In June, Morocco entered into fresh free trade agreement talks to add Canada to its growing number of close commercial partners. The list of Morocco’s free trade allies already includes the European Union, the United States, the United Arab Emirates, Turkey and Jordan, alongside North African neighbors Tunisia and Egypt. Rabat hopes to diversify its markets and capabilities, which are currently focused on a small number of European partners, by dismantling tariffs with new partners like Canada. Meanwhile, Morocco’s new port facilities and burgeoning IT development are opening never-before-seen trade routes and commercial opportunities, allowing the country to reconsider its economic and political global alliances.

European countries have been Morocco’s principal trading partners since independence, with France, at 21 percent, and Spain, at 20 percent, the two countries with the largest volume of bilateral trade. In 2007, more than 60 percent of Moroccan exports were sent to the EU, while 58 percent of Moroccan imports came from the EU, for a total trade amounting to nearly $30 billion.

Beyond Europe

In a move set to significantly divert Moroccan trade away from dependence on EU markets, Morocco became the second Arab country (after Jordan in 2000) to sign a free trade agreement with the US. The US-Morocco agreement, which went into effect on January 1, 2006, has a particularly sweeping scope that took two years for negotiators to settle. It includes industrial products, agricultural products, services and public works contracts, in addition to measures relating to intellectual property, environment, workforce and governance.

Bilateral trade more than doubled in just three years, mostly to the benefit of the US, which now sells Morocco products ranging from Washington apples to drilling and oil field equipment. In 2008, US exports rose to $1.4 billion, from $480 million in 2005, while Moroccan exports during the same period climbed from $445 million to $878 million, according to the US Census Bureau’s Foreign Trade Division.

But in spite of a few isolated success stories, Moroccan producers are finding it difficult to penetrate the American market.

New reports are showing that Morocco’s traditional exports like textiles, fish, citrus, flowers, and artisanal handicrafts are not making it across the Atlantic. The Minister of Foreign Commerce declared in a February report that the US FTA has not succeeded in stimulating national exports. He cited the lack of diversification and sophistication of Moroccan exports as the main obstacles to entering newly opened markets.

Ahmed Reda Chami, Morocco’s minister of commerce, industry and new technologies, said there are fundamental incompatibilities between Moroccan products and the American consumer market.

 “The cultural and linguistic barrier… complexity of US distribution…[and] production that requires Moroccan companies to manage very important orders while at the same time ensuring a constant quality on the whole product line, and the devaluation of the dollar compared to the dirham, all reduce the competitiveness of our products,” Chami said in an interview with Oxford Business Group.

While national export levels are disappointing Moroccan administration officials, local press and watchdog groups warn that the US trade agreement undermines access to affordable medicines for Moroccan consumers, allows US companies to patent seeds and charge small-scale farmers royalties for planting crops, and sets back environmental and workforce standards.

So why open domestic markets to fierce competition if the benefits are so seemingly asymmetrical?

First, agriculture is still the backbone of the Moroccan economy. In order to advance from the vulnerability of depending on weather conditions for economic security, the administration is investing to diversify its economy and raise productivity. Foreign partners are essential to industrial modernization. The North African country is also looking to capitalize on its geographical positioning and political stability by becoming a competitive regional hub and platform for other countries to reach a wide range of international markets.

More than 160 high-tech western companies have recently set up shop in Casablanca and Tangiers

Future tech

Morocco’s national industrial strategy to develop high-potential aeronautics, automotive and electronics sectors, as well as nanotechnology, biotechnology and microelectronics — called “Plan Emergence” — has already helped attract more than 160 equipment manufacturers from Japan, France, the US and Spain in special zones in Casablanca and Tangiers. These companies are expected to generate 60,000 to 70,000 industrial jobs by 2015, according to Industry Minister Chami.

“Morocco signed many FTAs with several regions across the world: the EU, US, Turkey… These agreements have permitted our country to position itself as a ‘hub’ for the Mediterranean and a platform to reach the world,” said Saad Benabdellah, who heads the Moroccan Center for Promoting Exports, in an interview with local paper l’Economiste. “Just a few years ago, it would have been difficult to imagine that emblematic enterprises like Renault, Tata Group, Cap Gemini, Airbus and Safran would now be implanted in Morocco.”

Moroccan rapprochement with new international markets in North America, Asia and the Gulf does not seem to be hurting its relationship with the EU. The 27-country bloc overrode heated political objections to the status of the disputed Western Sahara territory and bestowed the coveted ‘advanced status’ designation on Morocco in December 2008. The ‘advanced status’ designation — a first in the southern Mediterranean region — makes Morocco less than a member but more than a partner to the EU, and is designed to integrate Morocco into EU policies and deepen free trade agreements.

For fairly obvious reasons, Morocco’s pork production sector has never been one of the country’s sectoral heavyweights. In a nation with a majority Muslim population and minority Jewish community, farmers catered mainly to European tourists, producing an estimated 270 tons of pork annually, generating around $1.48 million, according to 2008 figures. In a normal year, pigs would be a peripheral part of government planning, but since the emergence of A(H1N1) flu, better known as swine flu, the public health sector has received extra funding and ramped up its prevention programs.

Unlike Egypt, where the government responded to the outbreak by calling for the slaughter of the country’s 300,000 pigs, Morocco’s response has been more measured. There have been no calls to eliminate the pig farms and their estimated 5,000 pigs. The World Health Organization said killing the animals has no effect on the spread of swine flu since they do not transmit the virus. As of July 9, there were 21 confirmed cases in Morocco, according to the Maghreb Arab Press, though only two of these remain in hospital.

Pandemic preparation

Swine flu may strain Morocco’s already stretched healthcare resources, but the government has earmarked $105 million for the operation. The funds will be channeled to programs that prevent the disease from entering the country and to individual protection plans. The government has established tracking systems nationwide. The first follows airline passengers from countries with confirmed cases. Thermal scanners, which can detect elevated skin temperatures, a possible sign of infection, have been installed at entry points. In addition, the Ministry of Public Health has launched a public information campaign. Swine flu can be treated effectively if identified quickly, so making information available may prevent panic as well as save lives.

Overall healthcare indicators in the country are good and public spending is rising, but a shortage of doctors, a lack of access to health care for poorer citizens and modern lifestyles are starting to take their toll. A third of the population over the age of 20 has high blood pressure and nearly 7 percent of the same age group also suffers from diabetes. The Strategy 2008 to 2012 plan includes for the first time provisions to outsource medical services, with the private sector billing the government, according to Dr. Ennaceri Mimoun, head of the hospitals division at Morocco’s Ministry of Public Health.

The ministry has agreed that the national association of nephrologists (kidney specialists) can provide dialysis for patients on waiting lists in public hospitals, and Mimoun thinks that this can be extended to other services. Mimoun estimates a deficit of about 9,000 doctors in the public sector, compounded by the departure of highly experienced doctors, who “gravitate towards the comfort of working in the private sector.”

With the increased links between the two, however, doctors can treat poorer patients, while still maintaining their incomes.

Further funding from non-governmental organizations and foreign countries plays an important role in improving the sector. A new initiative launched in the Fes-Boulemane region will help to treat children with cancer. The regional division of the Ministry of Public Health and the local branch of l’Avenir, an association of parents and friends of children with cancer, have partnered to supply medicines, equipment, laboratory tests and X-rays. The European Union is planning to give $120 million for development. According to the head of the EU Commission in Rabat, Ambassador Bruno Dethomas, these funds will help sectors of the population who may not have access to health insurance coverage.

In addition to addressing the needs of its own population, the kingdom has the challenge of providing international calibre services for tourists. Currently, Moroccan law states that clinics must be owned and operated by Moroccan citizens. As visitor numbers increase and global sicknesses like swine flu move quickly across national borders, the government may need to allow foreign participation in the health sector, opening the door for new partnerships and investments.

Tunisia was ranked the most competitive business environment in Africa in a report released during the World Economic Forum summit in Cape Town. The 2009 Africa Competitiveness Report, produced by the WEF in association with the African Development Bank and the World Bank, gave the Tunisian economy a score of 4.6 out of 5 for competitiveness, ranking it the 36th most competitive economy globally and the fifth most competitive in the Arab world.

The report, based on hard data and responses to the WEF’s Executive Opinion Survey, singles out the country’s institutions as “one of its most competitive advantages,” resting on “fairly transparent and trustworthy relations between government and civil society.” As a whole, Tunisia’s institutions ranked 22nd globally, with a particularly high placing for efficiency of public spending (2nd), public trust of politicians (16th), low levels of favoritism among officials (14th) and transparency in the policymaking process (15th).

Beyond institutions, in the 11 other “pillars” assessed by the report, Tunisia also ranked highly in infrastructure (34th), health and primary education (27th), higher education and training (27th), goods market efficiency (30th) and innovation (27th). The only area it scored relatively poorly in was labor market efficiency, coming 103rd out of 134 countries assessed. Overall, Tunisia’s ranking places it nine positions ahead of its nearest African rival in the table, South Africa, which came 45th.

In a special chapter on enhancing competitiveness, Tunisia and three other African economies were highlighted for their achievements in ensuring strong growth by adopting development strategies that promote efficient market mechanisms. Alongside Namibia, Botswana and Mauritania, the Tunisian economy was praised as an example that high growth need not necessarily require a large economy. Like Mauritania, Tunisia has had a policy of economic diversification that in the 1970s helped the economy remain internationally competitive.

Flexibly fit

Tunisia’s efforts to integrate its economy into the global market saw it become the first Arab country to complete the steps to enter the European Union’s free trade zone in 2008. Tunisia’s recent policy of exchange rate flexibility was seen as a key factor toward helping the economy reduce tariffs and barriers to entry, enabling the textile sector in particular to compete within the lucrative European market without the need for protective measures. Stable fiscal policy has also contributed to low inflation, another key requirement for maintaining competitiveness, especially in the manufacturing sector.

Tunisia’s success comes despite its paucity of natural resources. Perhaps as a result of this though, some practices that have proved harmful to competitiveness in other African economies have been avoided. The absence of major state-owned conglomerates in the oil, gas or mining sectors means private capital is less crowded. The tax system is also less distortive to business practices, and agricultural efficiency is relatively high due to lower and better targeted subsidies. A consistent commitment to the principle of privatization has seen several major utilities move out of direct government control in recent years, while the proceeds of privatization have often gone toward paying down the government’s external liabilities.

However, while polling highly in many areas, the report nonetheless highlighted some aspects of the economy with room for improvement. Despite ranking second in Africa for technological readiness, in global terms information and communications technology penetration remained low. The figures suggest that, while at the higher levels of the economy Tunisia has largely succeeded in bridging the technology gap, the effects have yet to fully trickle down to the wider economy.

The report will be welcome news to the Tunisian government, which continues to demonstrate its commitment to a liberalized economy. Indeed, the publication coincided with a recent announcement by the cabinet that Tunisia would join six other Mediterranean countries in implementing a full “open-sky” agreement by 2010, a move that will make the country available to low-cost airlines and hopefully boost tourism.

Financial reforms conducted over the past two decades have left the Algerian banking sector well poised to bounce back from the global financial crisis, according to the World Economic Forum’s Africa Competitiveness Report 2009. The report said Algeria was one of four African economies whose “competitive banking systems” and “functional regulatory systems” meant they were more likely to rebound positively. In particular, the report noted that while Algeria is “a slow reformer,” the country benefited from a financial system that “still demonstrates remarkable intermediation.”

The WEF’s blessing is good news for the sector, which in recent years has witnessed stalled efforts towards privatization, due in large part to the onset of the financial crisis in developed markets. Initial attempts to partly privatize Algeria’s biggest bank, Crédit Populaire d’Algérie, scheduled for early 2008, were delayed and eventually shelved when the subprime crisis began to take hold. Of six international banks permitted by the government to bid, three withdrew from the process, including Spain’s Banco Santander and troubled US giant Citigroup, leaving the planned privatization on shaky ground.

Since then, efforts to reduce the state’s role in the banking system have been put on the back-burner while the government focuses on its $150 billion infrastructure investment strategy and developing non-banking sources of capital. In 2002, the government diversified access to non-bank capital by creating a government debt market, through which the state’s large public enterprises were later encouraged to issue their own bonds. The result has been, in the words of the International Monetary Fund, a corporate bond market in Algeria “significantly larger than in other countries at the periphery of the European Union.” With the groundwork for non-bank capital already laid, and the beginnings of a medium to long-term yield curve developing in state bonds, the government appears to be focused on using the National Investment Program to deepen local capital markets further, as opposed to bank-based finance.

The judiciousness of this strategy, and indeed the slow pace of reform in the banking sector, has been supported by the need to absorb the relatively high structural liquidity surplus within Algeria’s banking system, which is the legacy of an export economy dominated by hydrocarbons. The IMF commended the Algerian government’s “prudent” monetary policy for successfully absorbing this liquidity, as well as bringing down foreign debt and keeping inflation stable. However, with export demand from Europe likely to remain weak for some time, Algeria’s banking sector will have an increasingly important role to play in domestic demand. 

It is in this spirit that the IMF in its 2009 consultation described financial sector reform in Algeria as “key” to improving productivity, developing the economy and sustaining non-hydrocarbon growth. In particular, access to loans for small and medium-sized enterprises (SMEs) remains a challenge, with 20 percent of respondents to the Africa Competitiveness Report describing this as currently the most problematic aspect of doing business in Algeria.

Although foreign banks such as BNP Paribas, Société Générale and Citigroup have managed to gain a foothold in the system, state banks still account for approximately 95 percent of Algeria’s total bank assets and loan portfolios. While the government remains committed to prioritizing major state corporations for its growth strategy, the development of SMEs to service both these corporations and the wider domestic economy has been identified as a significant opportunity for further growth. 

To truly thrive though, successful enterprises will need access to capital. In the long run, it is likely that once the current financial crisis has abated, the government will look once again towards the privatization of some banks as a means of securing easier access to capital for SMEs.

Sam Inglis is Executive’s Mediterranean correspondent, based in Istanbul

The most significant step toward creating an ambitious, $500 billion solar project in the North African desert occurred on July 13.

Executives representing one Algerian and 11 European companies gathered in Munich that day to formally launch the Desertec Industrial Initiative, a new alliance for developing solar-thermal energy. In mundane business terms, the 12 companies signed a memorandum of understanding to create a new company by October 31.

The new company, named Desertec Industrial Initiative (DII), will tackle the creation of a complete network of electricity generation plants from renewable energy sources — mostly solar heat — and transmission lines around and under the Mediterranean with the aim of satisfying approximately 15 percent of Western European electricity demand by 2050.

News of the project quickly drew comments from supporters and critics alike, many asking if such a venture was at all serious.

A few years ago, discussion of solar energy was but a nice mind game, something for incorrigible idealists, aspiring but naïve scientists, academics tormented by fears of climate doom and influence-free politicians — the backbenchers who never get invited to the power lunches of the big companies.

But now the situation has changed. Like the economic climate and energy prices that have contributed to demand for energy efficient vehicles, the idea of solar power has gained traction in the real world, and is able to elicit professions of idealism from corporate executives who have billion-dollar signatory powers.

What makes the announcement of Desertec a milestone in the history of energy generation is convergence: specifically, price-cost ratios and technical capabilities have come together in a way that was not plausible five or six years ago.

The project presents the possibility of new future partnerships for the Mediterranean rim countries, making the region a new global player that can see eye to eye with other economic growth centers.

The sales pitch for solar power

The first selling point of Desertec is that it is possible. The technical basis of Desertec, are Concentrating Solar Thermal Power plants, which use sunlight in the generation of electricity via steam turbines. It is a tested and proven method that has been applied in commercial operations, which have been in business for more than a decade.

The other decisive technical component in the concept is power transmission. Here, the protractors of a Mediterranean grid say that the latest high-voltage direct current (HVDC) transmission lines are economical up to a distance of 3,000 kilometers with a attrition rate of no more than 3 percent per 1,000 km.

The second selling point is profitability. Cost of producing a kilowatt of electricity from Desertec’s renewable sources is projected to come down to levels that are comparable to, or lower than, costs of generating electricity from the burning of fossil fuels. The cost argument involves variables and assumptions but it is strongly supported by the trend of the past 10 years that has shown the cost of renewable energy drop at better-than-expected rates, including the cost of the other solar electricity generation method, photovoltaic, which is approaching the break-even point in Europe.

The third selling point is sustainability: the energy created by Desertec can replace dwindling fossil reserves, there are no CO2 emissions and it creates a new energy balance where production and consumption are distributed more equitably than in the oil-era scenarios of Middle Eastern energy exporters and consumers.

The Desertec plan for the Mediterranean rim

The draft of the Desertec power network is much more than a simple link from some Saharan solar farm or power tower to electricity grids in Europe. The roadmap for renewable energy circling the Mediterranean also entails wind, hydro and other renewable power generation plants. On the African and Western Asian side, more than 30 solar thermal plants would be augmented by a string of wind farms along the Atlantic coast and occasional hydro power and biomass installations.

This grid of MENA power production would reach over to Europe via several routes, mostly crossing under the Mediterranean. Power lines in the draft plan follow both the short, western routes into Spain, but also island hop through Cyprus, Crete, Malta/Sicily and Sardinia/Corsica. And, of specific importance for the Levant region, about 35 percent of the solar power plants on the Desertec roadmap are located on the Arabian Peninsula, with transmission lines sketched to traverse Syria and link into Turkey’s Anatolia.

The draft concept on the Desertec site also mentions several pilot projects that would deliver electricity and water to MENA’s most oppressed — the people of Gaza.

“A solar power plant and drinking water plant on Egyptian territory for the benefit of the Gaza Strip would be useful as a pilot project,” the paper says, “for humanitarian reasons.”

This goodwill is sure to be confronted with challenges, just as the entire plan will probably see more changes than implementation of original draft components if the project eventually becomes a reality.

Source: Regional Press Network

The naysayers

When held against these pro-Desertec arguments, opponents of Desertec seem to be largely captivated by mono-cultural thinking and monopolistic fears. Some want the project to be stillborn because it could create power for big business and might threaten the growth of small-scale solutions for renewable power in Europe that could sustain an alternative cottage energy industry.

Other detractors north of the Mediterranean painted a dark image of political risks that would allow the power producing and power transmitting countries in MENA to use the network as a political pressure point. Others criticized the MENA countries as being vaguely “unstable.”

Such issues confront the energy industry aplenty, as political challenges are a major facet of dealing in the global energy supply infrastructure of today.

However, what is of much greater interest from the vantage point of the MENA side, is the question of how many opportunities for economic growth, sustainable investment and skills development would arise from Desertec and how much this project would do for peace by way of integration.

No one can reliably foretell how much energy will be consumed by the MENA countries by the middle of the century. Chances are that development of production capacities in the high-population growth countries of the region will trigger new opportunities for manufacturing and consumption.

But some have criticized the project for being dominated by European companies with only one minor MENA investor.

Independent experts with a favorable view of the Desertec concept have argued that it would be logical and desirable for the countries on the producing side of the solar rim to be the first to benefit from this energy source for their own domestic needs and general industrial development. But Desertec, representing a new energy infrastructure between Europe and the MENA, could become a catalyst for many positive changes in the social and economic disparities between the two sides of the Mediterranean.

Crucially, MENA private sector businesses will be able to exploit this opportunity if they succeed in accelerating their growth in governance and competence.

Desertec Industrial Initiative — the venture and the players

The 12 companies taking part in the Desertec Industrial Initiative (DII) partnership are from the energy, finance, technology and manufacturing sectors. The six DII participants that are household names and publicly traded on European markets have a combined market capitalization of approximately $200 billion. German firms represent nine of the 12 companies that put their signatures on the collaboration.

In terms of geographic reach of member companies, the partnership is firmly integrated in European business and energy operations and sweetened by the addition of an Algerian company, Cevital, whose core business is in producing margarine and edible oils.

Also on the list is ABB, the technology group headquartered in Switzerland and the privately held Spanish group, Abengoa. The former is not only a leader in products such as power plant turbines but also has a strong history of working with Arab clients. Recently the company received orders for power transmission projects in Bahrain and Saudi Arabia.

One of the main drivers of the DII partnership and one of three financial firms in the venture is Munich Re, the reinsurance company. Munich Re hosted the launch event, and board member Torsten Jeworrek explained the company’s interest in the initiative. He said the project was important given the increased number of climate-related catastrophes and the importance of clean energy in avoiding future escalation of costly catastrophes that will affect the insurance and reinsurance sector.

“We are pursuing a visionary plan,” he said. “If it is successful, we will make a major contribution to combating climate change. The ecological and economic potential is huge.”

Munich Re’s signature on the Desertec initiative was joined by two German lenders: national banking leader Deutsche Bank and HSH Nordbank, a financial institution specialized in corporate lending and business finance that is majority-owned by two northern German states.

EON and RWE are the energy companies that make the venture dynamic with their very strong positions in running infrastructure networks and utilities. In the list of German engineering providers, Siemens, the ubiquitous engineering multinational, is joined by two specialist firms, Schott Solar and MAN Solar Millennium.

Going another step into the analytics of the DII team, there is a 13th warrior as one participating company is itself a joint venture. MAN Solar Millennium was formed by German solar plant builder Solar Millennium and by MAN Ferrostaal, a Dutch-German group that delivers industrial solutions and constructs plants in, among other areas, the chemical and petrochemical fields.

Note: the majority owner of MAN Ferrostaal, with a 70% stake, is Abu Dhabi’s outbound energy investment unit, International Petroleum Investment Company. The state-owned IPIC completed the acquisition of the controlling interest in March of this year under an agreement that valued the stake at $697 million.