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RR RUEHWEB

DE RUEHCL #0014/01 0301603
ZNR UUUUU ZZH (CCY ADX0256DEA MSI6516 611)
R 301603Z JAN 09 ZDS
FM AMCONSUL CASABLANCA
TO RUEHC/SECSTATE WASHDC 8275
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEHEG/AMEMBASSY CAIRO 0925
RUEHLO/AMEMBASSY LONDON 0391
RUEHMD/AMEMBASSY MADRID 3840
RUEHFR/AMEMBASSY PARIS 0686
RUEHRB/AMEMBASSY RABAT 8512
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS CASABLANCA 000014 
SIPDIS 
 
SENSITIVE 
 
C O R R E C T E D  C O P Y (ADDED SENSITIVE CAPTION) 
 
DEPARTMENT PLEASE PASS TO USTR FOR PAUL BURKHEAD 
DEPARTMENT PLEASE PASS TO COMMERCE FOR NATHANIEL MASON 
STATE FOR NEA/MAG 
 
E.O. 12958: N/A 
TAGS: AMCHAMS EAID ECON EFIN ETRD MO
SUBJECT: MOROCCO'S TEXTILE SECTOR IS IN TROUBLE 
 
REF: A. 09 RABAT 00039 
     ¶B. 08 RABAT 1084 
 
¶1. (SBU) Summary: With the economies of Morocco's principal 
textile trading partners - France, Spain, and the United 
Kingdom - slowing, the Moroccan Association of Textile and 
Industries (AMITH) has sounded the alarm about prospects for 
the sector, which typically constitutes a third of Moroccan 
exports and the bulk of industrial employment. Morocco's 
textile exports fell by 7.5 percent in the first nine months 
 
      V S A  LIVE MSG 
of 2008 compared to the same period in 2007, and the 
Secretary General of AMITH expects this figure to easily 
reach ten percent in 2009. Moroccan officials have promised 
to assist the country's textile sector, but industry leaders 
complain that the government's response has lacked urgency. 
While the prognosis is somber, bilateral trade between the 
U.S. and Morocco could benefit as Moroccan industry leaders 
look to expand their export destinations. End Summary. 
 
--------------------------------------------- - 
Europe's Economic Slowdown Felt in the Kingdom 
--------------------------------------------- - 
 
¶2.  (SBU) Morocco's textile sector is in trouble. The 
economic slowdown in Europe, the destination of 92 percent of 
Moroccan textiles, coupled with low cost competition from 
Egypt and China, has left the industry on the ropes. Textile 
exports fell by 7.5 percent in the first nine months of 2008 
compared to the same period in 2007. This figure will reach 
ten percent in 2009 as the economies of Morocco,s principal 
textile trading partners - France, Spain, and the United 
Kingdom - slow further, says Karim Tazi, Secretary General of 
the Moroccan Association of Textile and Industries (AMITH). 
 
¶3.  (SBU) Tazi pointed out that Spanish companies like 
Inditex (owner of Zara and Massimo Dutti)and Mango, who count 
on Moroccan manufacturers to produce their finished apparel, 
registered a 20 percent decrease in their European sales in 
¶2008. While neither has yet announced plans to scale back its 
production in Morocco, analysts see such a step as inevitable 
in the second quarter of 2009. Tazi also highlighted a more 
severe case in which more than half a dozen Moroccan textile 
factories have already stopped production and laid off over 
2,000 workers, despite efforts to manage their fixed costs 
and wait out the crisis. The Ministry of Employment, however, 
reported the week of January 26 that close to 50,000 jobs 
were lost in the textile sector in 2008. 
 
------------------------------------------ 
Further Pressure from Regional Competitors 
------------------------------------------ 
 
¶4.  (SBU) Industry officials note that the European slowdown 
is affecting a sector that was already in difficulty as a 
result of low cost competition from Egypt and China. 
Kean-Francois Limantour, head of the Euro-Mediterranean 
Center for Textile and Clothing Managers (CEDITH), argues one 
of the prime factors of this trend is Morocco,s relatively 
high cost of production. The Moroccan hourly minimum wage, he 
notes, is 30 percent higher than in Tunisia and 60 percent 
higher than in Egypt. A Werner International study recently 
identified another competitive disadvantage: the fact that 
Moroccans work an average of 1960 hours per year, due to 
labor regulations, compared to 2200 in Egypt and Tunisia. As 
a result, Morocco's textile productivity per year is 
significantly less than its regional competitors. Egypt has 
consequently increased its exports to Europe by seven percent 
in the first nine months of 2008 compared to a 7.5 percent 
decrease in exports from Morocco to the continent. 
 
¶5. (SBU) Tazi adds that the interaction of the two factors 
has had a crippling impact on Morocco's textile sector. 
According to government officials, local manufactures have 
been slow to raise investment, introduce new technologies, 
and adapt to the new, more competitive, business environment. 
The sector has pinned its hopes on the fast fashion trend, 
led by Zara and Mango, in which European retailers leave 
nothing in a store for more than a month, and set short 
production deadlines of weeks rather than months.  Morocco 
had a natural advantage in meeting this demand, producers 
believed, arguing that China and its Middle East competitors 
are too far away to meet Europe,s deadline.  Yet, Tazi notes 
that this specific retail model relies on middle class 
consumers in Europe, and is likely to be impacted more than 
any other by the current economic crisis. 
------------------------------- 
Morocco's Textile Sector Reacts 
------------------------------- 
 
¶6. (SBU) On January 14, Morocco's textile industry organized 
a forum in Rabat to discuss its concerns. 
Industry leaders warned of imminent layoffs and closing 
factories and appealed for urgent government assistance. 
Specifically, AMITH requested that the Government of Morocco 
(GOM) focus on employment retention and a decrease of fixed 
costs including utilities.  Industry leaders concede that 
more than government support is required, however.  Morocco 
needs a supply chain revolution with more information 
technology, more training in management, and more training of 
workers. This will enable Morocco to enter the high-end 
fashion industry, which has traditionally not been 
susceptible to fluctuations in the economy, says Tazi. 
 
-------------------------------- 
Government of Morocco (In)Action 
-------------------------------- 
 
¶7.  (SBU) In the industry's view, Morocco's textile sector 
will continue to wither away in the absence of governmental 
assistance. Industry leaders complain that the GOM has been 
slower than others in the region in reacting to the sector's 
needs. Government officials respond to criticism by pointing 
to a USD 62.5 million initiative aimed at bolstering 
Morocco's exports and the establishment of a fund to provide 
short term financing to help firms innovate, but only a 
limited amount of funding has been made available, according 
to Tazi.  Similarly, industry leaders say, there has been no 
follow through with the government's examination of credit 
guarantees for export companies and tax relief as possible 
solutions. (Note: Morocco's corporate tax rate is 20 percent 
higher than most of its competitors in the region. End Note.) 
Industry leaders have also urged government officials to 
honor its commitment to partially reimburse the training 
costs for employees in the sector. 
 
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Comment 
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¶8.  (SBU) While engaging industry leaders is an important 
first step in addressing the problems plaguing the textile 
sector, it remains to be seen whether government support will 
be sufficient to stem its downhill slide.  Europe's recession 
has highlighted competitive weaknesses that already existed 
here, and increased the challenges for a sector that was 
already losing ground.  Given the importance of the sector to 
industrial employment, further government assistance is 
likely.  Whether it has a lasting impact, however, will 
depend on whether Morocco's textile sector takes advantage of 
it to renew its efforts to diversify its product range, 
develop new export destinations, increase productivity, and 
increase its competiveness in the region.  This may lead 
Moroccan producers to take another look at the American 
market, which to date they have done little to exploit, 
despite the opportunities offered by the free trade 
agreement. (Note: In 2008, only three percent of Moroccan 
textiles were exported to the U.S. End Note.) 
MILLARD