The economic development of Morocco

A1 r -S '3 t I- I I.. I-,  ti A - I - - S *,$ 4* j - '1 'iv K 7 rg 0 or  The Economic Development AA I I/7 VI OOCCO IlInf.itr lmirn]ort tic 'iccofe FO{ ,.n.E.. performance of \lorocco ini receit scars has beCell disanlloilitill'. 1 le l)ldfgCtar~ positioll plogr,crsslvclh Iorsciicd Inl tlc earlk 1960s anid rccmincs ini 1964 dicl not even cover pro)posedl reciirreint expeiich- tnircs. and(l could still lcss providc anm funiids for the pl)ro)oscd ptul)lic incstniint program. AltlhouIgh1 tIlCre W,as a progressive reversal in tihis trcind in i Q65, the ad- aniccs in productivity and incomelic hamc inolt %et caLigi up VII) "Ilii illiC il(i piluil- tioll inCrcasC. 'IhIc shortage of trained per- so-n:de aild suplcrv-omr staff is onc of ,t!,c most acntC prol)lCms facing NMorocco. This sti1v is hased On! thlc reporf of all economic snro e missioni to Nlorocco which was organized bv tilhc ntcrinationial Banlk for Reconstriictioni andc IDevelop- ment at the rcqcicst of tile Mloroccani gox- erinielt. The mission's assignimieint was to assess the developmenital potenitial of tie Mlorocccan econoyliv and to consis(er andi recommend econolmiic policies, ill- stitutionlai arrangemiienits, andi an inmest- imlenlt program designdcd to accclerate couutiii icd oil hk1 flNJ 68s. net in U K. only  -w-~w <14- C=, C34 v 1= cx: i~-Mw 1_ - {anC   TuHEV Ti lv TOWviiC WAY VZELUOPI7IjME OF IV1U11UCC PUBLISHED FOR The International Bank for Reconstruction and Development BY The johns Hopkins Press, Baitimore  Copyright W 1966, The Johns Hopkins Press, Baltimore, Maryland 21218 Printed in the United States of America LIibrary of Congress Catalog Ca.d N umber 66I-2L42LU1Sr,  Report of a Mission Organized by the International Bank for Reconstruction and Development at the Request of tihe Government oL) MIo-,occo  Q tD U 2 c) H p4 c) Q P4 C) H4 c) c; pu  THE REPORT   THE MISSION johan W. Beyen Chlief of Mission Paul E. Booz Deputy Chiief of Mission Luis A. Bolin Adviser on Tourism Guy Perrin de Brichambaut Adviser on Agricultural Production Ciaude Brochu Agricultural Economist Arend Eisenloeffel Adviser on Industry Leonard H. S. Emerson Adviser on Education Melchior 0. de Lisle Adviser on Transport Gustave J. C. Mviaryssaei Adviser on rower Odd M. Myhrer Economist H. Davici Davis General Economist and Editor   PREFA CE This is the report of an economic survey mission to Morocco which was organized by the International Bank for Reconstruction and De- velopment at the request of the Government of Morocco. The task of the mission, as agreed by the Government and the Bank, was to assess the developmental potential of the economy, taking into account factors which impose a limitation on growth, the resource base, and the economic and social infrastructure; to consider and to recommend economic policies, institutional arrangements and the elements of an investment program together designed to accelerate Moroccan eco- nomic growth. The mission consisted of eleven members representing seven dif- ferent nationalities. Three members were provided from the staff of the Banlc and two from the staff of the Food and Agricultural Organi- zation (FAO), the remainder being individual consultants. After a briefing session in Washington and discussions at various international organizations in Paris, Brussels, Geneva and Rome, the mission arrived in Morocco in late February 1964 and remained there until the end of May. In November 1964, the Deputy Chief and the General Editor again visited Rabat for consultations, while the Educa- tion Adviser returned briefly in February 1965. Four members of the mission were once more in Rabat in September 1965 for further dis- cussions with the Government. Additional discussions were held with the various specialized agencies of the United Nations. The mission received the fullest cooperation from the Moroccan Government. His Majesty King Hassan II honored the mission with audiences on several occasions, and the ministers and their staff made themselves freely available and were unfailingly helpful. While in Morocco, the mission members traveled extensively through- out the country visiting major projects and holding discussions with local officials and private interests. In Rabat and Casablanca discus- sions were also held with leading officials of the autonomous public agencies, with private industrial, commercial and banking interests, with chambers of commerce and with trade union officials. The mis- sion also had the opportunity to obtain the views of the leaders of the various political parties. vii  Viii PREFACE During the period while this report was being prepared, the Govern- ment adopted a Three-Year Plan for 1965-67. The report attempts to indicate economic priorities for development over the six-year period, 1965-70. It is thus hoped that it will be useful both in the preparation of a subsequent Three-Year Plan for 1968-70 and in connection with annual reviews of the current Plan. In transmitting the report to the Moroccan Government, the Presi- dent of the Bank noted that, since the Executive Directors and the management customarily do not review the recommendations of economic survey missions in detail, the report as transmitted represents the views of the mission rather than those of the Bank. The letter of transmittal added, however, that the Bank believed that the findings of the report deserved the most careful consideration and discussion. Similarly, while other international agencies were given an oppor- tunity to comment on the portions of the report of particular interest to them, responsibility for the recommendations of the report is to be regarded as that of the mission alone.  CONTENATS The Mission ...................................................... V Plreface ...................... Vii THE REPO Rr rT INTRODUCTiON: TilE DEVELOPMENT TASK ............. : .................I I 1. THE COUNTRY AND ITS PEOPLE. 5 The Making of Modern Morocco. 5 fGonrr,nhirnl nThtermitinntnc 6 The Impact of the Protectorate. 8 Other Influences. 9 The Population Problem .10 2. THEi ECONOMIC SETTING .......................................... 12 The Structure of the Economy ................................... 12 The Traditional and the Moder. .12 Background to the Present Situation .13 Income Level and Over-all Economic Growth. 16 The Present Pattern of Output ........ ...................... 16 AXoney ....................................................... 2 ! Banking and Credit .......... ............................... 22 Recent Trends and Problems for the Economy ..... ............... 24 Investment Activity and Policy ....... ........................ 24 The Exte rna Econon y ....................................n. 25 Financial and Monetary Development ......... ............... 32 The Task Ahead ........ ...................... 38 3. A DEVELOPIMENT PROGRAM ............ ............................ 40 Objectives and Priorities .................................. 40 The Public Investment Programn . ............................ 41 Means of Financing ........................................ 48 4. ECONOMI.C POLICIES ............................................. 53 Fiscal and Monetary Policy .................................... 53 Revenues from OCP Mining ................................. 54 Revenue from the Safi Fertilizer Plant . ......................... 55 ix  R ev nu fro Lan .......... ... ... ... ... ... ... ... . 5 Increased Revenues from Present Taxes . 56 Increased Revenue from Sugar Price Maintenance .57 New Tax Measures .......... ................................ 58 Reduction in Current Expenditures ...... .................... 61 Reduction in Profits Tax ......... ........................... 62 Summary of Measures to Increase Current Revenues . 63 Monetar Pl, ....4 International Economic Relations . ............................... 66 Trade and Payments .......... .............................. 66 Morocco and the European Common Market .................. 70 Regional Economic integration ....... ....................... 72 5. REQUIRED A T-TNTQ &rvp rECHANGES - - - 76 Immediate Steps . ........................................... 76 The MIobilizatioI oL Exterrial tAsa1 n.e . 78.0 Cabinet Responsibility .......... ............................ 78 Imnlementation . ........................................... 80 Toward More Comprehensive Planniing . 81 The Role of Autonomous Public Agencies .. 83 Technical Assistance ......... ............................... 85 Local Participation .......... ............................... 87 ProrILLotion INationale ......................................... 08 6. THE POPULATION PROBLEM ....................................... 91 Reasons for Population Growth ...... 91 Economu3ic Handicaps of Population Growth ... 92 Changing the Trend ......... ............................... 93 Possible Measures ........... ................................ 94 A Family Limitation Campaign ........ ....................... 95 7. AGRICULTURE ................................................... 97 The Present Situation .......... ................................ 97 Principles for Future Development .............................. 102 A Program of Action ........ ...................... 105 Production Objectives and Targets ........................... 105 Changes in Land Tenure . .............................. 106 Administrative Reform ............. ................. 111 Staff-training .. . ................................. . . i i2 Agricultural Credit ........ ..................... 114 Price Policy ............................. 116 Marketing Policy ....... ...................... 118 An Outline for a Public investment Program .... . ii9 Irrigated Perimeters ....... .................... 120  CONTENITS Xi Small-scale irrigation Works ............................ .. 23 Dairy-farming in Irrigated Zones ........................... 124 Gepnprl Suiirvpvy nf Trrianhle Areas .................. 124 New Major Irrigation Construction ......... .......... 125 Rain-fed Agriculture .................................. . 126 Stock-raising Zones ............... .................. 129 Soil Conservation and Restoration ............................. 131 Forestry ................. ......................... I94 Land Consolidation andl Cadastral Survey ...................... 134 Promotion Ntionale ................... 135 Research ........................ ............ 136 Summary of Proposed Public Investment E.xpenditures in Agriculture, 1965-70 ........ ............... 138 8. THE iNTERNATIONAL TOURIST MRADE ................................ 140 Potentials and Assets ......................................- 140 Strategy and Tactics .......................................- 4i Hotel Accommodation ...................................... 143 Hotel Credit. ....................................... !4 Hotel Personnel and Training ...............-............... 147 Access ................................................ 150 Internal Transport ....................................... 151 Other Tourist Requirements ................................., 151 The Role of Government in Tourism ......................... -53 Summary of Proposed Investment Expenditures ...... .......... 157 9. MINING AND INDUSTRY ................................... -159 Mlining .......................................... I159 Production and Export ....... ................. 160 Tax incentives ....................... 162 Phosphate-mining ........ ..................... 163 Pvrrhotine ................... 164 Prospects for Other Minerals ................................ 164 Directorate of Mines ............... ................. 168 BRPM ............ ............................ 168 Summary of Proposed Public Investment Expenditures in M ining ..............................-.. 170 Industry ......... ............................ . 171 Present Structure of Industry ...............................,.172 The Private and Public Sectors . .............................1 176 Protection .....................................- ,178 Investment Code ........ ...................... 178 National investment Fuiid .............................. 11 Industrial Credit through BNDE ............................. 182 Manpower and Trainingr. .... ..................... 185 Industrial Promotion ............ .................. 187 Utilization of Industrial Capacity ............................ 187  Xli CONTENTS Location of Industry . ........................................ i88 Government Participation in Industry ....... ................. 189 Phosphate Transfor.matio ........................................... 194 Summary of Proposed Public Investment Expenditures in Industry ........... ....................... 196 Handicrafts ............................................. 197 0v. ELEEC R;C POWER .......................................................... 199 The Extent of Electrification .......... ...................... 199 OfgariLzatiodIi of LIIe Electrict Industry ....... .................. 200 Present Capacity, Transmission and Distribution ..... ......... 202 Estimated Annual Output and Capability of ONE's Interconnected System of Power Plants ..... .......... 205 Immediate Requirements . ................................... 206 Longer-range Requirements ........... ....................... 209 Costs and Rates ........................................... 212 Tr e T.-l-- J.4114 rl 1 LILial 01W LUILIUI ULl LJLIIM~ L 1IIIU- -L y . ...... ..... Moroccanization ............................................ 215 1l. TRANSPORT AND COMMUNICATIONS ................................ 217 The Transport Econo.y ................ ....................... 217 Roads ................. ............................. 218 Proposed Investment . ....................................... 219 Road Maintenance . ...................................... 223 Road Administration . ....................................... 249 Railroads . .............................................. 225 Railroad Investment . ....................................... 226 000 ........ ................................................ 2 2 9 Casablanca .............................................. 230 M oham-media- .............................................. 2SS Other Ports ................................................ 234 The Problem of an Eastern Port ........ ..................... 235 Summary of Proposed Port Investment Expenditures ..... ...... 235 Civil Aviation .............................................. 236 Airfields ............................................... 236 Air Transport ......... 237 Summary of Proposed Transport Expenditures ...... ............. 239 Posts and Telecommunications . ................................ 240 Radio and Television ....................................... 244 12. EDUCATION AND TRAINING ......... .............................. 246 Length of Primary Courses . ................................. 247 The Phasing of Primary Expansion .......... ................. 249  CONTrENTS Xiii Secondar, Education .n.... ... . ... 255 Expansion of First-cycle Secondary Education .... ..... 259 Expansion of Second-cycle Secondary Education .......... 262 Vocational Education ... ...... 264 Training and Supply of Primary Teachers ..... .... 269 Training and Supply of Secondary Teachers ......... 1 Higher Education ... ...... 273 Complementnrv and Acdult Education ......... .276 Private Schools ... ...... 278 School Calendar ... ...... 279 Summary of Proposed lnvestment Expenditures ............. . 279 13. IIEALTH, HOUSING AND SANITATION ....... ......................i. 28 Health ............ .............................. 281 Present Health Conditions ........ ............................ 281 Present Structure of the Health Services ....... ................ 282 Staffing Problems .......................................... 285 Proposed Investment Program ........... .................... 287 Recurrent Expenditures ...................................... 293 Housing and Sanitation ........................................ 294 Urban Areas ........................................... 294 Rural Areas . .......................................... 297 A NNEX BUDGET RECLASSIFICATION .......... ................................. 299 STATISTICAL APPENDIX S.l Moroccan Population in 1952, 1960 and 1962 .310 S.2 Moroccan Moslem Population in Urbani and Rural Areas, and by Broad Age-groups .311 S.3 Total Pnnulation in 1960 by Status of EmDlovment, Broad Age-groups and Sex .312 S.4 Employed Population by Sector, 1960 .313 S.5 Gross Domestic Product by Principal Sectors .314 S.6 Use of Resources, 1960-64 .315 S.7 Central GovermIent Cmurent R evenues, 1959-6 . 3:6 S.8 Central Government Current Expenditures, 1959-65 .318 S.9 Central Government Capital Expenditures, 1959-65 .320 S.10 Selected Treasury Operations Outside the Budget ..... .......... 322 S.1l Balance of Payments with All Countries ....... ................ 324 S.12 Balance of Payments with the French Franc Area and Other Countries . ...................................... 326  S.13 Exports and imports by Economic Groups . . . 327 S.14 Value of Exports by Commodities .. ............................ 329 S.15 Trends in Food and Feeding Exports ........ ................. 330 S.16 Value of Imports by Commodities .............. .............. 332 S.17 Merchandise Exports by Principal Countries of Destination, 1958-63 ............. - . ............. 334 S.18 Merchandise Imports by Principal Countries of Origin, 1958-63 335 S.19 Foreigln 'radeP Volume and Prirc Indrices. ;3 LIST OF MAPS Morocco .......................................... facing page 6 Rainfall ......... 7 Mineral Resources ......... 160 Electric Power ........................................ 202 Roads ...........................................224 Railroads ........................................... 225 Port of CGaislairn " 992 NOTE: The maps contained in this report are for illustrative purposes only and do not inply any legal ent'lorseulceiIJe on Lile part of Lhe mitionUll U! the World Bank. INDEX ... 337  1NTRODUCTFION: THE DEVELOPMENT TASK As elsewhere, there is no magic formula for the development of Morocco. The process of economic growth requires steady effort and there is an inevitable time lag before the ensuing benefits make them- selves fully felt. There is thus all the more reason i-n start that process without delay. Fortuately Morcc -----ces the future with nu-eru ssets. Its 4:JI LULIaLCiy, IVXIVLfLLLL I'ldkoo 1L I U I~ it I1UIILI_JU3 aH IS.3.t people have an important cultural and religious heritage. Geographic- ally, the country has in the main a friendly ciimate, varied soiis witn good agricultural potentials and important mineral resources. There is an emerging industrial sector, a small but growing entrepreneurial class and the beginnings of an industrial labor force. The economic infrastructure-transport, communications, electric energy-is at an advanced stage. The beauties of the country and its climate offer rich opportunities for the growth of tourism. Despite these assetq the economic performance of Mororco in recent years has been disappointing. The budgetary position progressively worsened in the early 1960s: the annual cash deficit increased from DH 325 million in 1960 to DH 1,060 million in 1964, the latter repre- senting nearly 30 percent of total budgeted expenditures. Revenues in 1964 did not even cover proposed recurrent expenditures, stili less provide any funds for the proposed public investment program. The budgetary position was to have improved in 1965, but little or no surplus on current account could be expected as a contribution to the capital budget. The balance of payments situation remained acute and continuous deficits brought the foreign exchange reserves down to DH 70 million at the end of 1964, or only about six weeks of the cur- rent import bill. Some slight improvement was forecast for 1965. Na- tional output grew by an annual average of on!' 1.6 percent m thee early 1960s. Because of population increase, this means that output per head declined. By 1965, there was as yet no evidence of sigunlcant advances in productivity and incomes. There is a definite link between the continuing budget deficits and the difficult balance of payments situation. In effect, the inability of I  2 THE REPORT Morocco to mobilize its own savings in the form of sufficient govern- ment revenues has led to running down foreign exchange reserves to pay for the imports needed for public investment programs. With the reserves now virtually depleted, the economy can only expand if investment is financed by increased savings, supplemented by external assistance. Here too there is a link. For foreign donors tend to helD those that help themselves. External financial aid is invariably con- tingent upotn a tv, matcrh;n ing loa!.eff.rt. Savings can be derived both by increasing the proportion of income savedU and by inCreUabinIg total IDICUomIeS. So lfar, IlCIrCaSS III UULJUL llhave not been commensurate with the investments made. Agriculture is crucial to the expansion in national output. Some 70 percent ot the population live by it; about 35 percent of the total output comes from this sector; 50 percent of Morocco's total exports derive from it. More- over, the future possibilities of expanding the internal market for Moroccan industry depend primarily on raising agricultural incomes. Agricultural output and income can be increased both by extending the area under cultivation and by intensifying the output on existing cultivated areas. Both. require a heavy inet,mn inagiclurl nfa LuItvaLLt ataa. lULI *LtUII a fL~aV y I1~LUV3I~ILLL All ar...I LULt.al 11111 a structure. Fortunately, much of this type of investment has already taken place. But output has increased very slowly primarily because the much smaller incremental investments and the organization needed to bring about full exploitation-mise en valeur-are only just getting under way and much remains to be done to improve the cultivation practices of the individual farmer. We believe that the first necessity in the years immediately ahead is to ensure that, before investing in new major projects, the benefits from existing agricultural works are maximized. Having already invested in the overhead assets of a modern agriculture, the next phase must be to invest in the exploitation and human assets needed for a modern agriculture-to improve on-farm equipment and to establish and train a widespread agricultural exten- sion service in order to change the cultivation habits of the small farmer, and to suppnrt that chanoe with researrh terhniral assistanne and the necessary credit. Given a steady rise n1 agriCulturdal uULpuL allU 1incUoIms, a cunceredU progress in other sectors of the economy will be possible. Industry will be supplied with a growing stock of raw materials for processing and, conversely, with a market for its production. The new phosphate in-  THE DEVELOPMENT TASK go dustri'es w"il of course obtain their raw rmateri'als froml the remlark-able UU LIC WIlII L Iia IiIiI LL IL L Zii N Uil mining expansion currently under way. The growth in the commodity- producing sectors wiii generate incomes from which savings wiii be available for re-investment either in the commodity-producing sectors, or in the tourist industry, or in further additions to the economic infrastructure, or in education and the social services. In order to maximize growth in output, it will be necessary to con- centrate economic effort on productive investment yielding rapid and high returns. Such a policy would undoubtedly increase output un- evenly as between activities, sectors and regions. But the consequent increases in total income would subsequently permit both an improve- ment in living standards and the further in-estmnent required for economic development elsewhere. VVIilIe we ueileve tlatL to give free relin Lo prilvate initiative can only be salutary for the economic growth of the country, it is inevitable that for an economy in development the role of government is crucial. The administrative machinery must be appropriate to the problems confronting it. The problems of an independent Morocco are different from those of the protectorate and consequently some attempt should be made to lighten and simplify the administrative structure in view of the limited availahle staff Prinrity shouldb e1giovn tn those parts of the public service directly concerned with the planning and imple- mentation of development programs. Shortage of trained personnel and supervisory staff is one of the most acute problems facing Morocco. While intensified education and training at the appropriate levels is a necessity, there can be no sub- stitute for time in amassing home-grown experience. This is all the more reason to expand education and training without delay. Whatever measures, direct and indirect, are taken to increase na- tional output, they winl inevi.tablDy take place against the backgrounLd of a very rapid growth of population. Morocco will continually find itself having to run faster in order to stand still. At present, the popu- lation is estimated to be growing at 3.2 percent a year. This means that national production has to grow at that rate simply to maintain the present output per head. But, because the proportion of work force to total population is dropping, productivity per worker would have to rise by even more than 3.2 perrent. This is considerable task. Furthermore, a rise in productivity implies an increase in the rate of  4 invest.ent. ButL Lthe VeIy rias Cin pu.at-paiL-trlaiy ofL tSie young -entails a growth in current expenditures, thus leaving little, if any- thing, for investment. It is going to be difficult to break this vicious circle. But we believe the effort must be made. We are therefore recommending a campaign for the dissemination of family limitation practices. We recognize that the possibilities of population control in a country like Morocco have yet to be proved. We fully appreciate the technical, cultural, religious and political problems involved. We must nevertheless point out that, with the population increase now in prospect, it wilt be very difficult to maintain present economic standards, let alone achieve the sort of grnwth needed tn -roider- self-sustainig take-off. The Moroccanr Gov- ernment and people must recognize the economic cost of inaction with respecL to population onitroiL andU make th1ei - .oice ac.ordingiy.  CHAPTER 1 THE COUNTRY AND ITS PEOPLE The Making of Modern Morocco Situated in the extreme northwest corner of Africa, Morocco is the farthest western outpost of the Islamic and Arab culture. It is perhaps because of this isolation that it has remained so faithful to that culture. Although geograDhically close to Western EuroDe, which starts a few miles away across the Straits of Gibraltar, Morocco has until quite recently remained peculiarly immune to its influences. There are significant facets of Moroccan life which have exhibited a kind of timeless continuity strongly resistant to the Western culture of which the French and Spanish Protectorates were such important reDresentatives. It must be remembered that. in the longr historv of Morocco, French and Spanish suzerainty is but a comparatively short episode lasting a mere 44 years from 1912 to 1956. Since the establishment of the first independent Moroccan-state in 788 A.D. by Moulay Idris ben Abdullah, Morocco has always managed to maintain its independence-sometimes precariously-except for that 44-vear Deriod. The oriLinal inhabitants of the countrv. the Berbers, had seen the Romans, the Vandals and Visigoths, and the Byzantine Greeks, come and go. But during the eighth century, after stiff Berber resistance, the Arabs consolidated their hold on the country and the Berbers turned their backs on their Dast and attached them- selves to the religion and civilization of the Orient. This is not to say that the Berbers were thereafter passive-on the contrary, Berber risings and forays continued sporadically right into the twentieth century-nor that they even lost their sense of identity which in fact persists to this day. But they did embrace Islam and gradually adopt the Arab style of life. Even in the sixteenth century, Morocco was able to resist the domina- tion of the Ottoman Empire which had extended its rule over the rest of North Africa. There had been several dynasties ruling Morocco- some Berber, some Arab. but all Islamic-and finally in 1649 a power- ful southern Moroccan group established the Alouite Dynasty which is still on the throne of Morocco in the person of King Hassan II. It claims Cherifian descent from Ali, the son-in-law of the Prophet, and 5  tlle liVIlolLil 1a is IbthU. Lty U hVLIIe s1pirituall 1-1L 1 cinjpdlI rUlCl of the country. 1EVCnI und1er ItLIC ProtectLora-tes, the lrnllonaLchy rnaintaiued a ChIeLAr_ari Government alongside the Protectorate Governments. While the latter, staa_le almost entirely by Frnc -an Spanish, --- the_ ----Iang SLILLCU. dJILL A1L11 UY 1CICIIL al Iu .J1JILII,ZI idtil LIIE XIluLILIdI ladI% of civilian affairs, the Cherifian Government occupied itself with re- llIlUUb dlall.b dIIU 1dLLC15 LUI1LCIIIIIIg ll dladtC LILIVUrIIVUt UL til LtI11- tory of both zones. Still today, the legacy of these historical develop- ments sh'ows -itse'lf in thle Torrinan roeo ueKn i h ieo h ShOWS ILS~L ill Lh1~UUIIILII.AiLL IVIC 1) UL LII ALlr% 11 LiI ILLIC L ALE; country. ThIe position of the mlonarchy was further rifre yterl L II 1JU1L01 L tAL i1thdLh asui LUILLI IUILILILCIt~U UY LIiC LIVC played in the postwar independence movement by the present King's father, King Moharrcr.ed V. It may be said that the essential 1irrpcus to the whole movement came from a forthright public appeal made L. T7T : I~. .I. n1A7 1 ~1"'L- Uy K%ling I'VLoUiIammeu in1 a speechL a t T dangi1er 111 cdrlIy 1I4. I ITIC Istiqlal, the civilian independence movement, had been formed in D"ecemrber 194;,U (aleho-ughmal nacll dLUionlist groups hadU been iII exist.- ence since the 1920s) but, until the Alliance between this movement and the King af'ter 197i, it hadu ueen fighting an uphill battle. With the King identified with the goal of independence, the movement thereafter gathered mom1-entum. After an auouiv t avtempct by Lhe French to replace him, including a period of exile from 1953 onward, Ki-ng iVioihaIimnedU returnIedU in triumph 'in J I 1955JL and' IMVorocco bUecarne independent in 1956. The King's close identification with nationalism and his dignified resistance Lo pressure Urought hillml wiuespread adula- tion from the Moroccan people. Though dead since 1961, King Mo- hiamm-led V is still neiu in great reverence. His son, King riassan II, who took an active part in the fight for independence, remains the dominant personallty in tne country. Geographical Determinants While Morocco's traditional isolation is breaking down, its cultural identity remains. The country's geographical inaccessibility was at once a root cause and a historical guarantee of the country's individual- ity. Morocco is ringed with desert, mountains and a hostile coastline, discouraging penetration by all but the most persistent (see Map 1). To the south and east stretches the Sahara Desert a thousand miles wide and ranging right up to the ramparts of the Atlas Mountains 1 Tangier was adlministered throughout the period of the Protectorates as an international zonc by a condominiium of conisuls representinig the Western powers.  MEDIrEh'RRAiAEA SEA t_I - i, ` i: .r. -, - - i - - MOROCCO Rz,~ .. . OUJDAO r TAZA d ,;; a~~~~SAF. XphOPYA, A '5 "' TIZNrT~~~~~~~~~~~~ U ,. RAIVERS X t"' rEA" ' " ' ' " "I'' , *r. <~~~~~~~~~. Fl .!EN ME .. .. .-.. o NOV.MBER 1955 NOvEMieR 1965~ ~ ~ ~ ~~~~~W  SMEDITERRANEAN SEA MOROCCO RAINFALL a; I'AA ~~~~~~~~~O MEKNES..,'-; .4~~~~~~.' 'IT~~~~~~~~~~~~~ jI % m pa ,g .. , -,l 9~~~~I C SAB NR f X , - y 8~~~~~~~~~~~~~~~~~N Elevat-ons over 1000 meters 0 50 00 50 200K ._._._._._1. . NOYBME.R 1965  THE COUNTRY AND ITS PEOPLE 7 -,h ch guard the fertile pla;n6 tn the north and west.2 Separating the plains in the north from the Mediterranean coastline are the tortuous and heavily eroded Rif Mountans. These have precluded much of this coast as points of entry. The Rif comes down almost to join the Atlas east of Fez in the Taza Gap, traditionally the only land route from the rest of North Africa. Until the twentieth century, when the arti- ficial port of Casablanca was buit at ,r.eat expense, the rugged and stormy Atlantic coast had no safe anchorage other than the river estuaries, such as the Bou Reg.reg at Rabat Sale, the Sebou at Kenitra and the Loukkos at Larache, which were so treacherous that only pirates, intim,,tely familiar with them., dared Aer,ter . In the crescent between the At]as and Rif Mountains and between the A 1as chains thebmcselves are found som- exceellnt soils with satis- factory humus content. However, they are shallow and calcareous so that under intensive cultivation the humus content tends to decrease rapidly. Veritable alluvial plains are few, the chief ones being the Gharb, which is essentially the valley of the Sebou and its tributaries, and the valley of the Sous. Apart from on these plains and the plateaus in the hinterland of Rabat and Casablanca (Zaerg, Chaouia and Abda- Doukkala), the soils are not particularly good, being podzolic with much leaching of nutrients and considerable acidity, as in the high plateau of Midelt, or encrusted with limestone, as on the eastern However, it has been rainfall, rather than soils, that has been the main determinant of agricultural activio y and therefore of settlemnent. Nonirrigated cultivation is difficult for most crops where rainfall is less than 400 mm (or about 16 inches) a year. Rain in these amnounts or more only falls on the mountains-where, except in relatively small patchles, soils or terrain are unsuitable for cultivration-and in the northern half of the inter-mountain crescent (see Map 2). Furthermore, even w.A,lee .here is ad.equaten rainfall, it is celcentrated in. the winter season froni October-November to April-May and is followed by a long, alsolut.- A-r su,..r.ner season. This is good for tourism but poses ausoAut. . y'1 ZL'1 a trJ5*I - -... gou . ... problems for agriculture. During the rainy season there is always the hazar A of f',oodir,g th- is f_lloweA by the noredt,, for draivnae and, 2 Morocco's international boundaries in the desert region have never been finally fixed. This snakes uhe totaL 1and area oU Lbe count.Iy uncertaiin. The ,1u,r_o o- 440,000 square kilometers, or 172,000 square miles, are usually quoted. 3 The Great Atlas Mountains of Morocco consist of three ranges: the High Atlas curving from the Atlantic between Agadir and Essouira to the northeast across most of the country; the Anti-Atlas, a spur to the southwest which encloses the rich valley of the Sous; and the Middle Atlas, a spur south of MAeknes and Fez which encloses the high Midelt plateau.  8 THE REPORT finally, calls for water storage for irrigation purposes in the dry season. In the southern half of the inter-mountain crescent, where the soils are reasonably good but the total annual rainfall is insuffiicient, water storage in the nearby mountains can serve for year-round irrigation. (This also applies to t1he lower MItoulouya Valley-the only major Moroccan river flowing into the Mediterranean-on the northern side of the Rif Mountains at the eastern end of the country, where the soils are suitable for cultivation but rainfall is insufficient.) Where the rains are ir.adequate and tle soils are not suiLteU for cultivation, stock-grazing often becomes the means of life and nomadism is in some degree a way Of life. Excluding the mountains and the desert regions, the climate of Morocco is quite temperate, be-ng under the influence of the Canaries current which keeps temperatures moderate in summer and mild in winter. It never freezes in winter on the plairns between the mountains and is rarely more than the low 30s Centrigrade (the 80s Fahrenheit) in the sunmmer. And because the summLers are dry, the sun shines for long periods. Temperatures are thus conducive to agriculture and tourism The imzpaci of the Protectorate It would not be w1se to underestiLmate thle irm-pact of the protectorate period on the life of current Morocco. Both the French and the Spar.ish brought with tellem a phmlosophy and methou of administra- tion which survive in form today. This has been of great help in maintaining a rational approach to public afiairs, although Morocco is now saddled with a rather cumbersome administrative machinery which the protecting power could perhaps afford but not a Morocco dependent on its own resources. More generally, the protecting powers (particularly the French) brought with them languages, culture and a way of life which has been usefully absorbed by those segments of Moroccan society which had contact with them. Facility in the French language, for example, has eased the internatlonal intercourse so vital for the Moroccan leadership and has been an indispensable channel for communication of the modern technological process. Moroccans have had the oppor- tunity to add the cultural heritage of France to their own. While this has led to a certain ambivalence in self-identification and has also tended to emphasize the cleavage between the modern and the tradi- tional, its net euect has been to enrich Moroccan society. European suzerainty was followed by the arrival of Europeans in  THE COUNTRY AND ITS PEOPLE 9 the private sector. Much of the investment and modern techniques, both in industry and agriculture, have been brought to the country by Frenchmen and, to some extent, Spaniards. While this creates prob- lems for the transition to an independent economy, its advent can in the long run only be an asset. This modern investment has been sup- ported by an advanced infrastructure in transport, communications, power and the like; while much of it was originally designed for the benefit of the foreign community, it nevertheless remains another important national asset. When contemplating the complex problems of the non-Moroccan residents of the country, it is well to remember that a large proportion of this enterprising group are relatively recent arrivals. Elsewhere in North Africa Europeans settled throughout the nineteenth century and several generations were born there, but few nongovernment and nonmilitary individuals arrived in Morocco before the late i920s and early 1930s. On the other hand, after the Second World War and into the early ]950s there was a steady stream of Europeans seeking various ways to build a good life. Many of them were highly successful and never entirely severed their links with the metropole. Such people, less entrenchecl in the separatist psychology often found among settlers elsewhere, were amenable to integration into an independent Morocco, provided they were proffered reasonable assurances for a secure life. Other Influences Apart from the Europeans, there have been other groups which have made significant contributions to the human scene in Morocco. A number ol Jews had come to Morocco after the burning of Jerusalem in 79 A.D. and they even made some converts among the Berbers prior to the arrival of the Arabs and Islam. But the bulk of the Moroccan Jews is thought to have arrived in the country in the late fifteenth and early sixteenth centuries. Traditionally, the urban Jews lived separate lives in their own quarters of the city or town, the mellah, while the rural Jews mixed more freely. The Jews have had much to offer to the professional commercial and artisanal life of the country. Postwar emigration to France and Israel reduced the Jewish population from about 400,000 in 1945 to about 110,000 in 1964. There has also been an important Negroid addition to the Moroccan stock. There had been some Negroes in the country from time im- memorial. But the majority were brought in as slaves, particularly during the sixteenth to nineteenth centuries. Negro concubines were common among the urban bourgeoisie so that varied shades of skin  10 THE REPORT color are seen today. Darkness of the skin is not a social impediment nor even an indication of status. On the international scene Morocco is a country of multiple loyal- ties. As an Arab and Islamic State, it feels a solidarity with other such states and is a member of the Arab League. However, it feels a pull toward a special status as a component of the Mahgreb, the western wing of Arabism which extends through Algeria and Tunisia into Libya. Morocco has been active in various pan-African movements, but it also feels itself part of the Mediterranean culture. Because of its close ties with France, it has a bond with the worldwide French com- munity and, through this connection, hopes for a special relationship with the European Common Market and its member countries. A special relationship developed with the United States as a result of wartime occupation and the peacetime American bases. Beyond all these loyalties, Morocco has looked to the world as a whole as an active participant in United Nations affairs. The Population Problem Whereas the distribution of Morocco's population in the main fol- lows the areas of greatest cultivation possibilities, there are regions, such as in the Rif and the Tafilalet, where there are relative concen- trations of population without such possibilities. This has created difficult social and economic problems. One consequence has been a drift to the cities and there are now ten cities in Morocco with more than 100,000 population,4 with the five largest being found in the inter-mountain crescent. Nevertheless, 75 percent of the population still lives in the rural areas and Morocco remains a predominantly agricultural society. It is not so much the present density of population as its rate of growth which is so worrying. With a population of over 13 million in 1965, Morocco had a nationwide average density of less than 30 persons per square kilometer (about 75 per square mile) and very few in- dividual rural areas with more than 60 persons per square kilometer. Even subtracting the arid zones and the mountain wastes, there is no reason why, with proper investment and technique, modern technology should not support such a population-and even a modestly growing 4 Population figures have chan-iged rapidly since the 1960 census, but 1964 esti- mates show the following number of inhabitants for the ten largest cities: Casa- blanca, 1,150.000: Marrakech. 260,000; Rabat. 300,000 (plus 80.000 in adiacent Sale)- Fez, 240,000; Meknes, 190,000; Tangier, 120,000; Oujda, 120,000; Tetouan, 105,000; Kenitra, 105,000 and Safi, 100,000.  THE COUNTRY AND ITS PEOPLE 11 one-on the remaining area. But the rapid growth rate of recent years has meant that the proportion of the population which is necessarily nonproductive has been growing, which piaces an increasing burden on those who are productive. Furthermore, the numbers entering the labor market grow each year and finding them employment oppor- tunities presents a further challenge to the economy. Because census-taking and demographic studies are of relatively recent origin in Morocco,5 precise figures are subject to debate. The mission is nevertheless satisfied that in the early i960s the rate of popu- lation growthl has been of the order of 3 percent a year, and that it will exceed 3.2 percent before the end of the decade. We thus forecast totai population growing from about 13 million in 1965 to about 15.4 mil- lion in i970, or an annual average of about 400,000.6 The task ahead for the economy is to provide incomes and employ- ment for this growing population and hopefully to raise per capita income. After looking at the current economic situation in the next chapter, we turn our attention to this task. G Thiere asa a roughly estimated r in 10l9 in thP then l;ren,h 7nnp hut thp 1960 census is the only one taken in Morocco as a whole according to modern statistical principles. Demography gained an impetus with the start of the Enquete d Objectifs Multiples in 1962, the findings of which were still under study in early 1965. Tiie figures in this section- are exclusively ior the Mvioslem populatiion. IIn sU't, there were also about 110,000 Moroccan Jews and 220,000 resident foreigners in Morocco.  CHAPTER 2 THE ECONOMIC SETTING THE STRUCTURE OF THE ECONOMY The Traditional and the Modern For centuries farming and animal husbandry have been the princi- pal economr-ic activities in Morocco. Grains have been the major prod- uce on the plains, whereas sheep and goats have provided the prin- cipal basis for a living in the mountains. Between the two regions there has always been a lively exchange of goods. Berbers from the mountains come to the trading centers with wool, hides, meat, fruits and wood and return home with barley, wheat and a few items from foreign countries. Cloth, carpets and other articles made by hand during long hours in isolated places have also found a market there. By contrast to the lively internal trade, Morocco had traditionally little commercial contact with other countries, because of its relative inaccessibility. Absence of stimuli from abroad may well have handicapped the development of the traditional economy, but other factors were cer- tainly more important. In many areas, regular cultivation is virtually impossible because of protracted periods of dry weather; in other areas violent rainfall and flooding sometimes jeopardize crops and even wash away the soil. Land tenure has not been conducive to develop- ment. Absentee ownership of many large and medium-sized tracts has inhibited improved efficiency. Land farmed by owners themselves has often been fragmented into lots too small for a family to live on. Moreover, the small farmer, whether owner of his land or tenant, has lacked the knowledge and means to improve his farming techniques. There has probably been little, if any, increase in yields for many generations, but output has risen slowly as a result of increasing acreage. By far the larger part of the Moroccan population, perhaps more than 10 million people today, depend on this traditional economy. During the Protectorates, a modern economy emerged. Until World War II, the modern sector was confined to plantation agriculture and military establishments. During the war, the first steps of industrial development took place, and thereafter the embryonic modern econ- !2  omy saw a rapid expansion, su1pUpoied by large foreign investments and facilitated by favorable market conditions for the country's grow- ing exports. The modern economy was developed almost entirely by foreigners. Oin'ly a very few ric ivioroccan ia-unilies twk part in this development. Most of the domestic population continued to live under subsistence condulitons, thle peasants (fellahin) scraping a mdUest living Fro-l the land, with a small proportion finding employment as unskilled labor- ers or dornestic servants in tne emerging modern economy. iLne eco- nomic interest of the new entrepreneurs was focused on foreign markets, where they found outlets for their production, and as tney grew in number, on trade within their own society. They could use local labor, but haraly aepended on it; to a great extent even common laborers were recruited from Europe or from the growing ranks of sec- ond and third-generation offspring of foreign settlers. Thus, the modern economy came to have few ties with the traditional economy, and its growth had little impact on the lives of the majority of the population. It is often said that the modern economy is juxtaposed to, but not integrated with, the traditional economy. This duality was to some extent a result of a public policy familiar in dependent overseas territories. Until after World War ii, the Gov- ernment favored and stimulated foreign-owned enterprises. Moreover, the positive attitude to foreign-owned enterprise was restricted to pro- duction which could complement but not compete with goods from the mother country. T his meant encouragement or plantation agricul- ture and mining. Products from such activities were also granted preferential access to the metropolitan market. in return, the Moroc- can market for industrial goods was reserved for metropolitan pro- ducers. In addition to this policy, the fact that Morocco's foreign trade was controlled by companies directed from the metropolitan countries, and staffed with their nationals, tended to knit the country's economy to those of the protecting powers. Background to the Present Situation After World War II, Morocco entered into an active phase of eco- nomic development. French immigration continued and there was a sizable import of capital which reached a peak in the early 1950s. With its natural resources, its proximity to Europe and the apparently fairly good prospects of stable political conditions, Morocco's economic future seemed assured. Foreign investors were also attracted by low taxes and cheap labor: in 1952 an estimated 20 billion francs (about  14 It iiE REPORT US$ 5S70 mI illion) of foreign plivate investmCent went into industr) and housing and to a lessor extent agriculture. There was also a sub- stantial increase in p-ublic invest1Sents, nnanced both by foreign and domestic funds, and moreover the United States and France spent considerable amounts on constructing military bases. According tc official estimates, gross investment in fixed assets (excluding foreign military investments) rose to almost 18 percent of Gross Nationai Product in 1953. Deducting the current balance of payments deficit, one arrives at a national savings ratio ot 14 percent of GNP, a rather high ratio for a country at that stage of economic development. Over tile four years between 1951 and 1955 Gross Domestic Product rose by an average of 4.1 percent a year in real terms. If an adjustment is made for the particularly unfavorabie harvest in 1955 the growth rate rises to 4.6 percent a year. Although precise demographic data are missing, It IS clear tnat tnis pace of growtn tar exceeds tne increase in population over the same period. This expansion was concentrated in the modern economy and only a very minor part of the traditional economy was affected. But it was not limited to any particular sector: modern agriculture, industry, mining and services all shared in the growth. The prospects of Morocco becoming independent, which became clear during 1955 (together with the post-Korean war decline in commodity prices on the world market), made an abrupt end to this boom. Although the 1956 harvest was no worse than average, the Gross Domestic Product did not reach the 1955 level, and a further deep drop was registered in 1957 when adverse farming conditions added to a continuing decline in construction and commerce. Foreigners left the country in great numbers and large amounts of capital went with them. Gross investment in fixed assets declined persistently from one year to another from almost 18 percent of GNP in 1953 to 9 percent in 1957. The fall was entirely with respect to private investment, with public investment activity remaining almost unchanged. The amount of capital flight is not known, not even approximately. Due to the close economic and financial ties with France at that time it was not difficult for immigrants to transfer capital to other countries in the French franc zone. Part of the flight was offset by increasing amounts of aid from France and, from 1957, also from the United States. In that year, French aid to Morocco was discontinued as a result of a controversy over the settlement of outstanding financial obligations with the former protectorate. For five years no aid was forthcoming from France but there was a marked increase in United States aid. Morocco also received considerable amounts of foreign  THE ECONOMIC SETrING 15 PvrxhnngP from the hiifldincr pn nf Frenrh annrl U. miltitry hbcesc At the same time, exports soared, particularly to France, and imports went dorwn as foreign-onned actitivities and foreigners' consumption declined. The net result of all these elements was a sizable deficit in 1Q,S, hut e Monrnrrn at thnt time was a memmber nf the rrenrh franr 7one, settlement of the deficit did not depend on the availability of ann snecrifrnill MonrArrn fnreon evrhnncre recnuirrec The transfer of political power to the Moroccans in 1956 did not entail anu major change in economic nolicy. The new i-rulers tried to avoid actions which could add to the adverse economic repercussions normally fllonwing any, imrportant political change. Internally, this meant reassuring the foreign farmers and businessmen that the Gov- ernment appreciated their impnrtnnt role in the economy nnd relied on their continued cooperation in the interest of economic develop- ment ;Fvternnlly it mneut rPtfninna MnrnrrncQ mPm rchArn in thP French franc area and refraining from imposing restrictions on trade and evrhanges with any forigpin rniintry. F;th in Mnrocco's economic future was based on its physical resources, its proximity to Europe and yet much lnwpr wagesc and nn the rnnidrl PvnsioQAn nf tlip yenrs imn- mediately preceding independence. The new Government sought to tinlmin tp nriuntp iinvPctmPnt hlv rninntfninon o-Pnernl mnnrern tinn in .1 - - -) ............... - __ .... taxation and by introducing (in 1958) a scheme of fiscal encourage- ments; snerinl rcnrcessionc were nffered rno forigp-n venture prnitatl in 1961, including guaranteed repatriation of invested capital. There was no tallr of nationalization,na in many other newly independent countries, neither of land nor of enterprises. The half-million foreign- ers who played such an important ro-1e in the economy therefnre re- mained in the country and resumed, after some hesitation, building up thei- undertakinns. For two or three years, then, little attention was paid to the changing ecnnnoicr nrnhlemnc nricinc Ait nf the rhnngrerl nnlitirnal sitlitinn Many of the economic policies at this time also> showed no significant han-ges. The ndminnictr2tinn nf the ecrnnnmv wna rnrried ulonno by thie momentum of the methods of organization established in the early 1950s. Once the momientunm. dciinntpa -l the fnveirnrnent and peonnle finally came to face up to their economic problems as was demon- strated in their adoption of the Fiveu-ear Plan fAr Q160-64. In any event, the Plan proved to be too ambitious and many of its objectives were not nttained. Thus, in the mnid-19sQR MArorcn wasQ nre falnfn looking for new directions and one manifestation of this search was the Three-Year Plan fnr 1Q6-67 which we have Arraca;n to dicuriiq throughout this report.  THE REPORT 16 Income Level and Over-all Economic Growth According to official data, Gross National Product per head in 1964 amounted to DH 950 which on the basis of the current official ex- change rate corresponds to US$J 188. 1AAtlethods of national accountinfg vary widely from one country to another and international compari- sons are therefore very hazardous. However, it would appear that, average income in Morocco is roughly on the same level as in nearby Tunisia. The average conceals, of course, very substantial differences between the various groups of the population, between the traditional economy and the ,,.odern econort.y and between urban and rural areas. According to an official statistical investigation1 of consumption in 1959/60, average expenditure of MIoroccan Moste.ms was only one- tenth of the corresponding average for foreigners in Morocco. More important than the income level itself, however, is the growth in income which depends on the relationship between increase in pro- duction and population. Production in Morocco has risen more slowly than population in recent years and average income per head has thus gone down. Expansion of over=all production in real terms may have matched the increase in population since independence, but only be- cause the level oaf production at the ti,.e of independence was excep= tionally low. A more significant expression for long-term growth is obtained by co.,.puting the increase3 between thL, annual averag8e for 1951-55 and the annual average for 1960-64, which gives an annual growthL rate of 1.9 percen.it. 0f the L.iajor sectors OL production, only mining and industry grew faster than the total, by 4.2 percent and A A percent a year, respectively. Agu-.1ltural production rose by less than I percent over thiis period and so did the activity in the various -ervice sectors, whikl conseurution -a public works showed a decline of about 3 percent a year. The Present Pattern of Output Agriculture is the predominant sector in the Moroccan economy although its contribution has been declining. Together with forestry and fishing which are of much smaller importance, agriculture con- tributed very close to one-third of total Gross Domestic Product at the beginning of the 1950s, and only 28 percent in 1964 (see Table 1). Changing climatic conditions cause substantial year-to-year variation in agricultural output. In years with bumper harvests, such as 1958, the contribution of agriculture, forestry and fishing went up to 32 per- 1 Consommation et Ddpenses des Mdnages Marocains 1959-60, Service Central des Statistiques, Rabat.  cent of Glross Dornestic Product, whereas in years with particularly poor crops, such as 1961, the corresponding contributioni was no more than 26 percernLt. Since this sector provides one=thlrd of tota! employ- ment, average income in it is particularly low. Nevertheless, they suppl y ab-out Ull percent ofl te country's total m.erchandise exports and perhaps 90 percent of the country's domestic food requirements. TABLE 1: Gross Domestic Product by Sector (percentage contributions at 1960 market prices) 1951 1956 1964 Agriculture, forestry, fishing 32 31 28 Mini-n and qua,ying 5 5 6 Industry and handicrafts 10 11 13 Construction and public works 7 5 4 Energy 2 2 2 Commerce and services, private sector 38 37 36 Government administration 6 9 11 Total 100 100 100 Gross Domestic Product (DH billions) 7.40 8.61 10.48 Cereals are grown on more than 80 percent of the cultivated land. Traditionially, barley is the predominant crop but. wheat production is rapidly catcling up. In recent years, Morocco, has normally had a surplus for exports of barley, hard wheat and also of maize, whereas soft wheat has been imported to supplement domestic supplies. In years of poor crops, cereal imports may assume considerable propor- tions. Thus, all cereal imports, both in 1961 and 1962, following the Door harvest in 1961, amounted to roughly 375,000 tons, the value of which represented some 7 percent of the total merchandise imports in each year; whereas only about 20,000 tons was imported in 1958 and 1959 after the bumper crop in the former year. Together with a great variety of Dulses of much lesser importance in the over-all production, cereals provide the staple food for the maiority of Moroccans. It has been estimated that these croDs tozether comprise 60 percent of total production in the traditional agricul- tulre; and animal products the remaining 40 percent. Sheep and goats are raisecl in most parts of the country, and there are also a smaller nurmber of cattle, camels and mules; poultry is also important in the traditional agricultural household. In periods of protracted dry weather, herds are decimated as storag-e of feeding stuff is uncommon. Little is known about the volume of animal husbandry production.  18 THE REPORT Obviously most milk and meat produced is consumed on the farms; import statistics reveal a deficit of both products on a national basis. The output of wool and hides is absorbed by local handicraft and industry; only minor quantities are exported. Modern agriculture is devoted to crop production to a much greater extent than is the case in the traditional sector; less than 10 percent of output in the modern sector is of animal origin. C(itrus fruits and wine are the most important products, and there is also a substantial production of vegetables and soft wlheat. Except for a small proportion, the entire production in this sector is marketed against payment in cash; the bulk of the output, apart from soft wheat, is for export. Exports of citrus fruits have grown rapidly over the past decade and constitute currently over 11 percent of the total value of merchandise exports, second only to phosphates. Wine production rose very rapidly until 1959 but has since leveled off due to difficult marketing problems and uncertainties as to the future of foreign-held land. As the Koran forbids its followers to consume alcohol, wine has been produced pri- marily for export and-to a much lesser extent-consumption by foreign residents in Morocco. Exports of tomatoes and potatoes have risen substantially during the past ten years; for these and other vegetables, farmers in Morocco are advantageously placed to meet the rising early season demand in European countries. Although people in certain areas depend highly on forestry and fishing, these sectors do not constitute an important part in the over- all economy. Domestic production of timber meets only a minor por- tion of the country's requirements; cork and vegetable fibers (crin vegetal) are important export commodities. Recently, the vast areas of esparto grass have been brought into economic use by the establish- ment of a pulp industry based on this grass and on the eucalyptus tree. The small forestry administration is efficiently conducting a reforesta- tion program which, in addition to conserving the resources for timber, plays an important role in the campaign against erosion. Despite Morocco's long coastline, with waters abounding in fish, fishing has not been a major economic activity. On the Atlantic side the sea is rough with dangerous undercurrents, and, with the general lack of natural ports, people's interests have not been directed toward the sea. Fish stands are normally found in market places of the towns along the coast but fish is not a major element in the local diet. By far the greater portion of the catch consists of sardines and tuna fish which are canned in local factories and shipped abroad. Moroccan sardines have been known for many years on the world market and are reputed for their good taste and high quality.  THE ECONOMIC SETrING 19 Mining and quarrying contribute currently 6 percent to the Gross Domestic Product. In 1960, 44,000 people were employed in this sector, or 1.5 percent of the total employment in that vear. This indicates that output per man is appreciably higher in these activities than for the economv as a whole. Almost the entire production is exDorted in crude form, but some processing industries have emerged lately. Ex- ports of mining and quarrying products average close to 40 percent of Morocco's total merchandise exports, but the proportion varies con- siderably due in the main to fluctuations in world market prices of these products. Phosphate is by far the most important mineral. From 5.3 million tons in 1955, production rose to 8.5 million tons in 1963 and further to 10 million tons in 1964, practically all of it for export. This Dlaces Morocco as the second largest producer in the world after the United States, and as the largest single exporter. Exploitation of DhosDhates is entrusted to a government monopoly, the Office Ch6rifien des Phosphates (OCP). which was established in 1920. The OCP is, withotit comparison, the most important enterprise in the country. Due to the high degree of modernization which is necessarv to maintain its com- petitivc position, the OCP employs no more than 13,500 persons, but it also provides employment indirectly by way of its considerable purchascs of supplies, energy and transport services. Morocco is also endowed with a number of other mineral resources. Most deposits are small and the ores of marginal quality. Among the more important metallic minerals are iron, manganese and lead. There is also an important deposit of coal in the north; the extraction is clifficult and costly and the operation is not remunerative. Geological conditions are considered promising for discovering oil, but intensive exploration has so far yielded very modest results. Manufacturing and handicrafts account for 13 percent of the Gross Domestic Product. In terms of added value, handicrafts represent probably no more than one-fifth of industry but, in terms of employ- ment, handicrafts may still be much more important to the economv. Moroccani handmade articles are well known in many countries, par- ticularly leather-work and carpets, but the predominant portion of handicraft production is for domestic consumption. Handicrafts have a very long tradition in Morocco but are now feeling more and more competition from industry. Tourism is providing new outlets for handicraft products but hardly compensates for the decline in local demand. The growth of manufacturing in Morocco has been directed largelv toward light industries. Although the majority of the population has  20 THE REPORT very little purchasing power, two to three million neonle in the modern economy provide a sufficient market for many consumers' articles. Encouraged by government nromotion, many new enternrises have been established to produce goods that formerly had to be im- ported. In the last few years, an export-oriented industry has also emerged, particularly in food processing. Output in the foocl-processing industries, including canning. renresents almost half of the added value in all manufacturing. The most important sub-sector is flour- milling, not surprisingly in view of the imnortant cereal nroduction in Morocco. Sugar-refining, based on imported raw sugar, is also of ptrimary importance; Moroccans favor an unusually highlv refined quality of sugar, and use it liberally in their mint tea which is the national drink. Tobacco processing is also a maior industrial activity producing for domestic consumption. The export-oriented food in- dustrv is much smaller in scope. consisting mainlv of fruit-iiuice nlants antd canneries (fish and vegetables) as well as part of the edible oil industry. Next to the food industries in importance are the textile and leather industries. The textile industry is not limited to nrocessing domestic wool; there is also an important production of cotton ancl synthetic fibers. The leather industrv is largelv confined to tanninp, hut manufac- ture of shoes and other leather articles is increasing. A metal products industry is well established: renair work constitutes an imnortant part of its production, but there are also assembly plants for new cars and certain types of machinery. A wood-processing industry is emerging; but most timber is being used for construction or as raw material for handicrafts. A significant cement industry grew up during- the early postwar boom in construction. In the chemical sector, the most sig- nificant single plant is a crude oil refinery which started nroduction in 1962, but there are also a number of other plants producing soap and other toilet and household articles for the domestic market. A sizable addition to the chemical industry is now under construction at Safi on the Atlantic coast, which will take up processing of Morocco's most important mineral, phosphate. There is some prodtiction of lead but no other metals. Morocco has a well-developed construction industry, in which per- haps foreigners participate to a lesser degree than in most other indus- tries. Activity in this sector declined sharply after Independence; its contribution in the last few years has been 4 percent of Gross Domestic Product as against 7 percent in the early 1950s. The decline was en- tirely due to building which, according to statistics of building nermits in the major municipalities, fell from 2.2 million square meters in  THE ECONOMIC SETTING 21 1950 to a. low. of 1.0 rr.i!ion in 1957 and rose gracdulally tn nnlyv 1= million square meters in 1963. Part of the decline in building con- struct-on has been compensated by an exansion in nublic works= Government expenditure on construction and building doubled be- tween 1959 and 1963, and by far the larger part of the inrrPeae ran he assumed to have been on works other than buildings. Jlec'.ir p has so far been no b-ttleneck to economic elpvplnn- ment. Generation capacity was probably somewhat in excess of require- .ents until. the early 19,160s. However --n-um.t,-n is nur cratrhino un and a shortage is foreseeable in the near future. The bulk of the present gneration is based on the country's hydro sources; there is a-n extensive grid in the former French zone, not yet linked up to the somewhat smnaller grid in the northern zone. Commerce, transportation and other services contribute about one- tLIIrU - or thel Gross DoLJ. A-itfPodut on a fator., tost basi.To this m.. be added another 10 percent representing the value of civil services, so that tie valutie ofL allI sevic col.eto A5 percntt of toapdcn Precise statistics are missing but it seems a fair assumption that the _majo a-tivity in t1his categoy is tadig. T tveler -i AS c is1 indeed irrpressed by the large crowds buying and selling goods in the local tnldarklet, souk, in 'large and s.1all towns . An;ber of the sates- men are also craftsmen, selling goods they produce themselves. They earn a very llodUest living and1 -a-e- wi;hL increasing cpeio as more nmodern distribution metliods gain favor. Average incomes are m1ost liKe]y sbULUtL1,tl11y higher arl..ong LI;hsae en1-6g1 iL ... . such as transportation, tourism and the civil service. -ouris7n 1d-s spa I'7A AOA foreign tourists arrived in Morocco and spent an estimated amount of DH 310 million. The_ inceas ove the: morsodn sirate f- oro !95 nu DH22 I lit IIILlEdSE UVEL LIlI L1tC JA1tl1 k;;L. 114t SA l...21 0 - - million which suggests the rapid growth in this trade. With its great niatural beauty var yilng, 1ro11 IVIediterranean beaches to r.ountain centers and sub-Saharan oasis resorts, Morocco certainly offers great scope for tex-panDsion of - torsn. Moroc is no loge -considered- f.:r SCOpC 1.01CX1fhllS UL41 LOULIMLII. IVI1 JLVLfLJ l~ Ia Sltf from Europe, and can easily be reached by air, boat and even by car, via ferryl30tt acrUoss Lthl --a----w channel s t o frorr. Spain. The Government is aware of these possibilities and has adopted an active policy to expand tourism,. Money T egal tender in Morcc i t1i dirham whirh waq introfduced in October 1959 and given a par value of US$0.1976 (DH 5.06  22 THE KEPORKT equals Ua J I.0U). The es1 a hlisfment of the dirham as a monetary unit was only a part of a wider monetary reform which also included a devaluation of 20.5 percent in tne former unit, the Moroccan franc. The dirham is equal to 100 old francs. ti tle timIle of independence, Morocco was a full-nedged member of the French franc area. The Moroccan franc was closely connected witlh the French franc and its international value consequently was determined by economic developments in France. The Moroccan franc was freely convertible with the French franc and the parity was secured by way of a system of mutual overdraft facilities (Compte d'Operationi) between the French Treasury and the Banque d'etat du Maroc, which served as an agent for the Moroccan Government. The first step away from this close monetary relationship with France came in December 1958, when Morocco refused to follow the 17.5 percent devaluation of the French franc. To reduce the incentive for transferring capital to France which the new situation offered, the Government imposed a 10 percent tax on all the capital transfers to other parts of the French franc area, a tax which was maintained until October 1959. A second step toward monetary autonomy came in July 1959, when a Central Bank was established and controls were introduced on transfers with other countries in the French franc area. The new Central Bank, the Banque du Maroc, is owned by the Gov- ernment; it incorporates the former Banque d'etat du Maroc, pre- viously responsible for the issue of money. After the devaluation in connection with the establishment of the dirham, the Moroccan and French currencies are approximately on a par (i,000 French francs equals 1,025 dirhams). The particularly close ties with France in the field of trade and aid have remained, but the former full convertibility between the two currencies has been dis- continued. A series of restrictions on transfers and trade, whiclh were introduced in 1964 to counteract adverse development in the balance of payments, demonstrate the independence which Morocco has achieved in monetary matters. Banking and Credit Morocco has an extensive and diversified system of banks and other credit institutions. Besides the Central Bank, there were, at the be- ginning of 1964, 22 commercial banks with 164 permanent offices and 13 seasonal offices. In addition, there were a number of credit institu- tions established to provide credit for special purposes, as well as a savings bank operated by the Post Office. A feature common to the  THE ECONOMIC SETTING 23 various snerial rredit institutions is the large measure of government control; many of them are in fact government-owned. Mlost of them are authori7ed to discount medium-term credits with the Central Bank, or rediscount loans made by commercial banks. Most commerrial banks were originally branches of foreign banks. In line with the expressed policy of the Government, Moroccan capital now participates in them and they have reconstituted themselves under Moroccan law. As a result over half of the banks are now incorporated n Moroc-co In terms of volume of business, the commercial banks constitute by far the most important part of the banking system: their deposits pnrobhahlv arcount for close to 90 nercent of the total deposits, their share of credit being probably somewhat lower as it is the very fuinction of ti-he secial credit institutions to secure financing for pre- ferred activities. The flinctionq of the Rancnue dii Maroc are similar to most other central banks, that is, to issue money, maintain its value and to serve as the (overnrnent's finanrial agent in domestic and external matters. On the external side, under present regulations the Banque du Maroc exercises full control of all payments in foreign exchange and is the only institution authorized to hold reserves of gold and foreign cur- rencesC On the domestic side, the finctions as an agent for the Gov- ernment involve placing short-term Treasury loans and providing overdraft fanrilties. Under its statutes the Bannue is allowed to erant the Treasury advances up to a maximum of 10 percent of the budge- tary revenue for a maximum neriod of 240 days in any year. Over and above this limit, advances can only be given on the basis of a special conventon between the Government and the Banque. The statutes stipulate that the amount of notes in circulation shall not exceed nine times the holdings of gold and foreign exchange. The Central Bank has wide discretionary powers to control bank credits and the commercial banks realize that it is in their own interest to cooperate with the Central Bank. In practice it has therefore proved sufficient for,- the latter to exercise its controls by directives rather than by (lefinite rules and regulations. Since there is no scope for open m,ark-et oper-tions in Morocro, the main instrunent of monetary policy is in rediscounting. However, no use is made of the discount rate,vhich has bn kept constant at 3-1/ npercent since November 1961. Instead, a ceiling on the volume of rediscounting and a floor on liquidity in relation to denosits is imposed on each bank. The ceiling for rediscounting in the middle of 1964 averaged about 15 percent of a bank's deposits. The restriction on liquiditv is determined hy a "liquidity coefficient," defined as the ratio between the liquid reserves  OA THE REPORT of a bank plus its holdings ol papers w-hich can oe rediscounted at the Central Bank and, on the other hand, its deposits. RECENT TRENDS AND PROBLEMS FOR THE ECONOMY Investment Activity and Policy Some of the deep and abrupt drop in investment activity after In- dependence has su'sequently been regained. The share of GNP de- voted to investment is still no more than about 12 percent, which is well below the level in tile early 1950s (see Table 2), and low as com- pared with many other countries at a similar stage of economic develop,nent. The rec-overy of investment activity has been largely in the public sector, while private investment has risen much less, if at all. Because pubUic investm-iient nas an important infrastructural com- ponent which private investments usually do not have, the changed investment structure has had less imnpact on output growth than might otherwise have been expected. Moreover, the mission found that the fuill economic beneii of a numbner of public investment projects have not yet been obtained because they have long gestation periods and have not yet been brought to a fully productive stage. TIABLE 2: Gross investment in Percent of Gross National Product, J953-64 (based on data at current market prices) 1953 1956 1957 1960 1961 1962 1963 1964 Investment including changes in stocks 20.9 9.5 6.9 10.5 10.7 11.9 11.4 12.0 Investm.ent in fixed asets only 17.5 10.5 9.0 10.1 11.7 10.9 11.1 11.6 Between 1960 and 1964 total gross investment in fixed assets rose from DH 920 million to DH 1,420 million at current prices. Until 1963, public investment accounted for the larger part of the increase, not only relatively but in absolute terms. In fact, public investment rose by some 60 percent from 1960 to 1963, in real terms. In 1964, the trend was reversed as public investment declined somewhat while private investment rose very substantially. However, if investment in revenue-earning public enterprises (probably of approximately DH 300 million) is added to public investment, the amount of investment attributable to government initiative would total some DH 850 million or 60 percent of all investment in fixed assets, even in 1964.  THE ECONOMIC SETTING 25 Statistical uata uo not a dUep atnalysils Loif truends 111 private investment, but it is the impression of the mission that investment in existig1 en1terpriJstesb h1dst- remIaLiL ed IoW. III 19U6t andl 6 thlere was a resurgence in private investment for the establishment of new enter- prises. A number of large new fiactories have been installed, rangin from food processing and chemical industry to electronics, assembling of motoi- cars andu petro'leumu refininlg. 'It sh'ouldu be notedu th'at th'e due- cline in private investment compared with the early 1950s does not entirely fail on productive in1VCeStnierit as residentialLconstrucn cn- stituted an important element during that investment boom. Construc- tion oL lux-ury single-fanmily dwellings has con.inueu in Ircent years, but this activity may not play a significant part in total private invest- menct. The pattern of central government investment reveals a striking in- cICase In eiiipihasis u1i IIIUUStry wIIicIh, froIII ani inisigullllCalln prp'oiLIUII in 1959, absorbed almost 18 percent of total budget expenditure in 196,4 (see Table 3). This expenditure was distributed between a great variety of industrial activities, although the construction of the large cnemliicai plant at San was of particular imlpOrtalnCe in 1 . vern- ment investment in agriculture had accounted for the largest share of government investment, aDout 30 prCcent of thle Ltoal inI pleVIoUs years, but was reduced appreciably in 1964. On the whole, the em- phasis of central government investment policy appears to have moved somewhat toward productive investment. In industry, most investment can probably be classifned as productive, but in agriculture an impor- tant portion consists of major works for irrigation which are more infrastructural in nature. The amounits spent on tourisli auid charged directly to the budget are very small, but it is known that the Office National Marocain de Tourisme (ONMT) nas spenit considerable amounts for investment, financed at least in part by Treasury advances. The External Economy Even with the relatively low investment activity, shortage of foreign exchange became a major probiem in the middie of i964. Tnere nad been a heavy outflow of private capital in the first few years after Independence, but it was at that time iargely compensated Dy revenues from France and the United States on account of their military bases in Morocco and foreign aid; simultaneously the trade balance im- proved due to a rapid expansion in exports. Any outflow over and above the increase in revenues was easily settied within the system of mutual overdraft facilities which existed between France and Morocco  TABLE 3: Direction of Central G overnment InvesiLment, 1959-64 (DH millions) =___________________________________________________________________ _ .--0 1959 1960 1961 1962 1963 1964 - Expenditure on Amount 17o Amount % Amount % Amount % Arnount % Amount % Agriculture 102.6 31.6 109.5 31.2 109.7 26.1 146.3 28.2 202.2 30.2 141.9 23.2 Industry, mining, hiandi- crafts and fishing 9.0 2.8 33.8 9.6 57.6 13.7 64.5 12.4 103.9 15.5a 107.8 17.7a Electricity 8.8 2.7 8.9 2.5 6.5 1.6 10.1 2.0 9.8 1.5 19.4 3.2 Transportationr 59.8 18.4 58.5 16.7 74.7 17.8 100.4 19.4 135.1 20.2 102.4 16.8 Telecommunications 11.1 3.4 12.9 3.7 13.9 3.3 11.5 2.2 23.7 3.5 21.9 3.6 Community developrnent 69.4 21.4 75.3 21.5 68.2 16.3 75.4 14.5 '70.3 10.5 64.0 10.5 H'ealth and education 38.5 11.8 31.9 9.1 35.3 8.4 66.1 12.7 59.3 8.9 63.8 10.5 Central administration 10.4 3.2 8.9 2'.5 8.9 2.1 11.3 2.2 27.9 4.2 31.8 5.2 Miscellaneousb 15.3 4.7 11.1 3.2 45.0 10.7 33.4 6. 4 36.9 5.5 56.6 9.3 Totalc 324.9 100.0 350.B 100.0 419.8 100.0 519.0 100.0 6159.1 100.0 609.6 100.0 Including infrastructure at Safi representing DH 12.2 rrmillion of total b Fromn 1961 largely reconstr-uction of Agaclir. investment in 1963 and DH 1.2 millioni in 1964. ' Excluding amortization of public debt.  THE ECONOMIC SET riNG 27 as mineinbers of ih Ie FIench fraric area. WVYIenI these over-af; la-cilitiCos were discontinued in mid-1959, following the establishment of the Banque du Maroc, Morocco's holdings of gold and foreign excha.ge were not adequate, but the favorable development in trade and the inoflw of OUfiliaCl capitaUILal cLntinUe. IThus, [UIcigiI exchange reveI increased rapidly and in the latter half of 1960 reached a level cor- responding to half a year's imports of goods and services. For Morocco, where foreign trade is so important in the economy-exports and imports of goods and services together correspondu to all of the Gross Domestic Product-this may be considered a comfortable though not excessive reserve. Between 1960 and 1964, however, Morocco's reserves of gold and foreign exchange declined persistently and at an increasing rate (see Table 4). Out of the banking systems' net foreign assets of US$ 260 million toward the end of i960, only US$ 75 million was left at the end of 1964. The latter figure, which corresponds to no more than seven weeks of imported goods and services at tne i964 rate, inciudes the legal gold coverage for bank notes in circulation and cumulative surpluses on bilateral payments agreements (whicn are not freely avail- able). Furthermore, Morocco's first (gold) tranclie of the quota in the International Monetary Fund (IMF) had already been withdrawn in June 1964. The continued decline in reserves seems to have resulted primarily from a continued sizable outnow of private capital anu aiso a marked slowdown in the growth of exports through 1963. Moreover, the very rapid increase in government expenaldure, asscusseu ucow, certainly had an impact on the balance of payments through its stimulating effect on import demand. TABLE 4: Foreign Exchange Reserves, 1959-64 (millions US $ at end of year) 1959 1960 1961 1962 1963 1964 Bank of Morocco: Gold 23 29 29 29 29 34 IMF gold tranche position 6 6 13 13 13 - Foreign exchange 114 171 143 132 68 19 Payments agreements 3 5 11 9 18 16 Deposit money banks 43 59 37 49 50 35 Total (gross) 189 270 233 232 178 104 Foreign liabilities 14 13 21 52 41 28 Total (net) 175 257 212 180 137 76  28 THE REPORT Foreign exchange receipts from the French and United States mili- tary installations in Morocco dropped substantially in 1960 after the conclusion of agreements calling for gradual elimination of the in- stallations by the end of 1963. The amount of these military revenues is not available, but balance of payments statistics indicate a decline on this account of the order of DH 150 million in 1960 alone, followed by a further drop in excess of DH 100 million in 1961. By contrast, revenues from foreign aid have fluctuated around a level of DH 300 million a year, rising suddenly to DH 440 million in 1964 (see Table 5). TABLE 5: Known Noncurrent Items in Balanice of Payments, 1960-64 (DH millions) 1960 1961 1962 1963 1964 Foreign aid Long-term loans 216 209 190 198 380 Grants (in :86 69o 62 71 6A Deposits of aid nature - - 82 17 - Total aid, 302 278 334 286 440 Military hensions 150 150 140 157 141 Transfersfrom Moroccan workers abroad 60 62 82 85 93 Expatriates' remittances 140 179 170 207 241 Other known noncurrent items (net) 30 27 22 8 156 Total known transfers and capital transactions 342 284 364 329 277 . Excluding contributions under the French program of extended technical assistance. Apart from profits on foreign investment, the main private transfers peritUted regularly are ihose made by foreign technical assistants.2 Foreign residents who leave permanently may be authorized to take imiitLed' amounis of cash witii Bh1C5. Between 1960 anu 1964o, these legal transfers rose from under DH 300 million to well above DH 400 mil- 'ion a year. There is, nowever, no doubt that additional transfers are made which circumvent the intent of the law, most probably by the manipulation of export and import prices and througn private clearing with foreign tourists. It is very difficult for the Government to ensure that the prices declared 'by tne traders are tne actual ones, as most of the export and import trade is in the hands of those who have well- 2 The maximum amount transferable is 30 percent of the salaries for married persons and 50 pcrcent for single persons.  THE ECONOMIC SETT!NG 29 DlbfTlEl;cacn tortRQrAer ni-nnoA. ;A20 cnrnc'-hc f-e frrznAn agency in Mlorocco is a branch office of a foreign firm. This is particu- larly true in the case of exports of perishable goods. Undervaluation difficult to control since prices actually obtained in the foreign market may vary substantially from day to day, and spoilage losses can be easily exaggerated. Exports of perishable goods are reported at some DH 600 millorn (UTC l;V20 mIion) a yea, but, it is difficult toes what the capital flight from this trade would amount to. The Govern- n-land- is a.vare of the-~ loss ot for-e.ig,,ns,exchange JXr,e,- ,nn,,a,iplo-inn nr 1111IIL 13 tyv Lt. L.I.,1J3 i t-a J1- -.15 tA IaI5. 1,1I ia -I-I a J1f n ofL export and import prices and in July 1965 nationalized the export trade in a numL.ber of agrIcultural and processed products, partly in an effort to establish some control over these tendencies. u n.nde,1rying --nd in m.erchandise exports is not easiryodetectable -IL LIIIL 7116 LI 1.S. II uL i1ltL3 fI 'iI ... .13 -itt aOl from the value statistics expressed in dirhams, as they are influenced by price IIuctuaLioJJ3 good anl bad Lrop years, the devaluation in 1959 and underinvoicing. Table 6 shows that the value of exports in 1963, whi-ch can be considered as a no-.,al ernor..ic y a ol matched 1960 which also was a fairly normal year. In 1961 and 1962, exporlts were affCcted by Lhe parLticlarly bad lI-- 1961. As price between 1960 and 1963 rose by some 9 percent, the volume of exports 11 taLtfllov t hiis-I period. n1 196A', 'bLth as a result of a rr.arket increase in the volume of phosplhate exports and as a result of coII- tinued rising pri3L, Lhere vwa a fairly sub1st1ntial i7nc: eae in totai value of exports. TABLE 6: Mercliandise Exports, 1958-64 1958 1959 1960 1961 1962 1963 1964 Value (DH millions) 1,466 1,462 1,934 1,836 1,788 1,935 2,194 Price index' 100 90 90 95 90 98 102 Volume index 100 106 112 102 109 111 105 B Based on prices expressed in USS. Morocco's exports are heavily concentrated on, minerals and a few food products. Phosphates alone accounted for 294 percent sf the tot!l in 1963, citrus fruits for another 13 percent and tomatoes, cereals, wine and canned fish 4-6 percent each. France. is by far the major export market and Moroccan exporters continue to enjoy preferences es-tabished there during -he Pr-tectorater Genpra1 uonrocc-n Pvnnrts are exempt from French customs duties and quantitative restrictions; for sorn.e commodities, such as wine and sardines Iand cereals unti! 1962), the Moroccan exporters even benefit from the artificially high  30 THE REPORT prices on the shielded French market within quotas fixed on an annual basis. Nevertheless, exports to France did not increase during the early 1960s and their share in total Moroccan exports declined from 50 per- cent in 1958 to 41 percent in 1963. Exports to the remaining part of the French franc area have also declined in relation to total exports. The corresponding relative increase is spread over a number of coun- tries outside the French franc area, provides a highly desirable market diversification and indicates that certain Moroccan goods are com- petitive on world markets. Morocco has entered into negotiations with the European Economic Community (EEC) in order to obtain an agreement securing preferred access to this large market for its exports. Because of EEC's own in- ternal problems, particularly with respect to agricultural policy, it was not certain in late 1965 when such negotiations were likely to be com- pleted. If an agreement is reached, it may be expected that Morocco will obtain certain concessions which, however, will be partly offset by lost preferences in the French market. EEC has received similar requests from Tunisia and Algeria, and is endeavoring to work out an arrangement under which a coordinated economic development policy between these three Maghreb countries will be stimulated. Traditionally, there has been very little economic contact between the three countries. But recognition of the benefits, which all of them could obtain from closer cooperation, is emerging, and a series of con- ferences has been held to define scope and methods. Like exports, merchandise imports show an erratic trend in recent years. If, however, allowance is made for the effects of the devaluation of the French franc in 1958, which resulted in a substantial price de- cline on imports from France until the dirham was devaluated ten months thereafter, and also for the extraordinary import needs arising from the poor crop in 1961, a clear upward trend emerges until 1964. Volume declined in 1964 but, because of higher prices, value remained at roughly the previous year's level (see Table 7). While the import volume fell in 1964 as a result of the new restrictive policies, the gen- eral tendency had been an increase of a little over 2 percent a year on TABLE 7: Merclandise Imports, 1958-64 1958 1959 1960 1961 1962 1963 1964 Value, c.i.f. (DH millions) 1,804 1,565 2,049 2,259 2,188 2,284 2,300 Price indexa 100 98 95 99 97 98 110 Volume index iOO 85 i0i 108 105 108 99 Based on prices expressed in US$.  THE E(CONOMIC SETTING 31 the qveragpe a rate which rcrreoqnnnd rnouhlv to the exnansion in Gross Domestic Product in the post-Independence period. Like exports, imports are also heavily oriented toward France whirh in 1963 siun- plied 42 percent of Morocco's total merchandise imports. The per- rentage has declined, not least as a result of inrreasing imnports from the United States, financed by United States foreign aid. The com- moditv rromnoqition of imnnrtc hnc hnrfdlv rhnn'ed qinr,- 1rl;R- ahoilt half consists of consumer goods; 35 percent of fuel and raw materials, including qemi-finiqhed mannfacrtires, and only 15 percent of equip- ment for agriculture and industry. Within the group of consumer o-oodq one-half repnreentq food, heveraoes and tohac-co Sngar is the largest single item in the import bill, normally accounting for 8-9 per- cent of the total; qigar imnports exceeded imports of cereals by value even in 1961 when substantial imports had to be made to supplement the noor cronn in that year In lQ6,4 sugar importq roqe to 14 nerrent of the total import value due to exceptionally high prices. With a deficit on merchandise trade, a derline in revenues from the foreign military bases, and an increasing tendency to repatriate income on foreign investment heavy deficits were incurred on the halanne of trade and the balance of services in the years 1961, 1962 and 1963. In 1964, the trade deficit was eliminated hut the deficit on qprvirpq remained considerable (see Table 8). There was some evidence that the halanne of trade and services qhowed a further marked imnrove- ment in 1965. TABLE 8: Balance of Trade and Services, 1959-64 (DHi millions) 1959 1960 1961 1962 1963 1964 Trade balance 140 -18 -289 -298 -240 29 Net services 251 58 -159 -201 -238 -156 Net goods and services 391 40 -448 -499 -478 -127 Alarmed by the rapid exhaustion of foreign exchange reserves in l964, the Government took a serieq of meaquireq designed to CrU!b imports and restrict the unofficial trade in dirham notes. A first set of measures was taken in February of that vear Touiriqt al!owances in foreign exchange for Moroccans going abroad were cut from DH 500 to THT 9200 ner adult ner trin and the amount they were allowed to _ ___ r - - r~~~~~~~~~~~~~~~