Question

How is the demand and supply in Morocco?

how is the market regulated in Morocco?

Impact of COVID on demand, sypply, price in Morocco?

Answer 1

• The economy of Morocco is considered a relatively liberal economy governed by the law of supply and demand.
  • Since1993. Morocco has followed a policy of privatization of certain economic sectors which used to be in the hands of the government.
  • Morocco has become a major player in the African economic affairs, and is the 5th African economy by GDP (PPP).
  • The World Economic Forum placed Morocco as the 1st most competitive economy in North Africa, in its African Competitiveness Report 2014-2015.
• The services sector accounts for just over half of GDP and industry, made up of mining, construction and manufacturing, is an additional quarter.
  • The sectors who recorded the highest growth are the tourism, telecoms and textile sectors. Morocco, however, still depends to an inordinate degree on agriculture. The sector accounts for only around 14% of GDP but employs 40-45% of the Moroccan population.
• With a semi-arid climate, it is difficult to assure good rainfall and Morocco's GDP varies depending on the weather. Fiscal prudence has allowed for consolidation, with both the budget deficit and debt falling as a percentage of GDP.
• The major resources of the Moroccan economy are agriculture, phosphates, and tourism.
• Sales of fish and seafood are important as well.
  • Industry and mining contribute about one-third of the annual GDP. Morocco is the world's third-largest producer of phosphates (after the United States and China), and the price fluctuations of phosphates on the international market greatly influence Morocco's economy.
  • Tourism and workers' remittances have played a critical role since independence. The production of textiles and clothing is part of a growing manufacturing sector that accounted for approximately 34% of total exports in 2002, employing 40% of the industrial workforce.
  • The government wishes to increase textile and clothing exports from $1.27 billion in 2001 to $3.29 billion in 2010.

Market regulation in Morocco

• In hand with sustained economic growth in recent decades, Morocco has been able to establish one of the region’s most competitive and sophisticated banking sectors. This has translated into significant penetration levels for banking services, a wide array of products and a handful of large-scale banking players with international reach across the continent.
• Despite the years of development, though, the sector has had to contend with slower rates of lending and a lukewarm economic context of late. This has led to some strategy realignment, both by the country’s lenders as well as by the monetary authorities, who are keen to maintain the industry’s role as a dynamic factor in the kingdom’s economy.

Regulatory Change

• Improvements in sector oversight are a significant factor in maintaining the banking system’s solidity. Passed by the Parliament in December 2014, Morocco’s new banking law was promulgated on January 22, 2015 and represents a key step in aligning the sector with international standards.
• These changes are expected to bring new growth opportunities for banks. The 2015 law set the stage for the creation of a participative banking segment.
• It also included provisions for the entrance of non-banking payment institutions, which are expected to accelerate digitalisation efforts within the banking sector in coming years.
• These two measures are widely anticipated to improve banking penetration rates (see analysis).

More importantly, the law has brought about new requirements for the overall health of the sector. Not only does the regulator now have extended powers to oversee financial conglomerates that effectively control credit providers, but BAM has also improved its capacity for cross-border supervision and risk management on a consolidated basis, which is critical to overseeing the system’s entire condition as it continues expanding into African markets.

COVID-19’s Economic Impacts on the Moroccan Economy

The impact of the current pandemic is expected to be acute because of the multidimensional nature of the shock. It is a confluence of supply and demand shocks, both domestic and external.

• The lockdown policy implemented in March in order to protect public health, could potentially jeopardize several core sectors with the disruption of national and global value chains.
• The most vulnerable sectors to these shocks are those that involve social interactions, mostly labor-intensive tertiary sectors such as tourism, retail and transport. According to the National Tourism Confederation’s scenarios, the tourism sector could lose 138 billion MAD in foreign currency earnings by 2022 if a recovery plan is not adopted.
• Capitalist sectors integrated into global value chains such as the automobile sector, the leading export sector representing 27% of total exports in 2019, would inevitably be affected by the temporary closure of the activity of the two European groups PSA and Renault, contributing, thus, to the widening of the trade balance deficit.
• The textile sector, employing more than 450,000 people would be curbed by a drop in demand from European customers.
• Locally integrated capitalist sectors such as mining and financial services are also likely to be affected. However, the increasing telecommunication demand due to containment is more likely to save this sector from the global downturn. For instance, many companies adopted teleworking, schools and universities switched to remote education and online learning through digital platforms and people are using any available telecommunication device in order to maintain their social relationships.
• Furthermore, given the importance of the informal sector in the Moroccan economy, the shutdown of informal activities will exacerbate the output decline as well as the rise of unemployment. The informal sector employs 36% of non-agricultural employment and represents 12.6% of national value added (High Commission for Planning (HCP), 2014).
• From the local demand side, a decline in household final consumption and investment is also very likely to occur, given the shrinking of households’ consumption baskets as a result of the confinement. Public demand would, however, increase in response to the health emergency, output loss and unemployment leading to a worsening of the budget deficit.
• The economic impact of COVID-19 on Morocco will also be channeled through external mechanisms, including the decline in foreign demand, mainly from the European Union, tourism revenues, and remittances of Moroccans living abroad as well as foreign direct investments. Moreover, the current sharp decline in crude oil prices will potentially reduce the burden of the energy bill and therefore contribute significantly to the decrease in the value of imports.

The COVID-19 crisis could potentially plunge Morocco into an economic recession. Several firms are on standstill and jobs are being lost. However, this pandemic highlights the crucial role of the state in protecting and prioritizing the health of its human capital, beyond any economic interest. In this respect, COVID-19 could be a particular opportunity to restore trust between the citizen and the state for a cohesive, inclusive and responsible society.

It is also an opportunity to redirect the national productive apparatus towards the satisfaction of domestic demand, particularly for strategic products. In addition, the increasing world demand for basic medical products in the short and the medium terms, creates new prospects for Moroccan manufacturing enterprises.

The normal resumption of economic activities in Morocco, as elsewhere, depends fundamentally on the duration of confinement, which in turn depends on the propagation rate of the virus. Alternatively, the Moroccan economy should be prepared to cope by moving more towards the digitalization of most activities. In addition, the government should extend its efforts to provide financial and administrative support to very small, small and medium-sized enterprises after the deconfinement in order to ensure a smoother recovery. On the social level, the current crisis has revealed the urgent need to accelerate the implementation of the Unique Social Register in order to facilitate citizens’ access to direct public aid in such circumstances.