VZCZCXYZ0000
RR RUEHWEB

DE RUEHRB #0435/01 1491550
ZNR UUUUU ZZH
R 291550Z MAY 09
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 0153
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEHCL/AMCONSUL CASABLANCA 4619
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS RABAT 000435 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR NEA/MAG - KAAILAU, EEB/TPP/BTA - EGAN 
 
E.O. 12958: N/A 
TAGS: ECON ETRD ECIN PREL MO AG
SUBJECT: COMMERCE NEAR THE BORDER: NEW DYNAMISM, OLD 
MINDSETS 
 
REF: A. RABAT 431 
     ¶B. RABAT 256 
     ¶C. 08 ALGIERS 1282 
 
¶1.  (U) Summary: Historically oriented both commercially and 
culturally toward Algeria, the Oriental region of Morocco's 
Mediterranean coast has abandoned hope of an imminent opening 
of the border with Algeria, closed since 1994.  International 
trade in the region largely depends on smuggled duty-free 
goods from Spain and subsidized products from Algeria, along 
with a range of goods similarly transiting eastward.  Some 
contraband trade has been replaced recently by domestic 
commerce, as well as some legitimate foreign trade hobbled by 
cumbersome transshipping.  Businesses and administrators in 
the region keep a somewhat skeptical eye on the Algerian 
frontier, hoping that propitious conditions in the future 
will yet make the Oriental "the Strasbourg of the Maghreb." 
A few cross-border projects including electrical 
interconnections and a gas pipeline have succeeded on the 
basis of strong mutual economic interest.  On a national 
scale businesses are focused on expanding trade in the 
Maghreb but differ as to whether the best engine would be 
international efforts such as the Eizenstat Inititative, 
intragovernmental promotion, or efforts by regional business. 
 Regardless of who is responsible for the impasse, little 
will happen until Algeria agrees to open the border.  This 
cable is the second of two reports on economic development in 
the Oriental; Ref A focused on domestic development.  End 
Summary. 
 
¶2.  (U) Oujda, the seat of the Oriental region, was 
historically the transit point between Morocco and Algeria, 
and retained its eastward orientation for many years 
following Moroccan and Algerian independence, and the 1963 
war between the two.  For a brief dozen years in the 1980s 
and 1990s licit cross-border commerce and travel was a major 
economic activity for the Oriental, but that golden age of 
commerce ended abruptly in 1994 with the closure of the land 
border. 
 
------------------------------- 
Evolving Patterns of Contraband 
------------------------------- 
 
¶3.  (U) The proximity of untaxed or subsidized goods across 
the borders with Spain (the Spanish enclave of Melilla 
adjoins Nador) and Algeria has historically driven a thriving 
trade in contraband goods.  Jilali Hachemi, regional director 
of the Moroccan External Commerce Bank (BMCE) told Econoff 
that the "informal" sector including trade in contraband 
goods and other unlicensed commercial activity accounted for 
60 percent of employment in the Oriental region as recently 
as a decade ago.  Principal commodities in the past have 
included "duty-free" appliances from Europe, and cement, 
iron, manufactured products and subsidized food products and 
fuel from Algeria. 
 
¶4.  (U) An Oujda area commercial farm operator told Econoff 
about an incident several years ago in which a colleague 
reported seeing his company's branded sacks of potatoes for 
sale in Oujda markets, in a year in which he had contracted 
his entire potato crop for export to Spain.  The farmer 
discovered that his potatoes, which he had sold to Spanish 
buyers at 5 dirhams per kilo (about 62 cents), had been 
resold to Algerian buyers in Spain and shipped to Algeria, 
where they were marketed at lower prices thanks to government 
subsidies.  Smugglers bought the potatoes in Algeria and 
trafficked them across the border back to Oujda, where they 
were on sale at 3 dirhams per kilo (about 38 cents). 
 
¶5.  (SBU) In recent years, however, increasing availability 
of a broader range of consumer goods in Oujda as the region 
develops better logistics links to the rest of Morocco has 
dried up the market for smuggled products from Algeria, 
according to Oujda Chamber of Commerce President and Member 
of Parliament Driss Houat.  The Chamber has conducted surveys 
of the informal commerce from Algeria and found that it has 
dropped by half since 2000, added Chamber Director Rachid 
Slisli.  Proof of the waning demand for contraband goods is 
the 2009 opening in Oujda of big-box retail chains Aswak 
Assalam and Marjane, similar to Walmart but in the latter 
case owned by the King's holding company.  Not only is 
business brisk at the stores, Houat asserted, but significant 
quantities of Marjane shopping bags are found discarded at 
the Algerian border, indicating that the availability of 
higher quality and reasonably priced goods in Oujda has 
reversed the direction of the smuggling.  Nevertheless, 
 
smuggling subsidized fuel from Algeria continues to be a 
high-margin activity, with fuel prices in Algeria 
approximately half those in Morocco.  Oujda's agriculture 
depends on the cheap fuel to achieve profitability, explained 
Chourak, and thus the Government of Morocco turns a blind eye 
to such smuggling as long as the products stay local. 
 
¶6.  (SBU) Similarly, as tariffs continue to drop under 
Morocco's free trade agreement with the EU, the smuggling of 
traditional high-end goods from Melilla has become less 
lucrative, and the organized networks of smugglers of 
high-value products have disappeared.  Contraband from 
Melilla now consists primarily of cheap, counterfeit apparel 
and consumer products manufactured in China, and the 
smugglers tend to be low-income people on the margins of 
society carrying small quantities on their person, said Tarek 
Yahya, the President of Nador's Chamber of Commerce.  The 
GOM's tacit acceptance of the continued smuggling is 
demonstrated by the observation that Customs checkpoints to 
intercept contraband are situated not along the borders with 
Algeria and Melilla, but scores of kilometers to the interior 
along the roads connecting Oujda or Nador with the rest of 
Morocco. 
 
----------------------------- 
The Strasbourg of the Maghreb 
----------------------------- 
 
¶7.  (SBU) Moroccan government officials and private 
businesses assert that the opening of the border with Algeria 
would revolutionize the eastern Oriental, particularly Oujda. 
 Moroccans insist that, in contrast to past patterns in which 
the Oriental imported a wide variety of goods from Algeria, 
Oujda is now positioned to ship Moroccan products to eager 
consumers on the Algerian side of the border.  Oujda is the 
logical commercial center of the Maghreb, claimed Regional 
Investment Center (CRI) director Farid Chourak, adding that 
the Government of Morocco has reserved state-owned farmland 
along the border as the future location of a "Maghrebine 
logistics zone" for shipping companies in a future with open 
borders and greater economic integration.  The Government of 
Algeria owns the adjoining farmland across the frontier, he 
noted, and could use its half to create a true international 
logistics hub. 
 
¶8.  (SBU) Oujda hopes to be the "Strasbourg of the Maghreb" 
in a more integrated future, Chourak continued, hoping to 
host Maghrebine institutions such as a Council or Parliament 
that may be created.  Additionally, many contacts told us, 
Oujda was a leisure destination for Algerian tourists and 
visitors who enjoyed the "freer lifestyle" during the years 
of open borders, as testified by the number of fading tourist 
hotels.  Many believe the re-opening of the land crossing 
would revive Oujda's draw for Algerian visitors. 
 
------------------------ 
Dreaming of Open Borders 
------------------------ 
 
¶9.  (SBU) Chamber of Commerce President Houat insisted that 
private businesses on both sides of the border (and indeed, 
across the Maghreb) are eager to open the border.  "Everyone 
is convinced we lose a lot" by the continued border closure, 
he stated, and the continued closure is a result of the 
"personal stubbornness" of Algerian President Bouteflika. 
Moroccan business representatives in the Oriental assesed 
that a border opening would principally benefit Moroccan 
exporters, because they have a wider variety of consumer 
goods to trade, and Algeria's most attractive export, fuel, 
would be less attractive as a licit commodity, subject to 
Morocco's heavy fuel taxes.  Therefore, they concluded, 
Algeria is unlikely to budge on opening the border for 
commerce.  Houat stated that the inhabitants of the Oriental 
bear "all the costs" of Morocco's Sahara policy by being 
victims of the "economic war" that Algeria imposed through 
the border closure.  However, he asserted, businesses in the 
region would willingly work with their Algerian counterparts 
given the chance. 
 
¶10.  (SBU) In the meantime, Houat explained, commerce between 
the two countries is strangled by the complications of 
finding alternatives to land shipping.  Houat told Econoff 
that he once tried to source aluminum from an Algerian 
provider for the wire factory he owns in Oujda.  He recounted 
a story of multiple visits to negotiate the sale, each 
requiring a train trip from Oujda to Casablanca, a flight to 
Algiers, and a drive from Algiers to the Algerian supplier 
 
located only forty kilometers east of Oujda.  After months of 
working out how to transship the aluminum through a third 
country, and how to transfer the payment back through third 
country financial institutions, the first sample batch of 
aluminum finally arrived ) six months after he had begun his 
effort to purchase it.  "I'll never do business with Algeria 
again," Houat vowed, until the land border is open. 
 
¶11.  (SBU) At a dinner hosted by the president of the 
regional chapter of the General Confederation of Moroccan 
Enterprises (CGEM), a dozen businessmen with interests in 
building, banking, logistics, and agriculture echoed Houat's 
story, insisting that trade with Algeria around the closed 
land border is too cumbersome to be profitable.  Products 
sent by ship must nominally pass through an intermediary so 
that the bill of lading that arrives in Algeria shows a 
non-Moroccan shipper, they reported, and no Moroccan banks 
can clear transactions directly with an Algerian bank, 
requiring payments to pass through a third party as well. 
The result, they summarized, is that the border closure harms 
Moroccan and Algerian traders, but benefits the French and 
Spanish intermediaries who facilitate the trade. 
 
--------------------------------------- 
Slim Pickings from Economic Integration 
--------------------------------------- 
 
¶12.  (SBU) Houat, Chourak, and CGEM members pointed to 
successful cross-border projects such as the electricity 
interconnections and natural gas pipeline as evidence that 
the private sector can drive for specific economic 
cooperation projects when it is in both countries' interest. 
However, they assessed, most opportunities for commerce 
across the border would require land transportation of goods 
and people for profitability.  Given the difficulties they 
have experienced trying to conduct business across the closed 
border, they predicted measures short of border opening were 
unlikely to promote much economic activity.  The only 
exception, the CGEM interlocutors proposed, would be the 
utility of allowing Moroccan banks to establish branches in 
Algeria, and vice versa, to simplify the cumbersome financial 
transactions they had described as part of any efforts at 
trade with Algeria. 
 
¶13.  (SBU) Representatives of a variety of Moroccan business 
doing business with Algeria and other Maghreb countries told 
Econoff in Casablanca that there were several ways to improve 
Maghreb economic integration.  Ninety percent of the 
businesses surveyed cited the closed land border as the 
foremost impediment to trade flows within the Maghreb. 
Seventy percent of the companies reported that they were 
already trading with Algeria, Tunisia and Libya, but 
highlighted the inefficiencies and additional costs that 
arise from the closed border.  The surveyed business urged 
that the USG play a role in facilitating dialogue between the 
governments of Morocco and Algeria, and press to open the 
border.  Morocco's phosphate parastatal monopoly OCP Groupe 
told Econoff that the Eizenstat Initiative was an ideal 
vehicle for promoting integration.  Others, however, 
including CGEM Vice president of Maghreb Affairs Hamad Kesal, 
opined that events such as the recent "First Forum of 
Maghrebine Businessmen" held in Algiers are more effective. 
"Bringing business executives from North Africa together will 
be the catalyst for integration," Kesal stated.  However, the 
Director General of the Casablanca Stock Exchange assessed 
that while the Algiers meeting was a good first step, true 
economic integration will require political involvement by 
the governments. 
 
---------------------- 
Still a Long Way to Go 
---------------------- 
 
¶14.  (SBU) Comment: While the economic promise of economic 
integration in the Maghreb tantalizes Oriental inhabitants, 
as well as the rest of the Kingdom, there is little optimism 
among Morocco's business community that anything short of a 
reopening of the Algeria-Morocco border would significantly 
affect commerce in the region.  The benefits of regional 
trade are apparent to all parties, but private sector actors 
do not believe they can drive economic integration alone 
without political participation from all the Maghreb 
governments (Ref B).  Moroccans remain convinced that the 
closure of the border is simply a manifestation of bad will 
on the part of the Algerian leadership, and seem to be 
equally convinced that the USG could convince Algeria to 
reverse course if we tried hard enough.  While Post 
 
wholeheartedly supports efforts to break the logjam through 
step-by-step economic integration, we must recognize that the 
logistical impediments to commerce remain difficult to 
overcome, and most businesses are skeptical that any effort 
will come to fruition absent a change of heart in the 
leadership in Algiers. 
 
 
***************************************** 
Visit Embassy Rabat's Classified Website; 
http://www.intelink.sgov.gov/wiki/Portal:Moro cco 
***************************************** 
 
Jackson