 million) but an additional 17,600 beds (at an investment cost of DH 422 million) were either under construction or were planned to start construction during Their completion could raise hotel bed capacity to 42,000, or 83 percent of the Plan target In the hotels under construction or planned, 39 percent of the 17,600 beds are concentrated in Agadir, 16 percent in Tangiers, 7 percent each in Smir and Marrakech and 6 percent each in Fez and Casablanca. In terms of sectoral distribution, 16 percent are in the public sector, 25 percent in the semi-public sector and 59 percent in the private sector. Contrary to the intention of the Plan, which aims at increasing the share of moderate accommodations by concentrating over 60 percent of new construction in 1-3 star hotels, nearly 60 percent of the total new capacity actually completed, started or planned to start in the period is in the 4-5 start category of hotel. Thid distribution of new capacity will raise the already high proportion of facilities catering to the more affluent categories of tourists, since 45 percent of hotel capacity was in the 4-5 start range at the outset of the Plan Hotels and other tourist projects are encouraged by the Government both through its own direct investments and through various incentives to private investors, including equipment grants, accelerated depreciation, and other import duty and tax exemptions as provided in the Investment Code. In addition, private hotel construction is supported by the availability of long-term loans at low interest rates provided by the Credit Immobilier et Hotelier (CIH) (at 8.75 percent on which the government makes a rebate on interest of 4.25 percent); these loans normally cover about 50 percent of total hotel construction costs. Investments in tourist projects approved by the Investment Commission and net long-term credits extended by the CIH in recent years were as follows:

54 (in millions of dirhams) Investment Commission Approvals CIH Credits for hotel construction (net increase) n.a The share of tourism in the Government's investment budget apart from equipment grants was DH 33 million in 1968 and DH 37 million in about 70 percent of available credits in the last year; available credits in 1970 will total DH 56 million and another DR 76 million is programmed for the period (Table 5.4) In addition to the recorded growth of tourist traffic and hotel accommodations, there were some other positive developments during the past year: a new international airport was opened near Casablanca; internal transport was improved through creation of a new airline (Royal Air Inter); the import of tourist vehicles was liberalized, which may result in improvement in the particularly weak area of internal land transport; official classification of hotels by their standards was extended; a variety of research and market studies were commissioned; and some administrative obstacles to air charter traffic were reduced. Also encouraging was the heightened interest of a number of potential foreign investors There remain, however, a number of problems in the way of rapid continuing growth in Morocco's tourist sector. Essentially, Morocco's competitive position in the Mediterranean should be improved through reduction of costs and prices and better tourist services, publicity and research. For a variety of administrative reasons, there have been delays in the implementation of tourism-related government projects such as the establishment of camping facilities and the development of the Smir and Al Hoceima priority zones in the north. The tourism infrastructure of the Tangier-Tetouan area other than hotels appears likely to become inadequate if the projected tourist growth takes place, and presently there is considerable congestion (especially at Tangier) at peak traffic times. On the other hand, there is a need to make greater use of the capacity of existing hotel and other facilities in the off-season. Greater promotion and publicity efforts need to be made abroad, and much more market and economic research needs to be carried on domestically. The Government's program for training hotel service personnel, now under the direction of the Ministry of Tourism, is running behind schedule, and the shortage of such personnel seems likely to become an increasingly serious constraint unless prompt action is taken. In addition, administrative hindrances to the development of tourist-oriented recreation and entertainment need to be removed, and better coordination is needed among the number of Government agencies concerned with the development of Morocco's tourism industry.

55 VI. THE PUBLIC SECTOR Summary 136. The fiscal situation improved considerably during 1969, thus continuing a development which started in Central government current revenue as a proportion of GDP rose steadily from 14 percent in 1965 to 19 percent in Expenditures of the central government rose more slowly (from 20 percent in 1965 to 21.5 percent in 1969), and the share of investment expenditures in the total has increased considerably, from an average of 22 percent in to an average of 28 percent in The higher capital outlays by the public sector as a whole have been accompanied by higher savings, particularly by the central government. Total public savings (i.e. including central government, local government and public enterprises) reached a new record of about DH 900 million in 1969, thus financing 57 percent of total public investment of DH 1.5 billion. Short-term domestic and long-term foreign borrowing, together with Central Bank credits, have financed the balance If Morocco is to raise its investment expenditures by 25 percent as planned over the period , additional efforts would be required to maintain the share of public savings in its financing. The possibility should be explored of reviewing or introducing specific taxes, raising social security contributions, selling part of government participations in business enterprises and increasing the efficiency and profitability of public enterprises. At the same time net borrowing domestically and from abroad needs to be increased so as to reduce further the need to borrow from the Central Bank. Public Savings and Investment 138. Morocco's public sector is dominated by the central government, which accounted for 60 percent of the public expenditures in 1969, followed by the public enterprises, which accounted for 30 percent. Local government (which includes 21 provinces and prefecutures, 28 municipalities, 46 autonomous centers and 731 rural communities) was responsible for 7 percent of public expenditures and the remaining 3 percent was spent by the social security fund (Caisse Nationale de la Securite Sociale). The most rapidly growing part in recent years has been the central government.

56 Total Public Expenditures, (in millions of dirhams) Forecast Central Government 2,550 2,960 3,370 3,510 3,830 Local Government n.a. Public Enterprises 1,650 1,650 1,680 1,780 1,945 Social Security Total 4,670 5,110 5,600 5,840 n.a Current expenditures of the public sector as a whole increased by 2 percent in 1969, while investments increased by 10 percent, the total expenditures increase being 4 percent. Current revenues augmented more rapidly, mainly due to changes in central government taxation and accelerated economic activity. Public savings thus grew at a considerably higher rate than in 1968, from the level of DH 500 million in 1967 and 1968 to DH 900 million in Gross Public Savings (in millions of dirhams) Forecast Central Government /1-49 (of which sugar levy & PTT surplus) /2 (33) (78) (167) (121) (183) (135) Local Government Public Enterprise n.a n.a /1 Excess of ordinary revenues over ordinary expenditures; does not include extrabudgetary accounts. /2 Receipts not included in ordinary budget revenues The central government was able to increase its savings in 1968, despite a substantial rise in ordinary expenditures, mainly due to a better collection of direct taxes. Its savings rate more than doubled in 1969 due to an 11 percent increase in current revenue, combined with a 2 percent increase in current expenditure. This result was achieved by a combined tax and expenditure policy, as explained below.

57 Savings of local governments (after inter-budget transfers) rose from DH 39 million in 1968 to DH 46 million in Municipalities collected over 90 percent of all local savings and the budgets of provinces, prefectures, autonomous centers and rural communities contributed less than 10 percent, most of it made by the autonomous centers Public enterprise savings have been affected by transfers to the government budget, particularly by the Phosphate Monopoly since A large transfer in 1968 reduced their level, and a smaller transfer helped bring them back to the level of DH 300 million in However, the level of their savings before deduction of transfers to the government budget has changed little since The main contributors in 1969 besides the Phosphate Monopoly have been the Tobacco Monopoly, several sugar mills, the Export Office and the Social Security Fund. The rise which is forecast in 1970 will depend essentially on the achievement of a larger operating surplus by the Phosphate Monopoly. Gross Savings of Public Enterprises, n.i.e. /1 (in millions of dirhams) Forecast Phosphate Monopoly /2 140 /3 200 /3 Railways (ONCF) Tea and Sugar (ONTS) /4 19 /5 10 /5 Social Security Fund (CNSS) Tobacco Monopoly Sugar (SUNAB, SUTA, SUNAG, SUBM) / /6 63 /6 Export Office (OCE) Electricity Office (ONE) /8 - _ Agricultural Bank (CNCA) Industrial Office (REI) Others (net) Total: /1 Excluding transfers to and from the government budget. /2 Excluding DH 120 million transferred to the government budget. /3 Excluding DH 60 million transferred to the government budget. Changes in stock included. /4 Excluding DH 9 million transferred to the government budget. /5 Excluding DH 8 million transferred to the government budget. /6 Last data available 7 million in 1968 was included in 1969 and 1970 figures. /7 SUBM started in 1969 with DH 18 million. /8 All surpluses were added to reserves (end of 1968). Source: Based on data supplied by the Ministry of Finance.

58 Public Investment 143. Following a large drop in 1966, public investment rose at a fast rate, to DH 1,129 million in 1967 (a 28 percent rise), DH 1,420 million in 1968 (a 22 percent rise) and to DH 1,550 million in 1969 (a 13 percent rise). The growth of central government investment accounted for the large increase in 1967, that of the public enterprises to the rise in 1968, and all the public sector contributed to the increase in Gross Fixed Capital Formation in the Public Sector (in million dirhams) Forecast Central Government ,011 1,161 Local Government Public Enterprise , ,130 1,376 1,555 (1,740) 144. Central government investment expenditures continued to grow in 1969, rising by 10 percent above the level of 1968 and surpassing DH 1 billion (Table 5.4). Investment expenditures reached 84 percent of the allocations in the Plan, the shortfall occurring largely in the social sectors, industry and mining. Expenditures on agricultural projects, mainly on barrages and irrigation networks reached DH 523 million, or over half the total, 25 percent above their level in The other main investment area was transport (DH 135 million). The share of industry and handicrafts, apart from investment by the public enterprises (see below) totalled 71 million and was largely spent on sugar and equipment grants. Expenditures on mining, tourism, and electric power were about DH 40 million each and those on housing and welfare were less than DH 30 million.

59 Central Government Investment Expenditures, (in millions of dirhams) Est Agriculture Transport (incl. Railways) Communications Housing & Welfare Education, Sports & Health Tourism Equipment for Tourism & Industry 5' n.a. Industry & Handicrafts Mining Electricity Public Buildings Military Expenditures Reconstruction of Agadir Total ,011 1, Plan estimates for 1970 have been raised by 15 percent above the original allocation, and for the three remaining Plan years ( ) the estimates have been raised by 25 percent. In the revision of the plan new projects were included and some projects previously in the Plan were cancelled, the net increase being DH 770 million. Almost DR 300 million of the net increase was added to the allocations to dams (50 percent up), DHL 160 million to transport (50 percent up) and DH 57 million to tourism (doubled). Little or no additions were made to the originally small allocations to industry, mining, electric power, housing or social services The question of sector allocation of investment funds and changes in these allocations over time requires continued serious examination of the rates of return on investments in different sectors as well as of the requirements for creating a dynamic change in the traditional non-modern urban sectors. Considering the stagnation of these sectors and the increasing burden of unemployment, greater emphasis on employment-creating expenditures (including housing and education) and on improvement of demand and productivity in the rural areas (including electricity, piped water and village industries) should be seriously considered. On the technical level, planning and budget decisions should be more closely coordinated, in particular by establishing an ongoing system which will make explicit the consequences of investment decisions on future current budgets. Financial and physical constraints (with more emphasis on the latter) should be studied more closely, as well as the general possibility of increasing the overall investment performance.

60 As in past years, Central Government investments in mining (research), and manufacturing industry (participation in sugar and fertilizers and equipment grants) represented the smaller part of total public investments in these fields. Investments by the phosphate monopoly (DH 140 million), sugar mills (about DH 100 million) and the Export Office (DH 63 million) constituted 77 percent of all public enterprises' investment, which totalled DH 395 million in The trend over the last three years shows a substantial increase in their investment program. Gross Investments of Public Enterprises, n.i.e. /1 (in millions of dirhams) Forecast Phosphate Monopoly (OCP) Railways (ONCF) Electricity Office (ONE) Sugar (SUNAB, SUTA, SUNAG, SUBM) /2 18 /2 Export Office (OCE) _ Industry Office (REI) Social Security Fund (CNSS) Others Total /1 Excluding invest'ents appearing in the central goverament investment budget. /2 Assuming investsent of SUTA in 1969 and 1970 is the same as in 1968 (DH 3.8 million). Source: Based on data supplied by the Ministry of Finance Investment expenditures of local governments are made mainly by municipalities, provinces and prefectures and are spent on roads, water and electricity, market places, slaughterhouses, public building and agricultural equipment. No data are available on the composition of the investment expenditures by the autonomous centers and rural communities.

61 Investment Expenditures by Local Government (in millions of dirhams) Municipalities Roads Water & Electricity Public Buildings Provinces & Prefectures Roads Water & Electricity Other Projects Autonomous Centers & Rural Communes (Estimate) Total Financing Government Expenditures 149. As shown in the following table, the central government's ordinary revenue increased by 20 percent in 1968 and further by 11 percent in 1969, while its current expenditures rose by 16 and 2 percent, respectively. The central government budget, which had deficits before 1967, thus showed a surplus of DH 108 million in 1968 and DH 344 million in Extrabudgetary revenue which is of the nature of current revenue but does not appears in the budget include a levy on imported sugar (which equalizes the import price with the fixed domestic price) and a surplus of the PrT. Both the levy and the surplus are earmarked to finance investment in barrages and in PTT, respectively. These revenues add to the savings of the central government as indicated earlier The current surpluses (gross savings) cover only a part of government capital expenditures and capital repayments, but the proportion thus financed rose from 3 percent in 1966 to 22 percent in 1967 and 1968 and to 48 percent in The overall treasury cash deficit (which included the overall budget deficit as well as the net deficit in extrabudgetary accounts) was thus reduced to the level of DH 700 million in 1969 after having risen sharply in previous years, reaching a peak of DH 1 billion in The overall cash deficit was mainly financed in 1969, as in previous years, by internal borrowing, foreign loans and Central Bank credit. The net increase in Treasury and postal checking deposits also contributed substantially up to Out of the three main sources, net borrowing from the private sector rose most rapidly since 1966, reaching DH 345 million in 1969, compared to DH 238 million in Most of the net rise in 1969 was in the form of short-term Treasury bills, while the net rise

62 CENTRAL GOVERINNT BUDGETARY AND EXTRA-BUDCETARY TRANSACTIONS (Treasury Cash Basis) (in ndllions of dirhams) Ordinary Revenue 1, ,132 2, L4 Direct taxes Customs duties Indirect taxes / 943 2/ 91s 2/ 1.agistration & stamp duties *t l Government properties its,te monopolies i a 336 e/ of which: OCP (_) (-) (-) / (120) (60) (60) Tobacco Monopoly (127) (134) (144) (168) (172) (190) Others, n.i.e Ordiniary Expenditure 1,971 2, ,9 2,497,665 Public debt service: interest / 129 1US 138 1', fersonnel 1,185 1,247 1,340 1,438 1,579 1,653 I,aterials & Supplies c/ 5522/ 610 e, Aain'enanee < ;ubsidies and others IUoyal Court LL 3. O `1h 4. Jur ev and PTT suius _ G.ilital repeyments _ Capf.tal expenditures A/ i/ C Over-all budg r 2 i = ;. Exttra-budgetary accounts n.i.e. (list) +l-8 -) )34 o. thers, nc. errors (rplus -) (deficit +) ?. Overall deficit ''. :inancing Treasury & postal oboddag deposits (increase) Internal borrowing (net) of which: Long term (50) (64) (76) (107) (75) (71) Medium term (120) (-30) (-15) (22) (57) (-109) Short term (9) (61) (35) O.o9) (213) (297) Dorei,,n loans of -. nch: Long term (135) (264) (196) (305) (30?) (442) Il1edium term (25) (11) (2) (5) (3) (3) Short term (net) (67) (-16) (103) (-90) (-53),'entral Bank Credit , 2n? n Treasury accounts with Central Bank _ -

63 a/ Preliminary figures y/ Estimate i Excluding DI 160 million representing the share of local government in the tax on products and services (TPS). Beginning in 1968, this share was disbursed by the Ministry of Interior (instead of being transferred directly by the Treasury) and recorded in its budget as part of its expenditures. #/ Excluding DH 160 million which are recorded as a receipt from the Phosphate monopoly (OCP) in the ordinary budget and as government participation in OCP's capital increase in the investment budgets of 1967 and 1968 (DH 100 million in 1967 and DH 60 million in 1968). e/ Includes revenues which have been recorded before 1969 as: Profits of the Tobacco Monopoly and State Monopolies and State enterprises transferred to the Regional Development Fund DH million in 1969 and iw mdllion in g/ Includes payments on internal debt and long term external debt only, i.e., excluding short term debt receipts and payments, which are given not under foreign aid. g,/ Actual payments during the fiscal year under the investment budget. The total does not correspond exactly to authorize expenditures on completed work during the year due to the time lag between authorizations and payments. hj Excluding DH 100 million representing government participation in OCP's capital increase (see d). ij Excluding ID 60 million representing government participation in OCP's capital increase (see d). 2/ Net surplus or deficit in the accounts of the "Promotion Nationale" (pablic works project) forestry projects, "Operation Engrais" (agricultural projectsz and others. Excluding receipts from the sugar lev & PTT surplus which are shown separately under item 4. ~/ Including net receipts from or repayments of short term credits (mainly U.S. and French wheat loans). Source: Ministry of Finance.

64 in medium-term securities was offset by a net decrease in long-term issues. Out of the DH 54 million net increase in medius-term internal debt in 1969, DH 30 million had been bought by insurance companies and DH 17 million are receipts from the 1968 compulsory loan. Short-term treasury bills were largely held by the commercial banks under statutory requirements (see Ch. on money). The contribution of foreign loans and grants to financing increased slightly, from DH 220 million in 1968 to DH 250 million in 1969, but was at the same level of 1966 and about half the level of Receipts from foreign aid in 1969 were far from the DH 415 million which had been estimated. Central Bank credit continued to decrease since its 1967 high and fell to DH 202 million in In 1970, an estimated 15 percent growth in central government capital expenditures (by DH 150 million), together with an estimated large drop in the current surplus (by DH 208 million), will make financing the budget deficit more difficult. However, the resulting rise in the estimated budget deficit (by DH 375 million) seems to be highly inflated, as is the estimated rise in the deficit in the extra-budgetary accounts (by DH 201 million). It is more likely that actual revenues and hence savings will exceed the estimates, and that the estimated deficit in the extrabudgetary accounts could also be narrowed down substantially. However, although receipts from foreign aid will be above those of 1969, they may still fall short of the anticipated DH 442 million. Overall, it would seem that recourse to Central Bank credit will be needed in 1970, but at a lower rate than in previous years. Given the relative inflexibility of current revenues and expenditures and the ceiling placed on government borrowing from the Central Bank, it would seem that a large shortfall in the expected receipts from domestic and foreign public borrowing would result in a shortfall in investment expenditures. Budget Revenues and Expenditures 153. Ordinary receipts rose by DH 284 million (or by 11 percent) in Actual receipts were larger than the estimates by DH 200 million (Table 5.1). This was partly due to the tendency towards conservative estimation, but largely to the much higher yield than was expected of the new tax changes implemented in January The higher tax yield on current income thus more than offset the drop in arrear collection which had added substantially to receipts in The central government relies heavily for its revenues on indirect taxes (representing 72 percent of total tax receipts in 1969) and particularly on the consumption tax and customs duties. Non-tax revenue, which accounted for approximately 13 percent of total revenues in 1969, comes largely from the Tobacco Monopoly and the "Office Cherifien des Phosphates" (OCP). The new 1969 tax measures, which were expected to yield an additional Dii 280 million or 11 percent of total revenue in 1968, relied on increasing existing tax rates rather than on introducing new taxes. The increase of the turnover tax, the most important change, was expected to yield DH 155 million, or 55 percent of the expected yield from all changes. In fact, the turnover tax increased by DH 212 million in 1969, reaching DH 503 million, or more than 73 percent above the level of It thus

65 became the largest single source of tax revenue yielding 31 percent of indirect taxes and 24 percent of all tax revenues. This result occurred, although no change was made in the exemptions, which include all exports, most hotels, restaurants and a number of basic food items and tobacco. Multiple taxation has been avoided by applying the value added system Revenue from customs duties and excise taxes, the other two main indirect taxes, increased by 16 and 9 percent respectively as a result of a higher economic activity rather than higher tax rates. Import duties increased by 16 percent, although the value of the goods imported increased by only 2 percent. The change in the composition of imports explains the difference; some capital goods and raw materials which benefit from exemption or from low rates decreased relatively, while luxury import and semi-finished products with high rates increased their share. Export duties were slightly reduced, due mainly to a drop in world prices in phosphates and stagnating mineral exports. Tariff cuts due to the Association Agreement with the EEC implemented in September 1969 are expected to affect import revenues adversely in 1970, and the abolition of the export tax on mineral (with the possible exception of phosphates) which is under consideration would also have the same effect Since 1965 tariff rates have increased for most imports except capital goods, some raw materials and essential foodstuffs and drugs (Table 5.2). In addition, all imported goods subject to custom duties as well as all imported investment goods exempted under the Investment Code are now subject to a special 2.5 percent ad valorem fiscal duty. As a result, revenues from customs increased by 50 percent during , compared with a 30 percent rise in imports. Rises in the average duties were particularly noticeable on textiles, clothing, shoes, beverages, glass, paper, yarn, cement and cars. Declines in the average duties benefitted pulp, petroleum products and trucks. Although the Moroccan economy cannot yet afford to give up protective tariffs on a large scale, it would be useful, however, to examine from time to time whether tariff concession given to certain industries and commodities should be revised downwards, in the interest of the consumer as well as to promote efficiency of industry Direct taxes rose only by two percent, although the tax rates on the higher brackets of business profits and salaries were raised. The modest increase in the yield of these taxes was largely offset by a drop in yield from its high level in 1968 (when the harvest was excellent and arrears were paid). A large rise in the estimate for 1970 is based on the assumption that new tax rates and tax base would be introduced which would increase the tax burden of the higher income class, but is doubtful whether the intended changes will be implemented in Current expenditures (excluding debt repayments) increased in 1969 by DH 49 million or 2 percent, compared to the growth rate of 16 percent in However, in 1970 current expenditure is expected to increase by 7 percent. The structure of current expenditures has changed

66 little in recent years. In 1969, the social departments - education, health, labor, youth and sports - accounted for 38 percent of total current expenditures, and defense, law and order accounted for 33 percent (Table 5.3) As in previous years, expenditures on personnel (including military) have risen faster than all others, i.e. by 10 percent as compared to 7 percent in 1967 and This development is due to a 5 percent increase in the number of employees on the one hand and to the annual salary increments, promotions and the hiring of more skilled personnel on the other. Government employment has been increasing in the last five years at the rate of 4-6 percent annually, reaching 171,000 or about 12 percent of the economically active urban population in Expenditure on personnel reached DH 1.6 billion or 63 percent of total current expenditure. However, current expenditures on other than personnel in 1969 were 9 percent below 1968, largely because the item "subsidies and other" in that year were exceptionally high (they included settlement of previous expenditures), but also due to a drop in expenditures of the Royal Court Ordinary budget revenues in 1970 are expected by the government to remain at the same level as in 1969, although a rise of DH 34 million in the yield of the agricultural tax (which, however, is unlikely to be collected this year) is recorded in the forecast. All the other taxes and duties are expected to account for slightly less than a year ago and only state monopolies and enterprises (DH 25 million), stamp and registration, and export taxes (DH 6 million) are expected to increase slightly (Table 5.1). On the other hand, the estimated rise of DH 168 million, or 7 percent, in current expenditures is mainly due to a sharp increase in materials, supplies and subsidies (which increased by 10 and 20 percent), to the "normal" growth of 5 percent in personnel expenditures and to a higher public debt service. The only significant decrease is estimated in the expenditures on defense (DH 43 million), while the bulk of the increase is found within the title "Other" expenditures where DH 123 million are alloted for expenditures not yet foreseen (Table 5.3). Based on these estimate, the ordinary budget surplus would shrink from 344 million in 1969 to 184 million dirhams in However, it is more probable that revenues will rise by some DH 100 million (or over 3 percent) considering that GDP at factor cost is expected to rise by 4.4 percent. Allowing for the fact that ordinary expenditures are likely to be slightly underestimated (particularly on education) as well as for the shortfall in the estimated agricultural tax, the budget surplus could be of the order of DH 250 million instead of DH 184 million. Revenues and the surplus could be improved, however, if efforts are made, as in 1968, to reduce arrears. Local Government Finance 161. Total receipts of local government in 1969 amounted to DH 324 million with local resources accounting for 28 percent only (Table 5.5).

67 Out of DH 232 million transferred from Central Government, the share of turnover tax is the most important source of income. The annual share of approximately DH 160 million per year was reduced by DR 21 million in 1969 (to finance the Islamic Conference in Rabat). Municipalities get about half of the local government's share of the turnover tax. They are also the only group to have substantial resources of their own and who contribute (about DH 25 million annually) to central government expenditures. Local resources consist of local taxes (such as the urben improvement tax and entertainment tax), receipts from public property, and payments for services rendered. Provinces and prefectures collect no taxes and have no property so that almost all of their resources come from the central government Borrowing by local government is limited. Outstanding external debt of municipalities stood at DH 17 million at the end of The bulk of local borrowing is also made by municipalities. The regional development fund (Le Fond d'equipement Communal) - which is operated by the "Caisse de Depot et de Gestion" and which is the only domestic creditor to local authorities - could lend funds for development projects to other than municipalities since 1967, but such lending has been negligible. Total lending by the FEC rose from DR 10 million in 1965 to about DH 21 million in 1969, but is far short of demand or need The bulk of local government current expenditures are also made by the municipalities, but over 60 percent of the investment expenditures are made by other local authorities. Municipalities operate directly, or grant concessions for the operation of water, electricity services. They also spend on municipal roads and, in recent years, undertook such projects as building schools, kindergartens and homes for the aged. A large part of the expenditures of the provinces and prefectures are made on maintaining and improving tertiary roads Shortage of funds, particularly in rural communes on one side, and increasing local needs on the other, call for serious consideration. Alternative methods for increasing resources include raising the allotments made to local governments by the central government, increasing the volume of credit by the FEC, and introducing new local taxes, such a real property tax or a particular speculation tax on idle land. However, training of local government staff and improvement of local budget organization and accounting procedures would be required if local government is to be able to administer a large volume of investment expenditures. Potential for Increasing Public Savings 165. A considerable effort has been made in the last few years to raise the savings of the central government, through instituting the levy on sugar, reducing tax arrears, raising taxes, improving tax collection and restraining the growth of current expenditures. The public enterprises have also contributed to this process through payments of part of their profits to the government. The achievement of public savings of

68 about DH 900 million in 1969 which financed 57 percent of public investment is a record which, however, should be improved upon if the government is to maintain, if not raise, its share in financing growing investment expenditures. Besides continuing the policy of restraining current expenditures, new means of increasing revenues have to be explored Central government revenue as a proportion of GDP has risen from 14 percent in 1965 to 19 percent in Substantial tax increases were introduced in 1969 and were largely responsible for the rise in savings. However, most of the increase in the tax yield came from indirect taxes, particularly the turnover tax. Direct taxes rose by only 2 percent above Taxes on agricultural incomes were not raised, and an envisaged inheritance tax was cancelled. The review of the agricultural tax and the re-introduction of the inheritance tax would contribute a small but rising addition to revenues. The agriculture tax, for example, contributed less than 2 percent of the total tax revenue in 1969 while the agricultural sector contributed 30 percent of GDP In addition to pursuing tax evaders, tax authorities could also give incentives to better tax collection by sharing tax collections and receipts with local governments. The introduction of new municipal taxes, such as a real property tax or a particular speculation tax on idle land would also increase revenues of local authorities. 4fi68. Social security in Morocco as a means of savings mobilization is still in its infancy. Its revenue has been declining in recent years and represented only 1.2 percent of GDP in 1969, compared for example with 3.7 percent (1968) in Tunisia and much higher rates in many other developing countries. Raising social security contributions is one method of increasing public savings. In general, the public tends to be less resistant to such a measure than to raising taxes Social security reserves are financed in Morocco from private contributions with no transfers or subsidies from the government. There are two social security systems: the family insurance and the social insurance scheme. Since January 1, 1966, contributions are made at the following rates: family insurance: 8% on all salaries (gross) which are paid by the employer. Social insurance: 7.5 percent on all salaries (gross), 5 percent being paid by the employer and 2.5 percent by the employee. This scheme, however, applies only on salaries of up to DH 500 per month. Parts of the social insurance surplus had to finance every annual deficit of the family insurance (Table 5.6). After meeting the administrative costs the surplus is deposited with the "Caisse de Depot et de Gestion" and earns 3 percent interest. Total deposits reached about DH 250 million in 1969 and total saving fell from DH 38 million in 1967 to DR 25 million in An increase in the contribution of the social security system to public savings can be achieved by various means, for example, by raising the DH 500 ceiling, expanding the area of insurance, making the rates progressive, raising the rates and revision of the share contributed by the

69 57 employer. A part of the reserves may also seek a higher interest return than is being paid by the CDC. An increase in social security contributions will raise public savings partly at the expense of reducing private savings Another means of mobilizing private savings for public use is the sale of part of the substantial government and CDG holdings in business enterprises and which exceeded Dh 500 million in 1969 apart from the phosphates, electricity, tobacco, fertilizer, railway and other large monopolies (Table 5.7) Finally, the effect of the efficiency and profit rate of public enterprises on the savings performance of the public sector cannot be ignored. Efforts to improve efficiency, to increase rates where feasible and justifiable, and to reduce fixed prices of raw materials (e.g. sugar beets) can have a substantial effect on the gross profits and hence savings of these enterprises.

70 VII. MDNEY, PRICES, CREDIT AND INTEREST Summary 173. Following three years in which changes in money supply kept pace with changes in GNP, and prices remained stable, a faster growth of money supply than GNP was witnessed in 1968 and Money supply increased by 17 percent in 1968 (compared with a GNP growth of 12 percent in current prices) and by 9 percent in 1969 (compared with a GNP growth of 4 percent in current prices). Prices (as reflected in the cost of living index) rose in the first quarter of 1969 but stabilized in the remainder of the year. The price rise in 1969, which averaged 2.9 percent above 1968, is attributable to the introduction, beginning in 1969, of higher taxes on incomes, goods and services, as well as to the rise in liquidity. A smaller price rise was also registered in the first quarter of Monetary policy continued in 1969, and is expected to continue in 1970, to aim at reducing government borrowing from the Central Bank, increaaing sale of government bonds to the private sector, and restricting commercial bank credit to the private sector. Credit by the specialized banks to agriculture and tourism expanded fast in 1968 and 1969 but that to industry showed little change. The bank (rediscount rate) has been held at the level of 3.5 percent since November, Concessionary rates are charged on investment credit in agriculture, industry and tourism. Money Supply 175. The higher rate of growth of incomes and output since 1966 has been associated with a substantial increase in the money supply. Both money in circulation and deposits have risen, with the former rising at the relatively high rate of percent per annum. Besides the rise in demand for transaction purposes, resulting particularly from better harvests, the fast expansion in currency in circulation can be attributed,to wider monetization of the agricultural sector (as new cash crops were introduced) as well as to the probable increase in savings (hoarding) held by farmers and workers in the form of cash The main factor affecting the rise in money supply since 1966 has been the substantial and steady increase in net government borrowo.ng which reached DH 520 million in 1969, thus exceeding the total rise in monly supply in that year. Credit to the private sector, which rose sqbstantially to finance the 1968 record harvest, fell in 1969, thus acting as a`&flationary element. As to the effect of changes in net foreigi assets, a reduction of DH 100 million in 1967 largely offset the rise in the credit to the private sector, while the substantial rise of DH 122 million in 1969 was an expansionary factor.

71 - 59;- Factors Affecting the Money Supply (change, in millions of dirhams) Dec. Dec. Dec. Dec. Dec. Currency Demand Deposits Money Supply Foreign Assets (net) / Claims on Government Claims on Private Sector Quasi Money & Other (net) /1 These figures follow a slightly different classification than that used in the external accounts. Source: Banque du Maroc (Table 6.1) The rise in net government borrowing during 1967, 1968 and 1969 was largely the result of two opposite trends (Table 6.1). On the one hand net government borrowing from the Central Bank including some small net borrowing by CNCA, CIH and several public enterprises dropped steadily (from 431 to 311 and 201 million DH). On the other hand, its net borrowing through sale of bonds to the commercial banks rose at a faster rate (from -137 to 82 and 211 million). In 1969 the use of deposits with the treasury rose (largely the counterpart of an Italian credit of DR 51 million) and those with the Cheques Postaux also increased substantially (by DH 83 million). The increased borrowing from the commercial banks, particularly in 1968 and 1969, was achieved through a statutory requirement that the banks hold a minimum proportion of their dirham deposits in the form of treasury bonds (25 percent since mid-1967, raised gradually to 30 percent from March to mid-may 1969) The increased purchases of treasury bonds by the commercial banks in 1968 and 1969 was accompanied by a restriction of credit to the private sector. Beginning in November 1966 this restriction was achieved principally through fixed ceilings on rediscount facilities accorded to each commercial bank and through a high marginal reserve requirement (generally 25 percent of additions to dirham and exchange deposits after a reference date). In 1969 an absolute limit was placed on short term domestic credit extended by each bank (equal at the end of April to that of end September 1968), and the ceiling was raised by 5 percent for end Restrictions were seasonally relaxed by various means during the summer, particularly in 1968, to help finance the marketing of the cereals harvests It is expected that in 1970 the government and the Central Bank will continue to follow the same monetary policy which aims at reducing its borrowing from the Central Bank, raising sales of treasury bonds to

72 commercial banks and insurance companies, and building up the foreign exchange reserves. Money supply is expected to increase at somewhat higher rate than the expected real growth of GDP, i.e. more than 4.5 percent. The expansionary effect of an expected surplus in the balance of payments would be offset by a planned decrease in net borrowing from the Central Bank, compared with Prices 180. Both the wholesale price index and the index of the cost of living are inadequate as a measure of price changes. The wholesale price index which covers foodstuffs and industrial goods (69 items) in Casablanca is particularly weak. It has a 1939 base, which results in the exclusion of new industrial products and gives a strong (77 percent) weight to foodstuffs. The cost of living index which has a 1959 base covers 111 items and gives a 55 percent weight to foodstuffs, 17 percent to housing, 16 percent to helath, transportation and miscellaneous and 12 percent to clothing. Since the prices are fixed by central or local government (by 1957 law) several basic foodstuffs (bread, sugar, meat, milk, eggs, some fruits and oils, wines and tobacco), as well as fuels, water, charcoal, electricity, gas and transport, the index tends to be inherently stable. In addition, the government determines the wholesale price of or the profit margin or mark-ups on flour, rice, salt, fresh and cinned fish, butter cheese, some fruits and vegetables, cotton textiles, soap, tea, coffee, school supplies as well as agricultural inputs and machinery The cost of living index for a working family in Casablanca showed practically no change during 1966 to 1968 (Table 6.2) and rose by 2.9 percent In The rise, which took place in the first quarter of the year, is partly attributable to the rise in liquidity (following the marketing of the exceptional harvest in the last quarter of 1968 and higher government expenditures in 1969); it is also attributable to the tax increases on goods and services begun in 1969 which were passed on to the consumers. The government made an effort in that period to prevent excessive price raises on the retail and wholesale level (a 1962 law amending that of 1957 requires that any price increase of uncontrolled items should be approved by the central or local authority concerned). The effect of changes in unit price of Imports is uncertain, since devaluation of the French franc in July 1969 probably helped in restraining unit price rises in imports from other areas. The stability of wage rates and government salary scales have also been a restraining factor on the demand side. Banking and Credit 182. Coomercial banking and credit are regulated by the Royal Decree of 21 April 1967 which empowers the Minister of Finance to authorize setting up of banks, determine the minimum capital and to control banking and credit operations. The Minister presides over an advisory committee called Comite du Credit et du Marche Financier, which is comnosed of the governor of the Banque du Maroc as vice-president, the vice-governor of the Banque du Maroc, several government officials, directors of the specialized banks,

73 and four representatives of the banking profession. The Bank of Morocco is charged with the implementation of measures related to money and credit. The law also provides for banks to be members of a banking association (Groupement Professionel des Banques) to supervise the application of decisions of the Ministry of Finance and directives of the Bank of Morocco, as well as to represent the banks and study matters of common interest. At the end of 1969 there were 18 commercial banks with 219 branches, of which 45 were in Casablanca Specialized banks and financial institutions other than the commercial banks are governed by separate laws or decrees. These include the Bank of Morocco itself, La Caisse de Depot et de Gestion, CNCA (Caisse Nationale, the Offices of the Cheques Postaux, the BNDE (Banque Nationale pour le Developpement Economique), the CIH (Credit Immobilier et Hotelier) and La Caisse Moroccaine des Marches. The Credit Populaire, composed of nine Banques Populaire Regionale and two branches of the Banque Centrale Populaire, could be partly or wholly subjected by decree to the provisions of the banking law. The latter were included in the system in January The banking law authorizes the Minister of Finance, after taking into consideration of the view of the Committee, to issue decrees fixing the minimum or maxiumum ratios between any two or more elements of the assets and the liabilities of each bank; fixing the ratios of holdings of short term government securities and of reserves with the Bank of Morocco to demand liabilities; fixing the minimum or maximum maturity, volume, interest rates or the conditions relating to credit or categories of credit; fixing the maximum or minimum conditions relating to funds received from the public In addition to the measures mentioned earlier which were concerned with credit control, several requirements have been instituted recently to ensure the solvency and adequate liquidity of the commercial banks. It was thus required that they should have a minimum equity capital of DH 2 million by the end of 1969; that their equity capital, reserves and undistributed profits should represent at least 5 percent of their total liabilities by the beginning of April 1970; and that their short term assets should reach at least 50 percent of their short term liabilities by the beginning of January Outstanding credit by the whole banking system reached DH 2.75 billion at the end of Commercial banks (including Credit Popularie) accounted for 73 percent of the total, the specialized banks (CNCA, BNDE, CIH) for 26 percent and others for one percent (Table 6.3). Short term credits represented 78 percent of the total, medium term credits 7 percent and long term credits 15 percent While commercial banks extended the bulk of short term credits and some medium term credits, the BNDE and CIE extended practically all the long term credits to industry and to hotel and other construction respectively. The CNCA (agricultural credit) accounted for 11 percent of total short term credit as well as almost one quarter of medium term credit (Table 6.3).

74 The dlstribution of bank credit among economic sectors and subsectors shows that while agriculture and commerce accounted for one fifth each of total outstanding credit, the industrial sector accounted for as much as 45 percent of the total (Table 6.4). Most of this industrial credit (DH 931 million) was short term credit extended by the commercial banks to finance industrial production and marketing and some (possibly DH 100 million) was medium In terms of growth, total credit increased at the average rate of 14 percent per year from 1965 to 1969 (10 percent for short term, 20 percent for medium term and 38 percent for long term credit). Short term credit expanded at a fast rate in agriculture and industry, particularly construction materials and textiles (Table 6.5). Interest Rates 190. The credit controls described above, the existence of strict exchange control and absence of inflationary pressures have made it possible for the authorities to maintain an interest rate structure at levels well below those prevailing in many other countries. The discount rate of the Bank of Morocco is 3.5 percent and it has not been changed since November Government bonds are held largely by banks and other financial institutions which are required to hold certain proportions of their assets in government paper. Yields on these bonds are graduated according to maturity, being 3.5 percent for 1-year Treasury bonds, 4.6 percent for 5-year bonds, 5 percent for 10-year bonds and 6.35 percent for 15-year bonds Rates paid by commercial banks on deposits are correspondingly graduated so as to give a "spread" of 0.5 percent between the rates paid on deposits and obtained on government bonds of comparable maturity. The weighted average rate paid on all deposits is estimated to be less than 1.7 percent due to the preponderance of demand deposits.

75 Interest rates charged by financial institutions in Morocco range from 3.5% to 13.5% (Table 6.7). They can be summarized as follows (in % per year): Basic Other Central Bank Discount rate Advances (one month) 4.56 CNCA (agriculture) Caisses locales (1-5 years) 4.00 Warrantage 4.75 Production Advances Investment (10-15 years) CIH (Hotels and Housing) Hotel construction & materials (10-20 years) 4.50 House construction (up to 15 years) BNDE (Industry etc.) Rediscountable equipment credit (2-5 years) Direct investment credit 7.00 CMM (Public entities etc.) Advances (up to 1 year) 6.20 Guarantees (up to 1 year) 6.75 Commercial Banks Warrants 5.75 Commercial credits, rediscountable Comm. credit, not rediscountable Advances The weighted average rate of interest in 1969 by the specialized banks is estimated at 5.7 percent per annum and by the commercial banks 7.1 percent per annum. The weighted average of interest rates charged by all banks (excluding the Central Bank) on their credits in 1969 is estimated at 6.8 percent.

76 The present interest rate structure has been defended on the grounds that a general increase in rates would encourage inflation, which the Government has succeeded in controlling since 1965, directly by increasing production costs and indirectly through increasing expectations of further increases in the future. It would also raise the cost of servicing domestic debt. It is also claimed that rate discrimination between different recipients of Government credit provides a convenient way of subsidizing particular economic sectors such as tourism, agriculture and industry and that at least as far as lending by official institutions is concerned project examination can ensure that a low interest rate does not result in poor projects being financed. The question of the appropriate level of interest rates deserves further study.

77 VIII. EXTERNAL TRADE AND FINANCE Summary 195. An improvement was shown in the balance of payments position in 1969 due mainly to reduced imports of wheat, higher exports of olive oil, and increased receipts both from tourism and from remittances of Moroccans working abroad. These developments resulted in the reduction of the deficit on current account (including current transfers) from levels of DH 470 million and DH 460 million in 1967 and 1968 respectively, to DH 220 million ($43 million) in A net capital inflow of DHi 325 million in 1969 thereby permitted net foreign exchange assets (public and private) to rise by DH 105 million ($21 million) to reach $82 million, or the equivalent of one and a half months' imports. The Government expects a widening in the trade deficit in 1970 (despite a good harvest) and at the same time a substantial increase in receipts from public foreign loans, which would result in an overall surplus in the balance of payments of some DH million During the early and mid-1970's, some further widening of the current account deficit is expected, particularly if Morocco accelerates the pace of economic development. Prospects are good for growth in exports of phosphates and citrus and in tourism, but the potentialities of the EEC association for exports of industrial products have yet to be proved. The external debt service ratio is likely to rise from about 8 percent in 1969 to about percent in The burden could become a serious problem, however, by the end of the decade unless both economic performance is improved and foreign lending is continued in large measure at concessionary terms. External Trade 197. In the 1960's, Morocco's merchandise exports rose at an average annual rate of only 2.7 percent, while imports rose by 3.4 percent annually, giving rise to an average annual trade deficit of some DR 150 million for the period The slow growth in total trade over the past decade was both a cause and effect of the general sluggishness of the economy as a whole. Over the next several years, some widening of the trade deficit is likely, especially if the Government raises the share of investment in the total product In 1969, the deficit in the balance of merchandise trade was reduced by somewhat more than DH 100 million, falling from levels close to DH 300 million in 1967 and 1968 to below DH 200 million in The improvement was attributable to a 7-1/2 percent rise in exports accompanied by only a 2 percent increase in imports (compared with 6 percent rises in both exports and imports in 1968).

78 The rise in exports in 1969 occurred despite a disappointing year for citrus and phosphates, Morocco's major traditional exports, thanks to an exceptional increase in olive oil exports and to smaller increases in exports of other agricultural products and in textiles (Table 3.1). Citrus exports fell by some DH 30 million to a level of DH 390 million as both volume and prices declined due to adverse weather and intensified foreign competition, particularly from Spanish producers. Since the major proportion of citrus (as well as tomato and other fresh vegetable) exports takes place in the first half of the year, earnings from citrus exports in 1969 were affected to a small extent only by the French devaluation (by 12 percent) in August 1969 and by the rise in the French customs duty from nil to 4 percent as of September 1 under the agreement with EEC. Phosphate exports rose in 1969 by only DiI 7 million to reach about DH 550 million - a level still well below that achieved in This disappointing record in recent years is attributable both to delays in the program for improving and expanding domestic production facilities and to falling prices resulting from increased competition in world markets, especially from American producers. An increase of DH 84 million in olive oil exports in 1969 alone accounted for nearly half of the total rise in goods exports during the year. This was a peak in the production cycle which is not expected to recur in Other exports recording gains in 1969 were textile prod.u-ts (up DH 44 million), wine (up by DH 13 million), fruit and vegetable conserves (up DH 14 million), juices (up DH 12 million), cotton (up DH 28 million), and barley (up DH 17 million). Manufactured exports also included leather and leather goods, pulp and paper, and fertilizers. Increases of about DH 6 million were recorded in 1969 for each of the first two of these, together offsetting the decline in fertilizer exports which was attributable mainly to growing internal use of phosphate fertilizers In 1970, exports may not rise at the same rate as in 1969 despite an expected rise in citrus and phosphate exports. Notwithstanding the adverse effects of the 1969 French devaluation and the floods in the Gharb plains in January 1970, an increased citrus crop plus improved marketing arrangements with EEC and Eastern Europe can be expected to raise citrus export earnings in 1970 possibly by DH 50 million or more above their 1969 level. The projected increase of DH 40 million in export of phosphates in 1970 is much higher than in previous years and is based on the assumption that prices will not decline further during this year. The increase of DH 15 million recorded in 1969 in the value of other mining exports was attributable to some recovery in the level of iron ore exports, but declines are expected in 1970 for all minerals other than phosphates. Wine exports, which are expected to increase again in 1970, benefitted from the extension by France of a special supplementary quota. The rise in exports of conserves is expected to continue in 1970, reflecting growing capacity. Juice exports, which in 1969 were aided by the greater utilization of fruit rejects in juice production, will probably not rise much in Barley exports will continue in 1970 to draw on the stocks accumulated since the record cereals harvest of 1968, The immediate outlook for textile and clothing exports is uncertain as losses

79 are foressen in the important Algerian market while the EEC agreement is expected to facilitate further gains in the European market Imports in 1969 (Table 3.2) recorded a 2 percent rise over 1968, but if wheat imports are excluded, the increase came to 9 percent compared with an 11 percent rise in (Wheat imports fell from DH 303 million in 1967 to DH 216 million in 1968 and to DR 40 million in 1969.) Besides the growth in demand in the economy, the Government's import liberalization measures in 1969 (stimulated partly by the EEC agreement as of September 1969) contributed'to this rate of growth. Increased Government investment outlays and the full implementation of the EEC agreement are expected to give rise to a similar rate of growth in imports (excluding wheat) in Some increase in wheat imports is projected by the Government for 1970, but in view of the better-than-average crop yields in 1969 and 1970, this may result in the increase in stocks needed to cope with future droughts Absolute declines in 1969 imports were recorded in Sugar, edible oil and fertilizers. The steady decline in sugar imports from a 1964 level above DH 300 million to DH 110 million in 1969 reflected rising domestic sugar production. The drop in edible oil imports reflected both increased local production and substitution in favor of low priced imported butter. Fuel and raw material imports (excluding edible oils) rose by only about 4 percent, the rise being restrained by a 10 percent drop in crude oil prices Imports of semi-finished products rose in 1969 by about DH 120 million (19 percent) over 1968 while imports of capital goods increased by DH 75 million (13 percent). The latter rise reflected mainly the stepped-up investment program of the Government continuing under the farmework of the Five-Year Plan, but increased activity of the private sector as well was reflected in 1969 by a 14 percent increase in intermediate metal product imports, a 42 percent rise in textile yarn, and a 12 percent rise in industrial equipment. Imports of non-food consumer goods, while still below the levels of the years , rose in 1969 by 11 percent above the 1968 level, with over three-fourths of this increase attributable to imports of automobiles and their parts. The E.E.C. Agreement and Direction of Trade 204. On September 1, 1969 an association agreement between Morocco and the European Economic Community came into effect. It is a five-year arrangement affecting commercial relations only, though it is expected that negotiations will be resumed within three years aimed at broadening relations to include technical assistance, financial and labor movements One of the aims of the present agreement is to compensate Morocco for lossses resulting from the cessation of French preferences on various agricultural products; the most important such provision is an 80 percent reduction in the common external tariff on citrus (i.e. to 4 percent ad valorem), which will also enter the European market free

80 of quantitative restrictions. Agricultural exports for which there is not yet an agreed E.E.C. policy (such as wines and some processed agricultural goods) will continue to enjoy their privileged status in the French market. Varying concessions have been granted also to Moroccan exports of olive oil, fish and fish products, and other processed agricultural goods. Moroccan industrial exports (other than processed goods) will receive virtually full intra-community treatment, i.e., they will enter E.E.C. free of cuties or quota restrictions. Counterpart concessions granted by Morocco comprise both tariff reductions (averaging about 12.5 percent) and the establishment of quotas for certain imports from the E.E.C. The tariff reductions are applied uniformly to all trading partners. The quotas (which do not constitute purchasing obligations) are based upon the shares of imports from the E.E.C. in recent years, so that their establishment per se, will not involve a change in the direction of Morocco's trade in the immediate future In some respects, however, the E.E.C. association may be expected to reinforce the recent trend toward diversification of trade with Europe. This may be particularly the case with citrus and other agricultural and processed agricultural goods which now have lower preferences in France but greater preferences in the other E.E.C. countries than before. E.E.C. countries accounted in 1969 for about 59 percent and 52 percent of Morocco's exports and imports, respectively. France remains by far the most important of Morocco's trading partners, but between 1964 and 1969 the share of Morocco's exports to France fell from 43 percent to 35 percent, while Moroccan purchases from France also dropped from 39 percent to 30 percent (see Table 3.3). Another significant trend in recent years has been the increasing trade with Eastern European countries conducted through bilateral payments agreements. Morocco's exports to Bulgaria and Russia, for example, rose from DH 37 million in 1965 to an average of DH 119 million in Morocco's prospects for significant growth in her major exports, citrus and phosphates, may depend in large measure upon her ability to further penetrate these Eastern European markets. Services and Transfers 207. The services account in the balance of payments (Table 3.4) showed a substantial increase in 1969 in net tourist receipts which was more than offset by a rise in government expenditures abroad. The result was a slight deterioration in the recorded balance on services from a deficit of DH 216 million in 1968 to one of DH 226 million in Estimated gross receipts from tourism in 1969 increased by DH 165 million to DH 614 million. This would make tourism Morocco's most important single source of foreign exchange earnings, surpassing phosphates for the first time. The estimate, however, is based not on actual recorded receipts but on an estimated average per capita tourist expenditure of DH 1,000, and is probably much higher than actual receipts. In any case, the rate of growth of receipts for tourism has risen rapidly in recent years as the number of stopover visitors increased from 400,000 in 1967 to 481,000 in 1968 (a rise of 20 percent) and to 621,000 in 1969 (a rise of 30 percent).

81 SWuMary Dlance of PaYrrents (in millions of Dirhams) (govit forecast) A. Goods (f.o.b.) Exports Imports 2241t Trade Balance '; B. Services (net) Travel Private Investment Income (-215 Interest in Public Debt Other Services Balance C. Current Transfers (net) Worker remittances Fensions Other 'A 10 Balance on Transfers Balance on Goods, Services, & Transfers (A+B+C) =i D. Capital Movements (net) Public Capital Official Grants (153) (124) (171) (154) (160) Long-Term. Capital (287) (317) (226) (244) (389 Foreign Holdings of Dirhams (-60) (-19) (7) (-46) ( Private Capital Long-term Investment (37) (58) (37) (34) (27) Trade Credits (90) (10) (6) (84) (55) Other Private Capital (-157) (-113) (-115) (-15) (-170) Balance of Non-Nonetary capital Movements O 377 L2 t461 Overall Surnlug gr Deficit (-) (A+B+C+D), " _k Errors and Omissions (net) -1-1 E Monetary Movements (increase= -) Change in Net Foreign Assets Bank of Morocco " -68 Net IMF Position (-5) (5) (236) (46) Conwmercial Banks Source: Statistical Appendix, Table 3.4

82 Estimates for 1970 look to a 15 percent increase above Foreign exchange earnings are forecast to rise somewhat more slowly, reflecting a presumed gradual decline in average spending per tourist The deterioration in the balance on Government transactions was attributable to a DH 36 million decline in receipts (which had been exceptionally high in 1968) and to a DH 121 million increase in outlays. Accounting for the latter were substantial increases in diplomatic expenditures and in overseas payments to contractors engaged on the Government's investment program, as well as to the inclusion in 1969 of Government payments abroad (financed directly abroad from bilateral grants) and to a sizeable transfer abroad on official account for unspecified purposes. The Government expects little change in 1970 in the balance on official transactions Transfers abroad of private investment income and interest payments on the public debt amounted to DH million each, as in 1968, and only slight rises are projected for Freight and insurance outlays are expected to rise as merchandise imports increase, though little change is expected in the deficit on other non-factor services such as royalties, non-merchandise insurance and communications. For all services, therefore, the expectation is that the 1970 net deficit will not be very much changed from the DH million level of recent years A major factor accounting for the improvement in Morocco's 1969 balance of payments was the three fold increase in net current transfers from aborad to DH 198 million. The most significant factor was the increase in worker remittances from DH 200 million in 1968 to DH 302 million in The reasons for this large rise appear to have been the rise in the number of workers abroad (the number of registered emigrants doubled from 1968 to 1969, from 12,000 to 24,000), a better organization of the remittance channels and procedures, and the acceleration of transfers in anticipation of the French franc devaluation. Because this last factor was unique to 1969, reported remittances may not increase significantly in 1970, even though the number of workers abroad has continued to rise. However, the reported figures for remittance inflows (for all years) appears to be substantially underestimated. Net pension receipts are expected to change little in An increase in the public transfer abroad forecast for 1970 reflects the Government's pledged contribution of DH 20 million to the Organization for the Liberation of Palestine. The Capital Account 211. A moderate improvement in the deficit of private capital in 1969 was approximately offset by a decline in the net inflow of public capital. In consequences, the net inflow of capital (both public and private) remained virtually unchanged at a level of DH 330 million which was below the 1966 and 1967 levels of DH 350 million and DH 380 million, respectively.

83 The narrowing of the deficit in net private capital movements in 1969, resulted almost entirely from an increase in trade credit balances. Net private long-term investment remained virtually unchanged, a rise in foreign direct investment and long term loan receipts (from DR 40 million to DH 69 million) being offset by a substantial rise in the outflow of foreign investment funds (from DE 7 to DH 38 million). Of the long-term private capital inflow, 40 percent originated in the United States, 34 percent in France, 13 percent in Switzerland and 6 percent in Germany; in terms of sectoral allocation, 28 percent was directed to industry of which 5 percent texitles, 18 percent to petroleum exploration, 10 percent to commerce, 8 percent to tourism and 7 percent each to agriculture and banking. Other gross private payments, which have remained at the level of about DR 200 million in recent years, reflect errors in estimate of tourist receipts as well as possible unrecorded capital outlfow. For 1970, the Government has forecast a renewed deterioration in the overall balance on private capital, from a deficit of DH 27 million in 1969 to one of DH 88 million (exclusive of the utilization of blocked accounts), due to a further expected outflow of foreign investment funds and a drop in trade credit balances In 1969, net public capital inflow, at DR 352 million, was 13 percent below the level of 1968 as well as below that of 1967 and 1966 by 17 and 7 percent, respectively. The main developments in this account include a substantial drop in receipts from foreign exchange loans, from DH 253 million in 1968 to DH 155 million in 1969 (which was also about the average for ). Net receipts, after payment of amortizations, similarly dropped from DH 161 million to DR 67 million. This reduction was completely offset by a rise in net receipts from commercial credits, largely due to lower repayments compared with A DR 46 million reduction in foreign holdings of dirhams also contributed to the overall drop while grants (DH 154 million) and net loans in dirhams (DH 55 million) remained, as in previous years, the major sources of public capital inflow. Grant aid has come almost entirely from France (mainly to support some 7,000 teachers and 3,000 other technical assistance personnel) and from the United States (mainly in the form of food aid) These developments in the public capital movements in recent years reflect both the modest role that net foreign public borrowing has played in financing exchange needs of the public sector, as well as the continued dependence on commercial credits and grants to finance such needs. Over DH 600 million of public loans and grants during were extended to finance wheat imports during poor harvest years. In the period , net public borrowing by Morocco (excluding grants which went largely to finance technical assistance services but including wheat loans) averaged about 19 percent of public fixed investment and gross public borrowing averaged 37 percent of public investment. In October 1969 the Consultative Group concluded that Morocco's recent economic performance and development prospects warranted continued, if possible, increased assistance in -rder to maintain and increase the momentum already achieved.

84 The principal sources of official foieign assistance (including grants) on a disbursement basis in the period , were the United States (42 percent), France (24 percent), Germany (17 percent), the World Bank Group (9 percent) and Kuwait (5 percent) (Table 3.5). Loans in local currency over this period averaged about 13 percent of total borrowings. New loan commitments during 1969 totalled over DH 500 million, bringing total undisbursed public loans to about DII 1.1 billion as of the beginning of Of this total, bilateral government commitments comprised 60 percent, the World Bank Group 40 percent. Both France and the World B ank Group substantially increased their new lending commitments during 1969, while the commitments of Germany and the United States were markedly below the rates of 1968 and earlier years. The immediate outlook for foreign cpaital availabilities is generally favorable. Among the major donors, the prospects for future United States aid appear uncertain, but a major new French commitment of both project aid (DH 76 million) and balance of payments support (DH 100 million) was made in the spring of At least for the current year, therefore, the prospects are good that total capital inflows will be more than sufficient to cover the projected increase in the deficit on goods, services and transfers plus amortization payments, thereby permitting reserves to rise again in 1970, though not by as much as in Exchange Reserves 216. From the end of 1965 to the end of 1968, Morocco's net foreign exchange reserves fell by one half, from $121 million to $61 million (DH 611 million to DH 310 million) (Table 3.5). This decline stemmed mainly from the effects of the droughts, the sluggish export performance in the period, and the growing foreign exchange demands of an accelerated development program. Gross reserves fell from $147 million in 1965 to $114 million in 1967, then rose to $131 million in 1968 as Morocco fully drew its $50 million standby credit from the IMF. As a consequence of the favorable developments in the 1969 balance of payments as described above, gross reserves grew further to $174 million and net reserves rose in 1969 by $21 million to reach $82 million - equivalent to just over 1-1/2 month's merchandise imports (c.i.f.). While there was an additional standby drawing of $10 million, the net IMF position changed by less, falling from a deficit of $34 million to one of $37 million. Morocco's reserve position continued to improve in the first quarter of 1970 as gross official holdings of gold and convertible foreign exchange rose by $27 million, of which $15 million comprised an SDR allocation The reserve position in 1969 has improved in relation to 1968 but has yet to regain the 1965 to 1967 level. Given the uncertainty affecting the market for certain exports (notably phosphates) and in view of the balance of payments' vulnerability to adverse weather conditions, the expected rise in debt servicing and the need to make repurchases from the IMF in the coming years, the level of exchange reserves is inadequate.

85 Medium-Term Prospects 218. If Morocco is to accelerate its pace of development in the early 1970's, both exports and imports will have to grow more rapidly than in the 1960's, with a likelihood that total imports will rise moderatley faster than exports. Total external financing requirements will also be increased by the need to support steadily rising amortization obligations on past and future external debt. Foreign exchange reserves will have to be augmented even to maintain the present low proportion of imports, and it will also be desirable to raise that proportion. Projections of private foreign capital movements are particularly tenuous, of course, but if only slight changes in this source of finance are realized, then the implied requirement for foreign public capital might rise to about DH 1.2 billion a year by 1976 compared with about DH 600 million realized in recent years. This is shown in an indicative projection of Morocco's balance of payments for 1976, as follows: Projected Balance of Payments (in millions of dirhams) Exports of goods and services 3,903 5,400 Comodity Exports 2,450 3,140 Mon-factor services 926 1,580 Factor income Imports of goods and services 4,153 6,290 Commodity imports 2,641 4,130 Non-factor services 946 1,480 Factor payments Current account deficit Current transfers, n.i.e Private long term capital, net Public long term capital, gross 577 1,210 Amortization of public long term capital Other capital movements, net Change in reserves (increase - -) Total exports of goods and services are forecast to increase at an average annual rate of about 5 r-cent over the next several years, but commodity exports may rise bv le-. -nan 4 percent annually. As is shown in the table below, Morocco's major two traditional exports - phosphates

86 and citrus - are expected to grow fastern than the average for all commodity exports. Citrus exports will benefit from special provisions of the E.E.C. accord, but prices may fall under pressure from Spanish and Israeli competitors. Phosphate exports may also be subject to falling prices, though it is not now possible to predict what will be the net impact of the exploitation of the Spanish Sahara deposits on Moroccan exchange earnings. The outlook for exports of potatoes and other vegetables is generally promising, but other agricultural products, including tomatoes and wine, do not have favorable near-term prospects for growth. Commodity Export Projections (value in millions of dirhams) Actual Actual Proj. Annual Rate of Change (%) / /76 Agricultural Products Citrus Fruit Tomatoes Potatoes Other Vegetables Wine Other Total Agricultural 1,021 1,198 1, Industrial Products Phosphates Other mining Canned fish Fruit & vegetable conserves Fruit & vegetable juices Fertilizers Paper and pulp Textiles and clothing Other Total Industrial 1,198 1,258 1, All Commodities 2,219 2,456 3, The outlook for Morocco's industrial exports in particular will depend very much on the efforts of private and official producers in improving the productivity of existing enterprises, in aggressively promoting Moroccan exports in new markets, and in seeking and encouraging foreign as well as domestic entrepreneurs for potential exportoriented industries. Free entry of Moroccan industrial goods to the Common Market could represent a significant opportunity for export expansion. A number of specific measures aimed at realizing the benefits

87 of this association as well as at generally enhancing export incentives are contained in the report of the IBRD industrial mission of The prospects for increasing exports of processed foods, fertilizers, pulp, textiles and clothing appear fairly promising. Mining exports (other than phosphates) will decline in the immediate future, however, and the medium-term outlook for this sector is not encouraging - barring the discovery of new deposits through exploration efforts currently underway. The development of new export industries (e.g. various mechanical goods, vehicle assembly, electronic components) will partly depend on Morocco's success in attracting foreign entrepreneurs having the requisite knowledge of production technologies and marketing opportunities Exchange earnings from tourism are projected to rise by 10 percent annually (starting from an inflated base) through the early 1970's and remittances from Moroccans working abroad should also rise steadily, possibly at the rate of 6 percent per year. Only slight increases are projected for other exports of invisibles. Altogether, earnings from exports of goods and services are expected to increase at just under 5 percent annually in the period As noted, total imports seem likely to rise somewhat faster than exports in the near future. Outlays on sugar imports will be reduced as the volume is expected to fall from its 1969 level of 253,000 tons to about 180,000 tons by 1976, and additional savings may result if prices continue to fall as expected. Wheat imports, on the other hand, are expected to constitue a growing burden as output will rise more slowly than consumption demand. Thus, wheat imports which amounted to only 100,000 tons in 1969 may increase more than five-fold by assuming an "average" yield for that year. If poor harvest years are not fully balanced by good years, then wheat imports can be expected to exceed an average of DH 200 million a year over the period and may be double that in a bad year. Because of this vulnerability, therefore, it is especially desirable that exchange reserves be built up to an adequate level to meet such an evantuality Imports of other food products should rise only moderately as should imports of consumer goods generally. Capital goods imports should continue to increase rapidly, perhaps doubling by 1976, if in the next Plan the Government continues its efforts to raise the share of investment in total output. The demand for fuels, raw materials and other intermediate goods may be expected to increase in the order of 50 percent in the period Outlays for invisibles other than factor services may grow roughly apace with commodity imports, i.e. at an average annual growth rate of over 6 percent, though these could be less if stringent controls were placed on tourist expenditures by Moroccans. Factor income payments may increase slightly more rapidly than this, reflecting mainly growing interest payments on the public debt.

88 Assuming that total exports and imports evolve approximately as forecast above, the current account deficit by 1976 could be in the order of DH 900 million, which together with expected required amortization obligations of DH 450 million and desired reserve accumulation of DR 50 million per year (to bring them up to two and a half months' imports), would result in a total external financing requirement of around DH 1.4 billion ($270 million) in Of this about DH 1.2 billion ($240 million) would be the approximate amount to be financed from public capital inflows. External Debt and Creditworthiness 226. Morocco's publicly guaranteed external debt (on a disbursed basis and repayable in foreign currency) increased at an average rate of 15 percent annually between the beginning of 1965 and January 1970 to reach a value of $568 million (DE 2.9 billion) (Table 4.1). Of this outstanding amount, 75 percent consisted of loans from governments, 11 percent was in the form of suppliers' credits, 9 percent consisted of IBRD/IDA loans, and publicly-issued bonds comprised the remainder (Table 4.2). Also at the beginning of 1970, public external debt repayable in local currency totalled $242 million (DH 1.2 billion) while unguaranteed suppliers' credits held by the private sector were estimated at $28 million (DH 141 million). Altogether, external debc repayable in foreign exchange is thus estimated at close to $600 million, and the grand total of all external debt at about $840 million The average terms on the publicly guaranteed debt repayable in foreign exchange have been quite concessionary, though there appears to be a recent trend towards hardening of the terms. The grants element on new debt (at a 10 percent discount rate) fell from 40.9 percent in 1965 to 34.6 percent in 1969 (the weighted average interest rate rising from 3.8 percent to 5.6 percent) The servicing of this debt has risen from $18 million in 1964 to $65 million in Total interest and amortization payments averaged 10 percent of the disbursed debt outstanding between these years. The data on debt service from IBRD sources varies from those of the balance of payments sources (partly because of the inclusion in the latter of short term-wheat credits). As indicated in the following table, the ratio of public debt service payment to exports of goods and services has risen from about 3 percent in 1964 to about 8 percent in Debt Service Ratios, (as percentages of total goods and services exports) IBRD data Balance of payments data

89 In the medium run, the outlook is for the debt service ratio to continue to rise, reaching perhaps 12 percent by 1976, assuming the balance of payments evolves roughly as forecast by the indicative projections above. From the standpoint of both budgetary and external exchange availabilities, Morocco's debt servicing requirements appear likely to remain manageable over the next several years - assuming that both savings and export performance are better than during the 1960's. The long-term outlook, however, is for the debt burden to rise more steeply after 1976, partly because the average maturity and grace periods of recently contracted debts have been quite long, and partly because net capital inflows may have to increase through the 1970's in order to sustain the further increases in the investment rate to achieve an adequate growth rate in total output Analysis indicates that Morocco's debt service ratio is likely to be only moderately sensitive between now and the late 1970's to fairly wide variations in average lending terms, but much more sensitive in the 1980's. Moreover, unless at least a 5 percent average annual rate of export growth is achieved, the debt service ratio may approach 20 percent by the end of the decade. Altogether, future prospects suggest that Morocco's capacity to service external debt should enable it to borrow substantially larger amounts on conventional terms than in recent years, provided that there is no deterioration in the pattern of resource allocation and that reasonable progress is made in increasing savings, and assuming also that a large proportion of aid is still provided on concessionary terms.

90 NOTE ON DEVELOPMENT PLANNING 1. The planning function has been strengthened in Morocco over the last two to three years. Yet some fairly substantial problems remain to be solved if the effectiveness of planning is to be improved. These are: the setting up of programming units within the technical ministries, the improvement of budgetary coordination and the implementation of a regional development policy. The progress made and the principal problems are reviewed hereafter. 2. Major policy decisions related to the preparation and implementation of the national development plan are taken by H.M. The King after their examination by a restricted ministerial economic committee and their approval by the Cabinet. The present plan has been issued as a law, and prior to Cabinet approval was examined by the Supreme Council of the Plan (Conseil Superieur du Plan), a consultative body composed of about 350 persons including representatives from various economic and social groupings, as well as representatives of the provinces. The annual meetings of the Council have allowed a constructive dialogue with the government on the progress of the Plan. 3. A Ministerial Committee for Regional Development (CIAT) under the chairmanship of The King was also established in 1968 (see below). The Ministry of Finance holds the responsibility for providing the internal and external resources of financing both current and investment budgets, and an Inter-ministerial Committee for Budget Coordination ensures that the annual elaboration of the public sector investment program is in accordance with the plan (see below). The technical ministries are in charge of the preparation and implementation of the public sector investment program, within their respective spheres of activity, and to help discharge this specific responsibility it was decided in 1968 to set up programming units with each ministry. The plan organization coordinates the preparation and review of the plan and the annual reporting on its implementation. In 1970 it issued a comprehensive report on the Plan implementation during the first two years. 4. Since August 1969 the plan organization has been attached to the Prime Minister's office as a "Secretariat d'etat charge du Plan", the Secretary having ministerial rank. This central position made the Planning Secretariat more effective. The activities of the Secretariat now include: planning, statistics, coordination of technical assistance and the supervision of a specialized UNDP sponsored institute for statistical and economic training (Institut Nationale de Statistique et d'economie Appliquee, INSEA) and of a national documentation center (Centre National de Documentation, CND). Most of the 21 Moroccan professionals of the Planning Division were trained at INSEA. The experience to be gained in the preparation of the new plan, already under way, will provide additional practical economic training and will further improve the quality of the young professional staff. At present six foreign experts (two of whom are junior grade) are working in the Planning Division, and for lack of adequate staff not all of the functions of the planning organization are performed.

91 A certain number of contracts with foreigners for very specific activities are now under consideration in connection with the preparation of the new plan. 5. Work on the elaboration of the next five year plan, , has already started within the plan organization. The general guidelines regarding the form of the future plan and the working methods to be followed was approved by the Government, including the work schedule and setting up of the sectoral commission and the procedures for the setting up of regional commissions. It is intended to include people drawn from the principal social and economic activities as well as the Government Administration. Greater emphasis is to be put in the new plan on the social sectors, regional development, industrial development and development of exports. 6. The Government is making a special effort to improve the collection of the basic statistical and other information necessary for planning. This year the Statistical Division is undertaking a survey of the industrv and a family budget survey. A population and housing census is planned for 1971, and an agricultural census for The reorganization in 1968 of an Inter-ministerial Coordinating Committee for Statistical Studies (COCOES) which has been working regularly has improved the collection of basic statistics by different parts of the Moroccan administration. The National Documentation Center, started in 1968 with UNDP/FAO/UNESCO support, has already collected and analyzed several thousand studies and documents on Moroccan agriculture and is now extending its activities to other subjects, applying modern techniques of computerized information storage and retrieval. An annual report on the execution of the plan is prepared jointly every year by the plan organization, the technical ministries and the Ministry of Finance to evaluate performance against the targets set by the plan. 7. The responsibilities of the Planning Secretariat have been extended to include the coordination of technical assistance activities with the national development plan. A comprehensive census of foreign technical assistants (about 12,000), working in all sectors has been complted, and should help in preparing long-term technical assistance programs. The evaluation of current projects has started on a sector by sector basis, beginning with agriculture. 8. An element which has contributed to the strengthening of the planning process is the coordination between the office of the investment budget in the Ministry of Finance and the Planning Secretariat. The investment budget prepared jointly by the Ministry and the Secretariat presents on an annual basis the public investment program as envisaged in the five-year plan. A system of yearly program revision has been introduced which provides the flexibility necessary over a five-year period. Based on the report on plan execution, each technical Ministry is allowed, if necessary, to reexamine its investment program in consultation with the plan organization and the Ministry of Finance. This leads to the reevaluation of some of the original cost-estimates for certain projects, the inclusion of new projects and the cancelling of

92 previously included projects. The revision exercise yas extended in 1969 to the investment program for the remaining three years of the fiveyear plan and resulted in a 25 percent increase of the total allocations for the public investment program during The net increase benefitted mostly agriculture and transport. Programming Units 9. The setting-up of programming units within the ministries has been officially approved by the government and their function set out in the Development Plan. However, up to the present time, only telecommunications, public works and education have succeeded in performing the functions envisaged for the programming units. It is considered important to accelerate the setting up of efficient units elsewhere. The delays experienced by certain ministries in the implementation of projects in the current development plan may be at least partly attributed to the absence of such units. Such delays have been particularly significant with regard to the preparation of legal measures which are an integral part of the plan and whose elaboration would have been supervised by programming units. Another result of their absence has been the lack of coordination of the studies made in each ministry and hence the failure to prepare long-term sectoral programs. In addition, the effective preparation of the next plan ( ) will require the active participation of all the ministries and therefore the existence of a responsible and qualified counterpart, i.e., some kind of programming units, to the Planning Secretariat in each of them. 10. If the functions of the envisaged programming units are to be performed, their formal or legal existence is less necessary than the existence of the appropriate coordinating mechanism within each ministry. One of the difficulties in establishing the programming units has not been so much the lack of adequate and sufficient staff, but a too general definition of their functions. A readaptation to the specific structure and activity of each ministry is necessary and should not be delayed any further. While the situation may vary from one ministry to another, there is generally a greater need for measures of internal reorganization than for Increased staff, including foreign technical assistance. Budgetary Coordination 11. While the coordination between the Plan Organization and the Ministry of Finance in preparing the annual investment budget seems adequate, considerable improvements remain to be made in the coordination of the current and investment budgets within each individual ministry. Two types of problems arise: (i) delays in the implementation of the investment program may be caused by the inadequacy of the technical staff needed to implement the program for which the ministry is responsible, and (ii) inefficiency in the utilization of investment may be caused by the lack of sufficient personnel to utilize the equipments which have been newly created.

93 Within each ministry the investment and current budgets are usually prepared in two separate offices each dealing separately with two respective offices in the Ministry of Finance. Despite the evident awareness of the importance of taking into account the recurrent budget effects of any investment program, the non-capital development expenditures do not always receive adequate attention. The coordination between investment and recurrent expenditures rests with the Secretary General of each ministry, but the adequate performance of this function is limited by the programming capacity of the ministry. Moreover, programs and activities of a recurrent nature, once undertaken are rarely abandoned. Therefore, without much regard for the usefulness of particular programs, there is a tendency towards incremental budgeting, i.e., the process of asking for last year's budget plus whatever additions can be shown to be necessary. On the other hand, the Ministry of Finance, aware of the organizational inefficiencies in several administrations, and with the aim of stimulating their productivity, tends to hold to an aggregate ceiling for current expenditure. This tendency also reflects an overall fiscal policy which aims at restraining current expenditure. However, when adjusting total requests, the Ministry of Finance may often lack the necessary instruments to cut expenditures selectively and according to the well established needs of each ministry's investment program. 13. The above procedures are obviously not conducive to the best economic use of resources, and preliminary steps have already been taken to introduce a program-oriented approach to the preparation of the current budget and its introduction experimentally in one ministry. Regional Development 14. The promotion of regional development is an official policy of the Plan. The policy objectives are: (a) to obtain the widest possible local participation in the development effort and a better knowledge at the center of the development potential of each of the 16 provinces; (b) to promote the integration of the two areas that had been under Spanish and French influence by creating new administrative and development entities which would encompass several provinces from the two zones; (c) to stimulate the development of the retarded southern part of the country by linking some of the poorer provinces with economically more advanced ones. 15. The specific actions taken by the Moroccan government to implement this policy have been limited to publishing a special volume of the plan entirely dedicated to regional development, and to establishing in 1968 a Ministerial Committee for Regional Development, CIAT, under the chairmanship of The King "to promote and coordinate all studies and actions aiming at regional development." However, no appropriate initial structure has been created to take action at the regional level and at the central level, and the CIAT has never met. In 1970 an interministerial committee was created and met to discuss the regionalization program.

94 As in any other country, a policy of regional development can be implemented by two separate means: one is the setting up specific institutional structures responsible for regional development, the other is the inclusion of a regional development component in the implementation of the general national development policy. Experience of other countries has shown that these two approaches should be followed simultaneously, as they are complimentary to each other. The possibility seems to exist in Morocco to apply these two approaches by reorienting, enlarging and coordinating the activities of existing institutions both at the central and local levels and by activating CIAR as the high policy making body. More specifically, full use should be made of the existing provincial structures by establishing a close cooperation between the Planning Secretariat and the provincial economic services of the Ministry of the Interior and all the provincial services of the technical ministries. The existing staff and present activities of these offices should be reviewed and gradually reoriented towards performig the function of regional development. To achieve this, a basic function of assistance and guidance may be entrusted to the Planning Secretariat, and the past inadequacies in staff availability which have impeded progress in the setting up of regional programming cells could in this way be overcome. 17. The existence of common interests in the field of regional development between the Planning Secretariat and the Housing Division of the Ministry of Interior should also be recognized. Hence, the research and training center of the latter (Centre d'experimentation de Recherche et de Formation) should work closely with the regional planning apparatus, so as to have a check and balance system in the approach to regional planning performed by the interdisciplinary cooperation of town planners and economists.

95 NOTE ON INCENTIVES FOR PRIVATE INVESTMENT Fiscal Incentives 1. To encourage private investment in selected activities, the government has granted important advantages under the investment code of December 31, 1960 (and related decrees) to projects which are approved by an Investment Commission. The selected activities which benefit from all the advantages include various so-called basic industries (iron, steel, mineral processing, sugar, oil refining, cinematography), hotel and tourist projects, naval yards, shipping and modern fishing fleets. Other industries may benefit from one or more advantages (mineral transformation or industries meeting a clear market demand or which have a sufficient value added or which use domestic raw material or equipment). Since February 1970, mining projects other than oil can also benefit from the reserve fund provision (see below). The main fiscal provisions of the code can be summarized as follows: (a) Custom duties: Exemption from customs duties or subsequent refunding in full or in part of such duties is granted on imports of capital goods and of new materials and which are used in new projects or in the expansion of existing establishments as approved by the Investment Commission. (b) Registration fees: Fees on the establishment of companies and on additions to capital are reduced from 1.5 to 0.5 percent. (c) Tax on business profits: An accelerated amortization allowance at up to double the standard rate. (d) Licence tax: Exemption of new fixed assets during five years from the proportional tax on business. (e) Reserve fund: A contingency fund for the purchase of new equipment can be established free from tax on business profits. The reserve cannot exceed 40 percent of the value of investment or 50 percent of net profits and must be used within three years. This advantage is not granted, however, to those applying for other tax holidays. * (f) Investment grant: A proportion of the cost of industrial construction and equipment as determined by the Investment Commission could be given as a grant at the rate of up to 20 percent in Tangier province and 15 percent elsewhere, except in the cities of Casablanca and Mohammedia in which only tourist projects can benefit. This grant was paid through the BNDE until April 1969 and by the Treasury since then.

96 (g) Fiscal guarantee: According to Article 46 of the 1966 budget law, a guarantee of up to 10 years that no new taxes will be imposed and no change will be made in the rates and method of the assessment of the three major taxes (tax on business profits, licence tax and urban tax) may be granted to enterprises by the Commission. In addition to the fiscal guarantee, approved projects which are financed with foreign exchange are given a retransfer guarantee in case of liquidation. 2. A governtent aim is to encourage industrial and tourist investment in Tangier province in particular and discourage further concentration of industry in the Casablanca-Mohammedia zone. In addition to differential rates of equipment grant, the three major taxes (mentioned earlier) on industrial and tourist projects in the Tangier Province have been reduced to half as of January 1, Other influences on the location of projects are sometimes the provision of land on special terms in particular areas as well as the more liberal granting of discretionary benefits to entrepreneurs who set up their industry in such areas. 3. Other fiscal incentives are granted to specific activities. Hotels (including motels and tourist villages) are exempt from the tax on services (ranging from 4-6 percent of rental value) and they, as well as restaurants may claim a refund of the turnover tax (tax sur le chiffre d'affaires) which falls on construction expansion or renovation expenditures. A refund may also be claimed by an exporter of the tax on products (ranging from 6.38 to 12 percent) which had been paid on his exported goods. On the other hand, the Investment Commission has not accepted to consider any milling or vegetable oil press project since 1967, nor any new textile projects since November 1968 (although extensions remain elegible to exemption from customs duty). 4. An indication of the value of private investment in tourism and industry which benefitted from these fiscal advantages can be found in the approvals by the Investment Commission, since most private investors seek such approval in order to benefit from the provisions of the Investment Code.