Foreign Direct Investments, Infrastructure and Safety Series – Specific overview - Morocco

Infrastructure, Openness and Liberal legal framework as strategies for Morocco Foreign Direct Investment Attraction.

Since Morocco joined the African Union in 2017, the Union has moved to create a continental free trade area (AfCFTA - African Continental Free Trade Area (AfCFTA) Secretariat ), a trade policy agreement that came into force after the COVID-19 pandemic. Meanwhile, Morocco has been tagging itself as the gateway to Africa. Morocco offers to uplift itself to be a regional hub of business in the sub-Saharan and Middle East region. The country aims to improve its infrastructure to world-class standards, enhance and expand its export and manufacturing ability to attract international companies. It is worth noting that Morocco’s FDI Inflow has been slow but from the period of privatization policies of the 1990s which came with the Western liberal hegemony, there has been a steady positively skewed evolution of investment inflow. The positive skew is evident when observing the formation of FDI in gross fixed capital (UNCTAD, 2019). As such, Morroco’s FDI has increased rapidly from the 1990s onwards, and the government has developed legislative, organizational, institutional, financial and fiscal measures that attracted FDI during this period (Itri, 2021). With the country investing in intangible capital, liberalizing its market, and strengthening its human capital through health, development of early childhood and education, Morocco is on a great development path (Chauffour, 2017). Thus, the country’s openness is a great strategy when it comes to FDI attraction.?

Morocco is rated number nine when it comes to attracting foreign direct investment in Africa. The COVID-19 pandemic affected Moroccan FDI reducing it from $3.6 billion in the year 2019 to $1.7 billion in 2020 (UNCTAD, 2022). However, a recovery in 2021 came to $2.2 billion from the 2020 numbers leading to a 52% increase in post-COVID-19 (ibid). As such, the recovery strategy came with the New Development Model (NDM). The model aims at the country's international standard infrastructure such as technological advancement, laws and regulations, and political institutions that support economic modernization and growth that attract FDI (Republic of Morocco, 2021). Thus, NDM’s strategy is to attract Morocco’s FDI inflow.

With the positive outlook on FDI attraction, the country also has some weak points when it comes to its FDI inflow. Morocco is placed at number 94 out of 180 countries when it comes to corruption index (Transparency International, 2023). As such, corruption is always a bad blow affecting FDI attraction, development and the implementation of the legal frameworks dedicated to encouraging investment in the country, things however have been constantly going in the right direction over the last years. In addition, the Moroccan government has a monopoly on phosphate through a 95% state-ownership right. The state also has discretionary rights over large foreign capital. However, such rights have never been exercised (USGoV, 2023). The country also faced some safety concerns affecting different sectors such as tourism (El Menyari, 2021). Also, The National Agency for Hydrocarbons and Mines has a compulsory right over 25% of shares on development permit or exploitation license.

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Furthermore, Morocco has been cited as one of the best environment for attraction of FDI inflow (UNCTAD, 2022). This puts Morocco as one of the best investment environments in the Middle East and North Africa (MENA), the country has some of the best openness and liberalization policies which attract FDI inflow. However, such liberal policies and FDI inflow are still lacking the required standards for sustainability and responsible investment, causing some ecological and social issues (Hakimi and Hamdi, 2016). These policies are also behind the high volatility of the countries exchange rate causing major problems when it comes to FDI attraction (Asmae and Ahmed, 2019). Thus, an evaluation and a reform of some of these legal policies/frameworks and the infrastructure are crucial to understanding Morocco’s FDI attraction. The article examines the legal, fiscal and financial and organization measures before giving an analysis of the infrastructure and some conclusive remark on the relationship between infrastructure and FDI.?

Legal, fiscal, financial and organizational measures attracting investment in Morocco.

The legislative and organizational measures restructured services in a business environment to boost the Moroccan economy by attracting FDI. The country adopted an investment constitution, the regulation of key tax benefits and substitutive measures for the industry laws with indiscrete legislation to attract investment. Article 17 and 19 of the Moroccan Investment Charter is executed by the statement of the decree which stipulates that if an investment is at least US Dollars $19.6 million or 200 million dirhams, provides technology transfer, creates 250 jobs or the investment project is carried out as stipulated in the decree, then the country is responsible for the cost of infrastructure, training, and land acquisition. The legislative and organizational measures also adopt a law on offshore financial centers and export-free zones.?

Morocco’s Industrial Acceleration Plan (PAI) of 2014-2020 created favorable conditions for industrial investments and competitiveness by establishing financial, institutional, and technological frameworks to boost industrialization in the country through start-ups and other industrial enterprises. The plan aims to boost leadership in Morocco’s professional environment and integrate classical fabric industries (such as leather, textile), aerospace, automotive, pharmaceutical, chemical and parachemical, construction materials, bodyworks and heavy goods vehicles; thus, PAI supports Morocco’s potential in the global value chain, offering the right incentive to encourage FDI inflow (El Mokri, 2016). PAI has been renewed to a 2021-2025 strategic plan, building further on the progress of the former plan in expanding industrial development in the country (Auktor, 2022). Equal to the former plan, PAI 2.0 or the PAI 2021-2025 is a guideline for Moroccan legislations that govern FDI, stipulating equality to small and large firms, and domestic and foreign investors. It establishes an industrial ecosystem that consolidates the relationship between supplier and value chains among different large- and small-scale firms.?

Itri (2021) points out that in terms of financing and taxes, Morocco has created credit lines to encourage partnerships between foreign and domestic firms. The country has a continuous debt management program that allows transformation of the external public debt into investment, with the total amount concerted being around US $667 million. The country forfeits domestic and imported value added taxes to essential equipment, tools and capital goods for execution of projects amounting to USD $9.8 million or 100 million dirham. Lastly, Itri (2021) adds that assets that can be used for realignment or research and development are improved to a maximum profit limit from 2% to 20% before tax.

Morocco has the Agence Marocaine de Développement des Investissements et des Exportations - AMDIE which promotes investment in the country. AMDIE works with Regional Investment Centre (CRIs), a center that guides investors on Morocco’s 12 regions which are distinct when it comes to development and investment. CRIs has an investment map showing priority sectors, production costs, procedures for business creation, general business climate, laws and regulations.

In addition, Morocco has both bilateral and multilateral strategies that attract foreign investment, such as the Inter-Arab Investment Guarantee organization, Multilateral Investment Guarantee Agency MIGA , and Free Trade Agreements (FTA). The Inter-Arab Investment Guarantee is an organization that facilitates investment among the Arab states, it was established in 1971 and it protects Arab investments from non-commercial and commercial risks which are related to foreign investment, the organization focuses on the benefit of the investor (Wahab and Duggal, 2022). MIGA protects foreign investors from non-commercial risk such as damage, and risk of non-transfer due to the government depriving foreign investors from their benefit rights or government contracts terminations (Palgrave, 2017). Still, Morocco has a multilateral association agreement with the European Union, and has a free trade area agreement with European states (Itri, 2021).?

The government of Morocco’s bilateral agreements with different countries are strategies of transparency and openness to the world. This establishes a good investment environment, and strengthens partnerships, relations, and cooperation with different countries at a bilateral level (UNCTAD, 2019). For example, Morocco has a bilateral free trade relationship with the United States which attracts the latter country’s FDI. Washington and Rabat administrations have free trade agreements related to agriculture, market access, issues concerning customs cooperation, trade services, intellectual property rights, public transactions, legal issues, social sphere, environment, investment, and textile. However, such agreements with European states are different from Morocco’s FTA with the United States. The treaty focuses on other elements and not all sectors are liberalized in the Morocco-EU countries agreement. It focuses on industrial products, while sectors such as agriculture are as a matter of cooperation and not negotiation with EU countries (Chaouki, 2023). Morocco also has bilateral agreements with MENA countries such as United Arab Emirates, Jordan, Egypt, Tunisia and Turkey. All these bilateral agreements are strategies to attract FDI inflow in the country (Itri, 2021).???

Morocco’s New Development Model is a great financing strategy to attract foreign investment, it focuses on renewable energy which aims to attract FDI in the energy sector and improve the energy grid coverage from 19.5% in 2021 to about 40% in 2035 (Republic of Morocco, 2021). It also creates favorable conditions for FDI through a framework of attractive investments and diversifying financial systems and mechanisms of economic transformation. The policy emphasizes the need for private investors as a main pillar of the strategy. In terms of financing infrastructure and mechanisms, the country aims to diversify through a combination of: attractive and dynamic stock market, competitive bank financing offers, and the use of innovative financing as an attraction mechanism and strengthening the capacity to attract investors. The policy also aims to develop its Public-Private Partnership (PPP) sector through innovate financial strategies for project financing by opening some sectors for private investments.?

Physical infrastructure as an attraction of foreign investmentsnbsp;

In taking advantage of its geographical position, Morocco aims to be a world-class infrastructure. The state's goal is to be an export base for international companies due to its Tangier-Med infrastructure. The state also aims to expand as a regional manufacturing hub, engineered by the China Ocean Shipping Company ( COSCO SHIPPING Europe ) , a Chinese Shipping and Merchant Port Holdings (Paché, 2020). The Tangier-Med Commercial Port is the largest port in Africa, its expansion increased its capacity from four million TEUs to 6 million in 2016 (Babounia and El Imarani, 2016). In the year 2019, its capacity of Twenty-Foot Equivalent (TEUs) increased to nine million (Hauser, 2022). As such, the increase of this infrastructure has the aim to attract FDI due to its strategic position in the Mediterranean Sea, connecting Africa to Europe and Asia.

Morocco also connected the commercial hub Casablanca to the capital Rabat through Africa’s first speed train; this makes such infrastructure an attraction of FDI in the country (USGoV, 2023). Currently, the port’s infrastructure is expanding, adding two cranes as part of the eight cranes. These Ship-to-Shore (STS) cranes have an outreach of 82 metres, they have the capacity to handle cargo vessels with up to 24,000 TEUs, and the investment in these cranes is worth US $129 million (Rahman, 2023, see also, Solís et al., 2023). The port is considered an economic magnet and a strategy for the Moroccan government to attract business and investment (Jebbad et al., 2022). ?

Algeria possesses competition to the port of Tangier in Morocco due to the latter country's oil reserve attraction to global conglomerates. However, the creation of the Casablanca Tanger Tech and Financial City as a model rebalances such competition in the region. Thus, Morocco is an economic zone that attracts FDI through tax credits, as well as creating jobs and value for the locals (Paché, 2020). A part from the Port of Tangier, Morocco has a huge infrastructure investment with China. Trends of Chinese FDI stock to Morocco have increased over the years. The period between 2004 and 2017 indicates a positive skew in Chinese FDI stock to Morocco. ?In 2004, such FDI stock was at US $9.06 million while in 2017, It stood at US $318.21 million (Zoubir, 2020).

The year 2019 demonstrated further cooperation between China and Morocco, the latter country attracting the former’s FDI. The two countries signed an economic and technical cooperation agreement in financing Education and technology. Such is a strategy to create the Tanger Tech ‘smart city’ at a budget of US $16.3 million (Paché, 2020). Still, there is a positive effect of Morocco’s infrastructure development in the Information Communication and Technology (ICT), and transport infrastructure and Chinese FDI inflow (Soussane and Mansouri, 2022). Morocco’s main FDI attraction is in telecommunication, insurance, and banking infrastructure (Boukhars, 2019). Other sectors such as mining, tourism, real estate and energy have a big percentage of its FDI stocks coming from the United Arab Emirates, France and Spain (USGoV, 2023). Morocco also attracts strong bilateral agreements with Egypt, Turkey, the United States, Tunisia, and Jordan. There is also a multilateral agreement such as the European Union (EU) association agreement with Morocco, a strategy to attract FDI inflow in the country (Itri, 2021). Thus, there is a positive relation between Morocco’s FDI and the country’s focus on infrastructure.

Conclusion

There is a positive skew between infrastructure and Foreign Direct Investment, and Morocco demonstrates such a relationship. Infrastructure has a wide range from technology, ICT, and physical infrastructure to legal and financial regulations. These regulations and physical infrastructure are essential when it comes to the attraction of FDI inflow. Investors prefer a conducive legal environment for business, and Morocco has provided such a framework.? The NDM? is a great policy framework for Morocco’s recovery after the FDI inflow was affected by the COVID-19 pandemic. It provided a framework for partnerships with investors such as Public Private Partnership, giving innovative financial strategies that attract private investors.

Morocco also has open policies that attract both bilateral and multilateral agreements. The country has an open treaty with the United States, and it also has multilateral agreements with the European Union with the aim of attracting FDI. Morocco tagged itself as a gateway to Africa after the country joined the African Union in 2017, taking advantage of its open policies and the continental AfCFTA. Thus, Morocco’s openness is a progressive strategy for the country’s FDI attraction.

The country has also attracted Chinese FDI inflow, and its world-class infrastructure port of Tangier is the largest in Africa.? The Port aims to attract more export-import business through different investments worldwide. The port is also connected to the fast train in Africa `making it an attraction to business and investment. The Chinese investment in Tangier Tech, a smart city in terms of technology, Morocco’s development of its banking sector, telecommunication, and ICT infrastructure makes the country an economic zone that is attractive to FDI inflow.?

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Agence Marocaine de Développement des Investissements et des Exportations - AMDIE IFC - International Finance Corporation African Development Bank Group AVCA - The African Private Capital Association