Issue: Aug 2013

Morocco fuels automotive investment with incentives and skills

by Michael Stewart

Morocco is investing heavily in skills training, incentives, and purpose-designed infrastructure for the auto industry as part of its strategy to attract “export-driven” investors to the country. The success of the country in attracting investors has transformed it from a low-cost investment destination to a competitive “best cost” destination. Foreign direct investment flows to Morocco grew between 2011 and 2012. The country attracted 8% of the total private equity investment in Africa during that period. Interest in the country by investors is expected to grow. In March 2013, the European Union and Morocco started negotiations for a Deep and Comprehensive Free Trade Agreement (DCFTA).

Morocco is the first Mediterranean country to negotiate a DCFTA with the EU that includes investment. A U.S.-Morocco Free Trade Agreement has led to more than a tripling of bilateral trade and roughly a tripling of both the stock and annual flow of U.S. investment to Morocco. In the World Bank’s 2012 “Doing Business” report, Morocco gained twenty spots, rising from 114th to 94th. To facilitate foreign investment, the government has created a number of Regional Investment Centers (CRI) to minimize and accelerate administrative procedures. Investments in excess of 200 million MAD (US$26 million) are, in addition, referred to a special ministerial committee chaired by the Prime Minister. Morocco’s 1995 Investment Charter applies to both foreign and Moroccan investors, with foreign exchange provisions favoring foreign investors. Foreign investment is permitted in nearly every sector. On the front of the grid for automotive investment is Renault. The company’s Somaca plant produced 60,000 cars in 2012 under the Renault and Dacia brand names. In April it started making a new version of the low-cost Dacia Sandero compact Dacia is the Romanian unit of Renault. The French car maker also has a US$785 million assembly plant near the port of Tangier, which is gearing up to produce 400,000 vehicles a year – mainly for the export market.

Automotive Industries (AI) asked Ahmed Fassi Fihri, investment promotion manager and acting general manager of the Moroccan Investment Development Agency what Morocco’s strengths are as an automotive destination compared to other developing countries.

Fihri: Morocco automotive cluster’s value proposition is offering highly competitive production conditions and a unique investment environment. In fact, the average wage in Morocco is very competitive compared to Europe. Morocco’s automotive value proposition is based on three main pillars. First of all, the government has dedicated three new generation industrial zones to the automotive sector, located in different parts of Morocco (Casablanca, Kenitra and Tangier). Second, four automotive training institutes have been put in place in order to fill the human resources needs in the sector. They aim to train more than 70,000 people in the automotive sector between 2009 and 2015. To enhance this issue, the government has set up a training aid scheme which can cover up to 3,000 euro per employee a year. Thirdly, an attractive set of incentives has been set up to boost investments in the sector. This set offers an exemption from corporate taxes during the five first years in the automotive free zones, state subsidies up to 30% of professional building costs and 15% of equipment costs for machinery investment. On the other hand, thanks to free trade agreements signed with several countries (USA, Turkey and Arab Countries, European Union (EU)) Morocco allows duty-free access to a consumer market of a billion people representing more than 60% of world GDP. Morocco’s proximity to the European market (14 km separating Morocco from Spain) is an opportunity to serve this strategic market within a few days of transit. One should note that that more than 4.7 million light vehicles are produced every year and within two days from Morocco. Finally, the local market is also considered to be a real opportunity for automotive companies. Over the medium term, vehicle production will quadruple between 2012 and 2015, with respectively 120 000 units to 500 000 expected in 2015. All these factors make from Morocco the most competitive automotive cluster in North Africa. Morocco’s strong macro-economic fundamentals are also one of the main strengths of the Moroccan automotive sector. Over the last decade, GDP growth has been stable (around 4.5%) and inflation has been controlled below 2%.

AI: How have previous investments impacted current interest in Morocco’s automotive sector?

Fihri: Morocco has built a dynamic automotive ecosystem, with over 200 companies. The employment has increased by 133% between 2006 and 2012 to reach more than 70,000 employees. In the meantime, automotive exports rose by 83% between 2009 and 2012 to reach 2.4 billion euro. The local integration rate is currently around 45% and is expected to reach 70% by 2020. Moreover, Morocco is developing its position in the automotive sector through a focus on technology-intense activities, such as engineering, plastics processing industry and lighting systems. More specifically, Renault’s plant, the most important automotive investment in Morocco of 1 billion euros, has created 4,000 jobs since 2011 and expects to reach 6,000 by 2015. By 2015, its production will reach more than 400,000 cars per year. Around 90% of these cars are exported to the European market.

AI: Tell us a little about the Tier 2 and 3 companies that have built up Morocco’s automotive reputation along with bigger manufacturers.

Fihri: The Renault plant has encouraged the development of Tier 1 and Tier 2 companies in Morocco. Indeed, this number had doubled today to reach 200 companies. Consequently, Tier 1 and Tier 2 growth has allowed the expansion of Tier 3 as well. The Renault plant’s capacity will reach 340 000 units a year to achieve 400 000 in 2015, with a production of 1 340 vehicles a day. This expansion will certainly boost and encourage other Tier 2 and Tier 3 firms to establish their branches in Morocco. In parallel, as the local integration rate is rising, Moroccan production is expecting to grow in Tier 2 and Tier 3 segments as well. Morocco hosts some of the biggest Tier 1 and Tier 2 enterprises, such as Yazaki, Polydesign, Schlemmer, Proinsur and Saint Gobain, to name but a few.

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