Morocco Research Paper

Overview

Morocco is a country of 446,550 square kilometers that is located in Northern Africa between Algeria and Western Sahara. It borders both the North Atlantic Ocean and the Mediterranean Sea. In 788, around 100 years after the Arab conquest of North Africa, a succession of Moroccan Muslim dynasties began to reign in Morocco. The current Moroccan royal family belongs to the Alawite dynasty, which dates back from the 17th century. In 1860, Spain occupied northern Morocco and began a 50 year period of trade rivalry amongst other European powers. Shortly after this in 1912, the French made Morocco a protectorate country. The French rule ended in 1956 with Morocco’s independence. Sultan Mohammed V, the current monarch’s grandfather, organized

the state as a constitutional monarchy and in 1957 assumed the title of king. Morocco currently exercises de facto administrative control over 80% of the Western Sahara. In November 2012, the Justice and Development Party became the first Islamist party to lead the Moroccan Government.
The main ethnic group in Morocco is Arab-Berber, with 99% of people belonging to this ethnicity, the other one percent is a mixture of various ethnicities. Arabic is the official language of Morocco, as well as the Berber language Tamazight. French is often the language of business, government and diplomacy. 99% of the Moroccan population are Sunni Muslims, the other one percent encompasses Christians, Jews and Bahais. Morocco has the 39th largest population in the world, with 32,987,206 people.
The Moroccan culture has deep ties to Arab, Islamic and Berber traditions.

Moroccan cuisines employ a large variety of spices that are used in the Mediterranean region, such as cinnamon, cumin, turmeric and coriander. Couscous is the traditional Moroccan Berber dish and is often served with stewed meat and vegetables. Kebobs of chicken, lamb and seafood are also common. Morocco has a national dish called tagine, for the large clay pot in which it is cooked. Tangine is a heavily spiced stew that includes vegetables and shredded chicken or beef. Moroccan flat bread is commonly served at every meal. Morocco also has a rich history of artistic expression, and is a chief example of the intricacy of Islamic art. Tile work and carpet weaving are the most recognized of Moroccan

art.
The official name of the country is the Kingdom of Morocco, and locally it is Al Mamalakah al Maghibiyah. Locals most often call it Al Maghrib, which refers to the West or the sunset. The capital of Morocco is Rabat, with 1.843 million people. The largest city is Casablanca with 3.046 million people. The Chief of State is King Mohammed VI, since July 30, 1999. The Prime Minister is Abdelillah Benkirane. The monarchy in Morocco is hereditary and the prime minister is appointed by the monarch from the winning party following legislative elections.
In 2013, Morocco had a gross domestic product of $180 billion, PPP adjusted. Morocco has capitalized on its proximity to Europe and comparative advantage in low labor costs, to construct a diverse, open market economy. Since King Mohammed VI took the throne in 1999, he has ascertained that Morocco has maintained a steady economy marked by stable growth, low inflation and gradually declining unemployment. Industrial development and infrastructure investments are improving Morocco’s competitiveness. In 2006, Morocco entered into a bilateral Free Trade Agreement with the United States, and an Advanced Status agreement with the European Union in 2008. However regardless of Morocco’s determination to become competitive, the country still suffers from high unemployment (9.5%), poverty (15% live below the poverty line) and illiteracy (67.1% is literate). Key economic issues for Morocco include battling corruption and reforming the education system, the judiciary and the government’s current expensive subsidy program.
Strategic Importance
Morocco is a lower middle income country, whose location along the Strait of Gibraltar is essential to its strategic importance. The top 5 products exported by Morocco are: insulated wire, mixed mineral or chemical fertilizers, calcium phosphates, phosphoric acid and non-knit women’s suits. Worldwide, Morocco is the top exporter of calcium phosphates, phosphoric acid and vegetable stuffing materials. The top 5 export destinations of Morocco are: France (18%), Spain (15%), Brazil (5.8%), India (5.5%), and Italy (3.9%). The top 5 products imported products are: refined petroleum, crude petroleum, petroleum gas, cars, and wheat. The top 5 import origins are: Spain (13%), France (12%), China (7%), United States (6.7%) and Saudi Arabia (5.8%).

Morocco has an Economic Complexity Index ranking of 92. This index serves to explain the complexity of the economics of a country as a whole, rather than sectors. Morocco falls in between Pakistan (ranked 91st) and Sierra Leone (ranked 93rd). Morocco’s climate is Mediterranean, but becomes more extreme in the interior of the country resulting in only 17.79% arable land. The agricultural products that Morocco does specialize in are barley, wheat, citrus fruits, grapes, vegetables, olives, livestock and wine. The natural resources that are found in Morocco are: phosphates, iron ore, manganese, lead, zinc, fish and salt.
Morocco has 55 airports, 1 heliport, pipelines of gas, oil and refined products, railways that cover 2,067 km and roadways that cover 58,395 km. Morocco also has 5 major seaports and one container port.
Relations with the U.S. and The Rest of The world
In 2004, Morocco and the United States entered into a free trade agreement. The Agreement was implemented on January 1, 2006. This FTA is an agreement that advocates for the substantial economic and political reforms that are preceding in Morocco, and makes available commercial opportunities for U.S. exports to Morocco by reducing and eliminating trade barriers. The FTA was enacted under President Bush’s attempt to create a Middle East Free Trade Area by 2013.According to the U.S. Embassy in Morocco, the FTA will immediately eliminate tariffs on more than 95% of bilateral trade in consumer and industrial products. All other tariffs on these goods are determined to be eliminated within 9 years from the beginning of the FTA. Since the beginning of this FTA, the U.S. goods trade surplus with Morocco has increased to $1.8 billion in 2011, which was an increase from $79 million in 2005. U.S. goods exported in 2011 were $2.8 billion, an increase of 45% from the previous year. Correspondingly, U.S. imports from Morocco were $996 million, up 45% as well. Morocco is currently the 55th largest export market worldwide for United States goods. The Joint Committee that was established for the FTA held its third meeting in December 2012. During this meeting, the U.S. and Morocco announced an agreement on three new initiatives to be taken on: a Trade Facilitation Agreement, Joint Principles for International Investment, and Joint Principles for Information and Communication Technology (ICT) Services. U.S. and Moroccan specialists discussed FTA implementation issues including technical barriers to trade, sanitary and phytosanitary issues, and technical assistance to support execution of the 2011 Anti-Counterfeiting Trade Agreement. Morocco joined the U.S. in signing the ACTA, which will raise the standards for intellectual property rights enforcement worldwide. Other FTA subcommittees on Agricultural Trade and Sanitary and Phytosanitary Matters met in September 2012 and conferred Morocco’s execution of the tariff-rate quotas established under the FTA to afford U.S. wheat producers preferential access to Morocco’s market.

Domestic and International Tax and Tariff Policy
Following review of its trade policy in 2003, Morocco has continued to reform its sectoral trade policies and practices. Prominent progress has been made in the services sector especially. Morocco’s economy has remained moderately diversified, with agriculture playing the key role in the economy especially in employment. For this reason, agriculture remains the most heavily protected sector, with ad valorem tariff rates up to 304 percent. However, the average has fallen from 40 percent in 2003 to 29 percent in 2009; variable duties still apply to cereals and sugar. Agricultural policy continues to be subjective by the constant need to combat the effects of drought. The sector benefits from various incentives in the form of subsidies and premiums, public investment, tax concessions and loans. The manufacturing sector is mainly focused on exports and continues to be dominated by subcontracting in the textiles, clothing and automotive sectors. The average import tariff in the manufacturing sector is 19.9 percent, down from 33 percent in 2003. Food processing is the most heavily protected branch. The main tax incentive in the sector is to promote exports. The key industries of textiles and clothing are the most important of the processing industries in terms of exports and employment and the current policy aims at easing its transition from subcontracting to co-contracting and finished goods. The exploitation of the country’s key mineral resource phosphates, is still a State monopoly exercised by the OCP (Moroccan Phosphates Board). The OCP was converted into a public limited company to improve its competitiveness in 2008. The OCP is currently pursuing a new strategy in order to enable foreign investors to make equity investments in fertilizer production on Moroccan soil. The least tariff protected sector is the mining sector, with an average duty of 9.1 percent. Morocco currently imports 97 percent of its required energy.
Morocco is a net exporter of services, and tourism is now the primary source of foreign exchange, ahead of remittances. The increased trend of tourism is the result of the policy of incentives for the subsector and the airport transportation liberalization policy. The number of commercial passengers increased from 4.4 million in 2001 to 12.2 million in 2007. The telecommunications sector has also been increasing quickly due to increased competition. The autonomy of Bank Al-Maghrib in relation to monetary policy has also been strengthen. Maritime freight transport on scheduled routes has been liberalized. In subsectors such as rail transport and postal services, there are still State monopolies. In 1994, Morocco made substantial commitments under the General Agreement on Trade in Services in tourism, telecommunications and certain financial services, but its commitments remain limited in the areas of insurance and international road transport.
The Income Tax in Morocco applies to income and profits of people and entities that have not opted for corporate taxation. These wages include: wage income, professional income, land income and profits, income from moveable capital and profits, and the agricultural income. Starting on January 1, 2010 the scale for calculating income taxation is between 0% and 38% calculated in Moroccan Dirhams.

The Corporate tax applies to income and profits of capital companies, public institutions and other corporations that carry out profitable transactions and on an irrevocable basis to partnerships. In Morocco, the corporate tax rates are as follows: 30% normal rate and 37% fixed rate for credit institutions, Bank Al-Maghrib, CDG, insurance and reinsurance companies and leasing companies.
The Value Added Tax (VAT) applies to industrial, craft, commercial and liberal activities as well as import operations. Retailers’ income is also taxable when their turnover is accomplished during the year exceeds or equals 2,000,000 dirhams. There are three different rates for the VAT tax: a standard rate of 20%, reduced rates of 7% for certain consumer products and 10% on certain food products, beverages and hostelry industry especially and 14% for other products. Specific rates and partial or total exonerations apply for certain products and payments as well. The overall tax burden is about 23% of GDP.
Commercial Policy
Morocco’s economic freedom score is 58.3, making its economy the 103rd frees in the 2014 index. Its score declined by 1.3 points from last year due to decreases in trade freedom, freedom from corruption, and monetary freedom. Morocco is ranked 10th out of 15 countries in the Middle East/North African (MENA) region, and its score is below the overall world average. During the 20 year history of the Index, Morocco’s economic freedom score has dropped nearly 5 points, one of the 20th largest declines. Gains in fiscal freedom, trade freedom, and financial freedom have be overtaken by declines in property rights and freedom from corruption. Morocco was once ranked “moderately free,” but now falls under the title of “mostly unfree.” Morocco has attempted to integrate its economy into the global marketplace, but progress toward more significant economic freedom has been shaky. Critical challenges include corruption and high government spending. Budget deficits continue and public debt has risen to nearly 60% of GDP. The judicial system remains inefficient and vulnerable to political influence. Onerous requirements continue to hurt regulatory efficiency. Completing licensing requirements takes over 100 days and costs twice the level of annual income.

Morocco’s Ease of Doing Business rank in 2015 is 71, out of 189 economies. In 2014 Morocco’s Ease of Doing Business rank was 68, so this is a decline of 3 points – indicating a more difficult time to start a business. The Ease of Doing Business rank includes variables such as: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Starting a business in Morocco consists of 5 procedures, 11 days and 9.2% of income per capita.
Morocco openly encourages foreign investment and has sought to facilitate it through macroeconomic policies, trade liberalizations and structural reforms. The U.S.-Morocco FTA has led to more than a tripling of bilateral trade and roughly a tripling of both the stock and annual flow of U.S. investment to Morocco. The country’s excessive bureaucratic red tape continues to be a major restrain on the competitiveness of the economy and deters investors. To facilitate investment the government has created a number of Regional Investment Centers (CRI) to minimize and facilitate administrative procedures. Foreign exchange is readily available through commercial banks for the following activities without prior government approval: remittances by foreign residents, repatriation of dividends and capital by foreign investors and payment for foreign technical assistance, royalties and licenses. Morocco provides a range of investment incentives, including a tax holiday during the first five years of business and a 17.5% rate after. In the case of offshoring facilities, the government has offered telecommunications costs set at 35% below the market price and training grants of up to 7,000 U.S. Dollars for each Moroccan employee during the first three years of employment.
Foreign Direct Investment (FDI)
The Moroccan foreign exchange office maintains balance of payments statistics that include annual foreign exchange inflows for private foreign investment. These statistics vary between foreign direct investment, portfolio investment and short-term financing for current account expenditures. Foreign investment peaked at about 4.6 billion U.S. dollars in 2007, but declined to about 3.6 billion in 2008 and 2.5 billion in 2009. In 2012, the World Investment Report indicates that Morocco received $2.836 in FDI, making it the first in North African FDI flow. Telecommunications and Real Estate are the top FDI sector inflows, while Agriculture and Fishing are the lowest. Coca-Cola, FRI (Morocco’s McDonald’s), Delphi Automotive (former division of GM), Lear Automotive and Fruit of the Loom are the largest major foreign investors.

Currency and Exchange Rate Regime
In Morocco, Foreign Exchange Reserves are foreign assets held or controlled by the central bank. The reserves are made of gold or a specific currency; they can also be special drawing rights and marketable securities denominated in foreign currencies like treasury bills, government bonds, corporate bonds and equities and foreign currency loans. Foreign Exchange Reserves in Morocco increased to 182,024 MAD million in September 2014, up from 181,796 MAD million in August 2014. Foreign Exchange Reserves in Morocco are reported by the central bank, Bank Al-Maghrib.

Current exchange rate regime is a tightly managed float against a euro-dominated basket of currencies. The Moroccan dirham tends to move in conjunction with the Euro. In 2011, it fluctuated between 7.7 and 8.6 MAD to the dollar in 2011, with an average exchange rate for the year of 8.09 MAD to the dollar.
Regional Economics
The United States is Morocco’s 6th largest trading partner, and Morocco is the 55th largest trading export market for U.S. goods. Morocco is in a quadrilateral FTA with Tunisia, Egypt and Jordan, and a bilateral FTA with Turkey. It is also seeking trade and investment accords with other Africa, Asian and Latin American countries. Morocco and the EU signed an Association Agreement on February 26, 1996 and came into action on March 1st, 2000. This agreement provides for gradual establishment of an industrial free trade zone in 2012 and progressive liberalization in agricultural trade. The Morocco-Turkey FTA was signed in Ankara, on April 7, 2004 under the process of Euro-Mediterranean regional integration. It provides for the gradual establishment of an industrial free trade zone over a period of 10 years from the date of entry into force. Morocco is also a member of the Arab Free Trade Zone that was made for the facilitation and development of inter-Arab trade exchanges. This came into force on January 1, 1998. It seeks to establish a free trade zone among member countries of the Arab League (except Algeria, Djibouti, Comoros and Mauritania). The Morocco-Arab Countries Trade Agreement is a quadrilateral FTA with Egypt, Tunisia and Jordan under the Agadir Declaration. This was signed February 25, 2004 and aims to establish a free trade zone while remaining open to all Mediterranean Arab countries.
Morocco is a member of the United Nations, and in January 2012 it began a two year term as a non-permanent member of the UN Security Council. Morocco belongs to the Arab League, Arab Maghreb Union (UMA), Organization of Islamic Cooperation (OIC), the Non-Alighted Movement, and the Community of Sahel-Saharan States (CEN-SAD). Morocco has been a World Trade Organization member since January 1, 1995 and a member of the General Agreement on Tariffs and Trade since June 17, 1987.
Summary
Morocco has capitalized on its proximity to Europe and relatively low labor costs to build a diverse, open and market oriented economy.

In the 1980s, Morocco was a heavily indebted country before pursuing austerity measures and pro-market reforms that are overseen by the IMF. Since he took the thrown in 1999, King Mohammed VI has presided over a stable economy marked by steady growth, low inflation and gradually falling unemployment, although a poor harvest and economic difficulties worldwide contributed to an economic stagnation in 2012.

Industrial development strategies and infrastructure improvements are improving Morocco’s competitiveness. Morocco also is seeking to expand its renewable energy capacity with a goal of making renewable energy 40% of output by 20202. Key sectors of the Moroccan economy include agriculture, tourism, phosphates, textiles, apparel and subcomponents. To boost exports, Morocco entered into a bilateral FTA with the U.S. and an Advanced Status agreement with the European Union in 2000. However, despite Morocco’s economic progress, the country still suffers from high unemployment, poverty and illiteracy. In 2011 and 2012 high prices on fuel strained the government’s budget and widened the country’s current account deficit. In fall 2013, Morocco capped some of its fuel subsides in an effort to gradually reduce the country’s large budgetary

deficit.
Key economic challenges for Morocco remain fighting corruption, and reforming the education and judiciary systems and the government’s costly subsidy program.