Foreign Direct Investment in Morocco

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Introduction

Abbreviated as FDI, Foreign Direct Investment has been defined by several business experts, researchers and scholars throughout history. According to the International Monetary Fund, FDI revolves around foreign trade in which a nation may opt to invest in another, based on a mutual agreement.

IMF further notes that the driving power behind FDI is the desire by a country to realize long-term or lasting benefits through enterprises that are operating in an outside country (Bouoiyour, 2003). This investment is referred to as direct since the investor aims at taking control of the enterprise through management, thus imparting influence on that particular investment.

There are several reasons why countries get involved in foreign direct investment. However, the need to increase a country’s external finance is always considered as the main reason that drives most countries.

This allows interested countries to boost their finances beyond their geographical boundaries, hence promoting economic growth (Bouoiyour, 2003). Economists believe that this is an effective approach for low-income economies in sustaining economic development.

Based on this perspective, it is doubtless to note that FDI can be practiced by any country around the world, depending on its goals and the mutual agreement with the host-state. Due to varying business environment, the possibility of FDI thriving may differ from one nation to another.

As such, some countries tend to be more preferred than others. Among these factors include international trade policies, economic stability, exports and imports (Oxford Business Group, 2007).

Coupled together, these determine the success or failure of a foreign direct investor. This paper explores FDI in Morocco, covering a wide range of segments including but not limited to the general FDI environment of the country, its incoming and outgoing sources, trade partnerships and bilateral trade that involves exports and imports.

Morocco

Morocco is a North African country whose income is considered to be average. By the year 2003, the country’s per capita GDP was approximately US$ 1,480. In the recent decades, the economy has shown tremendous patterns of growth.

This has been attributed to a wide range of factors including social, political and economic (Oxford Business Group, 2007). However, the country has its unique challenges like other states in the world.

The quantifiable economic growth in Morocco has contributed to the nation’s improved ranking on the continent as it is viewed as one of the major economies of the future. As a result, foreign investors have developed immense interest in the North African State, stimulating economic growth directly or indirectly.

What drives the economy of Morocco? Like other countries, Morocco’s economy widely depends on agriculture. This contribution has been approximated to be between 14 and 20% of the total Gross Domestic Product. In this understanding, it is worth noting that a total of up to 40% of the country’s labor force is solely absorbed by the sector.

Additionally, agricultural products contribute an estimated 20% of exports traded in other countries. This has seen the sector expand to commendable levels. Moreover, the leadership of the country has continued to support the manufacturing industry from early seventies.

As a result, Morocco prides for being a source of a wide range of manufactured goods which find market locally and in other counties within and outside Africa (Oxford Business Group, 2007). Strengthening of the manufacturing industry can therefore be viewed as a major pillar of development, based on the influence of the sector in economic development.

On average, 18% of the country’s GDP is contributed by the manufacturing industry. Although the tourism sector has not attained its peak in terms of contribution towards economic development, analysts project exponential growth of the industry in future. In the year 2010, the country had set a target of ten million tourists to be reached up from four million (ENPI, n.d.).

Importantly, the economy of Morocco has maintained a positive and appealing growth rate due to several reforms that have been undertaken by the country’s leadership since 1980s. For instance, the country moved from being an extremely regulated state to an economy that is more market-oriented.

Accordingly, the Moroccan economy has maintained an outward-oriented image for the last two decades, leading to a sharp rise in the share of foreign trade towards the country’s GDP (Bouoiyour, 2003). There is no doubt that this has significantly been promoted by trade liberalization reforms, which form part of the structural adjustment program launched in the country.

With the country having invested in agriculture and in the manufacturing industry, many foreign countries find reason to trade with Morocco.

By the year 2000, the trade deficit reached an estimated 12.3% of the country’s GDP compared to a lower percentage that had been witnessed in previous years. However, remittances from Moroccans living in the diaspora, which exceed $ 2 billion helped to realize a trade balance deficit (Bouoiyour, 2003).

Trade liberalization

As mentioned above, Morocco continues to attract foreign investors from various parts of the world, a fact that has been attributed to its favorable business environment. As a result, the environment has played a crucial in augmenting Foreign Direct Investment in the country.

However, the performance and success of FDI cannot be well comprehended without the understanding of trade liberalization in the country. Its trade policy is centered at empowering the liberalization of foreign business through facilitation of Moroccan exports to other destinations around the world.

In addition, the policy aims at integrating the Moroccan economy into a world-class economy for regional and global competitiveness (Bouoiyour, 2003).

To enhance the effectiveness of these objectives, the country’s leadership enshrined them in the Foreign Trade Law that was promulgated in the year 1992. This has allowed the consolidation of the trade policy that started operating in early 1980s.

Notably, the implementation of the policy has had significant impact by allowing Morocco to comply with the legal provisions provided by the General Agreement on Tariffs and Trade (GATT) (Bouoiyour, 2003).

Furthermore, the country gives higher import preference to countries within regional or bilateral trade treaties on a mutual basis. These partners include but limited to the United Maghreb Arab countries (UMA), Association Agreement with EU, the Free-trade Area, bilateral free-trade agreements with selected countries and the Arab Free-trade Area.

FDI in Morocco

FDI is one of the major drivers of Morocco’s economy, and is regulated by the Investment Charter that was adopted in 1995. Since its promulgation, the law has replaced several investment regulations, which were in existence.

However, the charter preserves agriculture since its taxation is covered by special legal provisions (Bergh, 2006). Noteworthy, the charter is not biased; it equally recognizes Moroccans and foreigners intending to invest in the country.

In this understanding, it is essential to note the indisputable role played by the investment law in promoting FDI in the country. This has been achieved through the improvement of investment climate and providing necessary support to potential entrepreneurs. It can be observed that foreign direct investments have tremendously increased since 1990s.

This change was quite evident since earlier years saw the country register low figures (Bergh, 2006). It is believed that Foreign Direct Investment in the country attained pinnacle performance in 1997, where more than $ 1 billion was realized.

Nevertheless, this figure dropped in subsequent years by about $ 312 million. With government efforts aimed at improving the sector, FDI realized better performance in 2000 before shooting to a high of $ 3 billion in 2001. It can therefore be deduced that the banking sector and industry played principal roles in enhancing Foreign Direct Investment.

Factors that determine FDI in Morocco

In this segment, specific factors which promoted FDI in Morocco will be discussed. Importantly, some theorists believe that some of the factors that favor a business environment could be explained using the electric theory, which is also known as the Ownership, Location and Internationalization paradigm (Bouoiyour, 2003).

This was first developed in the year 1974 by Dunning. Based on the neo-classical theory, it can be argued that the availability of natural resources in Morocco and its endowment with capital and labor present it as one the best destinations for Foreign Direct Investments.

Furthermore, exchange rate strategies contribute towards attracting FDI in Morocco and in other parts of the world. In general, such strategies mainly revolve around the interplay between real exchange rates and the overall risk associated with the country’s normal rates (Bouoiyour, 2003).

The two have a pivotal impact when decisions are being made concerning the viability of investing in a particular country.

It has also been argued that the geographical location of Morocco makes it convenient for most interested investors to access the country. Its easy accessibility lowers transport costs, which are known to discourage foreign investors.

The country is located northwest of Africa and is bounded by the Mediterranean Sea and the Strait of Gibraltar to the north. It also borders the Atlantic Ocean, Mauritius to the south and Algeria to the east.

Moreover, the country prides of an area of 710,850 km of two coastlines (PKF, n.d.). Some of its major cities like Tangier and Casablanca are key ports, which equally play a huge role in promoting international trade.

The economic development of the country also wins the trust of foreign investors. Although it does not top the continent’s list as the most developed state, the country has appealing infrastructure. Both internal and external channels of communication and transportation are rated as excellent.

This allows quick and cost-effective connectivity between the country and other business destinations in the world.

Exports and Imports

By the fact that the country has a well established agricultural sector and industries, it values importation of its products as a major source of revenue. The country is not only a leading phosphate exporter but also a producer of the same compound.

Besides phosphate, the country prides on having favorable conditions for wheat farming, which has propelled it to become one of the leading exporters (PKF, n.d.). Other export revenue sources include clothing and textile, inorganic chemicals, crude minerals, petroleum products, crude wine, electric components, citrus fruits, fertilizers, fish and vegetables.

Even though the country exports a wide range of its products, it is not self-sufficient. Its major import is crude oil, which is mainly obtained from the Arab world. Additionally, Morocco imports textile fabric, computer and software, motor vehicles, telecommunication equipment, aircraft and gas among other items.

Like in other countries, importation of goods is controlled by the government, which charges tax on some of the imports (PKF, n.d.). Importantly, businessmen are required to seek clearance from relevant authorities before any goods are imported into the country.

This control led to the establishment of import and quarantine controls on some goods like animals, firearms, drugs, vehicles, food and plants. It can therefore be deduced that Morocco’s imports and exports play a crucial role in promoting economic development and augmenting Foreign Direct Investment.

Trade partners and blocks

Morocco continues to attract foreign investors by establishing and nurturing trade ties with other states and blocks of countries in the world. Among these countries and blocks are the United States and the European Union respectively.

US-Morocco Trade

The two countries have a bilateral business relationship based on mutual gain. According to the United States, the agreement with Morocco was a milestone in establishing free trade agreements with the Middle East and North Africa (USTR, 2004).

Through this agreement, America was allowed to gain duty-free access to Morocco, allowing the exportation of machinery, chemicals, information technologies and construction equipment.

Additionally, the agreement between the two nations guarantees duty –free exportation of textile products to promote opportunities for the manufacturing and textile industry in both nations. Importantly, the agreement covers all agricultural products, thus opening markets for the two countries (USTR, 2004).

EU-Morocco Agreement

The success story of Morocco FDI is also attributed to its long-term association with the European Union. This is because of its recognition by EU as a partner. Importantly, EU acknowledges Morocco as its leading export market, its major public and private investor and a core tourist attraction center (ENPI, n.d.).

Since it is a mutual relationship, Morocco too benefits from the relationship by being allowed to access European Union market with a lot of ease. In particular, Morocco is a key player in determining energy security of the union.

The country is used as a transit nation for Algeria during its exportation of gas and electricity to Spain. Notably, the relationship between Morocco and the EU has continued to expand throughout history. As a result, Moroccans value the EU as a destination for migrant workers (ENPI, n.d.).

On the other hand, there has been an increase in the number of Europeans visiting Morocco during holidays with others opting to live in the country. This has augment professional exchange programs between the two entities with analysts projecting significant growth. In maintaining their relationship, the European Union and Morocco signed an agreement in 2000, defining a legal framework to govern their business friendship (ENPI, n.d.).

Conclusion

From the above analysis, it is evident that Morocco is one of the most attractive destinations for Foreign Direct Investment, not only in Africa but also in other countries like the United States and European Union member states. However, its success story is attributed to a wide number of factors including social, economic and political.

Coupled together, the factors have created an attractive business environment for foreign investors (Oxford Business Group, 2007). Its geographical location further makes it more accessible, bordering the Atlantic Ocean and the Mediterranean Sea.

Lastly, the association of Morocco with other countries like the US and the European world has also enhanced a better trading environment. With projected economic growth and government support for business, FDI in Morocco is expected to increase tremendously.

References

Bergh, S. (2006). MENA Region Case-Study: Morocco. University of Oxford. Web.

Bouoiyour, J. (2003). The Determining Factors of Foreign Direct Investment in Morocco. Mafhoum Multilingual. Web.

ENPI. (n.d.). Morocco Strategy Paper 2007 – 2013. European Neighborhood And Partnership Instrument. Web.

Oxford Business Group. (2007). The Report: Emerging Morocco 2007. UK: Oxford Business Group.

PKF. (n.d.). Doing Business in Morocco. Chartered Accountants and Business Advisors. Web.

USTR. (2004). Free Trade With Morocco A Vital Step toward Middle East Free Trade. Office of the United States Trade Representative. Web.

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