Download Economy of Morocco

NS4301
Summer 2015
Morocco
Background I
• Morocco is the fifth largest economy in Africa
• Middle income country with relatively open and
diversified economy
• Export sector accounts for 30-40% of GDP
• Relies considerably on tourism and workers remittances
• Morocco economy based on market system, but growth in 1970s
led mainly by the state.
• Agriculture accounts about 14% of GDP but 45% of population
• Serious economic crisis in early 1980s due to:
• Rising import costs,
• Falling phosphate prices (after having quadrupled during the
1970s)
• Significant food deficit and
• Cost of Western Sahara conflict
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Background II
• In return for debt assistance from the Paris Club, the IMF
and the World Bank, Morocco agreed to major structural
adjustment program
• Devalued currency
• Liberalized trade and investment
• Used higher interest rates to control inflation
• Privatized state-owned enterprises and
• Curbed government subsidies.
• Country successful in its liberalization efforts
• Some pain, but did not suffer from fiscal deficits that
often result from elimination of trade restrictions
• By 2005 real GDP was almost double the level of 1975
• Growth GDP 3.4% in 90s and 5% in the 2000s
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Background III
• Generally agreed that the policy reforms pursued by
Morocco in the late 1980s and early 1990s were
instrumental in the country’s subsequent growth
performance and the diversification of its production and
exports.
• Reforms have continued with two major developments in
the last twenty five years:
• Trade liberalization and
• Financial Reforms
• Trade Liberalization
• Country has ratified several free trade agreements
• Euro-Mediterranean Free Trade Agreement with the EU, and a
free trade agreement with the U.S.
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Background IV
• Financial Reforms
• Real interest rates negative during decades of financial
repression in 1970s and 1980s
• Financial reforms largely liberalized interest rates
• Intent of reforms was to improve capacity of financial institutions
to mobilize domestic savings
• Allocating financial resources based on market demand,
• Curbing direct government intervention and
• Increasing competition in banking sector
• Soon after early reforms took effect interest rates positive
and high
• Financial program accompanied by repeal of requirement
that limited foreign ownership of business to 49%
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Background V
• While the country’s growth has not been spectacular, it
has been fairly stable and sustained.
• Still much needs to be done
• Contrary to the assurances made at the time of the Arab Spring
demonstrations (2011)
• Governance reforms have stalled
• There has been a deterioration in economic freedom
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Background VI
7
WEF Morocco I
8
Morocco: Economic Freedom I
9
Morocco: Economic Freedom II
10
Morocco: Economic Freedom III
11
Morocco: Economic Freedom IV
12
Morocco: Economic Freedom V
13
Morocco: Economic Freedom VI
14
WEF Morocco II
15
WEF Morocco III
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Current Situation I
• Robert Looney, “Morocco is Running out of Time,
Foreign Policy July 9, 2015
• Main theme – unemployment and economic stagnation
setting in. Many good ideas for reforms, but difficulty in
implementing them.
• Considerable ISIS recruitment for fighting in Syria
• Many of these fighters are returning to Morocco and
launching attacks.
• Can country serve as a model alternative to ISIS and
other extreme groups and philosophy?
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Current Situation II
Country sharp contrast
• On one hand rising poverty, growing youth
unemployment and suppression of peaceful political
dissent fertile ground for Isis
• On other hand a innovative, growth oriented approach to
development that combines best of Western and Islamic
principles
• Also country has a spiritual but anti-theocratic style of
Islam that discourages extremism
• Could be a model for many Arab countries, depends on
whether King Mohammed VI has the political will to
accelerate pace of reform.
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Current Situation III
• During Arab Spring in 2011 King initiated a series of
constitutional reforms after pro-democracy
demonstrations broke out
• Stopped short of relinquishing his own power in favor of
a constitutional monarchy
• Did increase the role and independence of the prime
minister and parliament.
• In addition, new constitution provided for greater civil
liberties and expanded human rights
• Similar promises had been made in past only to be
rescinded
• Still new constitution succeeded in defusing the crisis
• In contrast to most Arab countries, Morocco appeared to
have emerged stronger politically from the Arab Spring. 19
Current Situation IV
• However if unrest is to be controlled Morocco’s deep
economic malaise needs to be addressed
• Economy hard hit by international economic crisis of
2008-09
• Falling remittances
• High unemployment due to workers returning home from
overseas
• Despite a growth rate of 4.6% between 2000 and 2010,
little improvement in levels of
• Poverty
• Inequality
• Illiteracy and
• Unemployment among recent graduates
• Instead corruption and cronyism grew increasingly
conspicuous.
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Current Situation V
• Both the king and the coalition government formed by
the Islamic Justice and Development Party (PJD) after
2011 elections attempted to institute reforms.
• These involved
• Expansion of a decentralized strategy to promote bottomup democracy by allowing communities to take charge of
their affairs
• JPD promised to create jobs and raise educational levels
while curbing corruption and improving
• Government effectiveness
• Rule of Law and
• Business climate.
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Current Situation VI
• However while Morocco moved up two rankings on the
Human Development index by 2013 progress did not
extend to other areas
• Economic growth declined to an average of 3.7% between
2011 and 2014
• Unemployment rate which had fallen to 9.1% in 2010 has
since been stagnant with only 21,000 new jobs created in
2014
• Slowdown occurred despite $3.4 billion in FDI
• Composition of Morocco’s unemployment troubling
• At 20.6% youth unemployment is high rising to 39.9% among
urban workers aged 15-24
• Rate of unemployment rises along with job qualifications
• From 4.5% unskilled to 21.7% vocational skills to 24.6 for
university graduates
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Current Situation VII
• Growing frustration with the government as illustrated
with the decline in social capital (a measure of trust)
• Morocco fell from 13th in the world in 2010 to 84th by 2014
• Poor performance of Moroccan economy has less to do
with viability of Moroccan model than with its
implementation
• Government has focused its energies on laws and
institutional procedures instead of substantive reforms
• Country’s performance deteriorated on five of the six
World Bank Governance Indicators between 2010 and
2013
• Human rights provisions of the 2011 constitution have
been largely ignored.
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Voice: Accountability
Percentile: Voice and Accountability
45
40
35
30
25
20
15
10
5
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
ALGERIA
EGYPT, ARAB REP.
M OROCCO
TUNISIA
Average
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Percentile: Political Stability/Absence of Violence
Political Stability
60
50
40
30
20
10
0
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
ALGERIA
EGYPT, ARAB REP.
M OROCCO
TUNISIA
Average
25
Percentile: Government Effectiveness
Government Effectiveness
80
70
60
50
40
30
20
10
1996
2000
2003
2005
2007
2009
2011
2013
Country/Group
ALGERIA
EGYPT, ARAB REP.
MOROCCO
TUNISIA
Average
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Regulatory Quality
60
Percentile: Regulatory Quality
55
50
45
40
35
30
25
20
15
10
5
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
ALGERIA
EGYPT, ARAB REP.
MOROCCO
TUNISIA
Average
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Rule of Law
65
Percentile: Rule of Law
60
55
50
45
40
35
30
25
20
15
10
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
ALGERIA
EGYPT, ARAB REP.
MOROCCO
TUNISIA
Average
28
Control of Corruption
Percentile: Control of Corruption
80
70
60
50
40
30
20
10
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
ALGERIA
EGYPT, ARAB REP.
MOROCCO
TUNISIA
Average
29
Total Governance
60
Percentile: Total Governance
55
50
45
40
35
30
25
20
15
10
1996
2000
2003
2005
2007
2009
Source: World Bank, Worldwide Governance Indicators, 2014
2011
2013
Country/Group
Algeria
Egypt
Morocco
Tunisia
Average
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Assessment I
• Economy has been hindered by the slow and tentative
pace of change
• PJD seems to have subscribed to The Chinese idea of
evolutionary institutionalism
• Rather than risk dramatic changes in a new and highly
uncertain environment, prefer to move incrementally
• Always looking for better ways to improve the economy,
but with minor reforms that can be easily reversed if
proven ineffective
• Some argue slow pace of change reflects concern over
the dislocation of the neo-liberal reforms in the 1980s
• More likely explanation – despite appearance of
comprehensive economic management, no real
coordination between ministries and agencies
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responsible for implementing and managing reforms
Assessment II
• Because Morocco still very much a monarchy, JPD has
no control over several key ministries whose directors
report to the king
• Many ministries working at cross purposes each
focusing on its own priorities
• Need to have more centralized decision making so all
participants are focused on same goals and coordinating
the sequence of reforms necessary for reaching these
objectives
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