Margit Molnar
OECD Economic Surveys: Morocco 2024
Economic Assessment
OECD Economic Surveys
Abstract
Morocco’s GDP has grown at a steady pace over past decades, but stronger convergence towards higher productivity countries would help achieve its goals. A major package of productivity-enhancing reforms would reinforce existing efforts to boost private investment. Upgrading skills is key to achieving higher productivity. The new Charte de l’Investissement provides support to private investment, but public investment could also be made more efficient. Morocco has successfully integrated into global value chains, particularly car manufacturing, but needs to move to higher value-added activities, including upgrading the role of local companies and to develop activity in new sectors. Entrepreneurship and firm growth should be encouraged by greater access to financing and lower taxation for smaller firms. Removing barriers to competition and continuing to reform state-owned enterprises would help to ensure a level playing field and improve the allocation of resources. Increasing support for innovation and creating better conditions to benefit from digitalisation would help harness new opportunities.
Labour productivity has been increasing and FDI flows have been strong, but domestic private investment is low and there are barriers to Moroccan firms performing better. Faster productivity convergence towards more advanced economies would boost growth and support the creation of higher-quality jobs. Morocco’s large labour productivity gap to advanced countries explains most of the income gap, while Moroccans work longer hours on average (see the Key Policy Insights chapter). Investment and productivity growth could be strengthened through a major package of structural reforms, building on existing strengths and current policy initiatives. Continuing to exploit its geographic position close to European markets and global trade routes, and greater integration with regional economies would open up new avenues to move towards higher value-added activities and increased productivity.
The New Development Model (NDM), an overarching strategy for long-term development released in April 2021 (see the Key Policy Insights chapter), formulates a number of objectives to achieve productivity improvements. These include targets for private investment supported by the new Charte de l’Investissement. The NDM is complemented by sector-specific plans, many of which have been in place for many years. Past industrial sector plans include the Plan Emergence (2005-09), the Pacte National pour l’Emergence Industrielle (2009-14), the Plan d’Acceleration Industrielle (2014-20) and the Plan de Relance Industrielle (2021-23) adopted during COVID-19.
This chapter assesses Morocco’s productivity performance using key indicators and provides a diagnosis of barriers to improved productivity before discussing ways to boost investment, the performance of domestic firms and productivity by: upskilling; raising the volume and efficiency of investment; upgrading the position of Morocco in global value chains; creating a more business-friendly environment and levelling the playing field; and better embracing digital tools and increasing innovation.
Productivity in Morocco has increased but by less than could be expected given the potential for convergence with more advanced economies. The productivity gap, measured as the percentage of US productivity (a proxy for the global frontier), was wider in the run up to the pandemic than in other countries in the region and broadly comparable to the level of Colombia (Figure 2.1). The overall productivity gap had remained broadly unchanged, while in the manufacturing sector it has widened from 75% in the late 1990s to 84% in 2017. As a catching-up middle-income economy with bright population growth prospects, productivity growth should be relatively strong.
Note: Labour productivity measured as value added per employed person at constant 2017 international PPP.
Source: OECD calculations based on Dieppe, A., S. Kilic Celik, and G. Kindberg-Hanlon. 2020. "Global Productivity Trends." In Global Productivity: Trends, Drivers, and Policies, edited by A. Dieppe. Washington, DC: World Bank and OECD (2023).
Productivity gaps are sizeable in some sectors
The labour productivity gap with the United States was sizeable at almost 80% in the entire manufacturing sector in 2019 (Figure 2.2). In some traditional industries, such as textiles and garments and food, the gap was smaller at around 50% and in line with some lower-income OECD countries. By contrast, in other industries, such as basic metals, there is even greater room for catching up than the sector-wide average suggests. Earlier research showed that relatively weak productivity dynamics was explained by a stagnation of productivity growth in relatively productive sectors with large value-added shares, such as banking, insurance, real estate and business services (OECD, 2017[1]). The few large manufacturing sub-sectors with high productivity growth (e.g., chemicals and non-metallic minerals) were not able to make up for the negative productivity growth of some large and many medium-size sub-sectors.
Labour productivity as percentage of US level, 2019
Note: Although the Moroccan data collected by the Ministry of Industry and Commerce are compiled to conform with UNIDO standards, there may be conformity issues with the productivity data used for OECD countries related to, for instance, sector classification.
Source: OECD calculations based on the OECD National Accounts database and Ministry of Industry and Commerce of Morocco.
This box reports descriptive analysis based on Moroccan firm-level data aggregated at the sector level by size category (defined by sales). The dataset is available from the Observatoire Marocain de la TPME (OMTPME), established in 2013 under the aegis of the central bank to improve data collection on enterprises in Morocco. The initiative links multiple databases, including those by the tax department of the Ministry of Economy and Finance, the social security agency (CNSS), the company registry (OMPIC), the Ministry of Industry and Commerce and the central bank.
The data is available for 2018-21 for a balanced panel of 23 000 firms. The sample represents 5-6% of active incorporated firms, with overrepresentation of large firms. It does not cover unincorporated and informal firms. The analysis in this Box focusses on 2019 given the effects of the COVID pandemic on activity in the following years.
The data provides some insights on productivity. Larger firms tend to have higher labour productivity (defined as value added per employee), particularly for the largest category of firms (with annual turnover above MAD 175 million, around USD 17.8 million) (Figure 2.3). This effect is particularly marked in manufacturing.
Note: Labour productivity is defined as value added per employee. The x axis shows the firm size categories by sales as defined by Moroccan authorities and the productivity values are simple averages by size category.
Source: OECD calculations based on the database compiled by Observatoire de TPME.
In this dataset, among the most productive firms are large mining and chemical businesses, while small mines and pharmaceutical producers are among those with the lowest productivity levels. Larger firm size does not appear to be associated with higher productivity in some sectors, including agriculture and construction. However, a World Bank-OMPTME joint study suggests that, using employment-based size categories, larger (and older) firms are on average less productive and less productive firms expanded faster in terms of employment in the period before COVID-19.
Source: OECD calculations based on data provided by OMPTME and OMPTME-World Bank joint study.
Morocco has a relatively large services sector and somewhat small agricultural and manufacturing sectors in value-added terms relative to lower-middle income group peers. Indeed, the services share of value added is higher than of other countries when they were at Morocco’s income level, including Egypt, Poland or China (Figure 2.4). A smaller manufacturing sector often implies less scope for innovation and to become an engine for productivity growth. In addition, Morocco’s specialisation within services with lower productivity, such as tourism, and, within those industries, it has traditionally been more concentrated in the low- to medium-value added segments, although its position has been improving.
Share of services value added and GDP per capita
Note: All available countries and observations available are included.
Source: World Bank World Development Indicators database.
Integration in value-chains and foreign investment support productivity
Morocco has successfully integrated into global value chains, particularly through foreign direct investment and notably in the automobile industry. Ecosystems of suppliers have set up around major investments but, while some are domestic Moroccan firms, many are foreign and they tend to specialise in the higher value-added and more sophisticated activities. The automobile sector was a pioneer manufacturing industry in Morocco that created jobs on a massive scale and lifted growth, cementing Morocco’s status as an industrialised country and as a car exporter (Benadbdejlil, Lung, Y. and Piveteau, A., 2017[2]) (Vidican-Auktor and Hahn, T., 2017[3]). In the automotive industry, there are 20 first-second-tier Moroccan suppliers, unlike in aeronautics, where among the 140 local suppliers, only one is Moroccan. As of 2023, there were 260 factories operating in the automotive sector and giving jobs to some 173 000 people directly (Ministère de l'Industrie et du Commerce, 2023[4]) and 230 000 people indirectly (including subcontractors in other industries) and producing a quarter of the country’s exports. Moreover, some 60 automotive factories are under construction. Automobiles, aeronautics and textiles are considered priority industries and are among the greatest beneficiaries of investment incentives and export promotion activities (Agence Marocaine de Développement des Investissements et des Exportations (AMDIE), 2023[5]).
A quarter of Morocco’s export value-added is produced abroad. Morocco relies on higher-value-added foreign intermediate inputs (backward integration) to a greater extent than OECD countries or Egypt, though to a lesser extent than Tunisia or Jordan (Figure 2.5). Even though the country is integrated into global value chains of multinational companies (MNCs), those MNCs and their subcontractors could be better integrated with local firms to reap the benefits from potential technology and knowledge spillovers (Vidican-Auktor and Hahn, T., 2017[3]). The relatively low share of value‑added is related to the dominance of labour-intensive stages of production processes, including assembly, wiring, seats and seating systems in the automobile sector, although recently there has been an expansion towards engine assembly and other more sophisticated products. The sector where foreign final demand has the highest share of Moroccan content (forward integration) is in mining (Figure 2.5): 65% of mining exports are based on Moroccan value added. In manufacturing value added, this is above 40% and in services nearly 22% with the information technology industry having a relatively high share. However, in many activities, Morocco imports high value-added parts and components and assembles those for exports, which is a relatively low value-added segment in the production process, and it produces intermediate inputs that do not have particularly high value added. From the point of view of what share of domestic value added destined for foreign final demand is produced by each sector, manufacturing accounts for nearly a third of the total (Figure 2.6), followed by retail/wholesale, agriculture, and transportation and storage.
1. Electricity, gas, steam and air conditioning supply; Water supply; sewerage, waste management and remediation activities.
2. Services of the business economy - sections G to N.
3. Public administration, education and health; social and personal services.
4. Industry (except construction).
5. Total services (incl. construction).
6. Services (except extra-territorial organisations and bodies).
7. Information and communication; Financial intermediation; Real estate; Professional and business support services.
Source: OECD TiVA database.
Domestic value added in foreign final demand, 2020
Source: OECD TiVA database.
The Economic Complexity Index (ECI) - which is based on the geography of trade and captures the sophistication of a country's exports – positions Morocco in the mid-range of countries with similar income levels (Figure 2.7). In 2021, Morocco advanced to the 81st place from the 90th in 2019. While there is a clear correlation between incomes and ability to produce sophisticated goods, the example of several countries that are highly integrated into global value chains, such as China, Mexico or Thailand, shows that creating the right environment and the right positioning of the economy can help in upgrading production capabilities even at not particularly high income levels.
Economic Complexity Index (Trade) and GDP per capita, PPP
Note: The ECI trade presents an estimate of economic complexity based on the geography of trade and captures the sophistication of a country's exports. Trade ECI estimates a country's ability to produce and export complex products that require a high level of knowledge and skills.
Source: Observatory of Economic Complexity (OEC) and World Bank World Development Indicators databases.
Firms tend to be very small and many are informal
While small firms play an important role in all economies, productivity growth is supported by the scaling-up of successful firms. The Moroccan business sector is mostly made up of small firms: 91% of active firms had ten or fewer employees in 2022, like in Czechia, Greece or Poland (Figure 2.8). While comparable data are not available for OECD countries, what may be unusual in Morocco is the very high share of firms with three or fewer employees at 88% in 2021 (Observatoire Marocaine de la Très Petite et Moyenne Entreprise (OMTPME), 2023[6]). This very small size coupled with a high level of informality often prevents them from having the scale to be efficient and to have sufficient collateral to access finance or to purchase the equipment needed to raise their productivity. This is the case not only in manufacturing, where economies of scale can be important, but also in mining, where 30% of non-phosphate mines are of small-scale, lacking advanced equipment. Morocco has few exporting firms compared to its population relative to OECD countries (Figure 2.8).
Note: Panel A: The data for Morocco is from 2022 and the ranges are [1-9]; [10-49]; and [50+ ].
Source: Panel A: OECD Enterprises by business size; Moroccan authorities Panel B: World Bank World Development Indicators database.
Informality contributes to small firm sizes and constraints productivity. According to some estimates, the informal sector accounts for as much as 30% of GDP (Lahlou, Doghmi and Schneider, 2020[7]). This includes informal firms and informal activities of formal firms. There is significant overlap between informality in economic activities and employment: informal firms can only hire people informally, while formal firms can hire people either formally or informally (unrecorded and untaxed). There is not much timely information available on informal firms, whose number is estimated to hover around 1.7 million. A recent survey explores the circumstances of informal provision of goods and services by asking formal firms whether they have been requested to provide services informally. Not surprisingly, large firms are less likely to be requested to provide services or goods informally, though medium-size firms are more likely to be in this position than small ones (Ministère d'Inclusion Économique de la Petite Entreprise, de l'Emploi et des Compétences, 2023[8]). Sector-wise, informality is most common in the construction sector, manufacturing and extractive industries and transportation.
Business dynamics have weakened with the growth rate of firms edging down over time and the number of legal entities increasing at only around 2% annually (Figure 2.9), despite a short-lived reversal in 2017-19 and a spike in business exits around the pandemic. The recent fall in the number of created firms is concerning as new dynamic firms that scale up can be a key driver of overall productivity. Setting up a business needs to be more attractive, which could be achieved by leaving a greater role for the market to allocate resources and creating a level playing field for private enterprises.
Note: Legal persons are incorporated firms, while physical persons are unincorporated.
Source : Registre Central du Commerce et Accompagnement de l’Entreprise, OMPIC.
While education levels are improving, strengthening the skills of the workforce, including strong basic literacy and numeracy skills, as well as higher-level skills in technical and management areas, are key to boosting productivity and moving up the value chain.
Skills need to be enhanced to boost productivity and incomes
Improving skills and human capital are key to raising growth, productivity, investment and creating more high-quality jobs (OECD, 2017[1]). While educational outcomes have trended up over time, particularly for women, adult educational attainment remains well below comparator countries (Figure 2.10). Almost 30% of the adult population did not complete primary education and almost another 30% of adults only have primary education. While enrolment in primary education has improved significantly, dropout rates remain a greater issue in secondary education and a significant number of young people still do not complete secondary school. Morocco’s school system is improving but it continues to deliver relatively weak results by international standards, although major reforms are underway (see Chapter 3). While many young people go to university (including many women), their employment prospects are generally weak, despite producing some well-trained and skilled young workers. This leaves a challenge of upskilling the adult population to allow more productive activities to expand. Morocco’s education attainment level is lower than in OECD countries, regional peers such as Egypt or Tunisia, and other emerging economies such as Colombia or Thailand. The World Bank found that 30% of all firms identified an inadequately educated workforce as a major constraint, compared to about 21% in the MENA region. A survey by the HCP cited 37.2% of all surveyed firms as saying that the system is not producing good candidates (52.3% in industry).
Education attainment of the working-age population, % of population aged 15-64, 2020
Source: Barro, Robert and Jong-Wha Lee, 2013, “A New Data Set of Educational Attainment in the World, 1950-2010.” Journal of Development Economics, vol 104, pp.184-198.
Literacy rates have improved, especially for young people, but remain a challenge (Figure 2.11). According to the World Bank, only 35% of under-10s could read a simple text in 2022. As indicated by the HCP (Haut-Commissariat au Plan: Les indicateurs sociaux du Maroc, 2023), adult literacy increased from around 40% in 1994 to 58% for women and 77% for men in 2022. Literacy rates are markedly lower for women and for rural residents and higher for those under 25 (96.6% for males and 92.8% for females). To deal with this challenge, there is a dedicated national agency to eradicate illiteracy and a growing number of people are enrolled in adult reading programmes (739 000 in 2020), the majority of whom are women and in rural areas. Raising literacy rates is also important for social reasons, including allowing people to engage in the formal economy and access social benefits (Bossenbroek and Ftouhi, 2021[9]).
Source: Haut-Commissariat au Plan: Recensements 1994, 2004 et 2014 et Enquête nationale sur l’emploi.
Vocational training and adult education should be expanded
Vocational education and training (VET) can play a key role in providing workers with relevant workplace skills but is still chosen by only about 15% of all secondary students in Morocco. As in many countries, it is sometimes seen as a less promising choice than more academic streams (European Training Foundation, 2023[10]). VET is especially under-utilised at the upper-secondary level, despite being well-resourced and managed, and innovative (European Training Foundation, 2023[10]), even if quality remains an issue. A vocational stream has recently been piloted at the lower-secondary level. Associations run a small number of “second-chance” schools, and some public boarding schools exist for those (mainly girls) who live too far from other options. More work-based learning and apprenticeships could be helpful: in 2019, only 22 000 out of 191 000 initial VET graduates had undertaken such training formally (many are offered it informally). One issue is that such apprenticeships can be offered only up to the age of 20, whereas other apprenticeships can start at any age up to 30.
The government laid out its plans for the vocational education sector in a 2019 roadmap. This was followed up in 2021 by a National VET Strategy, which aims to boost the number of graduates by a factor of four from 2015 to over 2 million per year. A National Qualifications Framework is being established, though it is not yet fully operational. One of its priorities should be to implement a system of validating non-formal learning. The government is setting up 12 regional Jobs and Skills Centres (Cités des métiers et des compétences) as training hubs for artificial intelligence, digital skills, automobile and aeronautical manufacturing, the hospitality sector and offshoring, as well as four institutes to teach entrepreneurship. Some industrial sectors also operate their own training institutes and hire the majority of their graduates.
Vocational education for adults is better developed and funded through a 1.6% training levy/payroll tax, of which 30% is allocated to continuing vocational education. However, VET courses are offered by only 9% of firms (according to the World Bank’s 2023 Enterprise Surveys), compared to 18% on average in the MENA region and 27% in comparator lower-middle-income countries. Further developing other options for lifelong learning and especially more pathways to skills-acquisition would support upskilling.
The university system needs to be strengthened
Morocco has achieved a huge expansion of university education since 2010 with around 45% of young people now attending tertiary education, significantly above the levels in most comparator countries. However, the university sector in Morocco suffers from a quality problem with high unemployment rates for graduates even in fields with apparent worker shortages (World Education News and Reviews, 2022[11]). The female share of total enrolment has continued to rise, reaching 52.7%, but too few of them subsequently find gainful employment. Tuition fees are quite low and often zero, while stipends are provided to students from poor and out-of-town households (though there is no system of student loans), but class sizes are often huge. This is largely because there is no selection for the majority of courses, leading to many young people abandoning their courses or to study in areas without demand from employers. More effective career guidance could help students to select courses with better employment prospects and economic returns, which would be supported by more consultation with employers. Coding centres are being established at each of Morocco’s 12 universities to boost digital skills.
Overall investment in Morocco has been strong, although the per capita capital stock is lower than in more advanced economies (Figure 2.12), but it has been driven by public-led investment and efficiency has been low. Investment efficiency, measured by the incremental capital-output ratio (ICOR), has improved, but it is lower than in many OECD countries and Egypt or Tunisia. Low investment efficiency (Harbal and Khihel, F., 2023[12]) suggests that capital is not allocated where it is most needed; the structure of investment is tilted toward less productive types (such as real estate), or that the framework conditions are not in place to achieve the best returns. The rate of return on capital was relatively high until the 1980s (above 20%), reflecting the scarcity of capital, but then fell somewhat and since then it has been fluctuating between 15-18% (Figure 2.12). This fluctuation may also be related to the relative scarcity of skilled labour as the capital stock is expanding (Ezzahid and A. Nihou, 2017[13]). The rapidly growing population will require a rapidly increasing capital stock to maintain productivity levels, as will the energy transition and the aspirations for greater participation in value chains. Over 2009-19, Morocco’s investment rate was high relative to the MENA region, but below very rapidly growing economies such as Vietnam (33%). However, for any new investment, the expected rate of return, including social return, is key to the effect on growth.
Note: Capital stock at constant 2017 national prices (in million 2017 USD). Real GDP at constant 2017 national prices (in million 2017 USD).
Source: Penn World Table, version 10.1, World Bank WDI and FRED.
A third of investment goes to industry, over a half to real estate and infrastructure, 10% to non-infrastructure services (e.g., retail shops, restaurants and hotels) and 2% to agriculture (Figure 2.13). A potential factor leading to lower investment efficiency is a relatively high share of non-infrastructure services investment, which may not have the same productivity impact as investment in infrastructure or industry. Another is the large share by the government and state-owned enterprises (SOEs). Over half of gross fixed capital formation in 2022 was by the enterprise sector, over a quarter by households and a sixth by the government sector (Figure 2.13). However, 2022 appears to be unique in terms of the high private share of investment: the government sector invests more than the OECD average in normal years, contributing to relatively good infrastructure for the level of development (Figure 2.14). A quarter of government investment is done by sub-national authorities; most of the rest is disbursed by the general government budget directly, by autonomous service providers (SEGMA or Services de l’État Gérés de Manière Autonome) or non-commercial SOEs (EPA or Etablissements Publics à Caractère Administratif). A large share of private investment is carried out by SOEs (EEP or Entreprises et Établissements Publics) and over half of that by just three: Office Chérifien des Phosphates (OCP), the National Bureau for Electricity and Drinking Water (ONEE) and the renewable energy company Masen (2023 Budget Law).
Note: Panel B: Corporations include financial and non-financial firms. NPISH stands for non-profit institutions and households and GFCF for gross fixed capital formation. Data for Tunisia refer to 2017.
Source: CEIC database, OECD (2023) National Accounts at a Glance, and Haut Commissariat au Plan.
Note: Score for infrastructure 0-100, data for 2019.
Source: World Economic Forum – Global Competitiveness Index.
The high share of publicly controlled investment contributes to the low level of efficiency of investment. To help address this, the government should focus on areas where the social returns are high, such as environmental infrastructure or rural roads, and ensuring value-for-money. Where the private returns are high and cash flow streams can be realised, such as transport or water infrastructure, private investment should be encouraged by implementing measures to remove barriers and create better framework conditions for private investment. The Special Commission working on the New Model of Development called for raising the private share of investment: it proposed two-thirds of private investment in the total as a goal relative to an assessment of it currently being around one-third, although the basis for these figures is not set out (Special Commission on the New Development Model, 2021[14]).
Public investment could be made more efficient
Public investment plays a vital role in the country’s socio-economic development. Infrastructure should support productivity directly and through spillovers to other sectors but this depends on the efficiency of the investment. Most large infrastructure projects, for instance, the Tanger Med port or the high‑speed train benefitted from foreign aid. While multilateral lenders may apply high standards for investments, some foreign donors do not. In recent years, Morocco has made great efforts in terms of public investment as a tool for social upgrading, reducing social and spatial disparities, and opening up difficult-to-access areas.
An OECD report identified four areas of improvement regarding the public investment management system: (i) a strategic vision should be created to express Morocco’s priorities across sectors; (ii) project preparation and appraisal should be systematic, with thorough ex-ante analyses (such as cost-benefit analyses), especially for strategic projects; (iii) criteria for prioritisation should be clarified and standardised in each sector; and (iv) financial and physical monitoring of project implementation as well as ex-post evaluations should be strengthened. Indeed, the domestic public investment process lacks ex-ante cost-benefit analysis, which can lead to the realisation of inefficient projects and wasting of public funds. Ex-post analyses exist, but they are not done in a consistent manner (Boussouf and Seghyar, N., 2023[15]).
Moreover, public investment in Morocco is treated as one of the items in the budget among others and, besides the budget department, there is no specialised department on investment strategy. A new ministry, the Ministry of Investment, Convergence, and Public Policy Evaluation (MICEPP), was established in 2022 to focus on increasing investment and improving the business climate. Following the launch of the New Development Model, line ministries have developed sectoral plans but ministries often operate in silos and an overarching investment strategy could help realise synergies across sectoral plans. The experience of countries that have rolled out large-scale infrastructure in a short period suggests that an overarching strategy overseen by a single agency could help in determining the sequencing and avoiding overlap of infrastructure projects: this could be helpful for Morocco.
A challenge to effective public investment comes from the low execution rate of investment projects at 40% at the local level (vs. 75-80% at the central level). The central government has higher execution rates partly due to its dispatched agents at the local level. For instance, the Agency for the Promotion and Development of the North (APDN) supports the local implementation of central projects under its jurisdiction and brings technical expertise, but such agencies are not found across the whole country. At the regional level, the Agences Régionale d’Execution des Projets (AREPs) are in charge of project execution and there is some heterogeneity in performance across regions. To increase local execution rate of investment projects, more technical support could be provided to regions or the central government could execute investment projects on behalf of local governments where there are capacity constraints to do so.
Foreign investment is a key source of capital and know-how
Foreign investment has steadily increased over the past decade contributing to efficiency gains, while transferring technology and skills. 29% of industrial capital in firms with at least 10 employees (or at least MAD 100 000 sales) in 2022 originates from overseas (Ministère de l'Industrie et du Commerce, 2023[4]). The composition of the FDI stock reflects historical and cultural linkages with France having been the largest investor for decades and recent rapid growth in investment from the United Arab Emirates. Most foreign companies invest in manufacturing (with automobiles and pharmaceuticals receiving large shares), followed by real estate, telecommunications, tourism, energy and mines (Figure 2.15).
Inward FDI stock by sector
Source: Office des Changes.
Morocco has successfully attracted key industries and avoided the natural resource curse, despite large phosphate and other mineral reserves, in particular through attracting large foreign inward investments in automotive and aerospace activities, bringing also a network of suppliers into the country. Both started at labour-intensive stages of manufacturing processes, building on abundant labour supply stemming from favourable demographics as well as cost and geographic advantages. Further upgrading of production and moving significantly up the value chain will be required to ensure catching up with the advanced economies and to avoid falling into the “middle-income trap” (OECD, 2014[16]).
The value-added of Morocco’s industrial sector could be increased by moving into more sophisticated products. Economic diversification needs to accelerate to build up knowledge and skills in increasingly higher value-added industries. To be able to produce and export more sophisticated products, the skills and facilities need to be in place and the costs of production need to be at internationally competitive levels. While there was a clear increase in the number of products with revealed comparative advantage over the 2000s (indicating growing diversity of exports), this trend reversed, and in particular after 2015, there have been fewer products with comparative advantage than in 1995 (Figure 2.16). This could be explained by competitors’ faster improvements of competitiveness. In 2022, there were about 400 products (at the 6-digit HS classification level) where Morocco has comparative advantage, compared to nearly 650 in 2009. This number is of a similar magnitude as those in Egypt or Tunisia, but they are countries that managed to increase the number of products over time.
Revealed comparative advantage in export products versus per capita income levels, 1995-2022
Note: OECD calculations based on HS 6-digit data of 5613 products.
Source: World Bank WDI and OECD calculations based on UN Comtrade, United Nations Commodity Trade Statistics (database).
However, the sophistication of exports could be increased: the share of high-technology exports in goods exports (defined as high-R&D-intensity goods (Galindo-Rueda and Verger, 2016[17])) suggests that Morocco’s share of high-tech exports was relatively low at 6% in 2021 and had fallen over the past 20 years from 7.7% (Figure 2.17), while the share of medium-high technology exports doubled to over 50% and of medium-tech exports remained broadly stable at 5%. Morocco’s population is large enough to produce and become competitive in a greater number of more sophisticated products. While medium-high technology industries are important to employ large numbers of people with moderate skill levels, high-tech industries drive the technology and knowledge spillovers that would contribute to the catching up with more advanced economies.
Note: The definitions are based on R&D intensity and can be found at https://www.oecd-ilibrary.org/science-and-technology/oecd-taxonomy-of-economic-activities-based-on-r-d-intensity_5jlv73sqqp8r-en.
Source: OECD calculations based on UN Comtrade database.
There are opportunities to develop higher value-added activities in several sectors
The automobile industry will undergo substantial transformation in the coming decade with the transition from combustion engine-based to electric vehicles. To maintain its place as a key player in the global car industry, Morocco should anticipate and adapt to these global trends. It has not specialised in the production of combustion engines and many of the automotive components produced in Morocco will also be needed for electric vehicles. Two large Chinese investments to produce chemical parts of batteries are underway. Morocco has a potential advantage through its phosphate production, which is an input in some EV battery technologies, and from its high potential for renewable energy production.
The green transition on a global scale creates opportunities for mineral-rich countries like Morocco. While the country already has a relatively large mining sector, mostly based on its global leader phosphate industry, it has a great potential to integrate into emerging new clean energy and new industry value chains (Conseil Économique, Social et Evironnemental, 2023[18]). It has massive deposits of manganese, which can increase the storage capacity and expand the life span of lithium-ion batteries, confirmed deposits of cobalt, zinc, nickel, copper, lead, fluorine and many other minerals (Conseil Économique, Social et Evironnemental, 2023[18]) and is well placed to get integrated in value chains forming in Africa. The new mining law of 2016 reduces uncertainty by expanding the length of mining licenses from four to ten years and removing the limit on the number of renewals (which used to be up to three times) and abolishes mining concessions that used to be granted for a period of 50-75 years. Unlike the long-term concessions granted in the past, more than 2 000 new licenses are now published, and in 2021, 2 436 revoked or renounced mining permits (122 operating licences and 2 314 research permits) covering a total area of approximately 33 000 km2 have been reattributed, thereby increasing transparency. But uncertainty remains around the granting of mining licences as the reasons for rejection are not specified. Attracting industries that process those and produce inputs into newly emerging industries would lift the value added and create more and better paying jobs, although care is needed in managing the environmental and social impact of expanded mining activities.
Morocco’s relatively low productivity is often attributed to the relatively high share of services. Tourism plays a major role in service exports, drawing on extensive labour in Morocco and its cultural and natural assets. However, there is scope to further develop higher quality and more sophisticated tourism offerings, which has been improving, including as hosts of the 2030 Football World Cup. This requires investment, know-how and a more skilled work force. More widely, the expansion of sectors that require high skills and can significantly boost productivity in other sectors, such as information technology or business services, would work towards moving up the value chain. Training a large pool with those skills would be the first step to expand those industries and by increasing their value added, also boosting overall efficiency as they are used as inputs economy-wide.
Morocco’s agricultural sector plays an important role in the economy and employment. The industry is undergoing a transition with challenging weather conditions, including extended droughts, severe water scarcity (see the Key Policy Insights chapter), and the continued role of small-scale farming (OECD, 2017[1]) (Mahdi, 2014[19]) and reliance on outdated farming techniques. However, higher-value added products, like fruits, are increasingly being produced and exported in large quantities, mostly to Europe, and improved techniques are becoming more common. While higher-value added products are labour-intensive and ensure greater income for farmers, they are also more water-intensive and can contribute to the depletion of underground water resources. Increasing value-added in agriculture is supported by the Green Generation 2020-30 initiative, which aims at boosting competitiveness of agribusinesses including by connecting 2 million farmers with electronic agricultural services. Large agribusinesses with revenue over USD 500 000 are eligible for a lower corporate income tax rate of 20%. A key direction is to fill the gap between agriculture and agro-industry, which is targeted by the “Food 70” initiative, focusing on packaging and localisation. Diversifying production and finding niche markets are seen as ways to upgrade the agricultural sector. Scaling up and automation would also help in lifting agricultural productivity.
Openness to trade and investment remain key
Morocco has prioritised open trade policies, including through free-trade agreements with the EU, the US, Türkiye and several Arab countries, covering all industrial goods and some other areas. However, tariffs were increased on finished goods from non-FTA countries as part of the COVID-19 recovery plan. The average most-favoured-nation (MFN) tariff level has been brought down significantly over the past 15 years and is close to Jordan’s, significantly lower than Egypt’s or Algeria’s, but higher than in most OECD countries and major emerging market traders like China, Thailand or South Africa. MFN tariff levels should be reduced further to lower prices for consumers and the cost of inputs for domestic producers, increasing their competitiveness. Lower tariffs on imports of inputs would facilitate greater integration into existing and newly forming value chains.
Simple mean most favoured nation tariff rate
Note: The simple mean most favoured national tariff rate is the unweighted average of most favoured nation rates for all products subject to tariffs calculated for all traded goods. Data are classified using the Harmonized System of trade at the six- or eight-digit level. Tariff line data were matched to Standard International Trade Classification (SITC) revision 3 codes to define commodity groups.
Source: World Bank WDI and World Tariff Profiles 2023 databases.
Cross-border investment is seen as a two-way process with significant efforts to attract inward FDI, but also encouragement to Moroccan companies to invest abroad, notably in Africa (Box 2.2). Incentives will be provided for companies venturing overseas under the Investment Charter with a plan expected in 2024. Until now, such support was mainly in the form of trade diplomacy and investment agreements, promotion of activities and export guarantees. The major strategic target is Africa, where 43% of Moroccan outward investment goes. Moroccan companies’ expansion in Africa is supported by both industrial and international investment policies. Offshoring has featured as a priority throughout several vintages of industrial plans, including the Pacte National pour l’Emergence Industrielle (PNEI) 2009-14 and the Plan pour l’Acceleration Industrielle (PAI) 2014-20. Morocco has implemented bilateral investment treaties with nearly a dozen African countries.
Morocco attaches a high priority to further developing its trade and investment links to the wider Africa region, which is expected to grow rapidly in the years ahead. The major international container port at Tanger Med and other interconnections could act as a key transport hub for the region.
Trade with the region has historically been limited but is growing at a fast pace with exports up more than 15-fold between 2000 and 2021, with chemical fertilisers and food as key export products. Meanwhile, export variety has also increased substantially with Morocco’s share in total export product categories to the region rising from 35% to nearly 70%, exporting more than 2 000 unique products (HS6) as of 2021 (Figure 2.19., Panel A). However, trade with Sub-Saharan Africa remains modest and constitutes 6% and less than 1% of total Moroccan exports and imports respectively.
The African Continental Free Trade Agreement (AfCFTA), which Morocco ratified in 2022, is set to further deepen trade links with the region with Morocco’s automotive sector envisioned to be a major beneficiary from expanding export access through tariff reductions and access to critical minerals (CFC, 2024[20]).
With outward investment stocks at nearly USD 3 billion in Africa as of 2022, Morocco is the largest African investor in West Africa (Panel B of Figure 2.19., Panel B) with investments concentrated in the real estate, telecommunications, and industrial sectors (OCP Policy Center, 2017[21]). OCP, for example, operates in more than 15 African countries outside Morocco, investing in fertiliser plants and distribution networks to support agricultural production. Moroccan banks also have a significant presence in West Africa, with a nearly 30% share in its banking market. Additionally, Maroc Telecom now serves more than 50 million users in the region outside Morocco. Recent investments in the pharmaceutical and cement sectors highlight broadening economic links with the region (DEPF, 2018[22]) (IFC, 2024[23]). To facilitate intra-regional investment links, Morocco established Casablanca Finance City (CFC), an economic and financial hub, to serve as a gateway for companies interested in investing and operating in the region.
1. Number of product categories exported to Sub-Saharan Africa as a share of total exported categories
Source: WITS and IMFCDIS databases.
The Charte de l’Investissement introduces a range of new measures to support private investment
Increasing private investment is key to building up a large and more productive capital stock to raise living standards, move up the value chain and create decent jobs for the young entering the labour market, as well as to manage the challenges of the green transition. The government has launched a major initiative to support business investment through the new Investment Charter (Charte de l’Investissement), which includes financial supports and efforts to improve the business environment (Box 2.3). The management of these initiatives has been improved with the creation of a new Ministry (MICEPP, see above), as well as making the regional investment centres and committees - that were set up in 2002 – key actors. An environment conducive to entrepreneurship in terms of removing red tape and making land available is indispensable for private participation in capital investment and ensuring that capital yields good returns. The government has set an overall job creation objective for the New Charter of 500 000 jobs between 2022-26 and a target female participation rate of 45%. The fiscal costs of the subsidies are estimated to amount to MAD 3.3 billion in 2024 (or 0.2% of GDP) according to the 2023 budget document. Other objectives include raising private investment and gearing investment towards less developed regions and existing higher value-added industries and value chains. The new Mohammed VI Investment Fund set up by a transfer of MAD 15 billion from the central government budget and aiming to attract MAD 30 billion from private investors, including domestic and foreign as well as international institutions, has a wide range of objectives to invest in different activities and support investment. Priority areas for the funds are industry, infrastructure, agriculture and tourism.
The adoption of the new investment charter in Morocco (Framework Law 03-22) in 2022 aims to boost private investment, both domestic and foreign, by MAD 550 billion (ca. EUR 50 billion) and create 500 000 jobs by the end of 2026.
This new investment charter, following a previous Charter in 1995, responds to the recommendations of the New Development Model and the government programme 2021-2026, which considered investment as the key driver for economic revitalisation, and set nine fundamental objectives: creating stable jobs, reducing territorial disparities, directing investment towards priority sectors and future professions, enhancing the country’s attractiveness to become a regional hub for foreign direct investment, encouraging exports and the internationalisation of Moroccan companies, promoting the substitution of imports with local production, achieving sustainable development, improving the business climate and facilitating the investment process and increasing the private share of investment.
The Charter is structured around three pillars: (i) four investment support mechanisms, (ii) improving the business climate, and (iii) unified investment governance at the regional level.
The Charter establishes a comprehensive system of investment supports, revolving around a main support mechanism and four specific bonus mechanisms, covering all project categories and actors.
First, the main investment support mechanism offers a total subsidy of up to 30% of the investment amount subject to two eligibility criteria: either exclusively the number of stable jobs created, which must be more than 150 jobs, or jointly the amount of investment (greater than MAD 50 million or EUR 5 million) and the number of jobs created above 50. This mechanism sets:
(i) five general bonuses that can be combined:
(1) jobs created/investment ratio (5% for a ratio >1 and ≤1.5; 7% for a ratio >1.5 and ≤3; 10% for a ratio >3),
(2) a gender criterion (3% if the female payroll is >30%),
(3) future jobs and upgrading of sectors (biotech, 5G, EV, fintech, aerospace, etc.) (3%),
(4) sustainable development (3% if using an energy efficiency system or renewable energy),
(5) local integration (3% depending on the level of participation of suppliers established in Morocco in the production activity of the investor; min. 20% of local integration is required in the agri-food, pharmaceutical or medical devices sectors, and 40% for other manufacturing activities).
(ii) a territorial bonus: a 10% bonus for investments made in Category A provinces or prefectures, and 15% for those in Category B, as defined in the Investment Charter framework. Some more developed provinces or prefectures do not benefit from this bonus.
(iii) a sectoral bonus: a 5% bonus for eligible investments made in priority 9 sectors (tourism, industry, digital economy, transport, outsourcing, logistics, cultural industry, aquaculture, renewable energy, and waste recycling).
General, territorial, and sectoral bonuses can be combined up to 30% of the investment amount. The maximum subsidy for renewable energy projects is MAD 30 million (EUR 3 million).
Second, the support mechanism for strategic projects applies to projects in the defence industry or projects with an investment amount exceeding MAD 2 billion (EUR 200 million) that (i) contribute to ensuring Morocco's water, energy, food, or health security, (ii) significantly impact employment, (iii) support Morocco's economic influence and strategic positioning internationally, (iv) have spillover effects on the sectoral ecosystems or, (v) significantly contribute to the adoption of cutting-edge technologies.
Third, the specific support mechanism for the development of Moroccan companies internationally is designed to promote Morocco's economic influence internationally, particularly by directly supporting Moroccan investments in Africa. The support is subject to conditions, including not causing any domestic job losses.
Fourth, there are specific support mechanisms dedicated to micro-, small- and medium-sized enterprises.
Currently, projects aiming to benefit from subsidies are submitted through regional investment commissions (Commission Regionale d’Investissement, CRI) with their opinion for approval by the National Investment Commission (Commission Nationale d’Investissement, CNI) chaired by the Head of Government. According to a new proposal, expected to be approved in 2024, projects below MAD 250 million will be approved by the CRI directly.
Source: Morocco’s Government’s Bulletin Officiel 15 December 2022.
The New Investment Charter replaces all other incentives at the national level and, as the subsidies are linked to explicit criteria, it increases transparency and reduces the scope for corruption. The top-up of private investment by government funds is a fundamentally new approach relative to the old charter, which focused on tax exemptions and land provision. The single window and single contact person in the new investment process increases efficiency and reduces the scope for corruption with the process itself online. However, additional incentives provided at the sub-national level are not systematically disclosed across all regions and remain subject to negotiation with potential investors. Publishing information on incentives at the sub-national level across all regions in a comprehensive manner would improve transparency, accountability and reduce risks of corruption, as well as reducing the risk of unnecessary competition between regions.
Since coming into force in May 2023, the National Investment Commission (Commission National d’Investissement, CNI) has approved over a hundred projects with an estimated value of MAD 173 billion and commitments to create over 96 000 jobs as of June 2024. The overwhelming majority of approved investment is by domestic companies. The total value of approved investments has reached 31% of the target for 2022-26, although only 19% of the employment objectives. As of June 2024, implementation of 90% of the projects announced during the first four meetings of the Commission had started. While the progress on approvals has been encouraging, it is too soon to assess how many of those projects will fully materialise and it will be important to publish such information in a timely way to gauge the impact of the new Charter.
Given the large mobilisation of public resources, it will be important to evaluate individual projects ex ante, as well as ex post, together with the performance of the programme as a whole. Given that the programme does not focus on incremental investments, there is a risk that supports are directed towards projects that would have taken place in any case. The effectiveness of the incentives to direct investment to particular activities and regions, like other industrial policies, will need to be carefully examined. Sectoral supports should be balanced to ensure an appropriate portfolio of risks and developing both new and existing activities and with a view to ensuring job creation and expansion of both high- and medium-high technology activities. A risk of using subsidies to attract foreign investment by internationally mobile firms that hop across countries in search of greater incentives looms large. Such firms may exit the country before the incentives expire (Amachraa and Quelin, 2022[24]) and therefore contribute little to the country’s longer-term development. Industrial policies are also becoming increasingly common in OECD countries. While some may contribute to nurturing new industries and boosting competitiveness, they need to be evaluated on the basis of their cost efficiency (Millot and Rawdanowicz, 2024[1]).
Mobilising land for private investment
Land is a key factor of production for investors, be it large or small, hence its ownership should be transparent and its acquisition efficient. Land ownership in Morocco is complex (Box 2.4) with multiple systems and usufruct rights. Only 30% of the land is registered in the formal system and the rest is unregistered. Unregistered property is based in particular on adoular acts of ownership, which only issues a certificate of presumed ownership of unregistered land with the purpose to establish land titles, but such certificates per se do not constitute proofs of land titles. The use of such land involves legal risks of expropriation by the legally established owners. Land titles are not always established, for instance in the case of deserts or mountains or so-called “dead lands” which, by definition, belong to the state. In addition to disputes related to lack of registration, another major source of disputes is indivisibility of land with multiple owners, which can be a constraint to land mobilisation for investment.
Land in Morocco is classified essentially into four main categories:
1. State land, which includes land owned and/or managed by the state. It consists of (i) public domain, (ii) private domain, and (iii) forest domains of the state, (iv) guich lands (around major cities donated to those tribes for their military services in the past), and (v) habous lands (donated for charity purposes and managed by the Ministry of Habous and Islamic Affairs).
State-owned public domain covers major infrastructures such as road, rail maritime, port, river or hydropower.
2. Collective land of ethnic communities distributed among members for use and whose supervision is ensured by the state (Ministry of Interior). Law 62.17 promulgated in 2019 opened the way for the transfer of ownership (melkisation) to the rights holders of land located outside the irrigation perimeters in the same way as those located in these perimeters, with the purpose of better use of these areas and their full integration into productive activities. Most collective land are located in rural areas, thus the 2019 new law that made possible the transfer of collective land increased dynamism in the agricultural land market.
3. The domain of local elected bodies and authorities, consisting of lands owned and managed by territorial bodies (region, province, and commune), similarly to state-owned land, can be of public and private domains.
4. Melk lands (private lands) are all lands and properties owned by individuals and legal entities under private law.
Property rights can be divided into various types of rights (bare ownership, usufruct, enjoyment, etc.), which gives rise to compensation for all the holders of these rights in the event of sale of the property. Usufruct rights are most common in the case of collective land, and it is not sufficient to get the agreement of the owner to purchase the land chosen by an investor, but at the same time the usufruct right also needs to be purchased. In the case of local bodies, both need to go through the council. Usufruct rights, however, can be rented out for a determined period of time.
The way land is mobilised often depends not only on its type but also the nature of the project. For instance, if land is mobilised for real estate development, then it is sold to the developer so that the developer can resell it. Non-agricultural state land can be mobilised through transfer, rental or temporary occupation (in particular for the public domain and forest). In contrast, agricultural land is leased from 17 up to 40 years with the possibility of extension. Agricultural land lease is done through tenders or direct negotiation via the Agency for Agricultural Development, which acts as a one-stop shop for agricultural investment. For private properties (Melk lands), their mobilisation for investment projects can take various forms given that the property belongs to persons under private law.
Source: Interviews with Moroccan authorities.
Conversion of land for investment purposes always needs to be authorised by the Unified Regional Investment Commissions, no matter whether it is privately, collectively or publicly owned. Land with strong cultivation potential cannot be converted, nor can forest land, land designated for public amenities or green zones (Law 47-18). In rare cases, there can be exceptions. Some types of land, such as the habous (managed by religious authorities) are difficult to acquire.
Nearly 13 500 hectares were mobilised in 2023 for 466 investment projects (excluding the agricultural sector) with total investment of MAD 37.7 billion. During the same year, nearly 3 841 hectares were mobilised for 179 agricultural investment projects worth MAD 685 million in the form of agricultural partnerships. In 2022, 99.3% of land mobilised for investment was undertaken through a lease. Apart from the mobilisation of land belonging to it, the state can also resort to expropriation, for reasons of public utility, public infrastructure projects or investment projects of a strategic nature, in accordance with the legislation and regulations in force. Examples include the industrial zone in Jorf Lasfar or the new town of Zenata.
Morocco has engaged for several years in a reform process with a view to make land policies consistent with other public policies. State land policy and its role in economic and social development were discussed in December 2015, followed by a set of reforms. A new legal framework for the lands of ethnic communities was created in 2019 aimed at improving their governance and encouraging their appropriation by rights holders for better development of these lands, while respecting transparency and of gender inclusion. The recognition of land ownership by Soulaliyate women has unleashed this potential while also representing a step towards economic inclusion of women.. Other reforms have also been put in place, such as the new industrial zones, while others are underway (for example, a draft code for the private domain of the state and a draft law on forests).
Transparency should increase in the land registration system by finalising the establishment of land titles, including all forms of unregistered land. The transfer of collective land to the beneficiaries embeds a large potential given its large size and as new owners have greater incentives to invest in the land or to start up their business by collateralising it or transferring its ownership or usufruct right. Information about land availability and conditions for leasing or acquisition should be disclosed to investors.
Improving the business climate would support private investment and higher productivity
More ambitious efforts to improve the business climate would remove barriers to investment and support the objectives of the Charte de l’Investissement and create new opportunities for businesses, as well as facilitate the reallocation of resources to the most productive parts of the economy. This is recognised by the Moroccan authorities and the National Committee for the Business Environment (CNEA), which plays an important role in driving forward a number of initiatives (Box 2.5).
The National Committee for the Business Environment (CNEA) was created in 2010, with the mission “to propose to the government measures likely to improve the environment and the legal framework for business, to coordinate their implementation and to assess the impact on the sectors concerned".
Chaired by the Head of Government, the CNEA is made up of: all the ministerial departments involved in the business world, the Haut Commissariat au Plan (HCP), the Bank Al-Maghrib, the General Confederation of Moroccan Businesses (La Confédération Générale des Entreprises du Maroc or CGEM), the Professional Group of Banks of Morocco (Le Groupement Professionnel des Banques du Maroc or GPBM), the national authorities having jurisdiction over business (competition, prevention of corruption) and the federation of chambers of commerce. The private sector, the final “client” of the reforms carried out by the CNEA, is involved in its work through consultations.
To further improve the business environment, the Government established a 2023-2026 roadmap which is structured around three main pillars and one transversal pillar, along with ten priority initiatives.
the first pillar is about building an institutional framework, including strengthening the business law framework, administrative simplification and better coordination and monitoring;
the second pillar comprises mobilisation of funds, greening the economy, enhancing access to land and improving logistics;
the third pillar covers support mechanisms for microenterprises and startups, innovation and upgrading of human capital.
The transversal pillar aims to reinforce ethics, integrity, and corruption prevention.
Source: Comité National de l’Environnement des Affaires (CNEA).
Setting up and closing a business has become easier due to major legislative changes on both fronts. Setting up a business can be done online since 2021 (electronic creation of business law 18-17), via a platform managed by the industrial and commercial property registry (L'Office Marocain de la Propriété Industrielle et Commerciale or OMPIC) through a one-stop shop for creation, registration and publication of company data. Fees have been reduced and the minimum capital requirement for limited liability companies has been abolished. Furthermore, within the regional investment centres, the Unified Regional Investment Commissions were established as one-stop-shops for investment. Foreign companies are generally treated on an equal footing but are required to provide an Arabic-translated copy of their articles of association and an extract of the business registry in their country as well as notify the Office de Changes. Some procedures, however, remain cumbersome, for instance renewing visas and permits for foreign personnel may involve significant delays, which may take up to six months in some cases (U.S. Department of State, 2023[25]). Procedures in the Casablanca Finance City are streamlined to a few days. To reduce the costs of setting up a business by foreigners, the submission of all the required documents and all the required notifications should be allowed online. Electronic visas have been introduced in 2023, but long-term visa and permit renewals could be made more efficient.
In terms of entrepreneurship, a new status of self-employment was created in 2015 (Law 114-13), replacing the requirement for all freelancers either to register a firm (including limited-liability companies) or practice informally. The programme “Ana Moukawil”, initiated in 2023, supports 100 000 entrepreneurs until 2026 and comprises a component aiming at formalising economic activities by subsidising rental of commercial space, consultancy, accountancy, and other services. Currently, there are about 2.7 million established entrepreneurs in Morocco (a quarter of all employed people). However, 70% of entrepreneurs operate informally. This share is higher in rural areas, reaching 95% in Drâa-Tafilet region, but still as high as 63-64% in Casablanca-Settat (African Development Bank, 2023[26]). Entrepreneurs should be incentivised to formalise as, most importantly, informality cuts them off from external financing and therefore constrains their growth potential. Many of them may be operating below the optimal scale in a lack of financing, leading to low productivity. As in the case of companies, individual entrepreneurs should be subject to a combination of incentives and stricter enforcement (see Chapters 1 and 3). One-off moratoria with the foreshadowing of future sanctions can contribute to reducing informality (OECD, 2023[27]).
Allowing unproductive firms to close is important for business dynamism and to avoid workers and capital to be stuck in zombie firms (Adelet McGowan, Andrews and Millot, 2017[28]). Multiple measures have streamlined the framework for handling distressed firms in Morocco. However, the emphasis is more on supporting such firms than achieving exit, which carries the risk of taking up resources that could be directed to more efficient use. Law 73-17 in 2018 (amending Book V of the Commercial Code) adopted Chapter 11-type protection for distressed firms, introduced safeguard procedures for companies seeking legal protection and established a creditors’ assembly. Commercial courts at the location of the debtor’s business have jurisdiction over insolvency cases. The seniority order of priority in insolvency cases starts with secured creditors, followed by unsecured creditors before equity holders. To speed up the judicial process, deadlines have been proposed for different case types and, while not respecting the deadline will not have a bearing on the process, judges’ performance evaluation will consider it, thereby incentivising efficient handling of cases.
Administrative processes are being moved online and streamlined, which can boost efficiency and reduce transaction costs related to corruption as discussed in the Key Policy Insights chapter. The enterprise sector is yet to embrace digitalisation: not only small, but even many larger firms do not have a website and selling or buying online is not common. Following the 2020 Simplification of Administrative Procedures Law 55-19, document requirements are being standardised and unnecessary procedures eliminated (OECD, 2023[29]). The Law aims at full digitalisation of government services and procedures within five years. The National Administration Portal (Idarati) launched in 2021 serves as a digital platform for the administrative simplification process. Other portals are up and running to facilitate doing business, namely the "Chikaya" National Claims Portal, the "Chafafiya" Transparency and Access to Information Portal and the Public Services Geolocation Portal. Application and issuance of licenses are similarly digitalised. 22 administrative acts have been simplified and digitised via the “CRI invest” electronic platform, enabling a 45% reduction in the documents required for investors.
State-owned enterprises are dominant in many sectors
State-owned enterprises (SOEs) play a dominant role in several industries. While this may address market failures and allow these firms to implement policies toward public policy goals, high public ownership carries the risk of crowding out private sector investment and can be prone to inefficiencies. In OECD countries, an explicit public policy objective usually needs to be identified to justify public ownership of companies, and such firms are mostly found in natural monopoly industries (OECD, 2015[30]). In Morocco, the scope of the public sector goes well beyond these natural monopolies. Even after liberalising SOE markets, the state remains heavily present in inherently commercially-oriented activities, such as the marketing of seeds or the production of animal vaccines (El Bazzim, 2023[31]), SOEs compete with private firms in several sectors. A key issue is how SOEs are governed and whether this ensures their efficiency and defines their role in the economy in an appropriate way.
Administrative monopolies have been created by administrative statutes to grant exclusive rights to specific firms to deliver certain goods or services or to explore and excavate certain minerals. An example in case is phosphate extraction, where exclusive right is granted to OCP (originally called the Office Chérifien des Phosphates), a firm with 94.12% state ownership. OCP is run primarily on commercial grounds and is a successful and innovative company, but also engages in activities that go beyond mining and processing (Box 2.6). Given the company’s monopoly of phosphate excavation and the potential externalities related to pollution as well as inter-generational equity considerations, it should be ensured that the population is protected from negative externalities and benefits from this major asset.
Established in 1920, the Office Chérifien des Phosphates (OCP Group S.A.) is a Moroccan state-owned company and one of the world's largest producers of phosphate and fertilisers. Since the early 2000s, it expanded its activities from mining to cover the entire phosphate value chain, including extraction, transportation, industrial processing and storage, and distribution and sales. With 70% of the world's phosphate reserves, OCP has significant market shares in phosphate rock (19%), phosphoric acid (35%), and phosphate fertilisers (26%) exports.
OCP accounts for 3.2% of Moroccan GDP. It accounts for 1.6% of employment in industry and 43% in mining. The group’s investment makes up 11% of overall investment in Morocco.
In addition to its industrial and commercial activities, the OCP group plays a major role in the socio-economic development of Morocco by promoting programmes for industrial SMEs to deepen their integration into value chains (e.g. technology transfer and knowledge sharing, support for local entrepreneurship), conducting community development initiatives (including initiatives to improve access to healthcare, water, infrastructure, and other essential services), investing in education and training (Mohammed VI Polytechnic University, scholarships, training programs, etc.).
Source: Rapport d’activité OCP 2022 and Présentation de la stratégie verte OCP 2027.
An on-going reform is reclassifying state-owned enterprises according to the nature of their activities. Some SOEs function both as an agency delivering public goods and services and as a profit-seeking entity: it is crucial that commercial and non-commercial activities are clearly separated and that the non-commercial activities are compensated on competitive terms. Commercial SOEs should face hard budget constraints, otherwise implicit and explicit guarantees by the government risk tilting the playing field in their favour at the expense of private sector development. Currently, many SOEs in Morocco benefit from government transfers in the form of capital injections and support to their current and capital spending (see the Key Policy Insights chapter). Beneficiaries of capital injections in recent years include the national airlines, the railway operator, and the national tv and radio broadcaster.
In Morocco, part of the state-owned sector consists of public agencies delivering public services and receiving regular budget support, which are supervised by various ministries and government agencies, including the Ministry of Economy and Finance. The other part is the commercially oriented SOEs that are being incorporated and categorised as state-owned enterprises. Currently, there exist 57 such enterprises and there are a further 26 that are in the process of conversion into commercial SOEs. In addition, there are 21 SOEs at the local level. An effort is being made to more clearly differentiate commercial and non-commercial SOEs and to improve the governance framework. Most commercial SOEs in Morocco are now governed by a special agency under the Ministry of Economy and Finance, ANGSPE, established in October 2022 (Law 82-20). The objective of the agency is to better represent the interests of the state as a shareholder and to improve the performance and the governance of such enterprises. However, the Council of Ministers adopted key strategic directions for commercial SOEs in June 2024 that set a wide range of objectives for SOEs, including ensuring national sovereignty, a range of social objectives including encouraging national competitiveness and employment creation and active contribution to the reduction of regional inequalities. The multiplicity of objectives creates risks that it may be difficult to ensure they operate effectively or compete on any efficient basis with private firms. SOEs should follow the same stringency in reporting and disclosure requirements as listed firms, as OECD Guidelines on Corporate Governance of State-Owned Enterprises suggest (OECD, 2015[1]). A new code adopting best practices from the 2015 OECD Codes has been validated in May 2024 following a public consultation.
Boosting competition by strengthening independence of the Competition Council
Competition plays a key role in ensuring an efficient allocation of resources and low consumer and input prices. However, there are a number of sectors where competition in Morocco appears to be weak. These include buildings and public works, private higher education and sugar. Furthermore, key sectors for competition law assessment have included pharmaceuticals, online payment markets by debit card, private clinics and similar establishments, and wholesale markets for fruit, vegetables, red meat and fish.
The Competition Council became fully operational in 2018 and has been gaining a higher profile by increasing its investigative activities and enforcement actions. Before 2018, the Council served as a consultative authority without decision-making powers (El Bazzim, 2023[31]). Under the 2014 law, the Council is tasked with creating and maintaining a level playing field, as well as ensuring transparency and fairness in economic relations. Its independence is anchored in the constitution (article 166), although a government representative attends board meetings but does not have voting rights. Recent reforms have laid out more detail on the procedures to investigate anti-competitive practices, the definition of market concentration and thresholds for merger activities, procedures for appealing the Council’s decisions (Law 40.21) and strengthened impartiality and independence of the Council (Law 41.21). The Council’s investigative, sanctioning powers and other tools are similar to those in EU countries with fines up to a maximum of 10% of turnover generated in Morocco. The independence of the Council should continue to be respected and could be strengthened by removing the government’s right to control prices in the interest of professional organisations. To ensure that the Council will continue to be headed by qualified people and protect its independence, the skills and competences of the chairperson should be enshrined in law as in many OECD countries.
The Council has undertaken sectoral investigations in several key sectors, such as wholesaling, professional services and banking, which have a strong impact on consumers, and this has supported enforcement actions. The Council plans to increase the output of these sectoral reports and to set up a unit dedicated to the regulated professions. Most of the Council’s work consists of monitoring and examining market concentration and there have been few investigations into anti-competitive practices and behaviour. In 2022, there was only one such case finalised. In 2023, the Council fined nine fuel companies a total of MAD 1.8 billion for anti-competitive conduct and price fixing, based on a 2022 sectoral report on the country's diesel and petrol market, and three companies have 60% market share. There have been a growing number of merger notifications. Most of the fines imposed by the Council (a total of 31 antitrust fines in 2022, amounting to MAD 72 millions, equivalent to EUR 7.2 millions) are related to failure of businesses to adequately report their merger and acquisition activities. The Council should continue to develop its activities and make full use of its investigative and sanctioning powers, including dawn raids, and ensure that fines have a dissuasive effect, given high concentration and low competition in many sectors. The Council’s remit should be extended to competition in public procurement markets and to cover as in many other countries the telecommunications sector, which is highly concentrated and where competition is regulated by the sectoral authority (the Competition Council chair sits on the board).
Equal treatment for foreign enterprises
Morocco has benefitted from FDI in terms of investment and employment for an open economy. As a signatory of the OECD Declaration on International Investment and Multinational Enterprises since November 2009, Morocco guarantees equal treatment to foreign investors with some exceptions. The OECD FDI restrictiveness index suggests that legal restrictions on equity ownership by foreigners or on the hiring of foreign personnel are low (Figure 2.20), but there are ownership restrictions in the services sector (OECD, 2024[32]), including in accounting and audit and business services. Air transportation is subject to a 49% cap. Foreigners can deliver architectural services conditional on authorisation, except nationals of Algeria, Senegal and Tunisia, who can practise without such an authorisation according to reciprocal agreements. Any restrictions on foreign firms in the business services industry may have an impact on other industries where these services are an input. The state reserves the right to limit all foreign majority stakes in the capital of large banks. Even though this has not so far been exercised, it can potentially create wariness of foreign banks to establish majority-owned subsidiaries or to acquire majority shares in domestic banks. The employment of key foreign personnel is liberalised in most industries.
Note: Index taking value between 0 and 1 with higher values indicating greater restrictiveness.
Source: OECD Foreign Direct Investment Restrictiveness Index database.
However, domestic companies have long enjoyed some preference in public procurement, and this has now been reinforced. A new decree from 2023 provides additional preferential treatment for domestic bidders (Decree No. 2.22.431). Supply and service contracts are now subject to the national preference principle (not only work contracts for studies as before). Moreover, national preference is no longer optional, but is an obligation. Since 1 September 2023, all work contracts up to MAD 10 million and supply and service contracts up to MAD 1 million are subject to a national call for bids. All companies established in Morocco can participate and as the law does not specify whether it has to be a registered subsidiary, this allows both foreign subsidiaries and branches to participate. In addition, the national preference principle does not apply to consortia, either, if the share of members established in Morocco is above 30% in the consortium. International bidders can participate in larger tenders only.
The national advantage in public procurement has been based on a price threshold, giving domestic bidders a 15% advantage on contracts for works and related studies (article 155 of Decree No. 2-12-349 as amended by Decree No. 2-19-69). To ensure advantage to national bidders, the foreign company’s offer is increased by 15% if the foreign offer is closest by excess to a reference price and there are no lower offers. While the reference price can serve as a benchmark, it can lead to collusion and hence higher prices. In some cases, foreign lenders’ presence helps in creating competitive procurement markets. For instance, applying EIB guidelines relating to universal eligibility and equal opportunities in procurement will help in creating a level playing field in procurement markets.
Encouraging formalisation would help firms to become more productive
High informality among firms and employment holds back Moroccan firms from being more productive. Informality sustains low-productivity and poor-quality jobs (see Chapter 3), as well as creating unfair competition for formal firms. Informal firms may find it difficult to scale up and become more productive as they have no access to formal financing and informal financial markets are not developed. Over half of Moroccan companies face competition from informal firms and this share has even increased over the past decade (Figure 2.21). Competition from informal firms is as widespread as in Jordan and Türkiye, though in Morocco more firms consider it a major constraint than in those two countries. Competing with informal firms appears to be a common issue across the MENA region with Tunisia even more affected, though Egypt to a lesser extent. Smaller firms are more adversely affected by informal competitors providing similar goods and services without having to assume social security costs for their workers or paying taxes. In transactions, the informal sector has an estimated advantage of 20-40% relative to the formal sector. This is a major constraint for about 40% of firms according to the World Bank Enterprise Surveys, somewhat lower than in the past, but still very high.
Source: World Bank Enterprise Surveys.
There have been significant efforts to formalise firms, in addition to the reforms to help formalise the labour market, including introducing a simplified tax regime to make up for unpaid taxes, paying social security, income taxes and local taxes as a lump sum. As part of an amnesty programme, 11 607 firms have been integrated into the formal system. This, however, is the tip of the iceberg as there are estimated to be nearly 1.7 million informal firms. In addition, 70% of the 2.7 million entrepreneurs operate informally. As informality is a constraint to growing and reaching optimal scale, formalisation needs to go beyond amnesty initiatives. While moratoria can be effective if they are one-off and deterring sanctions are expected in the future, the lack of sanctions and the expectation of further moratoria may deter potential formalisers. The right bundle of incentives and enforcement needs to be enacted, where formalisation per se brings about the benefits that should be sought after by firms such as access to external financing, refund of VAT on inputs, access to public contracts and all the reputational effects. An effective way of reducing informality in the economy is the enforcement of direct linking of cash registers with the revenue authority, requirement to issue receipt of any revenue and moving transactions digital (OECD, 2023[27]).
Supporting SMEs & micro firms to upscale
A key challenge for Morocco is the prevalence of smaller firms, which find it hard to invest and innovate. Morocco’s SMEs and micro firms are adversely affected by multiple institutional and structural deficiencies: including (i) the corporate taxation system, which is progressive and the lowest rate is fairly high, constituting a barrier to growth, (ii) dominance of either SOEs or large private or foreign firms across most industries, (iii) issues with access to financing, (iv) payment delays causing cash flow problems and (v) many other disadvantages stemming from their small scale and limited ecosystem for their expansion and upgrading. All these have kept small firms small and appear to have created a vacuum in the middle of the distribution. This “missing middle” issue creates repercussions for capabilities to catch up, adopt new technologies and integrate in value chains.
Morocco’s corporate tax rates are high given the scale of informality and the very small size of most firms. Corporate income tax rates will start at 20% from 2026 and could impose a substantial burden on small firms, which are the majority of the firm population. The increase of the lowest rate as a result of the tax reform starting in 2023 (from 10% for small firms) discourages setting up a new formal business. A significant degree of progressivity remains and at MAD 100 million companies face a 35% rate. While this does not bind many firms, the threshold does create some disincentive to expand beyond that point.
When the overwhelming majority of firms are of a very small size, creating a level playing field may not be sufficient as their scale constrains them from competing. In such cases regulatory measures, such as splitting up public procurement contracts so that small-scale companies can compete, as seen in other countries, can be an effective measure of SME support (OECD, 2022[33]).
Smaller firms are most likely to face borrowing constraints, particularly for firms with informal activities. Bank financing is dominant in Morocco and is mostly collateral-based (Figure 2.22) and, while progress has been made in improving pledgeability and guarantees, informality remains a barrier to credit. In 2023, 70% of loans required collateral, less than in Egypt, Jordan or Tunisia, but more than in most OECD countries. The value of the collateral, typically set at two-thirds of the loan, appears lower than in other regional peers. In agriculture, for instance, collateral of a value of 2-4 times of the loan is required. The most common collateral is land or immovable property. The establishment of the legal framework for movable and intangible property-based lending in 2019 (Law 21.18) is an important milestone for smaller companies with limited collateralisable assets. In 2020, the electronic National Register for Movable Collateral was created to track all transactions related to pledged assets. The digitalisation of this service was timely in the midst of the pandemic and provided a lifeline for cash-strapped businesses when in-person transactions were constrained. To overcome collateral constraints, the government provides credit guarantees for both public and private firms through the Guarantee and Financing Company for Enterprises (SNGFE or TAMWILCOM), which was converted into a public limited company from an agency in 2021 to emphasise its commercial orientation. In addition to bank lending, small firms also make use of factoring to meet financing needs. For start-ups and dynamic and innovative firms, crowdfunding has been available since 2019 (Law 15-18) and a dedicated crowdfunding portal was established in September 2023 on the site of the Capital Market Authority. The central bank has taken an active role in promoting initiatives in this area. The Mohammed VI Investment Fund will also support SMEs through sector-specific funds operating as private equity funds. However, access to formal funding constrained by informality and grey market activities. More generally, reducing informality, higher disclosure standards and more stringent reporting requirements would improve small firms’ access to formal financing, including in instances where there’s a lack of collateral.
Note: 2023 and 2013 or closest years.
Source: World Bank Enterprise Surveys.
Payment delays create cash flow problems and have a bearing on business planning and often adversely affect investment and upgrading by requiring more working capital. The creation of a platform to track payment delays (Observatoire sur les Délais de Paiement) in 2017 (Law 49.15) brought about greater predictability for firms’ operations in general, but in particular for smaller firms. The same law regulated payment deadlines for public services in 60 days and defined the way to calculate the interest on delayed payments. Law 69-21 set the deadline for payments as 60 days from the issue of invoice. The depth of the issue of payment delays is illustrated by the 2019 registry data: more than half of firms paid their bills later than the 60 days defined in the law and 35% even later than 120 days. During the pandemic, payment delays for very small firms averaged 279 days in 2020 and decreased only slightly to 243 days in 2021. The situation has improved since the pandemic due to policy measures: average payment delays as reported by state-owned enterprises and agencies have been reduced to 34.4 days by March 2024, though no comparable data have been published for small firms. More stringent payment requirements and shorter deadlines for transactions where the recipient is a small firm would be counterproductive, as experience of other countries show, as it would reduce business opportunities for such firms. Instead, the deadlines and fines prescribed by the law should be enforced for firms of all sizes.
Digitalisation has served as a way to allow catch-up economies to make rapid productivity gains and to leapfrog more advanced countries in some areas by adopting frontier technologies. While this can be hard for manufacturing industries where prior accumulated experience is crucial for success, it is easier in services. Digital systems can be rolled out in relatively short periods of time and can significantly reduce the costs of administrative procedures, as the experience of Estonia shows.
Digitalisation of government services is steadily progressing in Morocco, though on many indicators there is ample room to catch up with not only advanced OECD economies, but also many other emerging markets (Figure 2.23). E-participation and online services lag behind Egypt, Jordan, or Tunisia. In contrast, telecommunications infrastructure is of similar quality as in South Africa or Tunisia, well ahead of Egypt or Jordan. In terms of human capital needed for the digital transition, Morocco needs to step up training the right skills to catch up with countries in the region. There have been several recent initiatives working in the direction of closing the gap with more advanced economies such as the Jobin Tech project aiming to train 15 000 young digital professionals and over 28 000 college graduates by 2026. The New Development Model and the Government Programme 2021-26 aim to foster digitalisation as a driver for public administration modernisation (OECD, 2023[29]). At the institutional level, Morocco created in 2021 a ministry (the Ministry of Digital Transition and Administration Reform) to support digital transformation, including of the public administration. The government is finalising a whole-of-government digital strategy. Since August 2023, public procurement has gone fully digital. This will make the process more efficient and more transparent, thereby reducing room for corruption. Over 5 000 administrative processes have recently gone digital. To fully reap the benefits of digitalisation of administrative services, those services should be available and accessible to all. With a few exceptions, where in-person presence is needed for security purposes, such as selling and buying real estate, most interactions should go online. To actually allow people to make use of online services, they need to have the right basic and digital skills.
Source: United Nations E-Government Development Database.
The extent of digitalisation in the enterprise sector in Morocco is relatively limited in comparison with OECD or middle-income countries, though on some indicators it fairs better than its neighbours. For instance, according to a representative survey of private firms (Open Access Micro Data Initiative (OAMDI), 2023[34]), only 28% of firms have a webpage, while in Jordan and Egypt only 20% and 18%. While in Egypt and Jordan, IT firms are among the most likely to have a website, in Morocco it is transport and storage and petrochemicals companies instead. The median firm even in the large (above 200 employees) and medium-large (50-199 employees) size categories does not have a webpage, unlike in Jordan or Egypt (in Egypt two-thirds of firms of those size categories have websites). This suggests that the lack of websites in Morocco is not so much related to firm size but to a lower use of internet in general. This is confirmed by the lower extent of listing of Moroccan companies on other apps and websites and lower probability of buying online compared to Egyptian and Jordanian peers. Larger Moroccan firms are as likely to sell online as Egyptian ones, though less so than Jordanian ones. Evidence from microdata is in line with the government’s own assessment of relatively weak e-commerce and online financial services development (Ministère de l'Économie et Finances, 2021[35]) even though the vast majority of businesses have internet access (Haut-Commissariat au Plan, 2022[3]).
The share of employees whose job requires computer skills is relatively low in Morocco. In a median Moroccan firm, only a third of employees require computer skills. IT skills are not among the recruitment criteria for the median firm in Morocco (Open Access Micro Data Initiative (OAMDI), 2023[34]). To encourage firms to adopt productivity-boosting digital tools, it is key to keep internet costs affordable and to ensure that consumers are protected in e-commerce transactions. A law was adopted in 2020 on trust services in electronic transactions (Law No. 43-20) and a decree on the adoption of that law (Decree No. 2-22-687) in 2022, but uptake of online selling and purchasing appears to be slow. The number of computer literates could be boosted by offering courses at reduced rates (or free) for targeted groups.
Innovation and the adoption of more advanced technologies and working practices are key drivers of productivity growth in the long run and can be supported by a policy framework that encourages innovation, protects intellectual property rights and secures returns on people’s investment in R&D, including private returns. Morocco’s Office for Industrial and Commercial Property (Office Marocain de la Propriété Industrielle et Commerciale, OMPIC) sets the strategies to boost innovation activities, registers intellectual property, provides support to commercialise innovation outputs and raises awareness of the importance of intangible capital. Its focus of work is set down in the OMPIC Strategic Vision 2025, which comprises (i) enterprise creativity and innovation, (ii) strengthening the system of IPR protection and (iii) enhancing intangible assets and market-oriented R&D.
R&D resources in Morocco lag far behind OECD countries but seem broadly in line with norms for economies at a similar level of development. Data on key R&D inputs, such as the R&D spending as a percentage of GDP are not available on a timely basis: the latest available data from 2019 shows R&D spending was 0.8% of GDP, comparable to other countries in the region, but far behind OECD and other major innovator countries. To improve innovation outcomes, an innovation support fund (Fonds de Soutien à l’Innovation) was created with an annual budget of MAD 300 million. The number of researchers relative to the size of the population amounted to 0.1% in Morocco, better than in some regional economies such as Egypt or Jordan and even some OECD members, such as Colombia, Costa Rica or Mexico (Figure 2.24). However, this is roughly half of the share in Thailand and a fifth of that in Portugal. The density of technicians in R&D is significantly lower than in most regional peers or OECD countries at 40 per million people.
Note: Panel A: Data for 2021, except for Portugal, Tunisia and Egypt (2022), South Africa (2020), Algeria, Colombia and Jordan (2017), and Morocco (2016).
Source: World Bank World Development Indicators and World Intellectual Property Office statistics databases.
Only slightly more than a quarter of Moroccan firms invest in R&D, similar to the share of Egyptian firms, but much lower than in OECD countries (Open Access Micro Data Initiative (OAMDI), 2023[34]). However, the distribution of R&D spending across firm sizes differs largely across those three countries. In Morocco, R&D spending is concentrated among large firms. This is in contrast with Egypt, where the top quartile of small firms (employees 6-49) value research and development more, or Jordan, where the top quartile of even very small firms (up to 5 employees) invest in R&D. The sectoral compositions of the three economies do not appear to explain these differences. In Morocco, the median-size firm does not spend on R&D in any sector, unlike in Egypt or Jordan, where the median firms in a handful of industries allocate funds to research and development. Moroccan firms in some sectors, such as agriculture, leather, chemicals, transportation, IT, finance, health and education tend to spend more on R&D than in other sectors. The major difference with regional peers Egypt and Jordan is that manufacturing firms, with the exception of leather and chemicals makers, do not spend on R&D, which may be detrimental for future productivity development. To help Moroccan firms innovate more, the system of public support should be better developed both in terms of technical know-how and funding. Most OECD countries rely on a combination of tax incentives, subsidies and direct spending to support innovation. Morocco should develop a framework for better supporting innovation that is matched to its needs. Such support should be subject to rigorous evaluation.
The Innovation subindex of the Economic Complexity Index (ECI) – which illustrates complexity of academic research – suggests that there is ample room to catch up with research capabilities (Figure 2.25). All countries in the region with similar per capita incomes perform better. While the scope for academic research may be lower at more modest income levels, research and innovation activities need to be nurtured to support the catching-up with advanced economies. This could be done by requiring research outputs of a certain quality as a condition for tenure or promotion in academia.
Innovation sub-index of the Economic Complexity Index (ECI)
Note: The ECI research is based on research publication data, and it estimates the sophistication of a country's academic research, and together with trade and tech ECI, helps explain the intensity of emissions.
Source: Observatory of Economic Complexity (OEC) and World Bank World Development Indicators databases.
Morocco’s performance in terms of standard indicators of innovation outcomes, such as patent and trademark applications per million people, is similar to regional peers, but lags behind OECD countries. Moreover, when considering innovation beyond the conventional indicators of patents and trademarks, Moroccan firms appear to perform well given their low innovation spending. Even though Moroccan companies appear not to spend highly on R&D, they do introduce new services, products or adopt innovative methods: 40% of Moroccan firms indicated that they introduced a new service, a product or a method in recent years, ten percentage points higher than in Jordan or Egypt. Moreover, even very small firms tend to innovate, unlike in the other two peers. Indeed, the Global Innovation Index, where Morocco ranked 70th in 2023, suggests that the Moroccan economy performs better on innovation output indicators (World Intellectual Property Organisation, 2023[1]).
The institutional system around intellectual property rights needs to be reinforced to strengthen innovation incentives and support inward investment. Infringement is widespread in several sectors, sanctions are not deterring, and the judicial process is not expeditious. The currently weak IP enforcement (U.S. Department of State, 2023[25]; European Commission Africa IP SME Helpdesk, 2022[37]) needs to be strengthened to attract more technology-intensive foreign investment and to encourage domestic innovation. Pirating, counterfeiting and copyright infringement should be fought on all fronts. While currently the major victims of infringement may be foreign firms, ineffective enforcement also inhibits the emergence of domestic inventors. Enforcement and sanctions should be raised to deterring levels and awareness-raising activities strengthened.
In Morocco, roughly 9% of the above-18 population are entrepreneurs, however, 57% of them did not choose to be, but due to a lack of employment opportunities, they do business to survive (African Development Bank, 2023[26]). Making entrepreneurship a choice and nurturing young entrepreneurs are also key for ideas to materialise. The lack of entrepreneurial spirit may be linked to excessive reliance on the government for support not only at the starting-up phase, but also over the life cycle. Redirecting government money instead to education, training, formalising economic activities, fighting corruption, and providing a business-friendly environment would pay off in terms of innovation outputs and outcomes.
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