Morocco moved into 2008 continuing economic reforms aimed at boosting growth and reducing poverty under a new government.
Towards the end of last year Prime Minister Abbas el-Fassi outlined his government’s plans for reform, which were approved by parliament by 155 votes to 93. The launch of the policy package followed September’s election, which resulted in el-Fassi’s appointment, with his Istiqlal Party becoming the largest party in parliament. The policies, however, continue the broad course of the previous government, and el-Fassi has pledged to see through structural reforms in tourism, infrastructure and housing. “We are going to take on other reforms and bring to completion those begun by my predecessor Driss Jettou,” he said.
While the reform plans have been broadly welcomed, some issues have not been addressed, most notably boosting regional trade and allowing the dirham to float.
In his address to Parliament in October, el-Fassi described the course he wishes to take over his five-year term. Liberalizing fiscal reforms continue with the aim of boosting growth through encouraging enterprise. Business taxes are being lowered to 30% from 36% and value-added tax (VAT) reduced. It is hoped that these cuts will actually increase the tax take, by encouraging business registration and making avoidance less attractive, bringing the grey economy into the formal sector.
Despite its generally liberal outlook, the government has also made commitments to tackle poverty. It has pledged $2.43 billion worth of subsidies in 2008, in order to boost the spending power of the less affluent and combat inflation. These will target primary products, notably imported fuel and cereal crops, which have been particularly subject to inflation in recent years. However, the subsidies will distort markets and could discourage local agriculture if they are allowed to undercut domestic product prices. Therefore they may be a temporary measure until global supply shocks ease.
One of the key policy planks is bringing down rent costs and improving the housing stock. To this end, the government plans to bring on stream 150,000 new units annually.
The construction industry will receive a fillip from this, as well as the development of almost 50 hotel developments by French hotel group Accor, which already owns 24 hotels in Morocco through its Casablanca Stock Exchange (CSE) — listed subsidiary Risma.
This will in turn boost the country’s cement sector, which is dominated by foreign-owned firms and already growing strongly. Cement production increased 10% in 2006 and then 15%, to around 10 million tons, in the first three quarters of 2007, and a further increase is likely to be necessary to meet the growing demand for social housing and other developments. The industry’s growth will help create much-needed jobs, helping address one of the government’s other major goals of bringing down unemployment and providing for young people coming into the labor market.
However, the government’s program has not tackled some issues which many in the business community would like it to. Currently intra-Maghreb trade is very low, accounting for less than 10% of the trade of Morocco, Algeria and Tunisia together. This is despite three fast-growing and increasingly productive economies, and the development of a trans-Maghreb motorway. Diplomatic disagreements with Algeria, which backs the Polisario Front separatists in Western Sahara, have hamstrung any attempts to develop trade ties. El-Fassi has yet to put forward plans to improve integration, which would surely boost the economies of all countries.
The government has also yet to finalize plans to allow the dirham to float freely, which is desired by many in the domestic business community and their foreign partners. Currency liberalization would facilitate export and import activities.
Morocco has set regional standards on democratization, enjoying free elections and a lively media. However, a complex electoral system makes it very difficult for any party to win an outright majority, leading to messy post-election horse trading; the days after the election were characterized by squabbles over ministerial positions and budgets rather than policy issues. Though admittedly this is common in many European democracies as well, it was an unedifying sight.
Nonetheless, el-Fassi’s government seems to have the momentum to continue the reform process, as well as addressing pressing social issues. Perhaps a year of growth and development will embolden the government to tackle the issues of regional cooperation and the dirham.
