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Morocco Country Risk Report Q3 2016

  • May 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views Despite not possessing hydrocarbon wealth, the economy will remain a relative outperformer in North Africa over the medium term. Investor interest in the country as an export-oriented manufacturing hub for the European market and increasingly to West Africa, as well as relative security compared to the rest of the Middle East and North Africa region, will bode well for Morocco's underlying growth momentum in the next few years. The all-important agricultural sector will nevertheless remain exposed to weather, resulting in significant volatility in headline growth. Morocco's foreign policy will remain stable, aimed at strengthening its relationship with the EU and the Gulf Cooperation Council (GCC) and looking to West Africa for trade and investment opportunities. The Western Sahara issue will remain at the forefront of Rabat's foreign policy agenda, and we do not see any significant progress taking place on this issue in the near future. Morocco will underperform in North Africa in 2016, on the back of a lower than average harvest, which will significantly impact headline growth directly and indirectly through private consumption. We nevertheless maintain a positive outlook for improvements in the external sector, as the country will continue to attract a lot of interest from foreign investors.

We forecast real GDP growth to reach 2.0% in 2016, well below the 4.4% estimated for 2015. The gradual coming on stream of new energy sources over the next five years – as part of the National Energy Plan 2020 – will reduce pressures on Morocco's current account and boost the country's attractiveness for foreign investors. This structural evolution will benefit the country's economic growth over the next decade. Average annual inflation in Morocco will remain close to 1.6% over 2016, similar to 2015, as rising food prices from a lower than expected harvest are compensated by a decrease in household demand. This will allow the central bank to maintain its current benchmark interest rate at 2.50% throughout the year.

Table Of Contents

Morocco Country Risk Report Q3 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Growth Will Dip In 20168
Morocco's real GDP growth will decelerate in 2016, as agricultural output dips on the back of a poor harvest Growth in the secondary
sector will accelerate moderately, with the autos and mining industries outperforming, though this will be somewhat mitigated by the
continuous fall in tourist arrivals
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 11
Slower Growth And Upcoming Elections Mean Looser Fiscal Discipline11
The Moroccan government will loosen fiscal consolidation over 2016 to support waning economic growth amid the run-up to the general
elections in October This will be temporary, and the incumbent PJD will return to tighter fiscal discipline in 2017, encouraged by its reelection
and improving growth prospects
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES12
External Trade And Investment Outlook 13
Renault's Ecosystem To Further Cement Morocco's Autos Strategy13
Renault's ecosystem strategy will further cement the company's presence in Morocco, and promote the autos industry in the country
This will contribute to making autos the main export industry in Morocco, as well as reinforce the country's attractiveness for foreign
investors
Outlook On External Position 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE14
TABLE: BREAKDOWN OF IMPORTS IN 201415
TABLE: BREAKDOWN OF EXPORTS IN 201415
Monetary Policy 16
BAM Will Not Push Monetary Easing Further16
In a surprise move to us and the markets, Morocco's Bank al-Maghrib (BAM) cut its benchmark policy rate by 025 basis points in March
2016, in a bid to support economic activity amid a record-low harvest, and subdued inflation With inflation likely to accelerate over the
coming quarters, and with economic activity not impacted by BAM's rate cut, the central bank will not pursue further monetary easing in
Monetary Policy Framework 17
Chapter 2: 10-Year Forecast 19
The Moroccan Economy To 2025 19
Diversified Economic Base Underpins Bright Future19
We point to an increasingly diversified economic base, an attractive geographical position and strong investments in tourism and energy
infrastructure as major positives underpinning Morocco's long-term growth trajectory Nevertheless, we caution that several issues, such
as persistently high unemployment and poverty combined with shortcomings in the quality of education, if not addressed properly, could
pose serious threats to our positive long-term view
TABLE: LONG-TERM MACROECONOMIC FORECASTS19
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Foreign Policy Diversification To Continue24
Morocco will push ahead with the diversification of its foreign relations over the coming years, following a recent wave of diplomatic
spats with its traditional allies on the Western Sahara issue This will benefit the country economically, but fail to advance Moroccan
claims of sovereignty over the disputed territory
TABLE: POLITICAL OVERVIEW24
TABLE: NON-EXHAUSTIVE LIST OF RECENT DIPLOMATIC SPATS SURROUNDING WESTERN SAHARA 25
Long-Term Political Outlook 27
Challenges For The Coming Decade: Scenarios For Change27
The ongoing political and economic reforms undertaken by the government in recent years underpin our view that Morocco possesses
one of the most stable political climates in the region However, high economic disparities in the country and rising corruption could lead
to social unrests of the type that spread across the Arab world in 2011 In addition, the lure of radical militancy will continue to appear as
a way out for young people, as the significant number of Moroccan nationals fighting with radical jihadist group Islamic State in Iraq and
Syria attests
Chapter 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK SCORES30
Economic Openness 31
TABLE: TOP 5 IMPORT PARTNERS, 2012-2014 (USDMN)31
TABLE: TRADE PARTNERS AND EFFECT ON BUSINESSES32
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES33
Availability Of Labour 35
TABLE: MIDDLE EAST AND NORTH AFRICA - AVAILABILITY OF LABOUR RISK 36
TABLE: TOP 10 SOURCE COUNTRIES FOR MIGRANT WORKERS 37
Chapter 5: BMI Global Macro Outlook 39
Global Macro Outlook 39
Tentative Stability, But New Risks Emerging39
TABLE: GLOBAL ASSUMPTIONS39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %41
TABLE: MACROECONOMIC DATA and FORECASTS43

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