Morocco Advances in Sustainability and Economic Stability

Morocco’s Inflation Approaches 2% Target in June 2024

After experiencing significant volatility over the past two years, inflation in Morocco is finally showing signs of stabilization, with an annualized growth rate of 2.4% as of the end of June 2024. This comes after a tumultuous period marked by unprecedented economic challenges that have tested the resilience of the Moroccan economy.

The spillover effects from the COVID-19 pandemic caused a significant spike in inflation in Morocco and around the world. The pandemic disrupted global supply chains, leading to shortages and increased costs of goods and services. In Morocco, the situation was further exacerbated by the war in Ukraine, which sent shockwaves through international markets, particularly affecting food and energy prices. These dual crises created a perfect storm that saw inflation rates soar to levels not seen in decades.

Beginning in November 2022, inflation in Morocco embarked on an upward trajectory, reaching a peak of 10% in February 2023. This surge was primarily driven by skyrocketing food prices, which had a profound impact on the cost of living for Moroccan households. Essentials such as bread, milk, and cooking oil became significantly more expensive, straining the budgets of ordinary citizens and leading to widespread discontent.

In an effort to tame inflation and bring some stability to the economy, Morocco’s central bank, Bank Al-Maghrib (BAM), took decisive action by hiking the benchmark interest rates from 1.5% to 3%. This move was aimed at curbing excessive spending and cooling down the overheated economy. However, recognizing the need for a more balanced approach, BAM decided to reduce the interest rate by 25 basis points last month, signaling a cautious optimism about the country’s economic outlook.

The challenges facing Morocco were not solely external. The country has also been grappling with persistent drought conditions, which have severely strained agricultural production. The drought has led to reduced yields and higher prices for vegetables, fruits, and meat, pushing these commodities to record-high levels. This situation has further compounded the inflationary pressures, as food costs constitute a significant portion of household expenditures in Morocco.

Despite some signs of stabilization, food and energy prices continue to exert upward pressure on inflation. According to a report from the High Commission of Planning (HCP), gas prices have seen the highest increase, surging by 10%. This was followed by a 4.5% increase in fruit prices and a 2.2% rise in meat prices. These increases have a cascading effect on the broader economy, as higher transportation and production costs get passed on to consumers.

Looking ahead, BAM has indicated that the ongoing conflict in Ukraine and the fallout from the Middle East crisis will continue to negatively influence inflation. The geopolitical instability in these regions has far-reaching implications for global energy markets, particularly oil and gas, which are crucial for Morocco’s economy. As a result, the inflation rate is projected to peak at 2.7% in 2025, reflecting the persistent challenges that lie ahead.

However, there is a silver lining. The Moroccan government has been implementing a series of economic reforms aimed at enhancing resilience and promoting sustainable growth. One of the key measures has been the gradual lifting of subsidies on basic food and energy commodities. While this move has faced criticism and sparked concerns about its impact on vulnerable populations, it is expected to contribute to the long-term reduction of inflation by fostering a more competitive and efficient market environment.

In conclusion, Morocco’s journey through the inflationary storm has been fraught with challenges, both domestic and international. The combination of pandemic-related disruptions, geopolitical conflicts, and climatic adversities created a complex and volatile economic landscape. However, the recent stabilization in inflation rates, coupled with proactive measures by the central bank and government reforms, offers a glimmer of hope. The path to full economic recovery will undoubtedly be long and arduous, but Morocco’s resilience and adaptive strategies provide a strong foundation for navigating the uncertainties that lie ahead.

Morocco Allocates $172 Million for Ecotourism in Draa Oasis

The Moroccan Tourist Engineering Society (SMIT) has unveiled an ambitious $1.7 billion plan to transform the Draa Tafilalet region into Morocco’s leading ecotourism destination. This groundbreaking initiative, announced by SMIT President Imad Barrakad at a Development and Solidarity Council meeting in Rabat on July 17, 2024, aims to harness the region’s unique natural and cultural assets to promote environmental sustainability while creating a significant number of local jobs. The plan is set to revolutionize the tourism landscape in Morocco, emphasizing the importance of sustainable and responsible tourism development.

The comprehensive strategy, aptly named the “Desert & Oasis Adventure,” focuses on enhancing the region’s appeal through several targeted interventions. At the core of the plan is a major improvement in air travel infrastructure, designed to better align supply with the burgeoning demand for travel to this unique region. By making Draa Tafilalet more accessible, SMIT aims to attract a steady stream of tourists, thus boosting the local economy and fostering sustainable development.

One of the standout features of this plan is its emphasis on optimizing investments to maximize the impact of tourism projects. This includes a substantial upgrade of tourism services and infrastructure, ensuring that visitors receive a world-class experience. By implementing professional management practices and improving governance, the initiative aims to set new standards for tourism in the region, making it a model for other destinations to emulate.

To ensure the successful execution of these ambitious projects, a Regional Development Society (SDR) will be established. This body will involve a collaborative effort between SMIT, the Ministry of Oversight, and the Regional Council. The SDR will oversee the implementation of public projects that align with local priorities, integrating various tourism offerings such as nature trekking, hiking, and immersive desert and oasis trips. These diverse activities will provide tourists with an authentic and enriching experience, showcasing the best that Draa Tafilalet has to offer.

The initiative is supported by a robust financial strategy comprising three main pillars. The first pillar involves an investment of MAD 515 million ($50 million) aimed at upgrading and expanding tourism accommodations. This includes the renovation of existing facilities, the development of charming boutique hotels, the creation of alternative rural stays, and the establishment of a green resort in Isli and Tislite. These efforts are designed to offer a wide range of lodging options that cater to different preferences and budgets, all while adhering to sustainable practices.

The second pillar focuses on enhancing the region’s visibility as a top tourist destination. MAD 732 million ($68 million) will be allocated to improving tourism signage and enhancing prominent sites such as the Todgha and Dades Gorges, and the Sijilmassa archaeological site. By investing in these iconic locations, SMIT aims to draw more visitors and highlight the region’s rich historical and cultural heritage. Improved signage and information will ensure that tourists can easily navigate and appreciate these attractions, contributing to a memorable and educational experience.

The third pillar involves MAD 429 million ($40 million) dedicated to the renovation and enhancement of tourist sites and experiences. This investment will fund the restoration of key attractions, ensuring they are well-preserved and accessible to visitors. By maintaining and enhancing these sites, SMIT aims to provide high-quality experiences that meet international standards, further solidifying Draa Tafilalet’s reputation as a premier ecotourism destination.

In addition to these substantial investments, SMIT’s plan introduces the Moukawala Siyahia mechanism. This innovative funding strategy will provide partial subsidies for targeted tourism projects, with up to MAD 30 million ($2.8 million) available for initiatives such as climbing clubs and sand therapy centers. These subsidies will foster innovation and diversity in the tourism sector, encouraging the development of unique and appealing attractions. Smaller projects, with investments under MAD 10 million ($900,000), will be supported through the Go Siyaha mechanism, ensuring that a wide range of initiatives can benefit from financial backing. High-value projects, such as the Cinema Museum in Ouarzazate and other notable attractions, will receive full subsidies to guarantee their successful completion and impact.

SMIT is already actively engaged in enhancing the region’s tourism infrastructure, but this $1.7 billion plan represents a significant escalation of their efforts. By focusing on sustainable and strategic developments, SMIT hopes to transform Drâa Tafilalet into a cornerstone of Morocco’s tourism industry. This ambitious initiative is expected to not only stimulate the local economy but also preserve and promote the region’s rich cultural and natural heritage for future generations.

The impact of this plan extends beyond economic benefits. By promoting ecotourism, SMIT aims to foster a deeper appreciation for the environment and cultural heritage among both locals and tourists. The initiative emphasizes the importance of sustainable practices, ensuring that tourism development does not come at the expense of the region’s natural beauty and historical significance. Through careful planning and strategic investments, SMIT is paving the way for a future where tourism and sustainability go hand in hand.

In conclusion, the $1.7 billion plan unveiled by SMIT represents a bold and visionary approach to tourism development in Draa Tafilalet. By leveraging the region’s unique assets and focusing on sustainability, the initiative aims to create a thriving ecotourism destination that offers unparalleled experiences to visitors. The establishment of the Regional Development Society, combined with substantial financial investments and innovative funding mechanisms, ensures that the plan is well-positioned for success. As SMIT continues to enhance the region’s tourism infrastructure, Draa Tafilalet is set to become a shining example of how responsible tourism can drive economic growth and preserve cultural and natural heritage.

Fitch: Morocco’s Fiscal Deficit to Drop to 3.4% by 2026

Morocco is poised to make modest yet significant strides in reducing its fiscal deficit over the coming years, according to a recent report from Fitch Ratings. The credit rating agency forecasts that the North African nation’s fiscal deficit will decrease to 3.4% of its GDP by 2026, down from 4.3% in 2023.

A fiscal deficit occurs when a government’s total expenditures exceed its total revenues, excluding borrowings, within a specific fiscal year. This deficit indicates that the government is spending more money than it is generating from taxes and other revenue sources.

The projected reduction in Morocco’s fiscal deficit comes against a backdrop of concerted fiscal consolidation efforts by the Moroccan government. These efforts are aimed at achieving more sustainable financial management, as highlighted in the Fitch report. The report underscores the government’s commitment to reducing the deficit as a crucial step towards long-term economic stability and fiscal health.

However, Fitch Ratings warns that achieving substantial long-term fiscal improvements will be challenging without significant tax reforms and enhanced revenue mobilization. The agency emphasizes the need for comprehensive reforms to broaden the tax base and improve tax collection efficiency to ensure sustainable fiscal health.

Decrease in Government Spending

One of the primary drivers behind the anticipated reduction in the fiscal deficit is a planned decrease in government spending. Total expenditure is expected to average 25.7% of GDP from 2024 to 2026, compared to 26.4% in 2023. This reduction in spending will be partly due to lower capital expenditures as Morocco moves past the immediate reconstruction costs following the devastating 2023 earthquake. Additionally, subsidy spending is forecasted to drop by about 1.2 percentage points of GDP as the country scales back on subsidizing gas canisters.

In a significant policy shift, the Moroccan government raised prices for subsidized butane gas cylinders by 25% in May 2024. This move is part of a broader strategy to roll back subsidies on gas, sugar, and wheat. However, Fitch notes that the success of this plan hinges on the government’s ability to avoid further external shocks that could pressure it to maintain or increase subsidies, potentially derailing fiscal consolidation efforts.

While expenditure on subsidies is set to decline, spending on social benefits is projected to rise by approximately 1.4 percentage points of GDP on average over the next three years. This increase reflects the government’s initiatives to expand social safety nets, including unemployment benefits for self-employed and non-salaried workers. Additionally, a new family allowance scheme introduced in late 2023 and the expansion of the compulsory basic health insurance system initiated in 2022 highlight the government’s commitment to enhancing social protection.

Government Revenues

Fitch expects Morocco’s total revenue to average 21.9% of GDP between 2024 and 2026, slightly down from 22.2% in 2023. Tax revenue, in particular, is anticipated to fall by around 0.5 percentage points of GDP from 2023 levels. Planned reforms to streamline corporate income tax and value-added tax rates are not expected to significantly boost revenue in the short term, as higher rates in some areas will be counterbalanced by lower rates in others.

To mitigate revenue shortfalls, Morocco plans to increase its reliance on innovative financing mechanisms, including the sale and lease-back of state assets. These methods are projected to contribute around 2.1% of GDP to government revenues from 2024 to 2026, up from an average of 1.0% between 2019 and 2023. However, Fitch warns that these mechanisms are generally one-off in nature and may not provide a sustainable long-term solution.

Long-Term Fiscal Outlook

Fitch Ratings suggests that a significant and sustained reduction in Morocco’s general government debt-to-GDP ratio could lead to positive rating actions. The agency’s current baseline scenario sees this ratio falling marginally to 69.7% by 2026, from 70.2% in 2024. This remains higher than the median of 55% for countries in the ‘BB’ rating category. Nonetheless, a consistent downward trajectory in the debt-to-GDP ratio would be a positive signal to investors and could improve Morocco’s credit rating over time.

The Moroccan government has set more ambitious targets than Fitch’s projections, aiming to reduce the fiscal deficit to 3% of GDP by 2026. Achieving this goal could accelerate positive outcomes if social spending is lower than expected, tax reforms enhance revenue, or economic growth surpasses the projected average of 3.3% for 2024-2026. These factors would contribute to a more robust fiscal position and could help Morocco achieve its fiscal objectives sooner than anticipated.

Conclusion

In conclusion, Morocco’s efforts to reduce its fiscal deficit reflect a broader commitment to fiscal discipline and sustainable economic management. The projected decrease in the deficit, driven by reduced government spending and innovative financing strategies, marks a significant step towards fiscal consolidation. However, the success of these efforts will depend on the government’s ability to implement meaningful tax reforms and avoid external shocks that could undermine progress. As Morocco navigates these challenges, the continued focus on enhancing social protection and improving revenue mobilization will be crucial for achieving long-term fiscal stability and economic growth.

JTI Opens First Green Factory in Morocco

Japan Tobacco International (JTI) has announced the commencement of construction work on its first Green Factory in North and West Africa, marking a significant milestone for the company and the region. The new facility, located in Tetouan Park within the Tanger Med industrial zone, represents a substantial investment of approximately $92 million (MAD 931 million).

The decision by JTI to invest in Morocco underscores the country’s successful efforts to enhance its business environment, as highlighted in a company statement. The project received approval from the National Investment Commission in January 2024 and aligns with Morocco’s 2023 Investment Charter and the “Made in Morocco” policy introduced in 2020. These initiatives are specifically designed to foster foreign investment and industrial growth by creating a favorable economic climate, thereby positioning Morocco as an attractive destination for international businesses.

The launch ceremony, held to mark this significant development, was attended by prominent figures including Jalal Benhayoun, the General Director of the Regional Investment Center (CRI-TTA), along with other key stakeholders. During the event, Jose Luis Amador, the General Director of JTI Northern and Western Africa, emphasized the profound significance of the new factory.

“This is a historic moment that marks the beginning of a new era for JTI in North and West Africa,” Amador declared. He praised the exemplary support from Moroccan authorities, noting that it aligns perfectly with Morocco’s reputation for maintaining a favorable business environment. This support has been instrumental in facilitating JTI’s investment and commitment to the region.

Construction of the Tetouan Park factory is scheduled to begin in August 2024. The facility will be equipped with state-of-the-art technology to achieve its Green Factory status, demonstrating JTI’s commitment to sustainability and environmental stewardship. Upon completion, the factory is expected to generate 170 direct jobs, along with numerous indirect employment opportunities in the region. Notably, JTI has committed to hiring 30% women, reflecting its dedication to gender inclusion and economic empowerment.

The factory will be constructed on a 4.7-hectare site, featuring an 18,000-square-meter built area. It will implement a range of energy efficiency measures, including LED lighting and automated climate control systems, to minimize its environmental footprint. Additionally, the facility will incorporate a rainwater collection and recycling system to handle non-potable water needs, further emphasizing JTI’s commitment to sustainable practices.

JTI’s investment in the Tetouan Park factory represents a strategic move to expand its operations in North and West Africa, leveraging Morocco’s strategic location and favorable business environment. The Green Factory initiative aligns with global trends towards sustainability and responsible manufacturing, setting a new benchmark for industrial operations in the region.

In conclusion, the launch of JTI’s Green Factory in Tetouan Park is a testament to Morocco’s successful efforts to attract foreign investment and promote industrial growth. By fostering a favorable economic climate, the country has positioned itself as a prime destination for international businesses looking to expand in North and West Africa. The new factory not only represents a significant investment in the region but also underscores JTI’s commitment to sustainability, gender inclusion, and economic empowerment. As construction progresses and the factory becomes operational, it is poised to make a lasting impact on the local economy and set new standards for sustainable industrial practices.