Morocco - Current economic position and prospects

FILE COPY C O N F I D E N T I A L Report No. AF-2b Copy No. This report is available only to those members of the staff to whose work it relates. Any further release must be authorized by the department head concerned. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF MOROCCO December 10, 1962 Department of Operations Africa  EQUIVALENTS Currency Unit - dirham (DH) DH 1 = U.S. $0.1974 DH 5.06 = U.S. $1.00 DH 1 million = U.S. $197,400 DH 100 million = U. S. $19, 740, 000 Weights All weights are expressed in metric tons unless otherwise stated. Area 1 hectare = 2.471 acres 100, 000 hectares = 247, 100 acres  NOTE While this report has been prepared on the basis of information available in Washington, the main con- clusions concerning Morocco's economy set out in the Simmary and Conclusions at the ou-tset of the report have been confirmed by an economic mission recently returned from Morocco,  CURRENT ECONOMIC POSITION AND PROSPECTS OF MOROCCO Table of Contents Page BASIC DATA MAP OF MOROCCO SUMMARY AND CONCLUSIONS . .. .. .. . ......... i I. BACKGROUND. .. ............................ ... 1 II. RECENT ADlT PROSPECTIVE ECONOMIC DEVELOPMENT ...... 2 National Product and Living Standards. 2 Production and Employment . ..................... 3 Agriculture .......................... 3 Forestry . . ...... . , ........ *. 5 Fisheries . ......., 5 Mining ... 5 Manufacturing and Handicrafts . ........... 6 Building and Construction ................ 8 Electric Pcwer .................., 8 Transport .9.. . * . .... . * . 9 Unemployment Relief . .. Foreign Trade .. . . ...... . . . 9 Balance of Payments . . ........... 10 Prices and Wages * ............. . ......... . 12 Money, Credit and the Capital. Market . .13 Public Finances. . . 1 Development Planning . ................... 16 III. LONG-TERM PROSPECTS AMD CREDITWTORTHINESS . . 17 STATISTICAL APPENDIX  BASIC DATA Area: 172,000 square miles Population: (in thousands) 1960: Moroccans 11,230 Foreigners 396 Total: 11,626 Gross 1Je-tional Product 1J61 9.2 billion dirhamp Investment lc;1 of G.N.P. Gross iN,tjxTiA Product per capita: y;:156 equivalent Public Finance 1962 (millions of: dirhams) Ordinary Expenditures 1,823 Revenues 1,596 Capital Expenditures 505 Revenues 258 External Trade 1961 (millions of dollars) Imports (c.i.f.) 50 50% from France Exports (f.o.b.) 345 37,' to France Main Exports Phosphates 82 Manganese Ore 18 Lead Ore 9 Citrus 83 Tomatoes 15 Wine 11 Canned Fish 22 Foreign Exchange Reserves End of June 1962 - U.S. '190 million equivalent Estimated Public External Debt Outstanding December 31, 1961 - Estimated U.S. $35.6million equivalent.  | ~~~~~~~~~~~ ~ ~~~~~~~~~~~~~~~~~~~~TANGER EUTA M ED IrERR A EAN SEA MOROCCO TOUAN Selected main roads ichath_ti E 1- 4-t-..4-.4-4-r4- Railroads - Interational boundaries GHRB - @) Regional administrative center- _ RACE 0 50 '00 150 ZOOK.(o,Iysty)i I~~~~~~~~~~~~~~~ Fs ESSAOUIR A _ F RB m /\ (ZN/>Ld.ii , . . v ( * Thermal plants ts SidX ,/ (t lh t -- r ,> < <2 ~~~~~~~~~~~~~~~~~~~~~~~~~~Main tranbmission lines /\~~~ / < ~~~ ~~~ i.- ~TOPOGRAPHY > , t ,:=> s < ~~~~~~In meters -, Barrages < > > 1750 - 2~~ ~ ~ ~~~ ~ ~~~500 an oe \ Mai agricultural areas /V < / ;. - --- .g1000- 1750 CM f Irrigated j under 1000 \ 0 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Main mining areas OCTOBER 1962 IORD-8759  SUMMARY AMD CONCLUSIONS 1. Morocco is not a rich country yet has a number of natural resources and physical advantages which give strength and variety to the economy and provide some potential for development. IQ has com- mercial deposits of various minerals, notably of phosphate rock, of which Morocco is a leading producer. It has soil and water resources which constitute a large potential for modern, irrigated agriculture. Traditional agriculture, on which the majority of the population still is directly dependent, has, during the past twenty years, existed along- side a growing modern agricultural sector. Likewise old traditional handicrafts have persisted despite the growth of a few modern industriesf By independence the economy had already been equipped with modern transport, power and other basic facilities. 2. After the Second World War, Morocco enjoyed an unusual economic boom whose peak occurred about 1951, when foreign (especially French) private capital was attracted and there was an inflow of French and hmerican public capital to finance infrastructure and defense installations. However, before independence in 1956, the private capital inflow changed to a heavy outflow. French public financial aid was stopped in 1957 fol- lowing tension between Morocco and France but increased financial aid became available from the United States. The French influence in adminis- tration and business, although declining, is still of great importance. The departure of foreign entrepreneurs, personnel and capital goes a long way to explain the loss of momentum in the internal economy and the probable fall in per capita incomes. A number of poor harvests, the worst in 1961, contributed to Morocco's difficulties. 3. Morocco's development efforts are in principle coordinated within the framework of an elaborate five-year plan for the period 1960-64 but the practical results of this plannirng have not been fully up to the ambitions of the planners, and the 6.2% annual growth of national output envisaged in the plan cannot be fulfilled. Public investment has been growing since 1958, about 50% of it financed from abroad. However, public investment, measured in volume, is still below previous boom levels. WZith the resumption of French aid in 1962, after the improve- ment in Franco-Moroccan relations, and the expected continued flow of American aid (although probably in reduced amounts), most of the invest- ment needs of the public sector should find adequate finance in the nearest future. However, the lack< of administrative capacity is a major bottleneck, the shortage of intermediate technical personnel being parti- cularly serious. 4. Private investment fell sharply from 1953 to 1957, but has since recovered somewhat. However, the ratio of investment to GNP, which was above 20% in the early 1950's, was only 10% in the period 1959-61. A rise in private savings has been offset; by the private capital outflow. The Government is now well aware of the importance of recreating a favorable investment climate and is attempting to reverse the private  - ii - capital outflow and to stimulate private productive investment. Credit institutions and new administrative bodies to tackle agricultural de- velopment problems have been set up during the last three to four years. Encouragement of private investment has been provided for by tax in- centives, government subsidies and selective tariff protection for new industries. A large unemployment scheme, the National Prormotion Program, was started in 1961. 5. For the future, growth of agricultural production in the modern sector depends in the short and medium term, on the willingness of European farmers to remain in Morocco, and in the longer run on market- ing prospects. The preferential treatment given to Moroccan exports on the French market will in part be dependent on future relations between Morocco and the European Economic Community, now customer of 60% of Moroccan exports. Prospects for exports of minerals seem reasonably good for phosphate rock while other minerals exports are not likely to show any immediate improvement. However, prospecting for manganese and petroleum has given promise for the future. Growth of manufacturing will depend partly upon the country's ability to attract foreign in- vestors with the necessary know-how. 6. In sum, the Moroccan economy has promising economic potential, but whether this will be translated into a shift from the near stagnation of recent years into the more satisfactory growth which the Government would like to foster depends on many imponderables, not least of them the political climate and direction of future economic policy. However, even if the potential for growth is not fully exploited, there is basic strength and variety in the economy which should make Morocco acceptable as a borrower. In the six years since independence the financial authorities have been able--despite a very rapid increase in Government expenditures--to preserve a reasonable degree of financial and monetary stability. Foreign exchange holdings provide a comfortable reserve. All in all the country is in a position to weather fairly severe eco- nomic difficulties. External debt and debt service are not excessive, when compared to the size of the economy. In these circumstances Morocco should be able to service additional debt on conventional terms in the amount contemplated.  CURRENT ECONTOMIC POSITIOM AND PROSPECTS OF MOROCCO I. BACKGROUND 1. Physically and emotionally, the Kingdom of Morocco is part of North Africa, the Arab Maghreb, yet it is not in spirit a Mediterranean country, as Tunisia is and, to a lesser extent, Algeria, and, from the Arab conquests to the present day, its history has been often quite distinct from theirs. Islam is more profoundly rooted and political structures have evolved quite differently. Morocco itself is a country of contrasts, physical, cultural, social and economic. The landscape ranges from hioi mountain chains, Rif and Atlas, through fertile coastal plains, from river valleys to high plateaux and shades across indefinite borders into desert. Socially, there are marked divisions between town and country, mountain and plain. There are profound differences in attitudes between a modern minority and a majority wedded to tradition, between organized wage earners and an urban middle class on the one hand and the broad mass of subsistence farmers on the other. There are profound differences, too, between the elite of two cultural traditions, Western and Arabic. Some, but not all, of these social and cultural contrasts have led to, and stem from, very different rates of economic progress, summarized in the common observation that there is not one economy, but two. 2. Morocco has natural resources and physical advantages which give strength and variety to the economy now and could provide the basis for substantial development over the years. The climate is favorable to agriculture along the coast and for a considerable distance inland. it is true that rainfall is low, erratic and concentrated during the winter months, but there is ample water for irrigation. There are numerous mineral deposits, including rich phosphate rock in virtually inexhaustible amount. There is some promise, yet to be realized, cf oil and gas in quantity. The Protectorate, at least in the French zone, laid the basi^ foundation of a modern economy and there is still no need for further major investments in power, railways, roads and ports. 3. The population is about 12 million, in an area about the size of California. There is no general pressure on the land, but a population increase of about 2.5% a year is posing a serious problem of unemployment. It also brings heavy pressure on the social services, particularly edu- cation, since two-thirds of the Moslem population live outside the towns. The European population (mainly French and Spanish) which reached a peak of 550,000 in 1955 has since decreased to probably well below 300,CCO. There is a Moroccan Jewish community of about 160,000. 4. When Morocco regained its independence in 1956 after 44 years of protectorate status, Mohammed V, king, religious leader and focus of national sentiment, returned from exile with virtually iundisputed authority, widespread popularity and often devotion. Until his death in February 1961  - 2 - he ruled through ministers appointed and dismissed by him and latterly as his own prime minister, a position his son, Hassan II, continues to hold. The more radical elements in the independence party, the Istiqlal, from which the first ministers were drawn, split during the lifetime of Mohamrmed V to form the opposition Union N4ationale des Forces Populaires (UNFP), drawing its support from the Union Marocaine du Travail, as well as from small and medium businessmen and merchants, notably in Casablanca and Rabat. The Istiqlal continues as principal representative of the conservative, nationalist and traditionalist elements supporting the King. Two issues have divided Istiqlal and UTIFP: She social and economic orientation of the new state and, more fundamental, its political structure. Mohammed V promised to transform Morocco into a constitutional monarchy, a promise repeated by his son, and now about to be realized. The Government published the draft of a new Constitution in November 1962, and invited the electorate to approve it at a Referendum on LDecember 7. The draft constitution provides for an elected bicameral parliament and strong executive powers, similar to those of the French president, in the hands of the king. 5. The independence of Algeria may well have considerable repercus- sions on both political and economic developments in Morocco. Political relations with France have already improved considerably since the end of the Algerian war (which left largely unaffected personal and business relations wTith Frenchmen) and French financial aid, in suspense since 1957, has been resumed. The modern economy is still dependent upon French advice, initiative, finance and markets, although less so than before independence, and the administration and school system continue to be reinforced by many Frenchmen. If Franco-Algerian relations evolve satis- factorily, however, Algeria could be a potent competitor for French financial, commercial and technical hel). In short, any judgment about the prospects for Miiorocco rnust carry reservations arising not only out of the course of events within Morocco, but thuse within North Africa more generally. II. RECENT AND PROSPECTIVE ECONOMIC DEVELOPIMENT National Product and Living Standards 6. Morocco is a dual econcmy: a large subsistence farming sector exists alongside modern agriculture, mining and industry. The gross :Xtion-l product(,'l;p) is estimated to have been around DH 9.2 billion (Jl.t8billion) in 196a, that is about DH ThO or $)156 per capita. The average conceals wide variations in per capita output and income, per capita output in traditional agriculture probably being below DH 300 ($60).  7. The economy is still predominantly agricultural. About one- third of total output normally comes fromn agriculture, forestry and fisheries. ininTg produces aboult 8% of the national output; manu- facturing, including the processing of agricultural products, 13%; and construction, public works and electricity 13%. The rest is accounted for by ccrf-merce, transport and other services. 8. p,exports in 1961 amounted to DH 1,731 million ($345 million) Or -bout/ G'W. Half or more of exports are agricultural products, 30-35% are mineral products and the remainder various manufactures. 9. In real terms, output of the former French protectorate more than doubled between 1938 and 1952-54, owing to heavy public investment in basic services, to the post-war bocm in building, mining and industry financed in large part by a heavy inflow of private capital from France, and to the construction of French and U.S. military bases. Production in the non-agricultural sectors increased about three times, while agri- cultural production rose about 35%. Between 1954 and 1961, GNI'P in real terms has scarcely grown at all. There was a slump from 1955 to 1957 aS a result of repeated crop failures and a fall in investment associated with an outflow of capital about the time of independence. Since that time, the economy has regained nre-independence levels of activity, but there has been little tendency for farther expansion. Indeed in 1961, a poor harvest caused another slump. 10. In the 1952-54 boom, investmen-t amounted to over 20% of 63W, but thereafter declined rapidly and in 19159-61 wsas only 1C% of 0WP. In volume tenns investment in the past three years has been around one- third less than during the boom. The domestic savings rate remained remarkably stable during the whole period (13% of GNP), with, however, an increase in private relative to public savings. 11. Population is estimated to have increased by more than 1.5 million people or about 15% betwJeen 1954 and 1961; per capita incomes in fixed prices thus fell appreciably. In part, the fall in average per capita incormes can be attribu;ted to the emigration of 250,00C hi_gn incme foreigners over the same period. Production and Employment Agriculture 12. A little over 7 million hectares (out of a total area of 39 million hectares) is classified as culti4vated land. Of this, over one- third has to be fallowed each year. There are another 7.5 million hectares in natural pastures, 0.5 million in tree crops and 4 million in natural forests. Traditional agriculture, mainly cereals, is practised on about 90% of the acreage under cultivation and accounts for nearly 80% of the value of crop production in an average year. Modern agriculture, largely but by no means exclusively in the  - 4 - hands of French settlers (colons), on less than 10% of the total land under crops, has concentrated on citrus, olive oil, wine and vegetables for export and produces more than 20p of the gross value of total crops. 133 Traditional dry farming output has shoiwn no growth over the years, Since 1943, the annual cereal harvest has averaged about 2.4 million tons a year, with wide, and sometimes disastrous, variations from one year to another. In the last four years, for example, the harvest varied from 3.4 million tone to as little as 1.3 million tons, leading to widespread famine. By contrast, the production of citrus fruit grew by 20'; a year from 1955 to 1959 and from then to 1961 by 5% a year. New markets outside France have recently gained importance. Olive production varies widely; the average for the past three years was well above the average for 1955 to 1958 but 1962 will again be a poor year. viine production reached a hi