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NS4301 Summer 2015 Morocco. Background I. Morocco is the fifth largest economy in Africa Middle income country with relatively open and diversified economy Export sector accounts for 30-40% of GDP Relies considerably on tourism and workers remittances
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Background I • Morocco is the fifth largest economy in Africa • Middle income country with relatively open and diversified economy • Export sector accounts for 30-40% of GDP • Relies considerably on tourism and workers remittances • Morocco economy based on market system, but growth in 1970s led mainly by the state. • Agriculture accounts about 14% of GDP but 45% of population • Serious economic crisis in early 1980s due to: • Rising import costs, • Falling phosphate prices (after having quadrupled during the 1970s) • Significant food deficit and • Cost of Western Sahara conflict
Background II • In return for debt assistance from the Paris Club, the IMF and the World Bank, Morocco agreed to major structural adjustment program • Devalued currency • Liberalized trade and investment • Used higher interest rates to control inflation • Privatized state-owned enterprises and • Curbed government subsidies. • Country successful in its liberalization efforts • Some pain, but did not suffer from fiscal deficits that often result from elimination of trade restrictions • By 2005 real GDP was almost double the level of 1975 • Growth GDP 3.4% in 90s and 5% in the 2000s
Background III • Generally agreed that the policy reforms pursued by Morocco in the late 1980s and early 1990s were instrumental in the country’s subsequent growth performance and the diversification of its production and exports. • Reforms have continued with two major developments in the last twenty five years: • Trade liberalization and • Financial Reforms • Trade Liberalization • Country has ratified several free trade agreements • Euro-Mediterranean Free Trade Agreement with the EU, and a free trade agreement with the U.S.
Background IV • Financial Reforms • Real interest rates negative during decades of financial repression in 1970s and 1980s • Financial reforms largely liberalized interest rates • Intent of reforms was to improve capacity of financial institutions to mobilize domestic savings • Allocating financial resources based on market demand, • Curbing direct government intervention and • Increasing competition in banking sector • Soon after early reforms took effect interest rates positive and high • Financial program accompanied by repeal of requirement that limited foreign ownership of business to 49%
Background V • While the country’s growth has not been spectacular, it has been fairly stable and sustained. • Still much needs to be done • Contrary to the assurances made at the time of the Arab Spring demonstrations (2011) • Governance reforms have stalled • There has been a deterioration in economic freedom
Current Situation I • Robert Looney, “Morocco is Running out of Time, Foreign Policy July 9, 2015 • Main theme – unemployment and economic stagnation setting in. Many good ideas for reforms, but difficulty in implementing them. • Considerable ISIS recruitment for fighting in Syria • Many of these fighters are returning to Morocco and launching attacks. • Can country serve as a model alternative to ISIS and other extreme groups and philosophy?
Current Situation II Country sharp contrast • On one hand rising poverty, growing youth unemployment and suppression of peaceful political dissent fertile ground for Isis • On other hand a innovative, growth oriented approach to development that combines best of Western and Islamic principles • Also country has a spiritual but anti-theocratic style of Islam that discourages extremism • Could be a model for many Arab countries, depends on whether King Mohammed VI has the political will to accelerate pace of reform.
Current Situation III • During Arab Spring in 2011 King initiated a series of constitutional reforms after pro-democracy demonstrations broke out • Stopped short of relinquishing his own power in favor of a constitutional monarchy • Did increase the role and independence of the prime minister and parliament. • In addition, new constitution provided for greater civil liberties and expanded human rights • Similar promises had been made in past only to be rescinded • Still new constitution succeeded in defusing the crisis • In contrast to most Arab countries, Morocco appeared to have emerged stronger politically from the Arab Spring.
Current Situation IV • However if unrest is to be controlled Morocco’s deep economic malaise needs to be addressed • Economy hard hit by international economic crisis of 2008-09 • Falling remittances • High unemployment due to workers returning home from overseas • Despite a growth rate of 4.6% between 2000 and 2010, little improvement in levels of • Poverty • Inequality • Illiteracy and • Unemployment among recent graduates • Instead corruption and cronyism grew increasingly conspicuous.
Current Situation V • Both the king and the coalition government formed by the Islamic Justice and Development Party (PJD) after 2011 elections attempted to institute reforms. • These involved • Expansion of a decentralized strategy to promote bottom-up democracy by allowing communities to take charge of their affairs • JPD promised to create jobs and raise educational levels while curbing corruption and improving • Government effectiveness • Rule of Law and • Business climate.
Current Situation VI • However while Morocco moved up two rankings on the Human Development index by 2013 progress did not extend to other areas • Economic growth declined to an average of 3.7% between 2011 and 2014 • Unemployment rate which had fallen to 9.1% in 2010 has since been stagnant with only 21,000 new jobs created in 2014 • Slowdown occurred despite $3.4 billion in FDI • Composition of Morocco’s unemployment troubling • At 20.6% youth unemployment is high rising to 39.9% among urban workers aged 15-24 • Rate of unemployment rises along with job qualifications • From 4.5% unskilled to 21.7% vocational skills to 24.6 for university graduates
Current Situation VII • Growing frustration with the government as illustrated with the decline in social capital (a measure of trust) • Morocco fell from 13th in the world in 2010 to 84th by 2014 • Poor performance of Moroccan economy has less to do with viability of Moroccan model than with its implementation • Government has focused its energies on laws and institutional procedures instead of substantive reforms • Country’s performance deteriorated on five of the six World Bank Governance Indicators between 2010 and 2013 • Human rights provisions of the 2011 constitution have been largely ignored.
Assessment I • Economy has been hindered by the slow and tentative pace of change • PJD seems to have subscribed to The Chinese idea of evolutionary institutionalism • Rather than risk dramatic changes in a new and highly uncertain environment, prefer to move incrementally • Always looking for better ways to improve the economy, but with minor reforms that can be easily reversed if proven ineffective • Some argue slow pace of change reflects concern over the dislocation of the neo-liberal reforms in the 1980s • More likely explanation – despite appearance of comprehensive economic management, no real coordination between ministries and agencies responsible for implementing and managing reforms
Assessment II • Because Morocco still very much a monarchy, JPD has no control over several key ministries whose directors report to the king • Many ministries working at cross purposes each focusing on its own priorities • Need to have more centralized decision making so all participants are focused on same goals and coordinating the sequence of reforms necessary for reaching these objectives
