Political Stability Improving in Morocco; Thanks To Growing FDI

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Monday, October 24, 2016/ 1:54pm /BMI Research

BMI View: The Moroccan government is capitalising on foreign investment to foster growth in the less developed regions of the country. This will gradually reduce economic inequalities between regions, and reinforce political stability in the long term.

We have upgraded Morocco's long-term political risk score to 68.5 out of 100 in September – compared to 67.8 previously – on the back of large foreign investment inflows which the Moroccan government is channeling towards inclusive growth in the country's poorest regions.

Morocco will continue to attract large amounts of FDI over the coming quarters, which will enable the government to push ahead with its strategy of economic diversification (see 'Bright Outlook For Foreign Investment Over The Coming Quarters', June 24).

In June 2016, the Inter-Ministerial Commission for Investment approved EUR2.3bn of investments, two-thirds of which originated from overseas. Building up on strong results, Morocco adopted a new Investment Charter in August 2016 (the old one had been left untouched since 1995).

Among other measures, the new text aims to create at least one free zone in every Moroccan region over the coming years. The Moroccan government is ensuring that the windfall from FDI is spread across the country, and not only dedicated to the more developed, more economically attractive regions.

In January 2016, more than USD5.5bn in investment was tagged to projects in Marrakech-Safi, Drâa-Tafilalet and Oriental (the three poorest regions in Morocco in terms of GDP per capita), including the world's largest solar power complex, whose first phase was completed in February 2016.

To ensure that foreign investments are geographically diverse, the Moroccan government has set up various free zones – in which companies receive financial incentives – and is developing the country's infrastructure.

It is not the first time that the Moroccan state has used investments as a domestic policy tool. In 2013, the Moroccan Economic, Social and Environmental Council laid out a 10 year plan for Western Sahara, including more than EUR12bn in investments and the creation of 120,000 jobs.

In February 2016, King Mohammed VI reinforced this strategy by pledging EUR1.6bn of investments to the region (see 'Phosphate Investments To Boost Exports, Rapprochement With Africa', February 9). This strategy has significantly improved the economic situation in the southern regions that constitute Western Sahara.

The two regions now boast some of the highest GDP per capita in the country, with levels similar to the financial and industrial centres in Casablanca and Rabat.

The Moroccan government will not place as much emphasis on developing other regions. Western Sahara will remain an exception – given that Moroccan sovereignty over the territory is contested – and Morocco will continue to dedicate large investments to developing it.

By doing so, the Moroccan government hopes to convince more actors in the international community that its treatment of the region is inclusive of the Sahrawi population.

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