The Sixties and Seventies

The decade of the 1960s was marked by a moderate rate of growth and a modest rate of investment. This decade was specially distinguished by the stabilization plan of 1964, which produced a halt in growth and even led to a retreat in investment that extended throughout the next two years (Table 1). Inflation seemed to have been successfully brought under control.

Table 1.

Developments in Gross Domestic Product, Gross Domestic Investment, and Cost of Living, 1960–69

Source: World Bank, World Tables, 1976 (Baltimore: Johns Hopkins).

^aIn tens of millions of 1960 dirhams.

Table 1.

Developments in Gross Domestic Product, Gross Domestic Investment, and Cost of Living, 1960–69

	1960	1961	1962	1963	1964	1965	1966	1967	1968	1969
GDP (at 1960 prices)a	909	888	993	1,048	1,061	1,081	1,066	1,136	1,276	1,287
Gross domestic investment (at 1960 prices)a	96	85	114	131	118	122	116	158	218	163
Cost of living index in Casablanca (1963 = 100)	88	90	95	100	104	108	107	106	106	109

Source: World Bank, World Tables, 1976 (Baltimore: Johns Hopkins).

^aIn tens of millions of 1960 dirhams.

View Table

Table 1.

Developments in Gross Domestic Product, Gross Domestic Investment, and Cost of Living, 1960–69

	1960	1961	1962	1963	1964	1965	1966	1967	1968	1969
GDP (at 1960 prices)a	909	888	993	1,048	1,061	1,081	1,066	1,136	1,276	1,287
Gross domestic investment (at 1960 prices)a	96	85	114	131	118	122	116	158	218	163
Cost of living index in Casablanca (1963 = 100)	88	90	95	100	104	108	107	106	106	109

Source: World Bank, World Tables, 1976 (Baltimore: Johns Hopkins).

^aIn tens of millions of 1960 dirhams.

The sectors suffering most from the lack of capital accumulation included food crop production, industry, and social services (education, health, and housing). The distribution of gross fixed capital formation between the public and private sectors points to the predominance of the former, with 60–70 percent of the total (Table 2).

Table 2.

Distribution of Gross Fixed Capital Formation Between Public and Private Sectors, 1965–68

(In tens of millions of dirhams)

Source: World Bank mission report (August 1969), cited in A. Agourram and A. Belal, “Bilan de I’économie Marocaine depuis I’indépendance,” in Annuaire de I’Afrique du Nord, 1969 (reproduced in A. Belal, “Impératifs du développement national” (Rabat: BESM, 1984), p. 79.

^aPublic enterprises not included elsewhere.

Table 2.

Distribution of Gross Fixed Capital Formation Between Public and Private Sectors, 1965–68

(In tens of millions of dirhams)

		1965	1966	1967	1968
Public sector		—	92	115	140
	State	48	52	86	92
	Local communities	—	12	13	14
	Public enterprisesa	31	26	16	34
Private sector		—	61	74	57
Total		144	153	189	197

Source: World Bank mission report (August 1969), cited in A. Agourram and A. Belal, “Bilan de I’économie Marocaine depuis I’indépendance,” in Annuaire de I’Afrique du Nord, 1969 (reproduced in A. Belal, “Impératifs du développement national” (Rabat: BESM, 1984), p. 79.

^aPublic enterprises not included elsewhere.

View Table

Table 2.

Distribution of Gross Fixed Capital Formation Between Public and Private Sectors, 1965–68

(In tens of millions of dirhams)

		1965	1966	1967	1968
Public sector		—	92	115	140
	State	48	52	86	92
	Local communities	—	12	13	14
	Public enterprisesa	31	26	16	34
Private sector		—	61	74	57
Total		144	153	189	197

Source: World Bank mission report (August 1969), cited in A. Agourram and A. Belal, “Bilan de I’économie Marocaine depuis I’indépendance,” in Annuaire de I’Afrique du Nord, 1969 (reproduced in A. Belal, “Impératifs du développement national” (Rabat: BESM, 1984), p. 79.

^aPublic enterprises not included elsewhere.

The pace of growth and investment during the 1970s was higher than in the preceding decade. Moreover, the mid-1970s were not marked by stabilization but by a strategy of accelerated economic growth. Table 3 shows the evolution in growth rates of gross domestic product (GDP), gross fixed capital formation (GFCF), and the cost of living index during this period.

Table 3.

Evolution in Rates of Growth of Gross Domestic Product, Gross Fixed Capital Formation, and Cost of Living Index, 1970–78

(In percent)

Source: Secretary of State for Planning and Regional Development, reproduced in World Bank, Morocco: Economic and Social Development Report (Washington: World Bank, 1981).

Table 3.

Evolution in Rates of Growth of Gross Domestic Product, Gross Fixed Capital Formation, and Cost of Living Index, 1970–78

(In percent)

	1970	1971	1972	1973	1974	1975	1976	1977	1978
GDP(at 1969 prices)	5.0	5.8	2.1	3.8	5.8	9.3	11.8	6.0	3.1
GFCF (at 1969 prices)	12.9	0.1	-11.0	-0.9	34.3	68.7	24.0	21.8	—
Cost of living index (1972/73 = 100)	—	—	—	105.0	122.0	132.0	143.0	161.0	176.0

Source: Secretary of State for Planning and Regional Development, reproduced in World Bank, Morocco: Economic and Social Development Report (Washington: World Bank, 1981).

View Table

Table 3.

Evolution in Rates of Growth of Gross Domestic Product, Gross Fixed Capital Formation, and Cost of Living Index, 1970–78

(In percent)

	1970	1971	1972	1973	1974	1975	1976	1977	1978
GDP(at 1969 prices)	5.0	5.8	2.1	3.8	5.8	9.3	11.8	6.0	3.1
GFCF (at 1969 prices)	12.9	0.1	-11.0	-0.9	34.3	68.7	24.0	21.8	—
Cost of living index (1972/73 = 100)	—	—	—	105.0	122.0	132.0	143.0	161.0	176.0

Source: Secretary of State for Planning and Regional Development, reproduced in World Bank, Morocco: Economic and Social Development Report (Washington: World Bank, 1981).

The gross fixed capital formation growth rate was particularly high between 1974 and 1977 (34 percent in 1974 and 69 percent in 1975), raising the GFCF/GDP ratio from 13.9 percent in 1973 to 32.8 percent in 1977, with 6.4 percent and 19.6 percent, respectively, for the public sector alone.

Public investment became in effect the “engine of growth” during the period; its share in gross fixed capital formation was rising, particularly after 1973 (Table 4). Revision of the already ambitious objectives of the 1973–77 Plan as a result of the considerable increase in phosphate export receipts provided an opportunity for realizing finally the goal of rapid growth in which the state would assume a leadership role. Investments by the public sector and parastatal programs rose almost threefold, from DH 10.9 billion to DH 29.3 billion,⁶ involving in particular the social services and the capital-intensive branches of the industrial sector. This policy, which was maintained even after the means of realizing the goal were no longer available, had considerable implications for the economy and made it necessary to adopt corrective policies in the next phase.

Table 4.

Distribution of Gross Fixed Capital Formation Between Public and Private Sectors, 1370–77

Source: Calculations based on World Bank, Morocco: Economic and Social Development Report (Washington: World Bank, 1981), Table 2.11.

Table 4.

Distribution of Gross Fixed Capital Formation Between Public and Private Sectors, 1370–77

		1970	1971	1972	1973	1974	1975	1976	1977
Public sector		54.5	49.5	52.2	45.8	68.6	62.7	61.3	59.8
	State	19.4	17.4	22.3	18.4	24.0	24.3	26.1	30.3
	Other public sector	35.1	32.1	29.9	27.4	44.6	38.4	35.2	29.5
Private sector		45.5	50.5	47.8	54.2	31.4	37.3	38.7	40.2
Total		100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
GFCF (in tens of millions of 1969 dirhams)		274.0	274.0	244.0	242.0	325.0	548.0	680.0	828.0

Source: Calculations based on World Bank, Morocco: Economic and Social Development Report (Washington: World Bank, 1981), Table 2.11.

View Table

Table 4.

Distribution of Gross Fixed Capital Formation Between Public and Private Sectors, 1370–77

		1970	1971	1972	1973	1974	1975	1976	1977
Public sector		54.5	49.5	52.2	45.8	68.6	62.7	61.3	59.8
	State	19.4	17.4	22.3	18.4	24.0	24.3	26.1	30.3
	Other public sector	35.1	32.1	29.9	27.4	44.6	38.4	35.2	29.5
Private sector		45.5	50.5	47.8	54.2	31.4	37.3	38.7	40.2
Total		100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
GFCF (in tens of millions of 1969 dirhams)		274.0	274.0	244.0	242.0	325.0	548.0	680.0	828.0

Source: Calculations based on World Bank, Morocco: Economic and Social Development Report (Washington: World Bank, 1981), Table 2.11.

The Eighties: Impact of the General Adjustment Program

In July 1983, the Moroccan Government adopted a general adjustment program in agreement with the International Monetary Fund to address general macroeconomic disequilibria. It was the first component in the structural adjustment program; the sectoral adjustment programs implemented with World Bank support were the second.

The two types of adjustment programs cut through the same areas of operation. Interest rate and exchange rate policies, which were the subject of both the general adjustment program and the sectoral adjustment programs in the financial, industrial, and foreign trade areas are an example. Such overlapping caused a coordination problem between various instruments of economic policy. The general adjustment program, as its title denotes, is general in scope; it outlines the measures to be taken and refers to the sectoral program for detailed information about the measures and their timing. This ensures a minimum degree of harmony, but has it been enough?⁷

What concerns us here is that the two types of adjustment program had an impact on investment. Let us start by discussing the impact of the general adjustment program.⁸ Morocco has been implementing this program for more than six years and it still has a few years to completion. Adjustment had already been initiated, and the general adjustment program was in fact a “beefed-up” extension of the stabilization program undertaken under the Three-Year Plan (1978–80) and was followed by the adjustment program of 1980–83.

In a nutshell, the general adjustment program considered that the major economic constraint in Morocco was the external disequilibrium with its corollary, indebtedness. Its main objective therefore was the restoration of “sustainable” equilibrium in the current account of the balance of payments by 1988. For this purpose, it was necessary to reduce the treasury deficit and to control the growth of private consumption so that domestic absorption could grow at a lower rate than GDP. However, the retained growth rate was only 3 percent on average. Thus, the adjustment effort was to be mostly undertaken by controlling the growth of overall demand and by reducing the investment ratio from 20 percent in 1983 to 16 percent in 1988.

The instruments used to achieve the objectives of the general adjustment program consisted of a number of economic policy measures covering the following areas:

• Public finance: fiscal restraint and reduction of investment in plant and equipment.

• Monetary field: reduction of liquidity in the economy and mobilization of savings.

• External economic relations: liberalization of trade, exchange rate depreciation, and debt stabilization.

• Structural reforms: to be generally implemented under sectoral adjustment programs in cooperation with the World Bank.

Adjustment may be carried out in many different and interrelated ways. Tables 5 and 6 summarize how it was implemented in Morocco. Table 5 shows the evolution in the components of overall expenditure expressed as a percentage of GDP, as well as the evolution in the resource gap. It demonstrates that

• GDP growth has been modest and uneven, mainly owing to varying crop results;

• gross public spending declined sharply owing to reduced consumption (especially public consumption) and reduced investment. At the same time, savings rose and the resource gap was sharply reduced,

• in foreign trade, the reduced resource gap was due to increased exports rather than to lower imports; and

• inflation rates dropped.

Table 5.

Evolution in Gross National Expenditures and in Resource Gap, 1982–87

Source: Calculations based on Ministry of Planning, National Accounts, reproduced in reports of Bank of Morocco.

^aData from the previous national accounts series (base year 1969) are retained to ensure comparability with data of previous years and with earlier reports and studies, especially those prepared by the World Bank (the new series uses 1980 as a base year and goes back only to 1980).

^bItem 4 = items 2 + 3.

^cItem 5 = items 1-4 = 6-3=7- 8.

^dNonfactor goods and services.

Table 5.

Evolution in Gross National Expenditures and in Resource Gap, 1982–87

		1982	1983	1984	1985	1986	1987
1.	GDPa	100.0	100.0	100.0	100.0	100.0	100.0
2.	Overall consumption	90.0	87.6	88.7	85.9	85.3	85.5
	Private	68.6	67.8	70.5	68.5	67.9	68.0
	Public	21.4	19.8	18.2	17.4	17.4	17.5
3.	Investment	23.3	20.9	21.8	22.9	20.3	19.1
4.	Gross national expendituresb	113.3	108.5	110.5	108.8	105.6	104.6
5.	Resource gapc	13.3	8.5	10.5	8.8	5.6	4.6
6.	Gross domestic savings	10.0	12.4	11.3	14.1	14.7	14.5
7.	Exports of goods and servicesd	20.5	22.4	25.7	27.0	24.5	25.3
8.	Imports of goods and servicesd	33.8	31.7	36.2	35.8	30.1	29.9
9.	GDP Real growth rate	6.8	2.3	2.1	4.4	5.8	1.0
10.	Cost of living change	10.5	6.2	12.5	7.7	8.8	2.8

Source: Calculations based on Ministry of Planning, National Accounts, reproduced in reports of Bank of Morocco.

^aData from the previous national accounts series (base year 1969) are retained to ensure comparability with data of previous years and with earlier reports and studies, especially those prepared by the World Bank (the new series uses 1980 as a base year and goes back only to 1980).

^bItem 4 = items 2 + 3.

^cItem 5 = items 1-4 = 6-3=7- 8.

^dNonfactor goods and services.

View Table

Table 5.

Evolution in Gross National Expenditures and in Resource Gap, 1982–87

		1982	1983	1984	1985	1986	1987
1.	GDPa	100.0	100.0	100.0	100.0	100.0	100.0
2.	Overall consumption	90.0	87.6	88.7	85.9	85.3	85.5
	Private	68.6	67.8	70.5	68.5	67.9	68.0
	Public	21.4	19.8	18.2	17.4	17.4	17.5
3.	Investment	23.3	20.9	21.8	22.9	20.3	19.1
4.	Gross national expendituresb	113.3	108.5	110.5	108.8	105.6	104.6
5.	Resource gapc	13.3	8.5	10.5	8.8	5.6	4.6
6.	Gross domestic savings	10.0	12.4	11.3	14.1	14.7	14.5
7.	Exports of goods and servicesd	20.5	22.4	25.7	27.0	24.5	25.3
8.	Imports of goods and servicesd	33.8	31.7	36.2	35.8	30.1	29.9
9.	GDP Real growth rate	6.8	2.3	2.1	4.4	5.8	1.0
10.	Cost of living change	10.5	6.2	12.5	7.7	8.8	2.8

Source: Calculations based on Ministry of Planning, National Accounts, reproduced in reports of Bank of Morocco.

^aData from the previous national accounts series (base year 1969) are retained to ensure comparability with data of previous years and with earlier reports and studies, especially those prepared by the World Bank (the new series uses 1980 as a base year and goes back only to 1980).

^bItem 4 = items 2 + 3.

^cItem 5 = items 1-4 = 6-3=7- 8.

^dNonfactor goods and services.

Table 6.

Evolution in Revenues and Expenditures of Treasury and Financing of Deficit, 1982–87

(as percentage of GDP)^a

Source: Calculations based on annual reports of Bank of Morocco.

^aSee fn. a in Table 5.

^bFor 1983 onward, after debt rescheduling.

Table 6.

Evolution in Revenues and Expenditures of Treasury and Financing of Deficit, 1982–87

(as percentage of GDP)^a

		1982	1983b	1984	1985	1986	1987
Current revenues		24.3	22.3	22.4	22.4	21.7	23.4
Expenditures		36.6	30.8	29.2	28.6	30.6	28.1
Current expenditures		22.7	22.8	22.3	22.5	22.1	21.3
	Administrative expenses	16.1	17.3	16.0	15.1	15.2	15.6
	Consumer price subsidies	3.2	1.7	2.1	2.3	1.1	0.5
	Interest on public debt	3.5	3.8	4.2	5.2	5.7	5.1
Capital expenditures		13.9	8.0	6.9	6.1	8.5	6.9
Budget deficit		12.3	8.5	6.8	6.2	8.9	4.7
Change in arrears		2.3	—	-0.3	-2.7	3.4	-0.8
Financing requirement of Treasury		10.0	8.5	7.1	8.9	5.5	5.6
Net financing		10.0	8.5	7.1	8.9	5.5	5.6
External		10.4	4.5	6.4	4.6	-2.1	-0.4
Domestic		-0.4	4.0	0.7	4.3	7.6	6.0
	Monetary financing	-1.1	6.2	0.8	2.9	4.8	1.8
	Domestic borrowings	0.7	0.2	-0.1	1.4	2.8	4.2
Provision for authorized expenses			-2.4

Source: Calculations based on annual reports of Bank of Morocco.

^aSee fn. a in Table 5.

^bFor 1983 onward, after debt rescheduling.

View Table

Table 6.

Evolution in Revenues and Expenditures of Treasury and Financing of Deficit, 1982–87

(as percentage of GDP)^a

		1982	1983b	1984	1985	1986	1987
Current revenues		24.3	22.3	22.4	22.4	21.7	23.4
Expenditures		36.6	30.8	29.2	28.6	30.6	28.1
Current expenditures		22.7	22.8	22.3	22.5	22.1	21.3
	Administrative expenses	16.1	17.3	16.0	15.1	15.2	15.6
	Consumer price subsidies	3.2	1.7	2.1	2.3	1.1	0.5
	Interest on public debt	3.5	3.8	4.2	5.2	5.7	5.1
Capital expenditures		13.9	8.0	6.9	6.1	8.5	6.9
Budget deficit		12.3	8.5	6.8	6.2	8.9	4.7
Change in arrears		2.3	—	-0.3	-2.7	3.4	-0.8
Financing requirement of Treasury		10.0	8.5	7.1	8.9	5.5	5.6
Net financing		10.0	8.5	7.1	8.9	5.5	5.6
External		10.4	4.5	6.4	4.6	-2.1	-0.4
Domestic		-0.4	4.0	0.7	4.3	7.6	6.0
	Monetary financing	-1.1	6.2	0.8	2.9	4.8	1.8
	Domestic borrowings	0.7	0.2	-0.1	1.4	2.8	4.2
Provision for authorized expenses			-2.4

Source: Calculations based on annual reports of Bank of Morocco.

^aSee fn. a in Table 5.

^bFor 1983 onward, after debt rescheduling.

Table 6 shows how adjustment was undertaken in public finance; it illustrates the evolution in the revenues and expenditures of the Treasury and the financing of the deficit, expressed as a percentage of GDP. It indicates that

• The financing requirement of the Treasury, expressed as a percentage of GDP, was reduced by almost half;

• the reduction in the financing requirement resulted not from any increase in the current revenues of the Government but rather from a sharp reduction in public expenditures, especially expenditures from the capital budget, which were cut by half; more than four fifths of this reduction was the result of reduced investment spending;

• current expenditures were not high, but their structure changed considerably, indicating a sharp reduction in consumer subsidies and a sizable increase in interest payments on public debt, especially on domestic debt;

• sources of financing the treasury deficit changed: until 1984, most of the financing was from external sources, while in 1986 and 1987 it came entirely from domestic sources;

• in domestic financing, borrowing grew in volume in 1987 and replaced financing from monetary sources; and

• by 1988, the sources of financing had changed, which was in effect a step backward: external financing again provided 31 percent of the financing requirement of the Government Treasury with monetary sources providing the rest.⁹

This partial adjustment of public finances was thus essentially undertaken at the expense of a sharp reduction in investment expenditures and was followed by a transformation in the structure of public expenditures in favor of current expenditures. Changes also occurred in the structure of current expenditures, and the financing of the treasury deficit gave rise to a problem of the effects of crowding out.

It is a valid question whether financing the needs of the Government Treasury on an increasing scale from domestic resources in past years had been done at the expense of private investment. In other words, had there been a crowding-out effect? This question becomes somewhat important when discussing the implications of macroeconomic policies for investment and investment policies. It serves no purpose to take back with one hand what was given with the other.

But the question is not easy to answer. It requires a more profound analysis and a special investigation that is not within the scope of this undertaking. However, some elements of the answer may be advanced, which could be developed in the course of the discussion or in other later investigations.

Financing the government treasury deficit can produce a crowding-out effect in three ways: first, by reserving to the Treasury the lion’s share in money creation. Credit control mechanisms, especially credit containment policies (credit ceilings), tended to restrict credit distribution in favor of the Treasury. This fact was evident in 1983 and 1986 and also in 1988. In 1983, claims on the Treasury grew by 28.1 percent, compared with 11.5 percent for credit to the rest of the economy, with the Treasury capturing 72.5 percent of domestic credit, leaving only 27.5 percent to the rest of the economy. In 1986, the corresponding rates were 22.2 percent against 8.6 percent and 73 percent against 27 percent. In 1988, they were 17.2 percent against 9.2 percent and 68.6 percent against 31.4 percent. During these three years, claims on the Treasury represented more than half of the money supply counterparts, with a record of 53.2 percent in 1983.¹⁰ The credits above the ceiling (uncontained credits), such as investor credits and export credits, have developed in recent years and reached 18 percent of total credit in the economy in 1988.¹¹ Without these, credit distribution between the Treasury and the rest of the economy would have been more unbalanced. They served to mitigate the crowding-out effect, and they constituted some type of safety valve. ¹²

Second, the Treasury can exert a crowding-out effect by capturing private savings; savings here could be either voluntary or compulsory. In the area of voluntary savings, the Government in recent years has launched a program of borrowing on attractive terms (higher interest rates and tax breaks), where participation was limited to the nonbank private sector. Considerable funds were raised through this channel in 1986 and 1987, representing 2.8 percent and 4.2 percent of GDP, respectively (Table 6). As for compulsory savings, these related to treasury arrears in payments to its suppliers, whether public or private enterprises. In 1986, government arrears grew by a figure equivalent to 3.4 percent of GDP (Table 6).

Third, the crowding-out effect can be exercised through the interest rate—a higher interest rate can be a disincentive to investment. The increase in real interest rates that occurred in Morocco in recent years was due to three main factors The first was the desire, within the framework of the adjustment program, to encourage savings by offering positive real interest rates through raising nominal rates. The second was the rewarding rates offered on public borrowings, while the third related to the reduction of inflation rates.

A situation emerged where real interest rates on medium-term credits, which were zero or even slightly negative in 1981–82, exceeded 11 percent in 1987.¹³ Such rates have the effect of increasing the cost of capital and may discourage investment, especially in capital-intensive branches of the industrial sector, which is what actually happened in 1987, particularly following the removal early in that year of the 2 percent discount on interest rates offered on credit to the industrial sector.¹⁴

The risk of a crowding-out effect is usually higher in the presence of multiple exclusion factors, as was the case in both 1986 and 1987. In 1986, a combination of crowding-out effects resulted from the capture by the Treasury of credits and savings, and in 1987 from public borrowings and higher real interest rates. Therefore, the monetary authorities had to reduce interest rates in 1987. This move was firmly established and widened in scope in 1988. It touched particularly on medium- and long-term credits, where interest rates fell by 1.5–2 points.¹⁵

Assessment of the results of the crowding-out effects and countereffects is not easy, especially when account is taken of other factors that influence investment, including economic conditions at home and abroad, expectations of economic transactors, the sectoral adjustment programs, and the financial and fiscal incentives to investors (investment codes). Account must also be taken of the use by the Government of captured credit or savings, which gives an idea of the total effect on the economy: consumption versus savings and in which sectors. We have clearly seen that the Government’s propensity to invest declined during the 1980s. Finally, the element of timing should be taken into account, as the direction and magnitude of the implications of these effects and countereffects may vary in the short, medium, and long term.

The Eighties: Impact of the Sectoral Adjustment Programs

The intention here is not to present an analysis of the different sectoral adjustment programs undertaken by Morocco but rather to see to what degree they have had an impact on investment.

The results of the sectoral adjustment programs have been mixed in terms of their respective impact on investment. The impact of the adjustment program in the area of pricing has been diffused and unclear.

As for the adjustment program in the financial sector, the increase in real interest rates stimulated savings, which rose from a ratio of 11.3 percent of GDP in 1984 to 14.1 percent in 1985. But this movement soon lost momentum, and the ratio of savings stagnated at about 14.5 percent in both 1986 and 1987.¹⁶ Furthermore, the Treasury, as mentioned above, dug deeply into savings in recent years (producing a crowding-out effect). Adding to this the rapid increase in real interest rates, which led to the higher cost of capital, it seems improbable that the interest rate policy could have had a net positive impact on investment.¹⁷

It is too early to judge the impact of the adjustment program on private investment in agriculture. Its impact on public investment was, however, more direct and clear cut, as we shall see in the following section.

Owing to the magnitude of private capital in industry and the renewed importance of industrial exports in the structural adjustment policy as a whole, the impact of the industrial adjustment program on investment and the direction of investment assumes particular significance. The annual survey of the Ministry of Trade and Industry enables us to trace developments in the manufacturing sector. Table 7, reproduced from the survey, shows the average annual growth rates for exports, investment, and manufacturing by sector for 1984–87. It shows that only the textile and leather sector achieved the highest rates of growth in respect of both exports and investment. The agro-foodstuffs sector occupies second place in terms of export growth, but comes only in fifth place in terms of investment growth, while the situation is just the opposite in the chemical and parachemical industries. The two remaining sectors are in an intermediate situation, which would seem to indicate that, except for the textile and leather industries, the most dynamic sectors in terms of exports are not so dynamic in terms of investment (and production) and vice versa.

Table 7.

Growth Rates in Exports, Investment, and Industrial Production by Sector, 1984–87

Source: Ministry of Trade and Industry, “Situation des industries de transformation,” Fiscal Year 1987 (Rabat, December 1988).

Table 7.

Growth Rates in Exports, Investment, and Industrial Production by Sector, 1984–87

Sector	Exports		Investment		Production
		Rank		Rank		Rank
Agro-foodstuffs	25.0	2	12.5	5	14.5	3
Textiles and leather	30.5	1	28.1	1	13.4	4
Chemicals and parachemicals	1.1	5	23.5	2	9.0	5
Mechanical and metallurgical industries	14.8	4	23.2	3	19.7	1
Electrical and electronic industries	19.6	3	16.1	4	16.4	2
Total	14.6		20.4		13.1

Source: Ministry of Trade and Industry, “Situation des industries de transformation,” Fiscal Year 1987 (Rabat, December 1988).

View Table

Table 7.

Growth Rates in Exports, Investment, and Industrial Production by Sector, 1984–87

Sector	Exports		Investment		Production
		Rank		Rank		Rank
Agro-foodstuffs	25.0	2	12.5	5	14.5	3
Textiles and leather	30.5	1	28.1	1	13.4	4
Chemicals and parachemicals	1.1	5	23.5	2	9.0	5
Mechanical and metallurgical industries	14.8	4	23.2	3	19.7	1
Electrical and electronic industries	19.6	3	16.1	4	16.4	2
Total	14.6		20.4		13.1

Source: Ministry of Trade and Industry, “Situation des industries de transformation,” Fiscal Year 1987 (Rabat, December 1988).

The textile industry is fairly significant; alone it represented 35 percent of industrial exports and 19 percent of total investments during 1984–87, and more than 64 percent of the exports of finished goods in 1987.¹⁸ Industrial exports have thus strengthened in recent years, but this situation gave rise to a problem of export concentration by product and also by destination.¹⁹

The adjustment program in the industrial sector—which envisaged the promotion of export-led industrial growth—is yet to have a significant and widespread impact on investment in industry. (However, a deeper investigation of the branches and sub-branches might reveal some activity that could augur well for the future.)

Evolutions in Policy

The direction of government choices in the areas of public investment can be discerned from an analysis of the successive Moroccan development plans. Table 8 shows the distribution by sector of capital expenditures effected by the Treasury. The figures indicate that certain elements of policy have remained constant and others have undergone change.

Table 8.

Evolution in Sectoral Distribution of Public Capital Expenditures, 1965–80

(In percent)

Sources: Economic and Social Development Plans and World Bank estimates.

^aIncludes capital transfers but excludes defense expenditure and debt service.

^bConstant dirhams are derived by deflating current dirhams by the implicit deflator of the gross fixed capital formation in the national accounts (growth of the deflator in 1981 is estimated at 10 percent).

Table 8.

Evolution in Sectoral Distribution of Public Capital Expenditures, 1965–80

(In percent)

				1965–67		1968–72	1973–77	1978–80
Agriculture and barrages				27.4		42.9	24.3	26.7
	of which: Barrages			(4.4)		(16.1)	(6.5)	(9.3)
		Irrigation		(14.7)		(13.2)	(8.9)	(10.4)
Other productive sectors				28.2		18.6	15.7	11.8
Infrastructure				21.8		21.5	19.6	19.6
Education and training							11.6	17.6
Social services and housing							8.1	5.9
Regional development				22.5		17.0	9.9	11.5
Administrative and unclassified expenditures							10.8	6.8
Total				100.0		100.0	100.0	100.0
Total investmenta (millions of current dirhams)				2,132		5,478	17,923	15,960
Average annual capital expenditures (millions of 1981 dirhams)b				2,146		3,320	6,489	6,467

Sources: Economic and Social Development Plans and World Bank estimates.

^aIncludes capital transfers but excludes defense expenditure and debt service.

^bConstant dirhams are derived by deflating current dirhams by the implicit deflator of the gross fixed capital formation in the national accounts (growth of the deflator in 1981 is estimated at 10 percent).

View Table

Table 8.

Evolution in Sectoral Distribution of Public Capital Expenditures, 1965–80

(In percent)

				1965–67		1968–72	1973–77	1978–80
Agriculture and barrages				27.4		42.9	24.3	26.7
	of which: Barrages			(4.4)		(16.1)	(6.5)	(9.3)
		Irrigation		(14.7)		(13.2)	(8.9)	(10.4)
Other productive sectors				28.2		18.6	15.7	11.8
Infrastructure				21.8		21.5	19.6	19.6
Education and training			View Expanded		View Expanded		11.6	17.6
Social services and housing							8.1	5.9
Regional development				22.5		17.0	9.9	11.5
Administrative and unclassified expenditures							10.8	6.8
Total				100.0		100.0	100.0	100.0
Total investmenta (millions of current dirhams)				2,132		5,478	17,923	15,960
Average annual capital expenditures (millions of 1981 dirhams)b				2,146		3,320	6,489	6,467

Sources: Economic and Social Development Plans and World Bank estimates.

^aIncludes capital transfers but excludes defense expenditure and debt service.

^bConstant dirhams are derived by deflating current dirhams by the implicit deflator of the gross fixed capital formation in the national accounts (growth of the deflator in 1981 is estimated at 10 percent).

The policy constants consisted of the priority or preferential treatment accorded to two sectors: agriculture and infrastructure. By virtue of its priority status, agriculture received the lion’s share of public investments during the 1960s and 1970s. Midway through the period, the share of capital expenditures in agriculture from the state budget reached 43 percent (see Table 8). In real terms, investment was even higher, since two thirds of government capital expenditures in the agricultural sector went into construction of barrages (“barrages policy”) and irrigation works, including in particular construction of large hydraulic systems. This concentration of capital expenditure was made at the expense of rainfed farming—which produces the essential food crops—and of small and medium-sized hydraulic systems.

The favorable treatment accorded to infrastructure is illustrated by the fact that it has regularly received about one fifth of government investment expenditures. It indicates a preference for the strategy of growth by “an excess in infrastructure” (A.O. Hirschman).

The policy changes covered two main areas: the productive sectors other than agriculture, and the socioadministrative sectors. The other productive sectors (manufacturing, mining, and energy) saw their share in capital expenditures falling sharply and continually during the period: from over 28 percent in 1965–67 to less than 12 percent in 1978–80 (Table 8). It should be observed, however, that investment in these sectors grew through public enterprises that have their own budgets and that grew in size and importance, particularly during the 1973–77 period.²⁰ Several projects were undertaken, generally in capital-intensive activities such as phosphate and cement production, sugar plants, and oil refineries.

Conversely, the socioadministrative sectors (education and training, housing, health, regional development, and administrative services) saw their share in government capital expenditures rise sharply in the 1970s. Their share jumped from 17 percent in 1968–72 to 40 percent in 1973–77 and to 42 percent in 1978–80 (Table 8). It has thus grown 2.5 times during the period. But this sharp increase was at the expense of the productive sectors (including agriculture), whose share in capital expenditures from the government budget was cut by more than half: over 60 percent in the early 1970s and 40 percent or less during the rest of the decade.

The trends during that period included an acceleration in public investment, illustrated by a tripling in less than ten years of the annual average investments expressed in constant dirhams (DH 2.1 billion in 1965–67 and DH 6.5 billion in 1973–77). A massive concentration of investment in capital-intensive projects with questionable profitability also occurred. Some of these projects were long term and others were of undetermined duration. Moreover, the sectoral distribution of investments tended to assume a less productive character. The contribution of investments to growth was poor; faster growth rates could have been expected, considering the increased level of investment, particularly in the mid-1970s.

As a result, the incremental capital-output ratio in the economy increased rapidly from 2.6 in 1965–72 to 6.7 in 1979–82.²¹ Private capital also turned to import-substitution, capital-intensive industries, in the presence of often excessive protection and sharp distortions in the regime of incentives.

There was massive recourse to external borrowings to finance both government and public enterprise investments after a fall in phosphate receipts. Accordingly, public investment was responsible for the debt crisis in that the projects implemented were not generally export oriented, which would have ensured the availability of the foreign exchange necessary for debt-service payments—except for phosphate and its by-products.²²

Adjustment

The policy of public investment has been undergoing adjustment since 1978, but the adjustment effort became more rigorous in 1983. To mitigate the deficit in public finances and its implications for current payments, public investments were reduced as of 1978. Projects already started were stopped, and others considered to be priority projects were continued. Despite the cuts, annual capital expenditures from the Treasury during 1978–80 were kept at the same level as those for 1973–77. Moreover, the 1981 –85 Plan had practically doubled the volume of investment in constant dirhams (DH 12.3 billion, against DH 6.5 billion annually during the 1978–80 period).

Although an improvement did take place in the basic equilibria, the imbalances remained serious, and external debt indicators became even more alarming. There was accordingly no justification for this new surge toward expansion, which may be explained by the oscillation between adjustment and growth that marked Moroccan economic policies at the turn of the 1980s.

The debt crisis had set in. Adjustment became imperative, and the bulk of the fiscal adjustment effort was to focus on the capital budget, particularly as large appropriations totaling DH 75 billion had remained unexpended in the first four years of the Plan. The general adjustment program limited the volume of appropriations committable in the last year of the Plan to 20 percent of the total, and it was decided that the investments should be programmed on the basis of compatibility with the foreseeable resources and on the principle that their financing should not aggravate the debt profile.

Sectoral investment programs were reviewed with World Bank assistance. The key words in the process were efficiency and resource economy. The principles were to improve stock capital efficiency by ensuring maintenance and institutional restructuring or reform; to establish priorities in project implementation, since all projects cannot be implemented simultaneously, given the scarcity of financing and limited absorption capacity; and to improve the Government’s “capacity to invest” using the basic techniques of planning, budgeting, and project monitoring.

The criteria were adequate economic and financial profitability, shorter gestation periods, and lower recurrent expenses; an emphasis on labor-intensive projects (less capital-intensive projects); a net positive effect on the balance of payments; and the availability of financing.

The 1988–92 Plan is guided by this spirit. It assigns the private sector “a crucial role in realizing the objectives of the ‘Orientation Plan’. This sector is to be encouraged, especially in the areas where it is called upon to intensify its investment.”²³

The Investment Codes

Incentives to private investors are numerous and are generally listed in the investment codes, which are sets of fiscal and financial measures designed to encourage private investment. Individual sectors of economic activity are covered by a set of related measures, or codes of investment.

The earliest code, dating back to 1958, provided for various measures to stimulate investment in the industrial sector, including partial or total exemption from payment of customs duties on imports of new materials and equipment, tax breaks, and guarantees for the repatriation of profits and of foreign capital under certain conditions. The results, however, were disappointing.

A second code on industrial investment was therefore adopted in 1960 that maintained the incentives of the former code and added new ones, which included the possibility of constituting funds exempted from taxes on profits to acquire new equipment, the allocation of an equipment allowance (equivalent to 15 or 20 percent of the total amount of the investment), and relaxation of conditions attached to the repatriation guarantee, which became virtually automatic. The average value of the advantages accorded under this code represented approximately 14 percent of the realized investment. The 1960 code was generally well received. Private investors, however, did not respond either in terms of volume or behavior to the expectations of the Moroccan authorities.

The third code on industrial investment (1973) accorded more advantages than its predecessor, making the granting of advantages virtually automatic. The advantages were modeled according to the levels of regional development, with the aim of decentralizing industrial growth. The code provided for the possibility of combining its advantages with those granted under the industrial export promotion code.

In reality, the 1973 code comprised six such codes for investments in industry, handicraft industries, mining, maritime transport, tourism, and promotion of industrial and handicraft exports. For the establishment of large-scale enterprises (investments of more than DH 30 million) or investment in specific sectors (automobile assembly lines, tire-making, edible oil production, sugar or oil refining, flour-milling, etc.), the Government, under contractual agreements with prospective investors, may grant even more advantageous conditions than those prescribed in the code. The 1973 code was favorably received in foreign business circles.

This code did not prevent the promulgation in 1983 of a fourth industrial investment code that contained more liberal provisions, including wider tax benefits, more business opportunities, interest rebates, substantial incentives for job creation activities, and, most important, the removal of the stipulation that only Moroccan companies could benefit from these advantages. This provision allowed fully owned foreign companies to enjoy the advantages provided for in the code, particularly the guarantee of unlimited automatic transfer of dividends, capital, and capital gains in the event of liquidation.

Does this not mean that private investment, and more particularly foreign investment, was becoming less sensitive to the financial stimulants? In any case, investment codes were promulgated, at times with excessive incentives, for the other sectors: agriculture in 1969 (the agricultural tax was removed in 1984 until the year 2000); export firms in 1977; real estate in 1980 (a 15-year tax holiday);²⁴ tourism investments in 1983; maritime transport investments in 1984; real estate promoters in 1985; and mining investments in 1986.

The trend in granting investors further advantages was reversed in 1988. Under pressure of budgetary imbalances that were becoming more difficult to reduce further, the Government revised the investment codes (with the exception of the code on agricultural investment), reducing the advantages and limiting in particular the exemption from the tax on business profits and on corporations (where the tax exemption period was cut from 10 or 15 years to 5 years with the level of exemption reduced to 50 percent).²⁵

Other Incentives

Several other incentives were granted to encourage private investors. Of the six types of incentives, two were sharply reduced because of the structural adjustment program, though they were the most important. The first related to the various subsidies in the agricultural sector, which were gradually eliminated under the sectoral adjustment program for agriculture. The second related to the tariff and quantitative protection of the industrial sector. Although this protection may have been justified for “infant industries,” it was often granted on a case-by-case basis and sometimes depending on the identity of the investor. Such protection was often excessive and was maintained even after the enterprise had grown out of “infancy.” Under the sectoral adjustment program for industry and foreign trade, this protection was reduced and became more orderly.

The third related to the sets of measures (“regimes”) applied at customs, including exemptions (or suspensions) of customs duties, in addition to those advantages extended under the investment codes to encourage export industries in particular. This classical list of incentives consisted of bonded warehouse storage, temporary entry, temporary importation, temporary export for foreign processing, temporary exportation, transit, drawback, and customs clearance at domicile.²⁶

The fourth advantage consisted of the establishment by the state of “industrial parks” to be made available to investors at moderate cost, while the fifth related to the incentives accorded under the selective credit policy, including lower interest rates and/or the provision of credit.

The sixth consisted of incentives to remittances of Moroccans working abroad, including exchange premiums and interest on checking accounts held in Moroccan banks. These incentives were later canceled. However, because of a drop of almost 20 percent in 1988 in this primary source of foreign exchange in Morocco,²⁷ various measures were adopted, including relaxing foreign exchange controls and extending the same repatriation guarantees that were formerly granted to foreign capital invested in Morocco to housing loans and credits for small and medium-scale industries.²⁸ A bank (Bank Al-Amal) was established to finance investment projects in Morocco of nationals working abroad, especially in industry. The acquisition of housing has always been the principal investment of Moroccan expatriate workers.²⁹ With the onset of reverse migration—particularly from Europe—investment in small and medium-scale industries was an attractive proposition, considering that the funds in question were considerable and presented a twofold advantage as sources of foreign exchange and of investment financing. Assistance in this area was to be provided by the government agencies responsible for the encouragement of investments.

Administration of Incentives

The administration of incentives passed through three main phases. The Investment Commission was set up in 1958 to select projects eligible for benefits under the investment code. This interministerial body was coordinated by the Ministry of Economy until its dissolution. It met whenever it received a project application from the technical ministry concerned.³⁰

As the granting of advantages under the 1973 investment code became automatic, the raison d’être of the Investment Commission no longer existed. Consequently, each technical ministry dealt with project applications under its respective jurisdiction merely to ensure that they met the requirements of the applicable regulations. If so, the ministry would issue an “in order visa” and notify the Ministry of Economy accordingly. Once an application was so approved, the investor had to apply to a financing agency: the National Economic Development Bank (BNDE) or a commercial bank.

Thus viewed, the procedure seemed simple and swift. In reality, it was long and cumbersome owing to the numerous departments through which the project had to pass at both the local and central levels (to illustrate the lengthy character of the procedure, an investment project application had to be submitted in 17 copies).

Thus the idea of a single focal point was born. It had been envisaged in the 1973–77 Development Plan, but had not been accepted for several reasons, the most important of which was that it would have cast doubts on the way in which the administration conducted its business. It may also have meant adding an extra agency instead of replacing the existing ones. Questions were also raised about the power that such an authority would have vis-à-vis the other departments and about its eventual effectiveness. It was suggested that the investors themselves, or their accredited representatives, could best deal with their own affairs and would be quicker to get through. In fact, the single authority system did operate in Morocco for some time in the form of a “Welcome Center” for investors, but it had no power whatsoever.

A major development in the field of private investment was a Royal Letter addressed to the Prime Minister, in June 1989, denouncing the “slowness” and “multiplicity of administrative procedures,” It concluded

Consequently we have to put an end to this situation. Henceforth, every properly-constituted application of an investment project shall be deemed as having obtained the approval of the Administration if the latter fails to take any action thereon within two months from the date of its submission. In case of rejection, the decision of the Administration must be duly explained. This decision shall take effect immediately and shall appear forthwith in the provisions of all our investment codes, where it must be inserted.³¹

Steps for the enforcement of this decision are under way. Attempts are being made to establish an administrative structure to handle private investment matters, which would be characterized by a simplified procedure, transparency, and speed. It is also intended to establish “an investment follow-up committee” at the provincial level.³² The 1988–92 Plan envisages measures aimed at streamlining administrative procedures and incorporates the notion of “a sole interlocutor at the local level.”

Investment Services Agencies

Two bodies play an important part in private investment promotion,³³ namely, the Industrial Development Office, a public agency, and the National Economic Development Bank, a semi-public body. Their actions are on the whole complementary.

The Industrial Development Office (ODI) is an industrial promotion agency that acts on its own behalf or in association with private national and/or foreign investors. Four types of interventions may be identified in the ODI effort:³⁴ (a) reception, information, and assistance in project implementation; (b) sectoral studies and assistance in project identification, pre-feasibility, and feasibility studies, upon the request of private industrial promoters; (c) technical assistance to small and medium-scale industries, ranging from project identification to enterprise management; and (d) equity participation in, or support for, the implementation of projects of national or regional interest, and pilot projects or projects with a high technological content. In companies other than its affiliates, the ODI maintains minority equity as a general rule, although its participation is usually higher than 20 percent to enable it to play an active part in the project. Once the project is launched, ODI may relinquish its equity to the private sector, thus freeing it to engage in other projects. The ODI group currently comprises some 30 industrial companies, 10 of which are affiliates.

The National Economic Development Bank acts mainly as an agency for financing private industrial projects. It has a secondary function as an organ of promotion and assistance. In nearly thirty years of activity, Bank interventions consisted of direct loans (62 percent), rediscounted medium-term credits (37 percent), and equity participation (1 percent).³⁵ Investments or financing operations with BNDE participation represented close to 30 percent of gross fixed capital formation in terms of plant and equipment in Morocco during that period.

Results

First, little information is available on the investments approved within the framework of the investment codes. The only updated data available in sufficient detail concern the industrial sector. These investments, however, were those that the Ministry of Industry judged eligible for the advantages offered under the investment codes, but that were not necessarily implemented. No information is available to permit comparison between the investments approved and those that were actually implemented.³⁷

In the 1970s, private investment followed the growth of public investment, though at a slower pace. Expressed as a percentage of GDP, it rose between 1970 and 1979 from 7 percent to approximately 13 percent (5 percent and 8 percent excluding investments in housing), while the ratio of overall investment rose from 15 percent to 33 percent during the same period.³⁸

During this time, corporate investment in Morocco by the foreign private sector, which represented 5–6 percent of the gross fixed capital formation at the beginning of the decade, dropped sharply by almost one half since 1973 and was no more than 2–3 percent of gross fixed capital formation through the rest of the decade.³⁹ The effect of “Moroccanization” and the introduction, in the 1973 codes, of the clause that a company had to “Moroccan” to enjoy the advantages had become evident.

An analysis of the developments with regard to approved investments in the activities covered by the investment codes of 1973 (manufacturing, handicrafts, mining, fishing, and tourism) shows the same rapid growth. The total volume of approved investments multiplied 6.7 times (in current dirhams) between 1973 and 1977. Manufacturing alone represented 60 percent of the total. It should be pointed out that the volume of approved industrial investments stagnated in the early years of the decade.⁴⁰

We have already seen that public investments were declining in the 1980s. Can the same be said of private investments? The volume of approved investments in the industrial sector (the only investments for which data are available) grew from 20 percent to 30 percent annually between 1984 and 1987,⁴¹ with the exception of 1985, in which investments of public enterprises fell by 60 percent under the impact of the adjustment program. The strong growth in private investment was attributable to the new industrial investment code of 1983.

Table 9 shows the distribution of approved industrial investments by type of investor from 1984 to 1988. It shows a sharp drop in public enterprise investments, which represented a mere 2 percent of approved investments in 1988; the share of Moroccan private investments remained strong and stable, representing close to four fifths of total investments; and the share of foreign private investments was not negligible, representing close to one fifth of the total. The foreign element in equity of the manufacturing sector reached 14 percent in 1987.⁴²

Table 9.

Sources of Approved Investments in Industrial Sector, 1984–88 (In percent)

Source: Ministry of Trade and Industry.

Table 9.

Sources of Approved Investments in Industrial Sector, 1984–88 (In percent)

		1984	1985	1986	1987	1988
Public enterprises		10	4	3	8	2
Domestic private sector		73	80	72	76	78
Foreign private sector		17	16	25	16	20
Total		100	100	100	100	100
	(In millions of dirhams)	2,780	2,830	3,550	4,690	5,780
Percentage change		22	1	25	32	23

Source: Ministry of Trade and Industry.

View Table

Table 9.

Sources of Approved Investments in Industrial Sector, 1984–88 (In percent)

		1984	1985	1986	1987	1988
Public enterprises		10	4	3	8	2
Domestic private sector		73	80	72	76	78
Foreign private sector		17	16	25	16	20
Total		100	100	100	100	100
	(In millions of dirhams)	2,780	2,830	3,550	4,690	5,780
Percentage change		22	1	25	32	23

Source: Ministry of Trade and Industry.

In brief, private investment grew rapidly following the enactment of the investment code of 1973 (except for foreign private investment). There was also an accelerated growth in private industrial investments approved after the adoption of the 1983 code.

Two indicators may be used to evaluate the effectiveness of the private investment promotion policy, namely, the degree of capital intensity in industrial projects and the geographic distribution of the investments. The results in the 1970s failed to achieve the objectives of the development policy as enunciated in the development plans, and were particularly negative when compared with the objectives of the investment code of 1973 with respect to job creation and decentralization of productive activities. This outcome was partly due to the distortions in the regime of incentives. Investment for each job created in approved projects rose sharply: DH 54,000 in 1970, DH 77,000 in 1973–74, DH 89,000 in 1975, DH 144,000 in 1976, and DH 87,000 in 1977. Geographic concentration of industrial investment remained strong in the projects that were again approved in the late 1970s, as the region of Casablanca (Zones I and II) and the other major urban centers (Zone III) absorbed 94 percent of the investments in 1979 (see Table 10).

Table 10.

Geographic Distribution of Industrial Investments Approved in 1979–88

Source: Ministry of Trade and Industry.

^aRegion of Casablanca.

^bOther major urban centers.

^cRest of Morocco.

Table 10.

Geographic Distribution of Industrial Investments Approved in 1979–88

	1979	1980–82	1983	1985	1986–88
Zones I and IIa	55	37	52	50	43
Zone IIIb	39	45	39	36	35
Zone IVc	6	18	9	14	22
Total	100	100	100	100	100

Source: Ministry of Trade and Industry.

^aRegion of Casablanca.

^bOther major urban centers.

^cRest of Morocco.

View Table

Table 10.

Geographic Distribution of Industrial Investments Approved in 1979–88

	1979	1980–82	1983	1985	1986–88
Zones I and IIa	55	37	52	50	43
Zone IIIb	39	45	39	36	35
Zone IVc	6	18	9	14	22
Total	100	100	100	100	100

Source: Ministry of Trade and Industry.

^aRegion of Casablanca.

^bOther major urban centers.

^cRest of Morocco.

Has the situation improved following the revision of the industrial investment code in 1983 and the adoption of the sectoral adjustment program for industry and foreign trade? After a few years during which adverse influences (or habits) led to the concentration of industrial investment in the region of Casablanca, decentralization of investment progressed as of 1986 (Table 10). Meanwhile, the amount of investment for each job created tended to stabilize between DH 90,000 and DH 100,000: DH 99,000 in 1984, DH 92,000 in 1985, DH 101,000 in 1986, DH 86,000 in 1987, and DH 97,000 in 1988. Accounting for inflation, this result was an improvement in relation to the situation in the mid-1970s.

Factors Influencing Investment Decisions

Numerous factors influence investment decisions; some are economic in nature while others are not. They vary, and their relative weight also varies, according to the type of investment (national or foreign), the socioeconomic environment, and the regulatory and administrative regimes under which the investment is to be made.

A number of these factors have already been described and their impact on investment identified, including the investment codes and other incentives, the general adjustment program with its impact on investment through credit and interest rate policies, the policy on financing of the treasury deficit, and the sectoral adjustment programs, with their impact on the correction of price distortions and on resource allocation.

These are the factors that eventually influence the competitiveness of the economy, and they assume particular importance when the investments focus on export-oriented activities and/or when the investor is foreign. The foreign investor will consider the comparative costs (or comparative profitability) that determine his decision to take his project to Morocco (and where to locate his project inside Morocco) or elsewhere. Also to be considered are the high costs of certain production factors in Morocco,⁴³ such as industrial fuel (owing to the “oil premium” imposed by the state), electric power (the rates of which are paradoxically higher for industry than for households), and the cost of transport services, banking, and insurance. Other factors relate to the general economic conditions and the long waiting period to acquire foreign exchange, which undermine the creditworthiness of Moroccan enterprises abroad, aggravate their financial burdens, and damage Morocco’s image; finally there are the awkward administrative delays that discourage foreign investors more than national investors.

Certain measures have been taken or are under way to remedy this situation, including measures to shorten the waiting period for the purchase of foreign exchange, as permitted by an improvement in the external account, to reduce the Government’s domestic arrears, and to streamline administrative procedures in the investment field.

That the investment decision is influenced by many factors makes it difficult to attribute any variation in investment to a particular factor. It also raises the problem of the relative weights of individual factors in the investment decision. An attempt at such an analysis was made on the basis of a survey of industrial enterprises in Morocco.⁴⁴ The objective was to identify investment factors in the light of the incentives granted under the industrial investment code of 1973. The main conclusions of the analysis were

• The determining factors include the presence of a growing demand for familiar products on the market and a sufficient level of profitability.

• While appreciable incentives are offered under the investment codes (they represent 40–50 percent of gross operating revenues depending on geographical location), their absence would have completely jeopardized only one tenth of the total number of projects: 40 percent of the projects would have been completed on schedule and the remaining 50 percent would have required rescheduling either in start-up operations or in implementation phases.

• Customs protection constitutes a fundamental incentive (not included in the code).

• Those incentives provided in the code that intervene at the establishment phase (financing, interest rates, exemption from import tax on materials and equipment) influence the investment decision more significantly than those granted at the operational stage (exemption from corporate income taxes and the accelerated depreciation).

• Exemption from the business tax is not a sufficient incentive for decentralization of investment.

Revision of the code thus became imperative, as did the restructuring of the entire regime of incentives, together with the system of administrative procedures just put in place. However, is this a sufficient incentive for private capital (domestic or foreign) to take the place of public investment in the promotion of growth?

Abdelrazaq El Mossadeq

The paper on investment policies in Morocco presented by Mr. Hamdouch seems to me to be comprehensive. It contains a series of detailed information and reviews the progress of Moroccan economic policy in general and investment in particular.

Therefore, my comments will be restricted to pointing out certain facts, proposing a re-reading of the policies followed by the state, and analyzing the figures in a different way. I will limit myself to the industrial sector.

These comments will be centered on two main points of the paper: the adjustment program and investment policy.