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MOROCCO

Recession ahead, but reforms should pay off in the medium-run

B3

SENSITIVE RISK for enterprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD118.725bn (World Ranking 59, World Bank 2019)
Population 36mn (World Ranking 40, World Bank 2019)
Form of state Constitutional Monarchy 
Head of government Saadeddine Othmani (Prime Minister)
Next elections 2021, Legislative
  • King Mohammed VI remains generally popular and rule by the monarchy is an acceptable form of governance for the majority of the population.
  • Sound commercial and diplomatic relations with the U.S. and the EU.
  • Geographic proximity to a very large potential market (Europe) for international investors and traders.
  • Although external debt stock has increased in recent years, debt servicing obligations remain manageable.
  • Poor corporate payment behavior: Days of Sales Outstanding was 84 days in 2018 (one of the longest in the world) and insolvencies are increasing as a result.
  • Wide gap between rural and urban standards of living.
  • Poverty and unemployment remain high and are a principal cause of social discontent and provide a potential breeding ground for religious militancy.
  • Weak record in relation to abuses of human rights and to press freedom.
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Important headwinds amid Covid-19 crisis  

Since 2017, Morocco’s growth rate has been oriented on the downside: From +4.2% in 2017, the economy should contract at a rate of -3.9% in 2020, mainly because of the negative impact of the Covid-19 outbreak on activity.

The pandemic has caused a major contraction in tourism activity, remittance inflows and external demand for merchandise exports (automotive, aerospace and electronics). In addition, the strict implementation of a lockdown and social distancing measures dampened domestic demand. Lower oil prices were good news for Moroccan imports but this only partly offset the negative economic impact of Covid-19. Morocco’s fiscal and current-account deficit are expected to widen during 2020 to -8.9% and to -8.2%, respectively. Government support to fight the pandemic is expected to increase public debt in 2020 (66.8% of GDP), and it is likely to diminish only after 2024.

In 2019, the automotive sector had already levelled off as a direct consequence of difficulties in the European car industry. Conversely, the tourism industry had delivered positive results, thanks to inflows from new markets, including China (total visitors rose by 8.2% y/y in 2019). In 2020, the unprecedented contraction of the tourism and automotive sectors due to Covid-19 will be the main drivers of the recession.

Overall, Morocco also remains highly vulnerable to the agricultural sector’s volatility (15% of output and 20% of exports). During the 2019 drought, the industry recorded a strong contraction, underlining the need for further economic diversification.

In 2021, we expect Morocco’s economy to expand by +5% thanks to the normalization of cereal crops, resumption of infrastructure projects, expansion of the manufacturing sector and the gradual recovery of world demand and tourism activity. The central bank, which cut its policy rates from 2.25% to 2% in March 2020, is expected to follow an accommodative stance throughout the year.

 

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Long-lasting efforts should pay over the medium-term 

Morocco’s political stability, as well as structural and macroeconomic policy reforms, have improved the country’s attractiveness to foreign investors. Notably, Morocco’s central bank has been successfully undertaking the gradual flexibilization of the exchange rate regime (exchange rate band widening by 5%) since 2018. While the country successfully came back to the financial markets in 2019, external financing conditions have significantly tightened amid heightened uncertainty in 2020. In April 2020, Morocco drew on the IMF Precautionary and Liquidity Line (about US$ 3 billion) to rebuild external buffers and cope with the economic impact of Covid-19.

Morocco’s World Bank Ease of Doing Business position improved by seven ranks from 2019 to 2020; it is now ranked 53rd. Access to credit remains the main problem (119/ 190). Financial inclusion is low, with only 29% of households holding a bank account. The government recently launched reforms, such as a program aimed at improving SME access to credit (Intalaka) and a financial inclusion program (Snif), thus improving future perspectives.

The labor market faces major challenges, such as a large informal sector (21% of GDP, excluding primary sector). On the infrastructure side, significant projects, such as the extension of the Marrakech and Agadir railway or the construction of the Dakhla and Kénitra ports, will contribute to improve attractiveness. These reforms will help ensure Morocco maintains its position as one of the most attractive markets in the MENA region.

 

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Making the most of a pillar position in Africa is not a done job

The World Bank’s 2019 Doing Business survey ranks Morocco 53 out of 190 economies in terms of the overall ease of doing business, among some of the best African economies. Thus the country enjoys a comparative advantage which may help boost its trade and financial relationships in the region. However, Morocco’s unsuccessful admission process to the Economic Community of West African States (ECOWAS) shows the difficulties surrounding diversification of export destinations towards Africa (European economies represent about 75% of Moroccan exports). As more trade relations with neighbors look tricky (protectionism increased in Algeria and Egypt), Morocco had a look to the south but faces some competitors in the region.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Spain 22%
1
14% Spain
France 19%
2
13% France
India 4%
3
8% China
United States 4%
4
7% United States
Italy 4%
5
6% Germany

Trade structure by product

(% of total)

Exports Rank Imports
Electrical machinery (and related) 15%
1
12% Petroleum and related products
Clothing and apparel 14%
2
8% Road vehicles
Road vehicles 10%
3
8% Electrical machinery (and related)
Fertilizers 8%
4
4% Cereals, preparations
Vehicles Components 5%
5
4% Meat
The average DSO in Morocco remains high at 83 days on average in 2016 and the payment behaviour of domestic companies is rather poor.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

  • Payments

  • Court proceedings

  • Insolvency proceedings

The judiciary is a multi-layered system which remains under influence and is critcized for its lack of organisation, efficiency and transparency.  Therefore, commencing legal action would be unreasonable in most cases whilst enforcement judgments would be difficult. In all circumstances, entrusting collection specialists with a strong knowledge of the local market remains the wiser approach.

Various insolvency proceedings are available in Morocco but these remain complex, slow and mostly inefficient when it comes to collecting debt.

Download the entire collection complexity PDF:

Collection Complexity Morocco 698 KB

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Contacts

 
Euler Hermes Economic Research
research@eulerhermes.com
Selin Ozyurt
Senior Economist for France and Africa
selin.ozyurt@eulerhermes.com

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