EDA: Morocco overly dependent on trade with Europe

EDA: Morocco overly dependent on trade with Europe

EXTERNAL DEPENDENCIES ANALYSISRecent trips by Morocco’s King Mohammed VI to four African countries, however, suggest a shift in strategy towards African markets.

In March 2014, King Mohammed VI of Morocco concluded a four-nation tour in Africa aimed at reversing years of disinterest in diplomatic and trade relations on the continent. In his visits to Mali, Guinea, Gabon and the Ivory Coast, King Mohammed inked 80 total bilateral agreements with the four countries, covering trade and investment issues. This outreach continues recent efforts to reverse decades of neglect stemming from diplomatic tensions with the African Union.

Morocco has been heavily dependent on Europe for its trade as well as investment, resulting in vulnerabilities in key sectors of its economy. The IMF recently noted that, while Morocco’s macroeconomic trends have been positive, the “weak European economy weighed heavily on [certain Moroccan] sectors.”

Morocco’s economy performed quite well in the first decade of the 21st century, and sectors like its garment and electrical equipment industries have taken that strength abroad. But if Morocco wants to be able to withstand shocks to the European market, it has to build relationships elsewhere with Africa being the most promising region.

Reliance on the EU

Just over 60% of Morocco’s $22 billion in exports flow to countries in the European Union, with France and Spain the largest recipients of Moroccan goods. Yet, only 8.8% of its products are exported to African countries. Senegal is its largest African market, with bilateral trade valued around only $250 million in 2013.

Given the geographical proximity to Europe, and the historical legacy connecting the country to both France and Spain, this is unsurprising. But, continued trade reliance on the EU means that Morocco risks missing out on building trading partnerships with high growth countries in Africa.

The European Union has struggled to maintain a recovery from the sovereign debt crisis, notching a meager 0.2% growth as a region last year. Some of the world’s fastest growing countries are in Africa, and several of Morocco’s industrial strengths would scale well in sub-Saharan Africa.

Furthermore, the European Union is not terribly reliant on Moroccan exports. Take France and Spain, Morocco’s two biggest export markets. In the garment industry, Morocco sells 78.5% of its apparel exports (excluding knit/crochet materials) to Spain and France. But, for France and Spain, those products make up a minuscule portion of their imported clothing. Only 0.7% of France’s garment imports come from Morocco.

In the electronics industry, a powerful sector in the Moroccan economy, nearly 65% of its total exports go to France and Spain, but that flow of goods barely registers in either country. This one way dependency argues for greater market diversification of the part of Morocco.

Stumbling block in Western Sahara

Historical issues have stood in the way of rebalancing toward Africa. Morocco has been in dispute with other African nations regarding its control over the region of Western Sahara. Morocco claims sovereign domain over the area and administers its economy.

However, an independence movement contests Morocco’s claim over the region through a government-in-exile known as the Saharawi Arab Democratic Republic (SADR). When the African Union included SADR as a member state in 1984, Morocco promptly left the AU.

According to an analysis from the Center for Strategic and International Studies, “[Morocco’s] economic ties are shaped by its diplomatic ties. Its relations with countries that recognize the SADR tend to be much weaker.” These countries include powerhouses like Nigeria and South Africa as well as neighboring countries like Mali.

The King’s tour therefore has added significance for Morocco’s economic ties to other African countries. If Morocco can bridge its diplomatic issues, it has a chance of opening up new markets to its goods.

Moroccan strengths

In its analysis, CSIS argued that “in Africa, Morocco has a comparative advantage…and the potential to play an active economic, security, and diplomatic role.” For example, Morocco can capitalize on the strength of its fertilizer industry. Agreements recently signed with Mali and Gabon set the foundation for the production of mineral fertilizer locally in those countries.

Morocco produces and exports a large amount of phosphate — a key ingredient in mineral fertilizer — so it could use these investments to become a regional supplier. Currently, over 50% of Morocco’s exports of fertilizer go to Brazil, but a handful of African countries also draw on Moroccan products.

Morocco has the potential to make similar investments in electronic equipment and in finance — given that three of the top ten African banks by assets are Moroccan. Morocco also has one large advantage over its regional competitors. Following the Arab Spring and the tumultuous political changes that followed, Morocco remained relatively stable.

While protests occur, King Mohammed has made some concessions to remain in power. This stability makes Morocco an attractive partner and gives it a chance to catch up in Africa.

The External Dependencies Analysis (EDA) project makes country vulnerabilities stemming from their main trading relations explicit, and shows to what extent these might impact their current and future behaviour. With the EDA, GRI provides a new comprehensive tool for businesses, analysts and investors to grasp dynamics that are key to political risk analysis.

Note: Trade Data comes from GRI’s External Dependency Analysis based on data derived from the International Trade Center.

About Author

Ned Pagliarulo

Ned Pagliarulo works for a Japanese press company, reporting on economics and government statistics. Ned received a BA in History with a minor in Japanese from Georgetown University in 2012.