Economic bust

Kamel Abdallah , Tuesday 12 Sep 2023

Last week’s earthquake south of the Moroccan city of Marrakesh could deal a devastating blow to the country’s economy, writes Kamel Abdallah

Economic bust


The Moroccan authorities continue to assess the toll from the deadly earthquake that struck southwest of the city of Marrakesh last Friday night, claiming more than 2,400 lives.

As Al-Ahram Weekly went to press, no official estimates had been released on the total losses and the anticipated costs of reconstruction in the stricken areas where rescue and relief workers appear overwhelmed by the extent of the damage.

Beyond its immediate tragic impacts, the 6.8 magnitude earthquake, according to some estimates, will deal a devastating blow to the Moroccan economy, 50 per cent of which is based on the service sector in which tourism accounts for the lion’s share of revenues.

The manufacturing and agricultural sectors account for 30 and 20 per cent of GDP respectively, according to official figures.

The Moroccan economy has already suffered a sharp downturn as the result of a recent drought, supply chain disruptions, and rising commodity prices. According to World Bank figures, nominal GDP fell 7.9 per cent in 2021 and 1.2 per cent in 2022.

Core inflation hit 8.5 per cent in February this year, disproportionately affecting the poorest households, although it began to recede in March, registering 4.9 per cent year-on-year in July, according to data released by the Moroccan national statistics bureau, the High Commission for Planning (HCP), on 20 August.

In an attempt to bring inflation under control, Morocco’s central bank the Bank Al-Maghrib raised key interest rates three times since September 2022, bringing them up to three per cent before suspending this measure in June pending a review by the bank’s board of directors later this month.

Morocco has seen a significant improvement in its macroeconomic indicators during the past two decades largely due to three interrelated factors that have contributed to spurring domestic and foreign private sector investment. These factors are strong infrastructure, the existence of industrial zones, and investment-friendly laws that provide financial and tax incentives for investment projects.

Infrastructure development has included more than 1,800 km of new highways and the construction of new ports and port facilities. Morocco now has 39 seaports and 18 international airports offering regular flights to important destinations around the world.

Last year, the government passed a new investment law that went into effect this year and that has approved private sector investment projects worth more than $4 billion. Studies are underway for another $11.7 billion worth of investment in electricity transmission, renewable energy, and seawater desalination, as well as in traditional sectors that have become increasingly important such as the food and pharmaceutical industries.

The government has also created auxiliary financial support mechanisms such as the Mohamed VI Investment Fund (M6FI), a sovereign fund established in 2020 with an initial budget of about $14 billion, according to the US agency Bloomberg.

In October, Moroccan King Mohamed VI appointed Mohamed Benchaaboun, a former Moroccan ambassador to France, as director of the M6FI, which will finance strategic projects in collaboration with the private sector. The government aims to increase the private sector’s share in investment projects to two-thirds by 2035.

The Moroccan government has also established several economic zones during the past two decades. There are now more than 150 industrial zones spread across various cities, covering an area of about 12,000 hectares, according to the Ministry of Industry and Trade.

The government plans to establish more zones in provincial areas to promote equal geographical development and alleviate pressures on major urban centres. Net foreign direct investment (FDI) in Morocco came to $2.1 billion in 2022, with France, the US, and the UAE topping the list of investors, according to the HCP.

The government’s multipronged policy has succeeded in strengthening the industrial sector. The Moroccan automotive industry illustrates the progress, and at least two industrial zones are now home to more than 250 automotive firms that have helped to boost Morocco’s industrial exports to $11.4 billion.

In contrast to the rise in industrial exports, revenues from agriculture, the processing sector, and phosphate exports shrunk significantly last year due to drought and other impacts of climate change in the country’s southern regions.

On the other hand, remittances from Moroccans abroad have increased, reaching $3.35 billion in 2022, while revenues from tourism rose to $3.22 billion in the first four months of this year.

The World Bank had predicted that economic growth in Morocco would climb from 1.1 per cent in 2022 to 2.5 per cent in 2023, 3.3 per cent in 2024, and 3.5 per cent in 2025. It based its prediction on the anticipated growth in the tourism and automotive sectors, which were among the main drivers of the improvement in the country’s economic indicators during the past five years, compensating for the relative decline in the agricultural sector.

Although Rabat has yet to announce its estimate of the economic toll of the earthquake, the US Geological Survey (USGS) has estimated that the economic losses could reach about $10.7 billion or around eight per cent of Morocco’s GDP, which, according to the World Bank and IMF, stood at $133.83 billion at the end of 2022.

The Moroccan government has created a special bank account to receive donations for people affected by the earthquake, and it has urged the Moroccan business community to show their solidarity with the victims through financial support. It has also created a task force of 2,500 doctors and nurses to provide medical services and health care to the victims.

Governments and organisations from around the world have rushed to express support for Morocco in its ordeal and to offer help with rescue services and humanitarian relief. The disaster adds to the challenges of the Moroccan economy, which already has to contend with the economic repercussions of the war in Ukraine and the instability of the Sahel and Sahara region, one of the main markets for Moroccan exports.

Morocco will undoubtedly welcome the support of international donors as it struggles to address challenges that will aggravate conditions for many Moroccans, especially in the poorer provinces of the south.

Officials in Rabat have said that the government will not release an official estimate of the extent of the losses caused by the earthquake until after search-and-rescue operations have been completed. The epicentre of the earthquake was in the High Atlas Mountains in the Al-Haouz Province, where the government has been working for years to improve living standards, despite limited resources.

Some reports in the Moroccan media fear that political and social tensions in the country will rise in the coming period as the result of the additional economic strains in the aftermath of the earthquake due to disruption of economic activity in the affected area, damage to infrastructure, damage to the tourism sector, and rising prices of goods and services due to disruption in supply chains and higher demand for construction materials.

Tourism, Morocco’s main source of foreign currency, will be hard hit, and Marrakesh, the hub of the country’s tourist industry, was one of the main areas affected by the disaster.

The city’s economy is heavily dependent on tourism and traditional industries, and it is also a centre for international conferences and events. Marrakesh attracts nearly half of the country’s tourism and, with 70,000 beds in 250 hotels and over 1,300 guesthouses, it is equipped for the task.

Last year, the city hosted more than two million visitors, according to the Moroccan Tourism Observatory.

Reports in the Moroccan media say that the high costs of reconstruction will strain the national budget, leading the government to raise taxes or curtail public spending. It is to be hoped that support from international quarters will help to mitigate the pressures.

* A version of this article appears in print in the 14 September, 2023 edition of Al-Ahram Weekly

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