Posted by: PROSHARE NG
BMI View: Sharp growth in agricultural output in 2017, after severely contracting due to a severe drought episode in 2016, will support the acceleration of economic activity. Sustained efforts to improve the business environment and political stability will continue to boost investor sentiment, which bodes well for the kingdom’s ambitions to become a manufacturing and exporting hub between Europe and Africa.
We forecast real GDP growth to accelerate from 0.9% in 2016 to 4.3% in 2017 in Morocco, as the agricultural sector emerges from its 2016 slump caused by a severe drought.
In addition, we remain optimistic on the kingdom’s ability to become a manufacturing and exporting hub between Europe and Africa, as reforms to the business environment and policy continuity yield positive results on investor sentiment.
This will ensure Morocco’s economic out performance in the Middle East and North Africa region over the coming years.
Improving Harvest Behind Uptick In Growth
The agricultural sector will experience a sharp recovery in 2017, benefiting from an improvement in weather conditions. Grain production fell by more than 70% in 2016 as the country experienced a severe drought, after a record harvest of 11.7mn tonnes in 2015.
This resulted in the agricultural sector contracting by 10.9% in real terms throughout 2016, accounting for a 1.5 percentage points drag on headline growth. With our Agribusiness team forecast grain production to increase by 136% in 2017, the primary sector will be the key driver behind the uptick in growth.
Over the past decade, agriculture accounted for on average 13% of GDP and more than 40% of employment. As such, the sharp recovery in agricultural output will support private consumption growth in the country as well as exports.
Strategic Development Of Manufacturing Sector On Track
In addition, we remain optimistic on Morocco’s ability to emerge as a strong manufacturing sector over the coming years, as part of the kingdom’s long-term strategy to become a manufacturing and exporting hub between Europe and Africa (see ‘On Track To Become A Regional Manufacturing Hub’, March 29).
Continued reforms to the business environment and political stability will boost investor sentiment over the coming years.
Morocco has gradually climbed in the World Bank’s Ease of Doing Business index over the past decade, from the 129th position globally in 2008 to the 68th position in the latest edition.
Reflecting this sustained reform drive, the government adopted a new Investment Charter in August 2016 (the previous one had been left untouched since 1995), which aims to create at least one free zone in every Moroccan region.
Relative political stability by regional standards will also support policy continuity and investment-friendly reforms over the coming years, which bodes well for international investment.
Investment promotion efforts by the government will underpin Morocco’s gradual move towards higher-skilled manufacturing over the coming years. According to the Manufacturing Production Index, the auto and other transportation (which include aeronautics) sectors outperformed in 2016.
Foreign investment in the auto sector underpins this positive trajectory, with French manufacturer Renault increasingly using Morocco as a manufacturing base (see ‘Renault’s EMEA Strategy Driving Production’, September 22 2016).
Tourism Returning To Growth
Improvements in the tourism sector are another positive factor for the Moroccan economy. In 2014-2015, the crucial tourism industry, which accounted for 18.5% of GDP and 16.6% of employment (including indirect effects) in 2016 according to the World Travel and Tourism Council, severely suffered from the regional security turmoil affecting the MENA region.
Over the past year and a half, the sector has been showing signs of recovery, benefiting from relative stability compared to other regional destinations such as Tunisia and from fastgrowing arrivals from Chinese and Russian tourists.
Illustrating this trend, tourism receipts (in nominal local currency terms) have returned to positive growth, while the restaurant and hotel sector expanded by 9.6% (in real terms) in Q416.
Nonetheless, we caution that European tourists will remain wary of security conditions across the region, and any terrorist event in Morocco or Tunisia would deter visitors from travelling to the kingdom. As such, we believe that the tourism sector will continue to expand, but below potential.