Morocco - Tourism Development Project (LIL)

Report No. PID8839 Project Name Morocco-Tourism Development (LIL) Region Middle East and North Africa Region Sector Other Urban Development Project ID MAPE65757 Borrower(s) GOVERNMENT OF MOROCCO Implementing Agency MINISTRY OF TOURISM Direction des Amenagements et des Investissements Address: 64, Av. Fal Ould Oumeir - RABAT-Agdal MAROC Contact Person: Mr. Jawad Ziyat Tel: (212-7) 77 07 56 Fax: (212-7) 77 06 26 Environment Category C Date PID Prepared March 28, 2000 Projected Appraisal Date April 10, 2000 Projected Board Date June 8, 2000 1. Country and Sector Background Main sector issuesTourism generates more than 15 percent of direct export receipts of Morocco and comes second after transfers from Moroccans residing abroad. Currently, 2 million international tourists visit Morocco annually. It is an important sector of Moroccan economy whose contribution to the economic growth can be expanded : currently estimated direct (4.7 percent) and indirect (3 percent) value added by tourism sector in GDP is well under the total of 18.3 percent in Greece, 16.5 percent in Turkey, and 13.9 percent in Tunisia. It generates 330,000 direct jobs (4.5 percent of total), and 210,000 induced jobs (3 percent of total), of which retail and construction jobs are most important.However, the sector has been stagnating for more than ten years: overly liberal Tourism Investment Code in the 70s and 80s led to an excess hotel capacity, while at the same time failing to meet the actual demand in quality and type of tourism products. Accommodation and services for tourists deteriorated in publicly-owned and private hotels, and the three main local private hotel chains became severely indebted. From 1988 to 1997, the number of international tourists (Algerians excluded) increased by 1.4 percent per year, as compared to 8.3 percent in the Middle East and 9 percent worldwide.In 1998, out of 90,000 beds, only 60,000 could be marketed for international tourism. Pollution and sprawling urbanization also had a negative impact on the quality of tourism products.Tourism sector does not take enough advantage of the assets and knowledge inherent in the country's cultural heritage, and although tourists' safety in not an issue in Morocco, harassment, particularly in Medinas, can have a negative impact on their perception of the country and, hence, their return rates.Private sector investment, local and international, has been constrained by the scarcity of land available for tourism investment and by poor planning and protection of tourism development sites. At the same time, the two existing public  developers, SONABA in Agadir and SNABT in Tangiers, though owning huge assets of valuable coastal land property, were severely indebted and had not been successful in attracting new investors. Disagreements exist between various Ministries as to their viability and capacity to undertake new developments.The present Investment Code (Charte des Investissements), enacted in December 1995, is no longer sector specific and has eliminated across the board subsidies to local investors. The removal of subsidies has precipitated the drop in investment, from 85OMDH/year between 1983 and 1995, to 230 MDH/year between 1996 and 1998. This decline made the Government of Morocco even more aware that the previous Code had encouraged poorly planned investment in non viable projects. GOM strongly believes that creating a sound institutional framework and promoting new resorts will make private investment profitable without direct subsidies and accelerate overall development of the tourism sector.Government strategySince 1998, the Government of Morocco has started to implement a new strategy to catch up with its main competitors. The objective of this new strategy is to achieve an accelerated annual growth of more than 10 percent by promoting all categories of tourism for which the country has a comparative advantage:n Coastal tourism: promote and develop sustainable and high standard tourism in existing and new coastal resorts on the Atlantic and the Mediterranean;n Cultural tourism: build upon rehabilitation of old medinas and cultural activities to promote tourism in historic cities;f Desert and Mountain tourism: promote discovery tourism, outdoor sports and leisure, local handicraft and traditions, accommodations in small inns and family houses.The measures already implemented include :n Decentralization of Tourism promotion through the creation of GRITs (Groupements Regionaux d'Interot Touristique) that comprise most stakeholders at a regional level (Hotels, airlines, local communities, travel agencies, etc.) and manage their own resources and a share of the sector taxes receipts.n Privatization of the 37 publicly-owned hotels, which is almost completed now (details),fn Reengineering or dissolution of heavily indebted private hotel chains, in cooperation with CIH (Credit Immobilier et H