Morocco Country Profile

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Publication Date:

December 2007

Key Facts:

ISO code: 37

Capital CityRabat

Government TypeConstitutional Monarchy

Head of StateKing Mohammed VI

Head of GovernmentPrime Minister Abbas El

Fassi

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Morocco Country Profile

EXECUTIVE SUMMARY

Morocco, which lies on the northwest coast of Africa, is a constitutional monarchy with

33 million-strong, predominantly Arab and Muslim population. It has strong trading acultural links with southern Europe, particularly France and Spain. In recent yeaMorocco's economic integration with the European economy has increassubstantially, assisted by a free trade agreement negotiated with the European Un(EU) that was ratified in 2000.

Furthermore, a number of internal developments, including more liberal terms-of-tradgreater autonomy for the central bank, improved physical infrastructure, closintegration with the country's main markets and a pro-active political leadership, are contributing to ensuring stable growth for Morocco's economy. However, the authoritmust deal quickly with issues like poverty and unemployment, which are hindering tpath of reform and economic development in the country. In addition, the econocontinues to be restricted by its excessive dependence upon an unproduct

agricultural sector.

Political reform in Morocco has moved more rapidly. Since acceding to the throne1999, King Mohammed VI has spearheaded a series of democratic reforms. Tparliamentary elections held in 2002 were largely free and fair, but the subsequent rulcoalition led to a surge in support for the moderate Islamic opposition. Despite the threposed by Islamic extremists, a terrorist bombing spree in Morocco's business capCasablanca in spring 2003 has meant that support for militant Islam remains relativlow. In the recent elections of September 2007, Abbas El Fassi was elected Morocco's prime minister. At present, he is in negotiations with his four other coalitpartners aimed at forming a cohesive government.

Table of Contents

INTRODUCTION KEY FACTS AND OVERVIEW POLITICS & GOVERNMENT

Summary Elections and Government Makeup Policy and Business External Relations

ECONOMY Summary Economic Performance Major Trading Partners Key Issues Prospects

MACROECONOMIC DATA GDP Population by age and gender Fertility rate Consumer Price Index Exchange rate Employment Unemployment Working women Mobile enetration

2007 Datamonitor plc. This information is solely for recipients internal use, and may not be copied, disseminated orforwarded to anyone outside the recipient's organization without the prior written consent of Datamonitor plc.


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INTRODUCTION

This report provides a detailed analysis on Morocco, providing an overview of its political,economic and business environment, represented both textually and in graph and tabularformats.

By combining macroeconomic and market data, this country profile gives access tocountry data points, trends and analysis including:

the country's political and government make-up the country's economic performance and GDP the potential for development detailed market and industry analysis of the country's business environment

The report would be of use to executives involved with or looking to enter the Moroccanmarket, or industry analysts and academics needing raw data or in-depth analysis onMorocco.

Contents

The report commences with the Executive Summary, which highlights the important factsof the report. The bulk of the report, comprising four chapters, including amacroeconomic data section, assesses the Moroccan market in detail:

Key Facts & Overview At-a-glance information, including basic political andgeographical facts, as well as key demographic data. The overview providesglobal context and serves as an introduction to the rest of the report.

Pol it ics & Government Details the nation's current internal and external

political situation and climate. It also provides a background to the currentgovernment make-up and its relation to business.

Economy Information about Morocco's economic background, performanceand major trading partners. Provides extensive analysis of major monetaryissues and assesses the country's prospects for future economic growth.

Macroeconomic Data Statistics about Morocco represented both graphicallyand in tabular format. Gives detailed economic information ranging from GDPand population size, to employment and working hours.

2007 Datamonitor plc. This information is solely for recipients internal use, and may not be copied, disseminated orforwarded to anyone outside the recipient's organization without the prior written consent of Datamonitor plc

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KEY FACTS AND OVERVIEW

Key Facts

Capital City

Rabat

Government Type

Constitutional Monarchy

Head of State

King Mohammed VI

Head of Government

Prime Minister Abbas El Fassi

Geography

Morocco borders the North Atlantic Ocean and the Mediterranean Sea, between Algeriaand Western Sahara. The north of the country is close to Spain and is separated only bya small stretch of water, the Strait of Gibraltar.

Source: CIA World Factbook


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Language

Arabic is the official language of Morocco; however, French is commonly used forbusiness and government. There are also dialects of Berber spoken in Morocco.

Ethnic Composition

The majority of Moroccans are Arab-Berbers, but there are also Jewish people inMorocco.

Major Religions

The vast majority of Moroccans are Muslims; however, there are also small Christian andJewish communities in Morocco.

Overview

Morocco is a constitutional monarchy on the northwest coast of Africa. It has a mostly

Arab population, although like other North African Arab states its society has a largelysecular and moderate Islamic outlook. Morocco has strong cultural and trading links withEurope, particularly France (the former colonial power) and Spain (its close neighboracross the straits of Gibraltar). However, as a moderate Muslim state, it is also a closeand useful ally of the US.

Following a decade of low and erratic growth, Morocco's economic situation has pickedup since 2001. A series of economic and political reforms have helped to breathe life intothe moribund economy, assisted by a stable monetary and fiscal environment. However,substantial economic challenges remain. Around one third of the population is under 15,and youth unemployment in urban areas tops 30%. Illiteracy is widespread, and rates ofpoverty remain high, particularly in rural areas, where public services are often meagerand inadequate, even by national standards. The economy remains relatively un-

diversified, as it is reliant on agriculture, phosphate production and low-endmanufacturing such as textiles.

The transition to a more open and pluralistic political system, spearheaded by therelatively young King Mohammed VI, has been the most encouraging development inMorocco in recent years. The 2002 parliamentary elections were widely perceived asMoroccos most fair and open to date. Although the monarch retains a decisive role in thepolitical sphere and political parties remain relatively fractured, Moroccos transition to astable and effective democratic system is now entrenched.

The pace of economic reform in Morocco has been somewhat slower, held back bypolitical in-fighting, as well as genuine concerns about protecting the most vulnerablecitizens from the vagaries of economic change. This is particularly difficult when the

social safety net is almost absent; rates of poverty are already high, and the risk ofcreating supporters for militant Islamist groups is ever-present. In reality, Morocco haslargely avoided the schisms of other Muslim and Arab states, preserving itsMediterranean tradition of practicing a relatively laidback and inclusive form of Islam.


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Although terrorist attacks in the business capital of Casablanca in the spring of 2003shattered this image; broadly speaking, support for militants remains low. Internationalinvestors, particularly in the more risk-averse climate of recent years, might be tempted toshy away from Morocco for fear of the threat of Islamic-fundamentalist militancy that hasswept across much of the globe. However, as the country increasingly embracesdemocracy and the economy is successively liberalized and becomes more integrated

with the economies of its EU neighbors, those who look behind the headlines are likely tobe pleasantly surprised.


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POLITICS & GOVERNMENT

Summary

On the political front, Morocco has been moving steadily towards a pluralistic democracyunder its liberal-minded monarch Mohammed VI. The September 2002 parliamentaryelections were judged to be Moroccos freest yet. The administration took up where itspredecessor left off, promoting greater economic and political liberalization. Despite themoves towards democracy, the monarch has retained a decisive political voice. However,at present, the politicians and king share the same liberalizing and western-leaninginstincts. The most recent parliamentary elections were held in September 2007, whenAbbas El Fassi was appointed as the prime minister to form the new government.

Relations with the EU and US are largely good, although 2002 saw an ugly territorialdispute with Spain over a small Mediterranean island, Perejil, which is claimed by bothcountries. The US attack on Iraq and the continued occupation remain unpopular withinMorocco, although the authorities continue to toe the Washington line with respect to thewar on terrorism.

Morocco's relations with its Arab neighbors are hindered by Algerias support for theindependence of Western Sahara, a sparsely inhabited coastal territory to the south thatMorocco continues to claim as its own following its annexation in 1976. An UN-brokeredceasefire in 1991 has stopped the fighting between Morocco and the independenceforces, although a lasting solution still seems out of reach. The discovery of substantial oildeposits off the coast of the disputed territory is unlikely to facilitate a resolution to thestand-off.

Elections and Government Makeup

Morocco is officially a democratic constitutional monarchy. Since the accession of thepresent monarch Mohammed VI in 1999, efforts to entrench democracy and civil libertieshave accelerated. However, the monarch continues to have a decisive voice in politics.For the most part his influence has been positive, as he has promoted modernization,political pluralism and good government. However, the monarch faces mounting internalcriticism from both left and right. Liberals question his commitment to civil liberties,particularly since a leading journalist was jailed in May 2003 for defaming the king.Meanwhile, Islamists have attacked his pro-US stance and modernizing tendencies. Infact, particularly in the build up to the US attack on Iraq, the pro-western stance of theking and his government became increasingly unpopular. However, widespread revulsionat the recent terrorist attacks in Casablanca means that this anger is probably unlikely tobuild into broad-based support for Islamic terror groups.

The parliamentary elections held in September 2002 were widely regarded as the mostfree and fair in Moroccos history. Furthermore, there was an additional women-only list

to boost female political representation in the lower house of parliament. Elections for thelower house are held every five years. Members of the upper house, the Assembly ofCouncilors, are elected by local councils and professional groups, with elections heldevery nine years. Driss Jettou, the prime minister appointed after the 2002 elections.hails from the Socialist Union of Peoples Forces (USFP). The 31-strong cabinet took in


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USFP and Independence Party members, and maintained the reformist and modernizingagenda of the previous USFP-Independence coalition.

The most recent elections, held in September 2007, had a very low voter turnout of 37%,which is the lowest in Morocco's history. The USFP lost a quarter of its seats and wasreplaced by the Istiqlal party, while the leader of the Istiqlal party, Abbas El Fassi,

became the prime minister. He is in the process of forming a coalition government withfour other parties. The political outlook for the economy remains stable under the newgovernment, as the king is the most important figure in the political system.

Policy and Business

Morocco's fiscal policy has remained relatively accommodative in recent years.Tightening in 2002 gave way to a more pro-growth stance in 2003 and 2004, asprivatization receipts helped to cover the current deficit. Along with an increase in taxrevenues, privatization receipts helped the economy to limit the budget deficit to 4.4% ofGDP in 2005 and around 2.1% in 2007. The debt position has improved and privatizationreceipts have been used to pay down a portion of the public debt, while interest rates

have remained low.

However, the fiscal position leaves considerable room for improvement. The authoritiescannot rely on privatization proceeds to plug a significant structural deficit, as witnessedin 2002, when lower than budgeted privatization receipts necessitated further domesticborrowing. Although the authorities have maintained a degree of discipline on theexpenditure side, which should be applauded; trade liberalization has led to decliningrevenue from trade taxes, which have yet to be fully replaced by a broader domestic taxbase. The Finance Act of 2005 provided for some minor adjustments in fiscal policy. Theeconomic situation is now conducive to pursuing a more rapid pace of fiscal consolidationto further support strong and sustainable growth.

Monetary policy in Morocco is constrained by the fixed exchange rate regime and the

relative under-development of domestic financial markets. The Moroccan dirham is fixedagainst a basket of international currencies. In April 2001, the authoritiesfollowingdiscussions with the IMFdevalued the dirham by around 5% and simultaneously re-balanced the reference basket to reflect the relative shares of Moroccos trading partners.The devaluation helped to reverse a gradual deterioration in Moroccos externalcompetitivenessa result of higher inflation relative to the countrys major tradingpartners during the 1990s.

In 2006, the Act on the Statutes of Bank Al-Maghrib was introduced to bring about areform of the operational framework of the monetary policy. The act endows the centralbank with greater autonomy with respect to policy decisions, and price stability wasidentified as the primary mission objective of the bank. The central bank is nowresponsible for determining the quantitative objectives and the instruments of monetarypolicy.

Structural economic reforms were largely put on the back burner during the late 1990s aspolitical and institutional reform took precedence. Some limited reforms were achieved,including the reduction of tariffs with respect to EU trade under the auspices of the


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Morocco-EU Association Agreement. In addition, the liberalization of thetelecommunications sector was pushed through, paving the way for the partial sale of theincumbent firm and the sale of a second cellular operator license. Limited liberalization inother sectors, including road transport and tobacco, also took place.

With the September 2002 elections proceeding smoothly and the governing coalition

returning to power, economic reforms proceeded with a greater sense of urgency. Thegovernment successfully reformed the labor code (following 20 years of discussions) topromote labor market flexibility and the acceleration of the privatization program. Anotherkey milestone was the signing of a Free Trade Agreement (FTA) with the US (the US'sfirst with an African country), which came into force in July 2004. Recently, China andMorocco agreed upon a series of trade agreements following the visit of ChinesePresident Hu Jintao in April 2006.

The current government plans to continue with a series of structural reforms in the labormarket and financial sectors. Morocco has also liberalized rules for oil and gasexploration and has granted concessions for many public services in major cities. Thetender process in Morocco is becoming increasingly transparent.

Prime Minister Abbas El Fassi fought the 2007 election on the basis of tackling Morocco'ssocial ills through increasing expenditure on rural development and tax reforms for smallenterprises. He has also talked about expanding agriculture and alternative economicactivities to create job opportunities in the rural sector. The government also plans tocontinue pushing ahead with reforms aimed at stimulating economic growth and privatesector involvement in order to reduce unemployment.

External Relations

One of the most significant developments in Morocco's external relations policy in recenttimes has been its closer ties with the EU. In 2006, the EU commissioner for externalrelations described the EUs relationship with Morocco as very, very close and spoke ofthe EU possibly granting Morocco even more advanced status. The EU also signed an

open-skies agreement with Morocco, which was unprecedented, as the agreement wasEuropes first ever outside of its borders.

Like Turkey, Moroccos status as a largely secular state with a moderate Muslimpopulation makes it a useful ally to the West. Relations with the US and the countries ofthe EU are generally good, and Morocco benefits significantly in terms of aid and tradeconcessions. Trade with the EU, which is by far Moroccos largest trading partner, wasboosted by the negotiation of an Association Agreement in 2000. Under the terms of theagreement, bilateral tariff and non-tariff barriers to trade (excluding trade in agriculturalgoods) are to be dismantled by 2012. The agreement has already boosted trade links,and is likely to see Morocco become even more closely tied into the European economy.Recently, Morocco and the EU announced their plans to extend their FTA to cover allagriculture and services (and not just goods) by 2010. This deal allows Morocco to enjoy

the same status with the EU as member states enjoy with each other.

Morocco is keen to join the EU, although its accession is unlikely, even in the long term.Many pre-accession EU states have reacted badly enough to the absorption of 10 newmember states in 2004, and some commentators question whether Turkey, officially


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down for EU membership at an unspecified date, will ever be allowed into the eliteEuropean club, particularly in the wake of the French and Dutch no votes on the EUsproposed constitution in 2005. Moreover, Moroccos territorial dispute with Spain, whichcontrols two colonial enclaves on the North African coast, further damages Moroccos EUrelations. In the meantime, closer economic integration seems the most that Morocco canhope for.

Trade links with the US, although comparatively unimportant at present, are likely to beboosted by the FTA between the two countries. In January 2006, the bilateral FTAbetween the US and Morocco came into effect. The FTA represents an important steptowards President Bush's vision of a Middle East Free Trade Area, and is the first inAfrica. The US-Morocco FTA eliminated tariffs on 95% of bilateral trade in consumer andindustrial products, with all remaining tariffs to be eliminated within nine years.

Bilateral links at the political and diplomatic level are strong between the countries.Morocco is considered an important regional US ally. Its moderate Muslim leadershipprovides a bulwark against extremist Islam in the region, and the authorities have beenkeen to co-operate in the US-led war on Islamic terrorism. The 2003 bomb blasts inCasablancaalthough many internally have been keen to blame outside influencehas

shattered the illusion that Morocco is wholly immune from extremist messages. However,it has redoubled the authorities determination to crack down on militants and to back theUS's policy on terrorism.

Morocco is part of the five-member Arab Maghreb Union (AMU) that was created in 1989.The AMUs other members are Algeria, Libya, Mauritania and Tunisia. The grouping hasconcluded multilateral agreements in a number of areas, including trade and tariffs anddouble taxation. The AMU has also taken steps towards greater integration in a numberof other respects, including co-operation between the five members central banks inorder to establish a unified clearing system.

However, moves towards greater integration have been hampered by argumentsbetween the member states, not least between Morocco and Algeria over the disputed

region of Western Sahara. A regional summit planned for May 2005 was postponedindefinitely following an ugly diplomatic spat between Morocco and Algeria over WesternSahara.

Algeria supports and hosts Western Saharas government-in-exile, the Saharawi ArabDemocratic Republic (SADR). Morocco claims control over the sparsely populatedregion, which it invaded in 1976 following the withdrawal of Spain, the former colonialpower. A decade and a half of fighting between Moroccan forces and the Polisaro Frontindependence movement was brought to an end by a UN-brokered ceasefire in 1991.However, with Morocco continuing to insist on limited autonomy rather than fullindependence, a lasting settlement to the dispute still seems some way off. WesternSaharas newly discovered oil reserves will make Moroccowhich is highly dependentupon oil imports and struggling to achieve a positive trade balanceeven more loath tocede control.

An attempt was made by a UN special envoy to mediate the dispute between the twocountries over control of the Western Sahara region. According to the plan, a referendumwas to be conducted allowing the inhabitants of the disputed region to vote for either


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autonomous or semi-autonomous status. Solutions proposed by the plan were not alwaysacceptable to either or both of the countries, and the process came to a standstill with theresignation of the special envoy head James Baker in 2004.


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ECONOMY

Summary

Morocco's economy stagnated for much of the 1990s, held back by a series of droughtsthat impacted upon the still-dominant agricultural sector. However, manufacturing andservices continued to grow steadily. Since 2000, the economy has recorded strongergrowth, based on improved weather conditions, strong export growth and liberalizingpolicy moves. Macroeconomic policy has provided for a bedrock of relative fiscal andmonetary stability by delivering declining budget deficits and low inflation. A small andwell-managed devaluation of the Moroccan currency in 2001 also helped to promoteexport demand.

Morocco's macroeconomic performance since the start of 2001 has been relativelystrong, with an average growth rate of 5% over 200104. This was mainly due to thegood performance of the countrys primary sector, with agriculture and phosphate miningparticularly strong. In 2005, the momentum slowed down, with economic growth at 1.7%,primarily due to a contraction in the primary sector of around 18%. The economy

recovered from the fall in performance in 2006 and recorded a growth rate of 6.7%. Theeconomy grew at a CAGR of 4.7% over 200106, with growth in 2007 expected to havebeen 2.2% and the CAGR for 200711 expected to be 2.1%.

Reform programs have suffered the effects of a political logjam, and the pace ofprivatization and liberalization has not been as rapid as could have been hoped for. TheJettou administration prioritized further reform, particularly as the political reform agendathat took up much of policy-makers energy in the late 1990s was largely complete by thestart of his leadership. Liberalization should provide a further boost to investment andexports, particularly given Moroccos improving access to the EU and US markets. Thisshould help to drive down a cripplingly high level of unemployment, which is concentratedon the young.

Economic Performance

Moroccos economy performed poorly in the 1990s due to slow growth in its major exportmarkets and a series of droughts (six in 10 years) that hit the key agricultural sector.Historically, the agricultural sector has been the key driver of improved economicperformances, followed by the construction and mining sectors. Average GDP growthover the course of the decade was slightly over 2% per year, barely sufficient to keeppace with the rapid population growth. As a result, poverty and unemployment ratesincreased sharply.

However, a more reformist policy stance from the late 1990s onwardsinitially focusedon the political sphere, but increasingly active in the area of economic policyhas helpedto improve the macroeconomic environment. Real GDP growth in 2001 picked up to

around 5%, from a mere 1% in 2000, while growth in 2002 was around 4.6%. Theimproved growth in performance since 2001 has occurred against a backdrop of low andstable inflation, and a slight easing in unemployment in 2002, although theunemployment rate remained cripplingly high at 11.6%.


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A predominantly Muslim Arab nation, the tourism industry was hit badly in the wake of theSeptember 11 attacks on the US and the subsequent global developments. A series ofsuicide bombings in Moroccos business capital Casablanca in May 2003 has had afurther negative impact upon the region's tourism industry.

Private transferslargely remittances from Moroccans working overseasare a key

source of foreign currency. In 2002, net private transfers were equivalent to almost half ofMoroccos total earnings from merchandise exports. The introduction of euro notes andcoins in 2001 provided a big boost to recorded transfers, as Moroccans at home andoverseas converted cash holdings in the Eurozones various soon-to-be obsolete nationalcurrencies into Moroccan dirhams. However, the slowdown of transfers in 2002 wasnegligible, suggesting a sustained trend of repatriating foreign earnings, indicativeperhaps of a growing faith in investment opportunities and the general financialenvironment in Morocco.

The economy continued to perform well in 2003 and 2004. Output growth accelerated to6% in 2003, driven by a particularly strong performance in the dominant agriculturalsector. In 2004, growth fell back to 4.4% as the one-off effect of the strong harvest in2003 diminished. However, improved investment growth and the relatively expansive

fiscal position continued to drive the economy forward. Reflecting the impact of robustdomestic demand on imports, the external current account surplus moderated somewhat,from more than 3.5% of GDP in 2003, to a little over 1% of GDP in 2004.

During 2005, growth in the agriculture sector was not as substantial as in other sectors.The primary sector contracted by around 18%, while non-agricultural activities continuedthe trend displayed in the previous year, growing at 5.2%. The growth in the tourismsector, with tourist arrivals increasing by 5.5%, came on the back of several positivechanges in 2004 involving the liberalization of the air transport and closer co-ordinationwith foreign tour operators. Exports increased by 7.4%, mainly driven by a more than16% rise in exports of phosphates and their derivatives. Imports soared even higher by14.2%, primarily as a result of increases in oil prices globally and increased purchases offoodstuffs. The trade deficit in 2005 amounted to almost 19% of GDP. The

unemployment rate was at 10.2%, mainly due to the lack of job opportunities in ruralareas, where unemployment rose from 3.2% in 2004 to 3.6% in 2005. The urbanunemployment rate was almost the same as 2004 at 18.3%.

Economic growth in 2006 was at one of the highest levels seen in this decade at 6.7%,as the agricultural sector recovered from a relatively poor performance in 2005. The IMFhas said that Morocco needs to sustain real GDP growth at around 6% if it is to be able toaddress its socioeconomic issues. In 2007, Morocco was expected to experience a dropin the rate of growth on account of a decline in agricultural output.


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Major Trading Partners

Moroccos trade is heavily slanted towards the EU, with which it ratified an AssociationAgreement in 2000, paving the way for a gradual elimination of tariff and non-tariffbarriers to trade. Phosphates and related products are Moroccos largest single export

earners. Around three fourths of Moroccos exports are destined for EU markets.Frances long-standing relationship with Morocco is reflected in its 21% share ofMorocco's total exports, while Spain (20%) and the UK (5%) are the other majorEuropean export destinations. Italy and Germany each have a 5% share of Morocco'sexports. Morocco has started to make its presence felt in the Asian markets with therecent rise in exports to India standing at 4% in 2006.

On the import side, the EU market accounts for 56% of Morocco's total imports. Franceand Spain again dominate, with 18% and 14% shares, respectively. Italy, with a 6%share, closely follows Saudi Arabia, which has a 7% share. Germany has a 6% share inthe Morocco's imports. Among the Asian countries, China has gained a 7% share ofMorocco's total imports.

Key Issues

A key problem facing the Moroccan economy is the continuing dominance of theagricultural sector. Much of the sector is rooted in low-productivity, traditional production,and output remains highly seasonal and susceptible to poor weather conditions. Most ofthe output variability recorded during the 1990s was a result of big swings in agriculturaloutput, which, in turn, was due to a series of severe droughts. Achieving diversificationinto more specialized areas of agricultural production, manufacturing and tourism are keyobjectives for the Moroccan authorities.

Morocco's strong export performance in recent years points to some progress towardseconomic diversification, largely due to improved access to the lucrative and nearby EUmarket. However, progress in this area will be hampered by a lack of available skills, as

well as the continued effects of the 2003 Casablanca bombing and wider regionalinstability on tourism and investor confidence.

Although agriculture accounts for only one sixth of output, it absorbs almost half ofMorocco's labor force. This illustrates the extremely low level of labor productivity in thesector, but it also reflects the high levels of unemployment and the lack of otheremployment opportunities that force many Moroccans to eke out a meager existence onthe land. Urban unemployment stands at around 18% and for the young, the rate is 34%.With around one third of the population presently under 15 years of age, labor marketconditions are likely to become worse before they improve.

Structural impediments, including a rigidly enforced minimum wage and restrictive hiringand firing laws, contribute to the unemployment problem. However, the poor economicperformance of the 1990s and the resultant low levels of investment and job creation arethe key problems. At 51.7%, Morocco's literacy rate has compounded the problem bylimiting the skills that are available to investors. However, in recent years, the situationhas been improved by a renewed focus on school enrolment, particularly of girls, whohave traditionally been under-represented. In time, this should deliver a step-change in


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education indicators. The reform to the labor code that was completed in 2003 has alsohelped to remove some structural impediments to growth.

The financial sector is generally sound and has benefited from improved standards ofregulatory and supervisory oversight in recent years. However, some structural problemsremain, including the continued presence of a number of state-owned specialist

development banks that are technically insolvent. The ratio of bad loans to equity is alsorelatively high. The comparatively low level of financial development and the sectors lackof integration with global financial markets reduce its exposure to potentially destabilizingshocks. However, as the external environment continues to be liberalized and as thesector itself is opened up to greater competition, the risk of financial sector instabilitycreating wider macroeconomic imbalance is likely to increase.

The main industries in Morocco are tourism, phosphate mining and processing, foodprocessing, textiles, leather goods, construction and handicrafts. However, Morocco alsohas a huge, illegally operating cannabis industry. Although the industry has not comeunder the global scanner as yet, the countrys desire to have closer ties with the stringenteconomies of the EU will translate into greater efforts to dismantle this illegal trade.

The country is endowed with two thirds of the worlds phosphate reserves. This puts it ina higher league than its other major competitors such as China, Russia and the US.Although it employs only 2% of the population, the phosphate mining industry isresponsible for half of the nations income. The country has good infrastructure to supportan active oil and gas exploration and production industry. The roads, airports, seaports,pipelines and refineries are equipped with the latest amenities that are equal to Europeanor North American standards.

The greatest challenge for the government is the ongoing risk of suicide bombings bymilitant Islamist groups. Indeed, several such attacks occurred in the first half of 2007.The government is also trying to push ahead on economic reforms aimed at tackling theproblem of unemployment and infrastructure, but the success of these changes would bedependent upon the progress made on bureaucracy constraints, financial rigidities and

structural weaknesses in the economy.

Prospects

Morocco faces some daunting problems. Poverty, illiteracy and unemployment rates arehigh, particularly in urban areas. As a result, there is evidence of growing support for theradical Islamist message. On the other hand, partly due to the 2003 terrorist bombings inCasablanca, support for extremist groupings within the population remains relatively low.With the authorities clamping down hard on militant groups in the wake of the bombings,largely with popular support, they ought to be in a strong position to face down theextremist challenge.

Overall, the political system is moving towards an embedded and stable democracy;

however, it still has some way to go. Some 26 parties took part in the 2002 elections, anda wide array of factions representing disparate opinions jostle for a position in parliament.This can make it difficult to pass legislation and achieve necessary economic reforms, aswitnessed under the previous administration, when the pace of reform was painfully slow.


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With the monarch granting more liberalized terms of trade and the central bank nowcommanding increased autonomy, the conditions for trade look favorable. Moroccosincreasingly close ties with the US and Europe are another advantage, especiallyconsidering that most of its produce is absorbed by these markets. Robust export growthshould continue to drive Moroccos economic integration with the EU economy over themedium term. The recently strong record of macroeconomic policy stabilityif

maintained in the face of increased liberalization and fiscal pressureswill provide thebedrock for a solid economic expansion. In the short term, the repercussions of the 2003terrorist attacks and the fear of Islamic fundamentalism will continue to hurt tourism, andmay also shake investor confidence more widely. However, over the medium to longterm, Moroccos relative political stability and its continued journey down the path ofeconomic reform will help to provide an investment climate conducive to further growthand development.

The government is planning to achieve advances with economic reform, but progress isexpected to be slow due to economic factors like the fall in agricultural output and limitedresources; and non-economic factors, like inefficient bureaucracy and widespreadnepotism and corruption. Morocco's economic activity will be affected by the performanceof its agricultural sector. Because of periodic droughts, the CAGR of GDP is expected to

be only 2.1% for the period 200711. This is much lower than the growth rate that is seenas necessary to have an impact upon two important problems for the economy; povertyand unemployment. The government is expected to start the liberalization of theexchange rate from late 2008, which should boost the country's export competitivenessleading to a surplus in the current account.


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MACROECONOMIC DATA

GDP

Table 1: Morocco real GDP (dirham bn), 200106

Year GDP (dirham bn) Growth (%)2001 372 5.02002 389 4.62003 412 6.02004 430 4.42005 438 1.72006 467 6.7CAGR 4.7

*GDP at constant prices, base year 2000

Source: Datamonitor, National Statistical Organization, Morocco D A T A M O N I T O R


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Figure 1: Morocco real GDP (dirham bn), 200106

0

50

100

150

200

250

300

350

400

450

500

2001 2002 2003 2004 2005 2006

Moroccandirhams

Billion


Source: Datamonitor, National Statistical Organization, Morocco

D A T A M O N I T O R

Table 2: Morocco real GDP forecast (dirham bn), 200711

Year GDP (dirham bn) Growth (%)2007 477 2.22008 487 2.22009 498 2.1

2010 508 2.12011 519 2.0

CAGR 2.1


Source: Datamonitor, National Statistical Organization, Morocco D A T A M O N I T O R


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Figure 2: Morocco real GDP forecast (dirham bn), 200711

450

460

470

480

490

500

510

520

530

2007 2008 2009 2010 2011

Billion




Table 3: Morocco real GDP ($ bn), 200106

Year GDP ($ bn) Growth (%)2001 35 5.02002 37 4.62003 39 6.02004 40 4.42005 41 1.72006 44 6.7

CAGR 4.7


Source Datamonitor, National Statistical Organization, Morocco D A T A M O N I T O R


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Figure 3: Morocco real GDP ($ bn), 200106

0

5

10

15

20

25

30

35

40

45

50

2001 2002 2003 2004 2005 2006

US$Billion





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Table 4: Morocco real GDP forecast ($ bn), 200711

Year GDP ($ bn) Growth (%)

2007 452008 46 2.22009 47 2.12010 48 2.12011 49 2.0

CAGR 2.1


Source: Datamonitor, National Statistical Organization,

Morocco D A T A M O N I T O R

Figure 4: Morocco real GDP forecast ($ bn), 200711

42

43

44

45

46

47

48

49

50

2007 2008 2009 2010 2011

US$Billion





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Table 5: GDP per capita in Morocco compared to other Middle Eastern

nations, 2006

GDP ($ bn) Population (m) Per capita GDP ($)Israel 121 6 19,089Morocco 44 33 1,322Egypt 134 79 1,691

Source: Datamonitor, US Census Bureau International Database,

National Statistical Organization, Morocco D A T A M O N I T O R

Table 6: GDP growth per capita in Morocco compared to other MiddleEastern nations, 200106 and forecast 200711

CAGR 200106 CAGR 200711

Israel 0.2 1.5

Morocco 3.0 2.1Egypt 5.3 4.4


National Statistical Organization, Morocco D A T A M O N I T O R


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Figure 5: GDP growth per capita of Middle Eastern count ries, 200106 and

forecast 200711

Egypt

Morocco

Israel

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

-1 0 1 2 3 4 5 6 7

CAGR 2001-2006

Bubble s ize = 2006 per capita GDP (US$)

C

AGR2007-2011


National Statistical Organization, Morocco



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Population by age and gender

Table 7: Morocco populat ion by age and gender (000s), 2006

Age Male Female Male (%) Female (%)

04 1,784 1,713 51.0 49.0

59 1,779 1,713 50.9 49.1

1014 1,782 1,719 50.9 49.1

1519 1,771 1,711 50.9 49.1

2024 1,707 1,660 50.7 49.3

2529 1,489 1,462 50.4 49.6

3034 1,312 1,308 50.1 49.9

3539 1,112 1,133 49.5 50.5

4044 949 974 49.3 50.7

4549 812 834 49.3 50.7

5054 623 656 48.7 51.3

5559 405 454 47.2 52.8

6064 326 388 45.7 54.3

6569 277 355 43.8 56.2

7074 207 269 43.4 56.6

7579 136 174 43.9 56.1

80+ 105 143 42.4 57.6

Total, all ages 16,574 16,667 49.9% 50.1%

Source: Datamonitor, US Census Bureau International Database D A T A M O N I T O R


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Figure 6: Morocco populat ion by age and gender (%), 2006

-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0

0-4

5-9

10-14

15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65-69

70-74

75-79

80+

AgeGroup

Percent of Total Population

Female

Male

Source: Datamonitor, US Census Bureau International

Database D A T A M O N I T O R


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Fertil ity Rates

Table 8: Fertil ity rates in Morocco (%), 19962006

Year Percentages (%)

1996 3.61997 3.51998 3.41999 3.2

2000 3.12001 3.12002 3.02003 2.92004 2.82005 2.7

2006 2.7

Source: Datamonitor, US Census Bureau International Database D A T A M O N I T O R


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Figure 7: Fertil ity rates in Morocco (%), 19962006

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

FertilityRates(%)

Source: Datamonitor, US Census Bureau International Database



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Consumer Price Index

Table 9: Consumer Price Index inflation in Morocco, 200106

Year CPI inf lation (%)

2001 0.62002 2.82003 1.22004 1.5

2005 1.02006 1.9

Source: Datamonitor, Int ernational Labor Organization/ National

Statistical Organization, Morocco D A T A M O N I T O R

Figure 8: Consumer Price Index inflation in Morocco, 200106

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2001 2002 2003 2004 2005 2006

Inflation(%)

Source: Datamonitor, Int ernational Labor Organization, National

Statistical Organization, Morocco



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Exchange rate

Table 10: Exchange rate, dirham to $, 19952006 (annual average)

Year Exchange rate

1995 8.5401996 8.7161997 9.5271998 9.604

1999 9.8042000 10.6262001 11.3032002 11.0212003 9.5742004 8.868

2005 8.8652006 8.772

Source: Datamonitor, CIA The World Factbook D A T A M O N I T O R


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Figure 9: Exchange rate, dirham to $, 19952006 (annual average)

0.000

2.000

4.000

6.000

8.000

10.000

12.000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Moroccandirhams-US$exchangerate

Source: Datamonitor, CIA The World Factbook



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Employment

Table 11: Morocco employed populati on (000s), 19912006

Year Employment Growth (%)1991 7,2191992 7,313 1.31993 7,527 2.91994 7,902 5.01995 8,270 4.71996 8,590 3.91997 8,862 3.21998 9,279 4.71999 9,646 4.02000 9,712 0.72001 9,720 0.12002 9,802 0.82003 10,230 4.4

2004 10,512 2.82005 10,782 2.62006 11,078 2.7

Source: Datamonitor, Int ernational Labor Organization D A T A M O N I T O R


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Figure 10: Morocco employed populati on (000s), 19912006

0

2000

4000

6000

8000

10000

12000

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

thousands



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Unemployment

Table 12: Morocco unemployed population (000s), 19912006

Year Unemployment Growth (%)

1991 1,348

1992 1,333 -1.1

1993 1,339 0.4

1994 1,405 4.9

1995 2,121 51.0

1996 1,660 -21.7

1997 1,499 -9.7

1998 1,904 27.0

1999 1,343 -29.5

2000 1,344 0.0

2001 1,325 -1.4

2002 1,263 -4.7

2003 1,268 0.4

2004 1,225 -3.4

2005 1,344 9.7

2006 1,357 1.0



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Figure 11: Morocco unemployed population (000s), 19912006

0

500

1000

1500

2000

2500

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

thousands



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Table 13: Moroccan labor force that is unemployed (%), 200106

Year Unemployed (%)

2001 12.7

2002 11.92003 11.42004 10.82005 11.62006 11.4


Figure 12: Moroccan labor force that is unemployed (%), 200106

9.5

10.0

10.5

11.0

11.5

12.0

12.5

13.0

2001 2002 2003 2004 2005 2006



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Working women

Table 14: Number of working women in Morocco (000s), 200006

Year Number of working women Growth (%)2000 2,4162001 2,387 -1.22002 2,528 5.92003 2,667 5.52004 2,673 0.22005 2,694 0.82006 2,705 0.4


Figure 13: Number of working women in Morocco (000s), 200006

2200

2300

2400

2500

2600

2700

2800

2000 2001 2002 2003 2004 2005 2006

thousands



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Table 15: Moroccan employed populati on that is female (%), 200006

Year Number of female workers (%)

2000 24.92001 24.62002 25.82003 26.12004 25.42005 25.02006 24.4


Figure 14: Moroccan employed populati on that is female (%), 200006

23.5

24.0

24.5

25.0

25.5

26.0

26.5

2000 2001 2002 2003 2004 2005 2006



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Mobile Penetration

Table 16: Mobile phones per 100 people in Morocco, 19992006

Year Mobile phones per 100 people Growth (%)1999 1.22000 7.8 523.32001 15.6 100.32002 19.9 27.72003 23.1 16.32004 29.0 25.32005 37.9 30.62006 48.1 27.1

Source: Datamonitor, CIA The World Factbook, US Census Bureau

Int ernational Database D A T A M O N I T O R

Figure 15: Mobile phones per 100 people in Morocco, 19992006

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1999 2000 2001 2002 2003 2004 2005 2006

Mobilephonesper100pe

ople

Source: Datamonitor, CIA The World Factbook, U.S Census Bureau

Int ernational Database D A T A M O N I T O R


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Morocco Country Profile

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