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COUNTRY COVERAGE
Trade Wobbles
Morocco, Volume 43
07.09.2004
07.09.2004
The government's commitment to commercial liberalisation is under stress following new figures showing a deterioration in the trade deficit. With import prices soaring and export markets sluggish, the country is now facing a stern economic test.
With results in for the first half of the year, Morocco's trade deficit had reached Dh33.37bn (approximately 3.05bn euros), an increase year-on-year of 34.4% on results from 2003H1. Although exports did grow by 5.2% to reach Dh44bn (4bn euros), they failed to keep pace with the rapid increase in imports - the latter reached Dh77.7bn (7.1bn euros), having grown by around 15.9%, according to figures released by the Ministry of Foreign Trade. As a result of these trends, the import-export ratio deteriorated from 62.9% to 57.1% in the same period.
The strong increase in imports is due to a number of factors. The energy bill obviously had a particularly negative effect. Constituting just under a quarter of total import growth, crude petrol imports almost doubled in price from Dh3.2bn to Dh6.2bn during the period. With benchmark prices reaching record levels in London and New York, Morocco has suffered like other importers around the world.
This has led to increases in petrol and diesel prices over the summer of between 2.9% and 3.5%, with a consequent generalised rise in price, particularly in the transport sector. With winter and Ramadan approaching, the authorities are now also faced with pressure to ensure adequate provisioning of butane - the fuel of choice for Moroccan households. The authorities are ruling out an increase in butane prices (the price of a butane gas bottle would increase by 75% if subsidies were lifted), but professionals are demanding that subsidy arrears, which have been building up since April, be paid soon.
Away from oil and its derivatives, Morocco's trade balance has been affected by the bullish movement of global commodities in both a positive and negative manner. On the downside, Morocco has had to pay notably more for steel imports - the steel import bill rose by 43%, or Dh1bn, a consequence of the strong price rise (with supply unable to keep up with buoyant demand, especially in the US and Chinese markets). The food import bill also rose strongly - by 27.6% according to the government's Office des Changes. Despite the good harvest in 2003/04, global commodity price increases, especially for cereals and oleaginous products, impacted negatively.
On the positive side, one of the Moroccan export sector's best performers was the phosphate sector. Phosphate and derivatives exports grew by Dh1.2bn, constituting 70.6% of the total export increase. Still a public monopoly under the mandate of the Office Cherifien des Phosphates (OCP), the group's sales rose by 27.1% from Dh5.44bn to Dh7bn, helped in particular by the strong rise in sales of phosphoric acid (an increase of 65.1% to Dh3bn). In this case, Morocco has benefited from being a key exporter of a commodity essential to the production of fertilisers.
In fact, according to the authorities, the most important contributor to import growth was actually capital goods imports, which grew by Dh3.2bn (around 41.6% of the total), and represent around 22% of all imports. This is therefore not necessarily such a bad trend, since it could be evidence of business upgrading (companies renovating or importing new machinery), with all its beneficial implications in term of increased productivity and competitiveness. Given the more downbeat assessment of business sentiment in the latest CGEM poll (see last online briefing), this case should not be overplayed. Nonetheless an increase in capital good imports does usually presage an increase in investment and economic activity.
On the export side, the agriculture sector has performed poorly, despite a good 2003/04 season. This is due essentially to two factors - firstly seafood exports fell by Dh202m in value (and by 12,000 tonnes in volume), led by a collapse in the crustacean, mollusc and shellfish segment (minus Dh1.1bn) that was only partly corrected by increases in other segments. This is a reflection of the deterioration in Moroccan fisheries, a result of inadequately controlled exploitation of resources.
The second factor was the poor performance of the fresh fruit and vegetables (FFV) segment. Although a good tomato harvest saw the volume increase by 18%, strong competition from Spain and Egypt saw the value of exports fall by Dh198m (37%).
More generally, exports have suffered because of sluggish demand in Europe, the destination for three quarters of the country's exports.
The widening trade deficit comes at an important stage of Morocco's economic development. With the government's strategy of market liberalisation confirmed by successive free trade agreements - with the European Union, the USA, Turkey and Arab countries as part of the Agadir Agreement - an important aggravation of the trade gap is bound to raise some concern. Newspaper articles have shone the spotlight on two specific sectors in recent weeks.
With schoolchildren returning to the classroom, the school equipment market was expected to be strong, but local producers have suffered from foreign competition - from both Europe (especially France) and from Asia (especially India and China). With falling tariffs, local producers are at pains to compete with imported products that are of both better quality and increasingly available at a better price.
Meanwhile, for those still unstressed by work, beachwear has been the consumer item of choice. Once again, however, local producers have seen their sales fall drastically. Unable to compete most notably with the Chinese producers, who are able to bring their products to the market unbeatable prices, their export markets have also suffered, in line with the difficulties facing the textile sector in general.
With tariff barriers set to continue falling in line with bi- and multi-lateral commitments, the authorities will probably follow the global trend towards non-quantitative trade restrictions - rules of origin, quality standards and anti-dumping legislation, for example. Already the Ministry of Commerce, Industry, and Upgrading is planning the implementation of "alert prices". These are reference prices for customs officials, to be used to counter under-reporting: for certain goods imported (especially ceramics, biscuits and chocolates), there have been accusations of fraud - that is, the total tariffs paid (calculated as a percentage of the reported value of the imports) have been less than the real value. By introducing "alert prices", customs officials can investigate the import bills of goods whose prices seem to be substantially below those expected.
Minister of Commerce and Industry Salaheddine Mezzouar was reported to have wished that these controls would focus not only on price but also on quality - especially the impact on security, health, hygiene, and the environment.
It is of course too early to estimate whether these measures can help shore up Moroccan trade defences. In the meantime, two options remain open to the authorities to address the negative trade trend. The first, currency devaluation, is technically the easier. Certain local analysts believe that the local currency is increasingly overvalued, and this is causing harm to Moroccan exporters. Linked closely to the euro, Morocco's currency provides little competitiveness vis-à-vis the US dollar-tied Chinese yuan, for example. At the same time, the social cost of devaluation might be hard to swallow, especially following on from the recent rise in energy prices.
The second option is tackling the informal market, especially for illegally imported goods. If anything, it is these that are causing serious damage to local production, through unfair competition. That is perhaps the more resolutely positive solution, but it is a long-term and difficult task.
Chris de Oliveira
With results in for the first half of the year, Morocco's trade deficit had reached Dh33.37bn (approximately 3.05bn euros), an increase year-on-year of 34.4% on results from 2003H1. Although exports did grow by 5.2% to reach Dh44bn (4bn euros), they failed to keep pace with the rapid increase in imports - the latter reached Dh77.7bn (7.1bn euros), having grown by around 15.9%, according to figures released by the Ministry of Foreign Trade. As a result of these trends, the import-export ratio deteriorated from 62.9% to 57.1% in the same period.
The strong increase in imports is due to a number of factors. The energy bill obviously had a particularly negative effect. Constituting just under a quarter of total import growth, crude petrol imports almost doubled in price from Dh3.2bn to Dh6.2bn during the period. With benchmark prices reaching record levels in London and New York, Morocco has suffered like other importers around the world.
This has led to increases in petrol and diesel prices over the summer of between 2.9% and 3.5%, with a consequent generalised rise in price, particularly in the transport sector. With winter and Ramadan approaching, the authorities are now also faced with pressure to ensure adequate provisioning of butane - the fuel of choice for Moroccan households. The authorities are ruling out an increase in butane prices (the price of a butane gas bottle would increase by 75% if subsidies were lifted), but professionals are demanding that subsidy arrears, which have been building up since April, be paid soon.
Away from oil and its derivatives, Morocco's trade balance has been affected by the bullish movement of global commodities in both a positive and negative manner. On the downside, Morocco has had to pay notably more for steel imports - the steel import bill rose by 43%, or Dh1bn, a consequence of the strong price rise (with supply unable to keep up with buoyant demand, especially in the US and Chinese markets). The food import bill also rose strongly - by 27.6% according to the government's Office des Changes. Despite the good harvest in 2003/04, global commodity price increases, especially for cereals and oleaginous products, impacted negatively.
On the positive side, one of the Moroccan export sector's best performers was the phosphate sector. Phosphate and derivatives exports grew by Dh1.2bn, constituting 70.6% of the total export increase. Still a public monopoly under the mandate of the Office Cherifien des Phosphates (OCP), the group's sales rose by 27.1% from Dh5.44bn to Dh7bn, helped in particular by the strong rise in sales of phosphoric acid (an increase of 65.1% to Dh3bn). In this case, Morocco has benefited from being a key exporter of a commodity essential to the production of fertilisers.
In fact, according to the authorities, the most important contributor to import growth was actually capital goods imports, which grew by Dh3.2bn (around 41.6% of the total), and represent around 22% of all imports. This is therefore not necessarily such a bad trend, since it could be evidence of business upgrading (companies renovating or importing new machinery), with all its beneficial implications in term of increased productivity and competitiveness. Given the more downbeat assessment of business sentiment in the latest CGEM poll (see last online briefing), this case should not be overplayed. Nonetheless an increase in capital good imports does usually presage an increase in investment and economic activity.
On the export side, the agriculture sector has performed poorly, despite a good 2003/04 season. This is due essentially to two factors - firstly seafood exports fell by Dh202m in value (and by 12,000 tonnes in volume), led by a collapse in the crustacean, mollusc and shellfish segment (minus Dh1.1bn) that was only partly corrected by increases in other segments. This is a reflection of the deterioration in Moroccan fisheries, a result of inadequately controlled exploitation of resources.
The second factor was the poor performance of the fresh fruit and vegetables (FFV) segment. Although a good tomato harvest saw the volume increase by 18%, strong competition from Spain and Egypt saw the value of exports fall by Dh198m (37%).
More generally, exports have suffered because of sluggish demand in Europe, the destination for three quarters of the country's exports.
The widening trade deficit comes at an important stage of Morocco's economic development. With the government's strategy of market liberalisation confirmed by successive free trade agreements - with the European Union, the USA, Turkey and Arab countries as part of the Agadir Agreement - an important aggravation of the trade gap is bound to raise some concern. Newspaper articles have shone the spotlight on two specific sectors in recent weeks.
With schoolchildren returning to the classroom, the school equipment market was expected to be strong, but local producers have suffered from foreign competition - from both Europe (especially France) and from Asia (especially India and China). With falling tariffs, local producers are at pains to compete with imported products that are of both better quality and increasingly available at a better price.
Meanwhile, for those still unstressed by work, beachwear has been the consumer item of choice. Once again, however, local producers have seen their sales fall drastically. Unable to compete most notably with the Chinese producers, who are able to bring their products to the market unbeatable prices, their export markets have also suffered, in line with the difficulties facing the textile sector in general.
With tariff barriers set to continue falling in line with bi- and multi-lateral commitments, the authorities will probably follow the global trend towards non-quantitative trade restrictions - rules of origin, quality standards and anti-dumping legislation, for example. Already the Ministry of Commerce, Industry, and Upgrading is planning the implementation of "alert prices". These are reference prices for customs officials, to be used to counter under-reporting: for certain goods imported (especially ceramics, biscuits and chocolates), there have been accusations of fraud - that is, the total tariffs paid (calculated as a percentage of the reported value of the imports) have been less than the real value. By introducing "alert prices", customs officials can investigate the import bills of goods whose prices seem to be substantially below those expected.
Minister of Commerce and Industry Salaheddine Mezzouar was reported to have wished that these controls would focus not only on price but also on quality - especially the impact on security, health, hygiene, and the environment.
It is of course too early to estimate whether these measures can help shore up Moroccan trade defences. In the meantime, two options remain open to the authorities to address the negative trade trend. The first, currency devaluation, is technically the easier. Certain local analysts believe that the local currency is increasingly overvalued, and this is causing harm to Moroccan exporters. Linked closely to the euro, Morocco's currency provides little competitiveness vis-à-vis the US dollar-tied Chinese yuan, for example. At the same time, the social cost of devaluation might be hard to swallow, especially following on from the recent rise in energy prices.
The second option is tackling the informal market, especially for illegally imported goods. If anything, it is these that are causing serious damage to local production, through unfair competition. That is perhaps the more resolutely positive solution, but it is a long-term and difficult task.
Chris de Oliveira
