VZCZCXRO8615
RR RUEHTRO
DE RUEHRB #1076/01 1791617
ZNR UUUUU ZZH
R 281617Z JUN 07
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 6822
INFO RUEHAS/AMEMBASSY ALGIERS 4455
RUEHEG/AMEMBASSY CAIRO 2101
RUEHMD/AMEMBASSY MADRID 5726
RUEHNK/AMEMBASSY NOUAKCHOTT 3513
RUEHTRO/AMEMBASSY TRIPOLI 0182
RUEHTU/AMEMBASSY TUNIS 9316
RUEHCL/AMCONSUL CASABLANCA 3170

UNCLAS SECTION 01 OF 03 RABAT 001076 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT PASS USTR FOR DOUG BELL 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EINV MA
SUBJECT: MOROCCO'S COMPETITIVITY GAP 
 
REF: CASABLANCA 102 
 
This cable is sensitive but unclassified.  Not for internet 
distribution. 
 
¶1. (SBU) Summary: Morocco's weak showing in the 
newly-published competitivity index of the World Economic 
Forum has again highlighted an issue that has sparked 
extensive public comment and debate in recent months, 
particularly in the context of the failure of Moroccan 
exports to become a locomotive for economic growth.  The 
Finance Ministry's respected Division of Studies and Planning 
published a detailed assessment of Morocco's competitive 
shortcomings in February, and spirited exchanges surrounded 
the topic at the June 12 annual meeting of the Moroccan 
exporters' association.  Key factors identified by both 
public sector experts and businesses themselves include the 
overvalued Moroccan dirham, a shortage of skilled labor, 
overconcentration by business on a limited number of 
primarily low value-added sectors, expensive logistics, and a 
fiscal regime that falls far short of regional rivals.  The 
impact is clear: Morocco ranked 72d in the WEF index, far 
behind regional leader Tunisia (in 29th place), and export 
growth from 1995-2006 averaged only five percent annually, so 
that the export coverage rate fell from 65 percent to 54 
percent over the period.  End Summary. 
 
¶2. (U)  While in this pre-electoral period, the GOM typically 
focuses its public comments on the reforms it has undertaken 
over the last five years, senior GOM officials are forthright 
in admitting that Morocco's export sector is not one where 
they have had much success.  In his remarks opening the June 
12 National Exporters' Meeting in Skhirat, Prime Minister 
Jettou highlighted a number of positive developments in the 
export sector, including growth in electronics exports (up to 
15 percent of Morocco's total exports in 2006) and the 
recovery of the textile-apparel sector in 2006 from its 2005 
downturn.  He conceded, however, that "Morocco's export 
performance had "fallen short" of the government's ambitions. 
 He argued that much more must be done and pressed for 
businesses themselves to take action to diversify Morocco's 
exports, particularly into high value-added sectors, a trend 
he argued the government's industrial policy (the "Plan 
Emergence") will foster.  He also urged business to update 
its management structures, increase its expenditure on 
research and development, and engage in more dynamic 
commercial promotion. 
 
¶3. (SBU) For their part, our business interlocutors, like 
business participants at the assembly, prefer to focus on the 
range of constraints they perceive in government policy. 
Skhirat participants cited Morocco's fiscal regime, with a 
company tax rate 75 percent higher than regional leader 
Tunisia; a lack of trained workers as a result of 
shortcomings in the education system; continuing weaknesses 
in Morocco's logistical base (despite recent improvements); 
and Morocco's overvalued exchange rate.  In a recent meeting 
in Casablanca, a senior executive with the General 
Confederation of Enterprises of Morocco (CGEM) echoed these 
themes, while also highlighting shortcomings in Morocco's 
judiciary and the continued inflexibility of Morocco's labor 
market, despite implementation of a new labor code in 2004. 
He and others, however, also concede the shortcomings 
identified by Jettou, attributing the failure to aggressively 
exploit market opportunities in part to language and cultural 
barriers. 
 
¶4. (U) Not surprisingly, all these topics also figured in the 
2007 WEF index.  Surveyed executives cited access to 
financing, tax rates and regulations, corruption, 
infrastructure and workforce issues as their major concern. 
Morocco's relatively restrictive foreign currency regulations 
were also cited by some respondents, as was inefficiency of 
the government bureaucracy and restrictive labor regulations. 
 In a sign of the stability of Morocco's political and 
economic framework, however, only a handful of respondents 
cited inflation, policy/government instability, and crime and 
theft as concerns.  Overall, Morocco was ranked in 72nd place 
in the survey, well behind regional leader Tunisia (in 29th 
place), behind Egypt (65th) and barely ahead of Algeria 
(76th). 
 
¶5. (SBU) The most comprehensive recent analytical examination 
 
RABAT 00001076  002 OF 003 
 
 
of these competitive issues comes from the respected Studies 
and Planning Division of the Finance Ministry, which 
published a stark report in February detailing Morocco's 
competitive shortcomings.  It highlighted the continuing 
challenge through a range of negative statistics-- a steadily 
increasing trade deficit from 1994-2005, a decline in the 
import coverage ratio to just above 50 percent, the failure 
of exports to contribute more than 1.2 percent on average to 
annual economic growth (half the rate in Turkey and Tunisia 
and a third that of Romania), and a decline in Morocco's 
share in the world market, despite conclusion of free trade 
agreements with Turkey, the United States and others.  The 
only bright spot in an otherwise somber picture was Morocco's 
success in increasing its competitivity in exporting 
electronic components and information technology. 
 
¶6. (U)  The analysis of Ministry experts confirms the issues 
cited by businessmen at Skhirat and in our own meetings 
regarding the key internal constraints facing Moroccan 
companies.  Morocco, it shows, is more expensive than its 
rivals in areas ranging from labor costs to the cost of 
logistics.  Labor costs, the Ministry argues, are increased 
not just by inflexibilities resulting from the labor code, 
but by the lack of education of most workers, which limits 
their productivity.  It points out that fewer workers have 
completed secondary school in Morocco than in any of its 
emerging market rivals, while only 20 percent of Moroccan 
companies provide training to their workers.  As a result, 
Moroccan productivity has slipped in recent years.  This, 
coupled with appreciation of the dirham against the dollar 
over the 1994-2005 study period, greatly worsened Morocco's 
position, particularly in comparison to Asian rivals which 
link their currency to the dollar.  The competitive impact 
was only cushioned by the dirham's slight depreciation 
against the Euro, given the fact that Europe absorbs 
two-thirds of Morocco's exports.  Even there, however, 
Morocco's market position has stagnated, with exports to 
France falling short of those of Tunisia. 
 
¶7. (U) Logistics is another key impediment highlighted by the 
Finance Ministry.  It estimates that transport costs 
constitute 20 percent of gross domestic product in Morocco, 
versus 10-16 percent in the EU and 15-17 percent in other 
emerging economies.  The cost of shipping a container from 
Agadir to France equals that of shipping a container from 
Istanbul to France, while the cost of crossing the Straits of 
Gibraltar is two to three time the cost of other similar 
crossings.  These issues were the focus of a recent meeting 
between Transport Minister Ghellab and the British Chamber of 
Commerce in Casablanca, at which textile exporters complained 
that transport times to Europe are twice what they need to 
be, with concomitant costs.  Participants pressed for the 
government to "reconsider" its international transportation 
policy and work to reduce these costs. 
 
¶8. (U) The Finance report also documents the shortcomings of 
Moroccan companies.  Few invest in research and development 
(total R and D spending is negligible, as only 5 percent of 
companies invest in this area, far less than their 
competitors in other emerging markets), and companies are 
dependent on a limited number of products and markets.  Thus 
phosphates and textiles account for 50 percent of Moroccan 
exports, while France and Spain alone represent 50 percent of 
Morocco's international market.  While some successes have 
been registered with high tech products, these still only 
account for 10 percent of Moroccan exports, while low-tech 
and agricultural exports still account for over two-thirds. 
Another telling statistic cited in the report is that the 
world's most dynamic 10, 50 and 100 products only constitute 
1.3, 1.4 and 1.7 percent (respectively) of Moroccan exports, 
whereas they form 25, 52, and 70 percent of trade worldwide. 
 
¶9. (SBU) Comment: Morocco is working on many of these issues, 
through both its ambitious effort to improve the country's 
logistical base and encourage investment in key industrial 
sectors.  These measures have clearly not been as successful 
as the government would have wished in improving Morocco's 
overall competitiveness, while equally critical issues 
regarding the country's tax regime and legal system remain to 
be addressed.  End Comment. 
 
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Visit Embassy Rabat's Classified Website; 
 
RABAT 00001076  003 OF 003 
 
 
http://www.state.sgov.gov/p/nea/rabat 
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RILEY