Since the winds of the Arab Spring swept across the Maghreb, the region’s economies have experienced mixed fortunes. Nigel Wilson reports.
While Libya has been mired in political and economic chaos that saw its exports collapse and caused foreign companies to flee, its western neighbours have maintained higher levels of stability and face much brighter prospects.
Morocco has fared particularly well in recent years, as it began to reap the benefits of the government’s industrial development strategy. Launched in 2008/09, the programme was designed to reduce the economy’s reliance on its historic base of tourism, agriculture and textiles exports and promote other types of industrial manufacturing. It included huge investment in new port infrastructure around the country’s northern coastal cities, which were then linked to industrial platforms that had financial and fiscal incentives to attract foreign companies.
“Morocco’s industrial development strategy was well-thought out, relying first on the build-up of necessary port infrastructure. Casablanca is a good example and Tangiers is an even better example. Now it’s a booming industrial hub,” says Cailin Birch, a Middle East and North Africa analyst at the Economist Intelligence Unit (EIU).
The programme has succeeded in attracting foreign companies. Morocco was the top recipient of foreign direct investment (FDI) in 2015 in the Maghreb region, much of which went into manufacturing, according to Birch.
“Casablanca has developed quickly as a manufacturing hub, primarily focused on aeronautics and electronics. Tangiers is a fantastic example of an automotive industry that has been built from essentially nothing 10 years ago. Automotive became the top export earner in 2014 for the first time, surpassing phosphates and textiles. It’s been an interesting success story,” says Birch.
Much of the foreign investment has come from European countries, mostly France and Spain. Attracted by the relatively cheap labour and transport costs compared to countries in Eastern Europe, and tempted its proximity to European markets, companies including Renault, Delphi, Bombardier and Eaton Corp have increased investments in Morocco.
Renault has been one of the biggest investors in the past few years and recently announced plans to build an “industry ecosystem” in the country. At a ceremony in the royal palace in Rabat in early April, Renault announced that 15 component makers had committed to the project, which was reported to be worth MAD10bn (US$1.04bn).
The French automotive company currently has two plants in the country, including an assembly plant in Casablanca and the largest car factory in North Africa, based in Tangiers. It is expected to produce 400,000 cars a year in the coming years. Meanwhile, Morocco expects its auto industry exports, most of which go to the European market, to reach MAD100bn by 2020.
“In terms of fiscal incentives, Morocco put forward some interesting conditions for companies to install operations in these industrial platforms,” says Birch. “There were a lot of export-related incentives, customs and duties cuts. There are still a lot of issues with logistics if you want to sell domestically, but most of the companies that have installed in these industrial platforms export to Europe.”
While much of the region underwent painful political upheaval in the years after the Arab Spring, Morocco has remained relatively immune to popular revolutionary forces. Back in 2011, as autocrats from Tunisia to Libya were toppled, Morocco’s King Mohammed VI introduced a number of political reforms that largely headed off the potential for widespread dissent and provided comfort to trade and export financiers who operate there. Despite the relatively small size of its economy, Morocco has provided safer opportunities than elsewhere in the region.
“Morocco, as part of the geographic Maghreb, has some interesting companies,” says Nabil Frik, managing director, francophone Africa and Maghreb at the British Arab Commercial Bank (BACB).
“There are some interesting opportunities in commodities such as wheat, sugar and oils, offered by well-performing companies, but the country’s foreign trade deficit remains strong.”
Moreover, the past five years have seen significant development in the Moroccan financial services industry. Its biggest banks have expanded in parts of Western Africa, including Côte d’Ivoire, Senegal, Mali and Burkina Faso, where they have a strong presence.
“Three main banks, BCP, BMCE and Attijariwafa, are dominating the market and have a large network in francophone Africa. With an increasing market share in the region, the Moroccan banks are playing a large role in terms of local banks and dealing with trade finance,” says Frik. “We see now an increasing flow of intra-Africa trade. One of the examples, is a large part of the Côte d’Ivoire coffee production being absorbed by Algeria. So there is growing internal trade within Africa where Morocco is playing a major role, by bringing the banks and allowing them to pave the way for Moroccan corporates.”
Like Morocco, neighbouring Algeria has enjoyed a period of political continuity over the past five years. Its biggest challenge has been in the form of the oil price bust of 2014 and its ongoing slump since then. “Algeria is in a bit of a pickle at the moment,” says Jason Tuvey, Middle East economist at Capital Economics. “The collapse in oil prices has hit Algerian export revenues hard. Oil and gas accounts for around 95% of total export revenues. There has also been a sharp slowdown in foreign direct investment into Algeria in the past five years and since oil prices started to fall, there have actually been signs of capital flight,” he adds.
The fall in prices could prove to be a pivotal moment in terms of trade and investment flows in Algeria. Frik notes the growing presence of Asian companies in the Algerian market in place of European firms who have strong historical links there.
“If you look at Algeria, trade flows have been facing important changes with regard to supplier countries. China replaced France in 2014 as the main supplier. In Algeria, infrastructure projects are dominated by Turkish, Chinese and Malaysian EPC contractors taking a major role, where traditionally you had the French, German and Italian players,” he says.
While much of the Chinese investment has focused on construction and infrastructure projects, including much of the major highway that was completed in 2014, there has been a push from South Korean companies in higher-end infrastructure projects, including refinery upgrades. The Algerian government has increasingly looked to Asian firms in a bid to develop a value-added manufacturing sector in the country.
“Even before the oil price slump, the government had been talking quite a lot about diversifying the economy and developing sources of growth that were totally independent of the oil sector,” says Birch of the EIU. “We saw a big push in industry, including domestic heavy industry, electronics, agro-industry and, in particular, pharmaceuticals. The latter was seen as a big source of potential growth. However, most of these sectors fave failed to take off in the way the authorities had hoped.”
Algeria’s attempts to stimulate investment were only moderately successful compared to Morocco, as many of the initiatives were heavy-handed state policies.
“Morocco tried to develop manufacturing by focusing on infrastructure, developing industrial zones and offering incentives and that would slowly grow. Algeria has tried to do it through import substitution and in some cases it’s working,” Birch says.
“Pharmaceuticals are now growing and Renault opened its first plant there in 2014. They are producing some cars but on a much more minor scale than they are in Morocco. So there are some things happening, but the import substitution has been touch-and-go at times.”
That heavy-handedness has also impacted opportunities for western export and trade financiers in Algeria, according to BACB’s Frik.
“Currently from abroad the only business you can achieve as a bank is plain-vanilla trade finance, confirmation of LCs and issuance of guarantees but not more,” he says. “This is due to the policy in place, which doesn’t allow any cross-border lending in the country, thus local companies are not allowed to get any credit or loans from outside. It’s all local financing.”
However, with oil revenues becoming significantly lower, Frik predicts the policy could change in the near future, allowing local banks and corporate to tap the foreign markets for loans.
Unlike Morocco and Algeria, Tunisia has not had the luxury of political stability. Five and a half years since the Arab Spring began in the capital Tunis, Tunisia has transitioned from an autocracy to a democracy, which could have major long-term economic benefits.
However, the post-revolution years have brought economic uncertainty, while political violence has battered the country’s crucial tourism sector, which was heavily reliant on European visitors.
Perhaps the most damaging events occurred in 2015, when Islamist terrorists targeted tourists at the Bardo museum in Tunis, killing 22 people. Later that year, terrorists killed 39 people at a beach resort near Sousse.
“I think that the recent terror attacks in Tunisia will have a long-term impact on the tourism industry, particularly considering that these attacks have clearly targeted areas frequented by foreign visitors,” says Birch. “Tourism revenue, a critical support of the Tunisian economy, is likely to fall sharply in the near term. The sector may see a muted recovery after 2017, assuming that social stability improves, but it is unlikely to reach levels seen prior to these attacks for some time.”
Meanwhile, the ongoing transition to democracy has presented challenges in terms of setting clear government policy that could attract increased levels of foreign investment in the long run. The country boasted the best business environment in the region in 2015, according to the World Bank, but political disagreements within the ruling coalition have destabilised policy this year.
“Obviously, the transition has been tough,” says Tuvey. “Tunisia is currently growing at 0.5% per year, which is extremely sluggish. The near term is challenging. Recently we’ve seen infighting between members of the same party within the governing coalition. But if those kinds of issues can be sorted out, then Tunisia has an agreement with the IMF and the government has expressed desire to push ahead with reforms. So things could go quite well in the future.”
While Tunisia has a strong banking sector and a growing financial services industry, trade and export finance opportunities are likely to remain limited in the coming years due to the destabilising political situation, according to Frik. “Trade finance in Tunisia is really small in comparison to its neighbouring countries,” he says. “Banking services from abroad consist mainly of plain-vanilla LC business and since the economy hasn’t recovered yet, I don’t think you can go further with other structured deals for the time being.”