Since Morocco has already developed the supply chains that serve this sector and increase the local components that go into the automotive industry, the country has been able to expand this industry’s contribution to the GDP.
Ali Noureddine
This article was translated from Arabic.
Introduction
Every developing nation strives to transition from a rentier economy to one that is productive. An economy focused on industries that can create jobs, provide value, and maintain long-term economic growth.
This dream, however, continues to elude the vast majority of African nations, most of which rely on exports of petroleum and raw minerals. To date, many African countries have failed to establish advanced industrial sectors, or to develop exports of foodstuffs, knowledge economy or other productive sectors.
These nations subject themselves to price fluctuations on the global market by failing to develop productive economies. Instead, they rely solely on natural resources, which also makes them depend on oil and mineral prices to maintain the stability of their state spending.
Additionally, it leaves them defenseless against the cartels of significant foreign resource and energy extraction firms, whose influence also extends to meddling in the fiscal and tax policies of these nations.
Even more troubling is the fact that the growth dependent on the export of natural resources causes economic imbalances. This leads to a lack of adequate job opportunities and the concentration of wealth in the hands of a small minority.
Previous unsuccessful experiences
In an effort to grow such a large industry, some nations, like Egypt, have made efforts to draw in global automakers.
The key problem that prevented this industry from expanding was the exploitation of low-cost Egyptian labor by foreign companies for the assembly phase while parts and raw materials were still imported.
As a result, the proportion of locally made components used in these industries drastically decreased. Considerably, it lowered the positive effects on the local economy and the potential added value for Egypt. In this regard, it may be argued that foreign businesses benefit more from the arrangement than the Egyptian economy.
In addition to receiving incentives and tax deductions, foreign corporations assembling vehicles leveraged energy sources that were supported with taxpayers’ money, infrastructure, state services, and other public resources.
However, other than wages and salaries and a small amount of expenditures that were utilized to pay for necessary supplies or some of the local community’s basic services, the local economy derived little income from auto-part assembly activities.
Simply put, creating such vast and sophisticated industrial sectors requires much more than assembly lines and imported material. It is necessary to build regional supply networks that can support these industries to increase the percentage of locally sourced materials used in manufacturing.
Additionally, these facilities must evaluate the added value they produce before they receive any long-term tax benefits. Lastly, these industries require highly qualified and trained local personnel to boost added value and decrease the companies’ reliance on foreign services.
The Moroccan experience in the automotive industry
Compared to Egypt, Morocco‘s experience greatly varies. Morocco’s encouraging business environment attracted major multinational automakers. As a result, the local auto parts industry flourished, increasing the share of locally produced components utilized in these sectors.
The value of Morocco’s exports of cars and auto parts has been gradually rising in recent years thanks to the country’s competitive advantages in this field, and based on the state’s plan to develop and benefit from this sector.
Automobiles have been Morocco’s top export over the previous eight years in terms of volume. Car exports totaled $5.4 billion in the first half of 2022, up from $3.05 billion in 2020 and $4.18 billion in the same period of 2021.
In other words, the sale of automobiles is no longer just a means of increasing Moroccan exports; it is now a promising industry that generates substantial annual return. 20 per cent of Morocco’s overall exports during the first half of the year comprised automobiles, indicating the industry’s relevance to the nation’s balance of trade.
Since Morocco has already developed the supply chains that serve this sector and increase the local components that go into the automotive industry, the country has been able to expand this industry’s contribution to the GDP.
The automotive sector’s contribution to Morocco’s GDP is expected to rise to 24 per cent in 2023, meaning it will comprise nearly a quarter of the country’s economic activity and income. Due to these developments, Morocco now ranks first in Africa in the automotive industry, surpassing Egypt and South Africa.
Important competitive advantages
Before going into the numerous regulations designed to enhance the automotive industry, it is crucial to note Morocco’s many advantages that have helped lure foreign automakers to establish factories there.
The proximity of Morocco to the European, African, and Mediterranean consumer markets stands out as the most notable of these benefits.
Given the proximity, it is less expensive to export cars to customers as well as import raw materials. Morocco’s factories also profit from the low labor costs, which are equivalent to a fifth of those in Spain, which is situated across the Strait of Gibraltar.
In addition to all of this, Morocco gains from free and bilateral trade agreements with more than a dozen other nations, including with Europe, the United States, Turkiye, and the United Arab Emirates.
These agreements offer Moroccan firms the flexibility to import the necessary raw materials duty-free and export their products to these markets with the least number of fees, costs, and complications.
Advantages in the form of five-year exemptions from customs and taxes are especially beneficial to industrial enterprises.
The Industrial Acceleration Plan, which connects the industrial and free zones along the Moroccan coast with railways and expands the port of Tangier’s capacity in the Mediterranean Basin and Africa, is also advantageous to the industrial sector.
Simply put, Morocco has profited from each and every factor—whether in the form of governmental regulations or inherent competitive advantages—that promotes the growth of industrial sectors.
The development path of the automobile and parts industries
The Moroccan Association for Automotive Trade and Industry was established shortly after Morocco gained independence to help develop the country’s vehicle and auto components industry. But it wasn’t until 2007 that the industry experienced a revival as a result of government initiatives to promote industrial activity.
Since then, Morocco has placed a high priority on attracting auto parts producers, a strategy that encourages automakers to build new facilities in the nation because of the country’s proximity to supplier sites as well as its affordable auto parts marketplace. Additionally, the effort aimed to enhance the percentage of locally produced parts used in cars produced in Morocco.
As a result of this strategy, Renault expanded its production in Morocco, and was soon followed by the Peugeot Citroen Group, Volkswagen and Hyundai, in addition to a large number of automotive companies.
Given that the industrial sector topped the list of its exports, Morocco symbolizes a turning point for North African and Middle Eastern nations in terms of industrial development. This example must encourage economists in the countries of the region to examine Morocco’s strategy, draw lessons from it, and design policies that will allow developing nations to compete in the industrial sector that could support long-term economic growth and job creation.