New plan and updated legislation provide a boost for Morocco's IT sector

As a result of the early push to develop the country’s ICT sector in the mid-1990s, Morocco has managed to carve out a sizeable niche for itself in selected areas such as offshoring and electronic payments. In 2015 the ICT sector’s contribution to Morocco’s GDP was nearing 3%, mostly made up of hardware, but bolstered by the diversification and internationalisation of large sections of the software industry. The government is now working on a new strategy, Plan Maroc Numeric 2020, which is a successor to the previous Plan Maroc Numeric 2013 and is aimed at further building on the country’s international position in cost-competitive IT services, while emphasising greater diversification and entrepreneurship.

Governance

Morocco was one of the first countries in the MENA region to set up a regulatory environment for the ICT sector as a means of fostering a level playing field for private operators. In 1996 Law 24-96 paved the way for the liberalisation of the sector and ended the monopoly of state-owned Maroc Telecom. This was followed by the implementation of successive digital plans, including Morocco 1999-2003, which outlined the country’s vision for ICT and its potential; e-Morocco 2010, which was based on removing barriers via digital inclusion and ICT sector competitiveness; and the comprehensive Plan Maroc Numeric 2013, which built on the two previous plans and focused on making the sector regionally competitive. ICT is also included in the government’s 2009-15 National Pact for Industrial Emergence (Pacte Nationale pour l’Emergence Industrielle, PNEI), which looks to support export-oriented industries – in this case with offshoring and ICT services – through incentives, targeted training and support measures.

Of those plans, it was Plan Maroc Numeric 2013 which has been the most wide-ranging. It was conceived in 2008 by Morocco’s National Telecommunications Regulatory Agency and the Ministry of Industry, Commerce, Investment and Digital Economy (Ministère de l’Industrie, du Commerce, de l’ Investissement et de l’Economie Numérique, MICIEN), with input from industry association the Moroccan Federation of IT, Telecommunications and Offshoring (Fédération Marocaine des Technologies de l’ Information, des Télécommunications et de l’Offshoring, APEBI). This Dh5.2bn (€476.8m) programme set four strategic priorities for the country: consolidating ICT industries with a focus on excellence niches such as offshoring, supporting the automation of small and medium-sized enterprises (SMEs), boosting e-government services and fostering the dissemination of ICT usage among Moroccan households.

Speaking at an industry conference in March 2015, Moulay Hafid Elalamy, the minister of industry, commerce, investment and digital economy, said the updated Plan Maroc Numeric 2020 was aimed at accelerating Morocco’s digital transformation, reinforcing the country’s status as a regional digital centre and removing eco-systemic hurdles. The MICIEN announced the outline of the new sector plan in June 2015. Concrete objectives include reducing the digital divide by 50% via digitisation of administrative services and improved access through free Wi-Fi in public spaces and digital literacy programmes, as well as a plan to train 30,000 ICT professionals by 2020.

Sector Breakdown

The ICT sector posted robust growth of 8.5% in 2015, mainly driven by the development of a spate of emerging niches, ranging from electronic payments, software development and mobile services. In recent years, benefitting in part from support through the PNEI, Moroccan IT companies have expanded their profile with overseas clients, leading to a gradual increase in export revenues, which reached $1.2bn in 2015, nearly half of which was generated by offshoring, according to global consultancy McKinsey. This steady growth also comes in part from the fact that Moroccan companies and administrations have been increasing their budgets for ICT. A study by the Arab Women & IT Network revealed Morocco invested $13.2m in ICT in 2015, mostly in the areas of security, mobile subscriber base, social networks and big data. In particular, the study estimated that Moroccan companies will allocate 36% of their IT budget to computer security in 2016 and that one in three will invest in social networks. Investments in big data are also expected to pick up by 45%, driven by the lower costs of data storage provided by cloud computing solutions.

Yet, despite growing private demand, the industry still hinges massively on the public sector, which accounts for 66% of aggregate demand. Speaking to local press, Azzedine Kabli, senior research analyst in IT services and software at global IT market research firm IDC North Africa, said, “The IT sector will continue during the next few years to be primarily driven by large, government-led projects, including new e-government initiatives such as Maroc Numeric 2020, smart cities projects, renewable energy projects, and transportation upgrades and expansions.”

Technology Parks

The development of IT services has been aided by the construction of several technology parks operating under offshore status and offering tax incentives to exporting companies. Morocco’s first and largest offshoring project is Casanearshore Park in Casablanca, which began in 2007 and was built by state-driven development company MEDZ Sourcing. The park caps income tax at 20%, although lower tax rates are available in certain circumstances, and it offers training programmes in order to meet demand for skilled IT workers. Today, the park hosts 100 tenants, notably blue-chip companies that include Dell, IBM, Accenture, Atos, HP and Logica, among others, representing Dh3.4bn (€311.7m) in investment and totalling 20,000 jobs on site. MEDZ Sourcing has built and operated technology parks throughout the country, including Technopolis in Rabat, Tetouan Shore near Tangiers, Fès Shore in Fez and Oujda Shore in Oujda as a means to facilitate access to land for export-oriented IT activities.

Start-Ups

In light of a youth unemployment rate of 20.2% and with 27% of the population under 15 years of age, according to the World Bank, encouraging entrepreneurship, particularly in the ICT sector, is a priority for the government. As part of this, the Moroccan authorities have put in place funding mechanisms designed to boost the development of starts-up. The most notable initiative is the Dh100m (€9.2m) Moroccan Digital Fund (Maroc Numeric Fund, MNF), which was established in 2010 by state-owned Caisse de Dépôt et de Gestion and the country’s three largest commercial banks – Attijariwafa Bank, BMCE and Banque Central Populaire. While in its first two years the MNF focused on supplying seed funding, with a special focus on smaller firms requiring between Dh1m (€91,700) and Dh10m (€917,000), it has since revised its strategy to work with projects that have already received capital. The MNF is also looking to expand outside of e-commerce and into green technologies. The fund also provides technical and financial assistance to technology firms. Since its inception, the MNF has invested in a wide range of start-ups, including cybersecurity firm Netpeas, online invoicing platform Greendizer, and e-commerce platforms like Soukaffaires and Mydeal.

Additional seed funding and entrepreneurship development agencies operating in the country include the Centre for Entrepreneurship Education and Development Morocco, which is the local branch of Washington, DC-based Small Enterprise Assistance Funds, a global fund that provides growth capital and assistance to SMEs, and the Maroc Numeric Cluster, a public-private grouping aiming to improve financing for IT start-ups in the country.

Offshoring

After two years of decreased activity due to a slowdown in demand from France – Morocco’s main client in the offshoring sector – increasing low-cost competition from other Francophone companies in sub-Saharan Africa and Maroc Telecom’s decision to increase its rate for international calls, Morocco’s offshoring segment posted slight growth of 1% in 2015 to reach a turnover of $750m. Call centres remains the main offshoring segment, with a turnover of $480m, followed by IT outsourcing (ITO), which accounts for 25% of Morocco’s offshoring business ($210m). “With low labour costs, Morocco can become a major outsourcing destination for European data centres, but we need to expand our skilled labour pool and improve the fiscal framework,” Mohamed Benmira, deputy director general of health care software company MEDASYS, told OBG.

As for business process outsourcing (BPO), which is most reliant on demand from France, activity in the segment has dropped by 40% in two years, which led to a fall in revenues from $85m in 2013 to $60m in 2015. In 2016 the call centre segment is expected to plateau due to the stabilisation of French demand and growing competition from new centres such as Côte d’Ivoire, Senegal and Cameroon. Karim Bernoussi, CEO of domestic offshoring company Intelcia, told local daily l’Economiste in February 2016 that while these sites do not have the same quality of infrastructure or incentives as Morocco, they do offer a qualified workforce and have limited turnover.

APEBI is looking to take additional measures to reinforce Morocco’s competitiveness in the call centre market. In a February 2016 interview with online business-to-business journal l’Usine Nouvelle Saloua Karkri-Belkeziz, CEO of GFI Morocco and president of APEBI, said, “We believe investment incentives must be extended to parks other than those in Casablanca and Rabat. The upward pressure on wages in those zones weakens our competitiveness and generates significant turnover.” Conversely, BPO and ITO services are expected to play a greater part in the offshoring sector as Morocco further specialises in services with higher added value. Karkri-Belkeziz recommended a focus on new segments such as human resources management, finance or other activities in relation with sectors such as banking, insurance, tourism and health care. “One study showed that there is growth expected in France in the [BPO] sector. It estimated potential growth of 17% in France in four years. This market is expected to double,” she added.

As a result of the increasingly competitive regional environment, human resources has become a critical factor and Karkri-Belkeziz emphasised the need to boost training for local workers. She said, “In the ITO segment we train 3000 technicians and engineers per year, compared to 11,000 in Turkey and 19,000 in the US, according to a study conducted in 2014... [The National Agency for the Promotion of Employment and Skills] must be made more flexible in terms of all the administrative procedures related to funding for training programmes that companies may want to direct to BPO, ITO or call centres.”

Hardware Market

The domestic hardware segment has experienced a drop in sales of 28% over the past two years, with around 80,000 PC computers and 125,000 laptops sold in 2015. However, hardware purchases still account for 60% of Morocco’s ICT sector’s turnover, according to statistics from the Maroc Numeric Cluster. International companies such as HP or Dell have remained the best-selling PC brands in the country, but they have faced growing competition from a modest but competitive local hardware assembly industry composed of two main manufacturers: Data Plus and Accent. With $80m in turnover, Data Plus assembles computers and tablets for local, but also regional, markets, with a growing share in exports to Tunisia, Algeria, West Africa and Saudi Arabia. Meanwhile, Accent produces computers and laptops, and has more recently diversified towards the production of smartphones. Sales and distribution have traditionally been heavily fragmented in Morocco, but in recent years consolidation has led to the emergence of two large players: Disty and Disway. In particular, Disway has become the largest regional hardware distributor, with a $120m turnover in 2014. Present in many markets across northern and western Africa, the company recently won a tender subsidised by the government of Côte d’Ivoire to equip 500,000 Ivoirian households with tablets and laptops.

E-Payment

Morocco has also experienced rapid development of electronic banking services, with a total of 11.7m credit cards in circulation by September 2015, according to data from the Interbank Electronic Banking Centre. Similarly, electronic payment has risen as one of the sectors where Morocco has developed internationally acknowledged expertise, with the take-off of market leaders such as S2M, whose business has been oriented towards foreign markets. This has been supported by the rise of e-commerce. According to Morocco’s National Federation of E-Commerce, Moroccans spent $2.5bn online in 2014. Out of a total of 18.3m internet users, 900,000 are considered regular e-consumers, a five-fold increase in three years partly supported by the previous digital economy strategy Plan Maroc Numeric 2013, which contributed to the expansion of e-commerce platforms, as well as online services for the Treasury, Customs and tax authorities.

Surprisingly, many e-commerce initiatives are run not by larger firms, but by smaller companies. According to government data, 50% of e-commerce platforms are owned by SMEs, followed by big companies (15%), very small businesses (14%), associations (6%) and governmental agencies (2%). Aissa Slimani, general manager of local electronic payment solutions firm Paylogic, told OBG, “Despite rising competition in electronic banking in Morocco, and more broadly in Africa, there is still room for growth and new entrants. However, there may be consolidation in the near future due to an increasing need for innovation and investment. Aside from regulatory challenges, the biggest obstacle for electronic banking companies is the increasing threat from hackers.”

In a bid to better protect consumers, the “e-thiq@” label has been developed and implemented by the General Confederation for Enterprise in Morocco and MICIEN. This label is intended to improve consumers’ confidence in the security of online payment. In 2016 e-commerce is expected to grow by 29% in Morocco, mainly driven by increased smartphone penetration and the rollout of the 4G network.

Cloud

According to consulting and ICT research firm Glob Research, spending on cloud technologies had long remained limited, with a level of investment of around $14m in 2014. Infrastructure-wise, Morocco has a limited number of local data centres (less than 10), but new projects are coming on-line, such as the construction of a new data centre for Luxembourg’s Etix Everywhere in 2016 in Nouaceur at a cost of Dh60m (€5.5m). The company is set to deploy additional units in Rabat and Marrakech in the short term. Furthermore, according to Glob Research, while cloud services have been limited in Morocco by security concerns until recently, the market does have great growth potential. This will require a real expansion strategy shared between all sector players.

Smart Car

The state has sought to develop a wide range of connected transport systems. A new partnership between Magnav and CFAO Motors will focus on developing multi-media systems for networked cars, with the ultimate objective of creating a fully open, free and 100% Moroccan ecosystem. To date, 50% of Moroccan concessionaires have partnered with Magnav, including Global Engines, the concessionary of Hyundai vehicles, which integrated them into all of its series. So far, production has taken place in China, but Magnav is looking to open an assembly unit in Morocco by 2017 in order to “have full quality control, gain reactivity and reduce transport costs and delays,” according to Omar Bencherki, managing director at Magnav. In late 2015 he told local daily La Nouvelle Tribune that the company is eyeing African markets and that Moroccan know-how is well recognised in Africa, giving the country a competitive edge.

E-Government

Since 2010 some major e-government initiatives have been brought in, such as the introduction by Morocco’s tax authorities of a requirement that corporate, value-added and revenue taxes be paid online. Another recent project is Portnet, an online platform implemented by Customs and private operators where 18,000 importers and exporters can carry out activities and transactions related to foreign trade. The authorities are now looking to extend the initiative to airports and terrestrial transport areas. Morocco has performed well on this metric, and in the UN’s 2016 E-Government Survey the country ranked 85th out of 140 nations. “Morocco is one of the foremost markets in Africa for digitalisation and e-government, through initiatives like the e-parliament project,” Touhami Rabii, CEO of IT solutions provider Gemadec, told OBG.

However, there is room for improvement. E-government is the main area where Plan Maroc Numeric 2013 did not fully meet expectations. More than half of the e-government projects in the plan have either not been completed (health care, local government, capital markets, procurement and tenders) or been weakly implemented (judicial system, regional portals and land purchases). One of the main reasons for this is the absence of effective coordination, as each ministry has its own IT security department.

Human Resources

Despite the ongoing development of university engineering courses, the volume of human resources has remained relatively low, with around 10,000 students trained yearly. Demand has grown, however, in the industrial, services and public administration sectors. According to a report by the Maroc Numeric Cluster, “It is mandatory to considerably increase the number of IT engineers, scientists and technicians through the consolidation and update of the current academic institutions and the elaboration of more adapted curricula to meet and anticipate the needs of the Moroccan ICT market.”

As public education institutions have struggled to train enough highly skilled graduates, the private sector has increasingly contributed to the training of students, via partnerships with blue-chip companies. For example, IBM has partnered with Mohammed V University at Agdal, École Nationale Supérieure d’ Informatique et d’Analyse des Systèmes, the International University of Rabat and Université Mundiapolis de Casablanca to design curricula and courses that align with market needs. In addition, companies have implemented in-house training programmes for staff.

Outlook

In recent years, as part of the PNEI, Morocco has developed expertise in a wide range of IT areas, from offshoring to electronic payment and software development. Building on quality infrastructure and a favourable business environment, the IT sector is forecast to continue posting strong growth under the umbrella of the upcoming Plan Maroc Numeric 2020. As per a report by the International Data Corporation, the Moroccan IT services market is poised to expand at a compound annual growth rate of 10.3% in the coming years and is expected to break the $550m mark by 2018. The three main driving forces will be the banking and telecoms sectors for information security purposes, and public services.

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