Market Monitor

Surviving the cure: Morocco adapts to COVID-19

As the fallout from the COVID-19 continues, Morocco has sought to manage the effects on its economy through a series of stimulus measures designed to support businesses and workers. Heavily reliant on tourism and industrial exports, the country’s recovery will depend on the resumption of demand in key European markets.

 

Economic impact and stimulus

Despite an effective health response to COVID-19, which as of May 11 has seen the country restrict confirmed cases and deaths to 6281 and 188, respectively, the economic impact of the pandemic will almost certainly lead to a recession. Although some sectors might be able to sustain some form of local demand, exports to neighbouring EU markets, remittances from Moroccans living abroad and tourism arrivals – all key for the economy – have begun to decline.[1]

The current crisis has hit Morocco at a time when a rethink of the country’s economic development strategy was already underway. Lacklustre growth prospects, persistent unemployment and excessive dependence on year-to-year agricultural performance prompted King Mohammed VI to establish a special commission to design a new growth model, as well as potential new investment and taxation laws. The pandemic, however, has re-focused priorities on the management of the health crisis and the preservation of employment and firms.

Just how much can be salvaged will depend on how long the crisis lasts. Early on, the authorities established a national fund to combat the consequences of the pandemic. As of April 24, the fund had reached a total value of DH32bn ($3.3bn), marshalling contributions from the public and private sectors, the king, Moroccan society and international partners.

The cash has so far been put towards shoring up health-care capacity and providing economic support to workers and businesses.Of the DH6.2bn ($631.1m) spent as of late April, DH2bn ($203.6m) had been transferred to the Ministry of Health to acquire medical equipment and expand critical care capacity. The government has also made direct payments to 4.3m families of informal sector workers, as well as those working in firms that are having trouble paying salaries.[2]

Additionally, the government established a loan guarantee mechanism to allow firms with annual turnover of DH500m ($50.9m) or less to finance their operating expenses over a three-month period.[3]

Furthermore, Bank Al Maghrib, the central bank, established a deal with the IMF to access the fund’s Precautionary and Liquidity Line. This has given Morocco access to roughly $3bn to deal with the short-term impacts of the COVID-19 crisis. This mechanism will be critical for the country to maintain investor confidence over the medium term and manage the reduction in foreign exchange reserves.[4]

 

Exports take a hit

The crisis has already deflated exports, which last year totalled DH282.1bn ($28.7bn).[5]

During the first quarter of 2020 exports fell by 10.6% year-on-year. Of this, automotive and aeronautic exports decreased by 25% and 19.2%, respectively, electronics exports by 19.5% and pharmaceuticals 16.3%.[6]Another key employment generator, the textile and leather industry, registered a 7% fall in export activity, while phosphates exports contracted by 4.9%.

So far, agriculture and agro-industry exports have been the least affected, sustaining a 2.5% reduction over the first three months of the year. Although retail and industrial sales have collapsed in European markets, the sale of food and fresh produce has maintained some rhythm as supermarkets and grocery distribution points continue operations.

 

Agriculture maintains demand

The agricultural sector remains a critical component of the economy, and although the 2019/20 season’s cereal production had been impacted by low rainfall before the start of the pandemic, other segments have adapted to the current conditions. Bank Al Maghrib estimates that cereal production will fall from 5.2m tonnes to 4m tonnes in 2020. This will have a negative impact on the economy, reducing the amount of available income for farmers and increasing the requirement for agricultural imports. To ensure a steady supply, authorities have suspended cereal import duties until mid-June.

Although protecting export capacity will be key to keeping sector firms functioning, the government has also emphasised the need to secure domestic provision. In April the Ministry of Agriculture estimated that current fruit and vegetable production and stocks were adequate to cover domestic demand until December. Meanwhile, in an unintended consequence, the temporary decrease in exports is also likely to keep prices low for Moroccan consumers.[7]

 

Tourism woes

Unlike agricultural production, which is likely to see at least some domestic and foreign demand over the near term, the pandemic will wreak havoc on tourism. The sector accounts for 11% of GDP, and directly employed 548,000 people in 2018.[8]

Like other countries, Morocco has been encouraging its citizens to focus potential vacation plans at home. However, the strategy will be limited by several factors. Domestic tourists typically account for around 30% of hotel frequency in the kingdom. Tourist activity will be dampened in the medium term by limits on maximum hotel occupancy rates necessary to enforce social distancing measures, and the disruption of international flights linking the country with key tourism markets. The national tourism confederation has estimated that the tourism sector as a whole could lose up to DH34bn ($3.5bn) in revenue this year.[9]

 

Prospects hinge on trade recovery

The Moroccan economy is ill prepared for insularity. After developing key export-oriented industrial clusters in recent times, the country faces a paralysed global economy. Its ability to navigate the current crisis will depend largely on how soon its trade partners can enact a comeback.

Some sectors, like agriculture, are likely to see some demand, but the majority of manufacturing capacity remains dependent on external markets. Many of the smaller firms are very sensitive to long periods of decreased activity, which is set to impact employment if the current international slowdown is prolonged. “If economic activity stops for three or four months, it will be like losing a whole year,” says Rachid Aourraz, executive director at the Moroccan Institute for Policy Analysis, a Rabat-based think tank.

Geographically close to its main export markets, Morocco is well positioned to react swiftly to improvements in demand as EU countries ease lockdown measures. But spikes in international economic activity might be swiftly reversed if the pandemic is not effectively contained. The country has established a financial buffer to deal with the short-term impact of the pandemic. Additionally, its heavy energy import bill is being softened by lower oil prices. A long-lasting crisis will make the state’s financial position – and that of Moroccan firms – much harder to handle.

With lockdown measures set to last until May 20 the private sector and the government are already studying ways to safely restart the economy. But much will depend on the international macroeconomic environment over the coming months.

 

Francisco Serrano is a correspondent and consultant, with experience in the Middle East and Latin America. He has written for different publications, including Foreign Policy and World Politics Review, and advises clients regarding risks and opportunities in several emerging markets.


Sources:

[1] https://www.covid-maroc.com/”>https://www.covid-maroc.com/

[2] Aujord hui Apr 28 2020 “Mesures financières et économiques pour faire face au Covid-19 : Mohamed Benchaaboun dresse le bilan devant les députés” http://aujourdhui.ma/economie/mesures-financieres-et-economiques-pour-faire-face-au-covid-19-mohamed-benchaaboun-dresse-le-bilan-devant-les-deputes

[3]Le Matin March 29,2020 “Damane Oxygène, le nouveau mécanisme de garantie pour contrer le Covid-19″ https://lematin.ma/journal/2020/damane-oxyge-nouveau-mecanisme-garantie-contrer-covid-19/334574.html

[4] IMF Press release No.18/477  Dec 17, 2018 “IMF Executive Board Approves US$2.97 billion for Morocco Under the Precautionary and Liquidity Line” https://www.imf.org/en/News/Articles/2018/12/17/pr18477-imf-executive-board-approves-morocco-precautionary-liquidity-line

[5] Office Des Changes “COMMUNIQUE Résultats des échanges extérieurs à fin décembre 2019″ https://www.oc.gov.ma/sites/default/files/2020-04/Communiqu%C3%A9%20FR%20R%C3%A9sultats%20%C3%A0%20fin%20d%C3%A9cembre%202019%20%2800000005%29.pdf

[6]Office Des Changes March 2020 “INDICATEURS DES ÉCHANGES EXTÉRIEURS” https://www.oc.gov.ma/sites/default/files/2020-05/IEE%20Mars%202020.pdf

[7] Reuters Mar 27, 2020 “UPDATE 1-Morocco to halt import duties on soft wheat, durum and grains – statement” https://uk.reuters.com/article/morocco-wheat-grains/update-1-morocco-to-halt-import-duties-on-soft-wheat-durum-and-grains-statement-idUKL8N2BK6H4 and http://www.agriculture.gov.ma/pages/actualites/covid-19-la-production-legumiere-couvre-les-besoins-du-marche-jusqu%E2%80%99en-decembre-202

[8] Tourism Ministry website: https://www.tourisme.gov.ma/fr/tourisme-en-chiffres/chiffres-cles

[9] ‘Economiste Apr 30,2020 “Post-Covid: L’ONMT joue son va-tout sur le tourisme interne” https://www.leconomiste.com/article/1061249-post-covid-l-onmt-joue-son-va-tout-sur-le-tourisme-interne

[10] Bladi.net March 19, 2020 “Pertes records pour le tourisme marocain” https://www.bladi.net/tourisme-perte-maroc,66204.html

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