Analysts harbour doubts about the country’s fortunes as Covid-19 weakens the economy.
Morocco’s risks eased during the first half of this year, according to Euromoney’s country risk survey, which asks analysts to score various indicators for 174 countries.
The reopening of the economy and the improvement to agricultural output after a period of drought were the key factors underpinning analysts’ confidence.
It is by far the safest investor option in north Africa, too, while ranking 50th globally – a tier-three option in Euromoney’s five-tier categorization.
That puts Morocco on a similar risk rating to Colombia, Panama, Bermuda and Mauritius based on the survey’s aggregated and weighted risk metrics:
However, investing in Morocco is not without its risks. One concern is the fact it is going through political change.
The elections held on September 8 led to a stinging defeat for the Justice and Development Party, the moderate Islamists in power since the Arab Spring.
The party went from 126 seats to just 13 in the 395 member House of Representatives, 305 of whom are elected in multi-seat constituencies and 90 in two national lists promoting gender equality and youth.
This time, the liberal National Rally of Independents (RNI) came out on top.
“The election outcome confirms the key role of the economy for the population instead of religious and social dimensions,” says Euromoney survey contributor Mohamed Chemingui, senior economist and chief of regional integration at the United Nations Economic and Social Commission for Western Asia (UN-ESCWA).
“This may reinforce the liberal orientation of the kingdom,” he says. “The immediate impact is positive for the business climate in the country.”
The party’s leader Aziz Akhannouch, a billionaire business owner of the Akwa Group conglomerate, and until now the agriculture minister, has been tasked to form a government by King Mohammed VI.
In the informal sector, which accounts for an estimated 20% of GDP, around five million workers have become unemployed since the start of the pandemic- Gamal Sharaf, Upwork
The king retains substantial powers and influence over policymaking. The RNI is also in a minority in the legislature and it will have to work with other parties.
Potential allies include two other pro-monarchy organizations. One is the Authenticity and Modernity Party led by the lawyer Abdellatif Ouahbi, which has a progressive-liberal stance and came second. The other is the centre-right and conservative Istiqlal Party, led by Nizar Baraka, a former minister of economy and finance, which came third.
Numerous other parties have also gained parliamentary representation after changes to the electoral system. They may also be called upon for their support.
However, this could increase political tensions, not least because the king can no longer blame the Islamists if things go wrong. It may affect the consistency of policymaking, according to some analysts who expressed their concerns.
Elections in Morocco have been not well supported in the past, highlighting disillusionment with the establishment, given the slow pace of reforms. This is adding to the perception that voting does not really count.
The main cabinet ministers are handpicked by the king, and the government is always expected to follow the monarchy’s development agenda.
Despite this, the turnout rose to 50% this time around, partly because local elections were also held on the same day.
The development agenda has laudable aims to narrow pre-existing wealth disparities and double national income per head by 2035, implying the government will introduce reforms and devise pro-growth, pro-employment policies.
The economy will naturally bounce back from the pandemic and drought-induced downturn, which led to real GDP contracting by 5.9% last year, the current-account deficit widening and unemployment soaring.
The government’s department of economic studies and financial forecast predicts real-terms GDP growth of 5.5% to 5.8% for this year, underpinned by improved agricultural production and a vaccination rate that has kept the economy open, despite a second peak in Covid cases in August.
Half the population of 36 million has now received at least one dose of vaccine, including most of the higher-risk age cohorts, with more than 14 million having had the recommended two doses.
Private-sector forecasters generally agree this will help the economy to recover.
Despite this, there is still some uncertainty concerning the tourism sector, with summer visitor numbers subdued by coronavirus restrictions. This is having a substantial impact on the services sector more generally, and employment.
Inflation is also creeping up due to rising global shipping costs and scarce supplies, raising the prices of key components and consumer goods.
Gamal Sharaf, a regional expert and economist for Upwork, notes the fact the pandemic has had a massive impact on tourism and jobs.
“National unemployment rates, which are projected to reach their highest levels since 2001, increased from 9.1% in 2019 to 13% in 2020,” he says. “In the informal sector, which accounts for an estimated 20% of GDP, around five million workers have become unemployed since the start of the pandemic.”
In the tourism sector, which accounts for some 6% of GDP, it is expected to endure losses of around $14 billion from 2020 to 2022, adds Sharaf.
The public deficits and overvalued currency represent the major challenges for the country in addition to the uncertainty regarding world oil prices- Mohamed Chemingui, UN-ESCWA
Fortunately, the economy is now open and international air travel borders have been gradually reopened since June.
Foreign-exchange reform now allows the currency to fluctuate within a wider trading band and the country has sufficient reserves for approximately seven months’ worth of imports coverage.
The government is also looking to invest heavily in environmental projects, with the aim of creating 60,000 jobs in the sector by 2030.
Meanwhile, cereal production is boosting the agricultural sector. Retail sales are responding to pent-up consumer demand. Construction, energy, telecoms and manufacturing activities have revived.
However, Sharaf is minded to lower his scores and mentions that the country lacks resources as fiscal realities bite.
Indeed, the budget deficit hit 7.6% of GDP in 2020 and the government will still exceed the pre-pandemic target of 3% this year, by targeting a modest reduction to 6.3%.
The debt burden worsened from 64.8% of GDP in 2019 to 76.4% of GDP in 2020 and it will continue to rise for the time being.
UN-ESCWA’s Chemingui is more optimistic, noting that, generally, economic prospects are improving, although he counters that by saying it will need “concrete action” from the new government.
“The public deficits and overvalued currency represent the major challenges for the country in addition to the uncertainty regarding world oil prices,” he adds.
“Compared with other countries, the perspectives are better, but external challenges are still uncertain, and policy responses will be a key determinant for 2021 and 2022.”