MORROCO’S GROWTH DIAGNOSTIC:

SUMMARY AND UPDATES

Professor: Thomas Barré

Field: Growth Diagnostic – M2 DEIPM 2022
Written by Raymonde Patricia Razafindrantoanina
 1- Summary:
The economic policies implemented in Morocco since the end of the structural adjustment
program have to a certain extent succeeded in achieving macroeconomic stability,
institutional efficiency, integration into the international economy, industrial development,
employment, social cohesion and poverty reduction.

During the first decade of the 2000’s, growth accelerated, and its volatility decreased as in
most of the comparator countries. There was a convergence of macroeconomic dynamics
towards sustainable growth paths. This growth has also contributed to decrease the poverty
(from 15.3% in 2001 to 9% in 2007) and unemployment (from 13.4% in 2000 to 9% in 2013)
in Morocco.

However, one of the paradox of the Moroccan economic model is that despite of the fact
that the country has one of the highest investment rates in the world (31.7% of GDP in 2012),
the growth rates remains below expectations and is driven by private and public consumption.

The second paradox is the economy’s lack of structural transformation and low
industrialization. The third paradox is that the private sector is not sufficiently dynamic and
lacks small and medium-sized enterprises.

That is the reason why, we can say that significant development challenges remain in this
country. The study conducted by the African Development Bank (ADB), the Government of
the Kingdom of Morocco and the Millennium Challenge Corporation (MCC) seeks to define
what obstacles prevent or delay the private investment in Morocco and block its economy’s
structural transformation. The assumption is that the private sector investment and
entrepreneurship are sources of sustainable and inclusive economic growth.

To go further in their studies, they use the methodology based on the growth diagnostic
(Ricardo Haussmann, Dani Rodrik and Andrès Velasco or HVR), which clearly can identify
the major constraints to private investment and emphasize the priority obstacles to be
overcome. In order to identify the constraints growth, the author prepared and analyzed a
“diagnostic tree”.

After the HRV growth diagnostic, we were able to identify some constraints that impede
growth in Morocco. We see that Foreign trade remains one of the Moroccan economy’s weak
point, because exports are concentrated. This concentration of production in a small number
of sectors makes the economic growth in Morocco volatile. There is also a negative
relationship between private investment and the real interest rate. In other words, the lower
the real interest rate, the more profit can be generated, and the more the investment can be.

About the human capital, the test results reveal a complex situation and indicate that a
major constraint to growth concerns the training of secondary and vocational training
graduates, which remain inadequate despite the efforts made. The lack of skilled human
capital is an impediment to private investment in Morocco. Furthermore, low returns in
education in Morocco explain the low level of human capital development, and consequently,
the low levels of economic growth.

Talking about the infrastructure in Morocco, which is a key factor in the country’s
development process. We can say that infrastructure in this country has been significantly
improved both in terms of quantity and quality. Despite of the fact that disparities remain
between regions (North, South, West and East), the country is well positioned in terms of
infrastructure. In addition, the infrastructure quality-related indicator of WEF (World
Economic Forum) does not reveal any constraint.

We have also the Natural Capital, which is well developed in Morocco, and does not
constitute a major impediment to growth. In fact, natural capital is an essential component of
a country’s sustainable development. In Morocco, there is an availability of water, arable land
and energy which are not a major obstacle to growth. We do not have also a constraint related
to the Macroeconomic Risks. Macroeconomic balances are sustainable in the medium term,
even if it is threatened in the short term.

After that, we have the microeconomic risks, composed by the judicial system, the land
tenure (which includes the tax system and governance, corruption and transparency) and trade
barriers. This is known that institutional weaknesses create risks and distortions at the
microeconomic level, reduce the return on private investments and slow down economic
growth. In Morocco’s case, weaknesses in certain microeconomic policies and institutional
failures are major constraints to growth.

Finally, in the diagnostic tree, we have the innovation section. If there is an inability to
make technological progress in this country, it is mainly due to microeconomic risks and
shortage of human capital.

However, the application of the growth diagnostic methodology framework highlights two
major constraints to private sector-driven growth. The first one is related to Human Capital,
which can be explained as the access to education and quality of that educational system. The
second one is related to microeconomic risks, where we can observe a slow legal system, a
distortion in the taxation system, difficult land access and a constraining labor market
regulation.

After this short summary, and the identification of the major constraint to growth, we can
make an update to see if those two factors remain a major constraint to Morocco’s growth. In
the next section, we are going to make an update first on human capital and right after, on the
microeconomic risks.

2- Updates on Human Capital and Microeconomic risks

Before taking stock, it is necessary to examine the evolution of economic growth in
Morocco in recent years. Economic growth can give us an idea of the overall economic
situation of a given country. We can see that growth has not been linear in Morocco since
2012. For this reason, it is interesting to look closely at the factors behind this instability. In
the following section, we will consider the period from 2012 to 2019 or 2018 depending on
data availability. In the case where the data does not exist, we have not been able to make any
updates.

Figure 1- Economic growth in Morocco

Source: World bank

 a- Human Capital
In Morocco, the constraints related to Human capital are more concentrated around
educational and training system, and about results of Moroccan students in international tests.

In 2018, the Program for International Student Assessment (PISA) placed Morocco 75th
out of 79 countries that participated in an international assessment that evaluates 15-year-old
students' abilities in reading, mathematics, and science. This reflects the fact that Moroccan
students have poor reading, math, science abilities. Moroccan students ranked very poorly in
the study compared to the international average scores.

The enrollment at secondary school remains low compared to the comparator countries.
Figure 2- Secondary school enrollment in Morocco

Source: UNESCO, calculated by global economy

However, we can observe an improvement of the secondary school enrolment through

the years. In fact, we have 69.8 percent in 2012 compared to 80.23 percent in 2018. We have
also the same case for the primary completion rate (93.6 percent in 2018 compared to 98.2
percent in 2012).

After talking about enrollment in secondary school, it is necessary to address the issue
of educational training and the lack of work for graduates. According to the “Enquête
nationale sur l’emploi” in Morocco, we have a total of 9.5 percent of unemployment rate
related to diplomas and areas of residence.

Furthermore, according to the High Commission for Planning (HCP) in February

2021, about 54.3% of Morocco’s employed labor force does not have any diploma. In fact,
30.5% of the country’s employed labor force have a basic diploma and only 15.2% have a
higher education degree. The rate of Morocco’s employed labor force without a diploma
greatly varies depending on work sectors. For example, in the field of agriculture and fishing,
80.8% of workers do not have a formal diploma. The rate is also relatively high in the
construction sector, standing at 59.2%. The industry sector employs 45.2% of its workers
without a diploma and the service sector 37.4%. These results show that companies are
employing more low-skilled labor than graduate labor to this day.
Table 1-Indicator related to educational training

Source: World Bank, 2019

The table 1 shows that 35.7 percent of firms provide formal training, which is
relatively high compared to the Middle East and North Africa, and even compared to the rest
of the world. The proportion of skilled workers remains low compared to the countries of the
world, but quite close to the countries of the Middle East and North Africa (67 percent versus
68.8 percent).

It can be concluded that the low level of educational training remains low in the country
and that this is the reason why companies offer training, as the lack of skilled workers
persists. This situation has thus continued to exist in Morocco for years and is a major
constraint to growth.

b- Microeconomic Risks

At the micro level, the first constraint is the Moroccan legal system, which does not
facilitate economic activities. This situation encourages Moroccan and foreign companies not
to use the judicial system. Nevertheless, the government has begun to implement some
reforms to ensure a more efficient and modern legal system that will encourage private
investment and build investor confidence. Access to agricultural and industrial land is also a
major constraint to private investment in Morocco. In addition, the complexity of the land
tenure system and the diversity of land management regulations affect both the agricultural
and industrial sectors.

There is also the constraint of the tax system, which prevents an efficient allocation of
investments. Despite all the reforms carried out by the government, Moroccan entrepreneurs
still consider taxation to be a very heavy burden and an obstacle to the development of their
activities. Morocco also has a particularly rigid labor code, which companies are often
reluctant to comply with.

First, we are going to focus on the judicial system:

According to the Global Integrity report-which focuses on anti-corruption efforts-

Morocco was ranked in the "very weak" category with a rule of law score of 50 out of 100 in
2010. Since 2010, there has been no new data, but this score does not encourage investors.
However, in 2014, the latest World Justice, showed that the Moroccan judicial system has
evolved. This is due to subsequent reforms.
 In table 2, we can see that corruption, tax rates and tax administration are identified as
the main obstacles for businesses in their activities. We have 15.5% for corruption, 15.2% for
tax rates and 14.2% for tax administration. It is worth noting that in the report conducted by
the MCC, the African Development Bank and the Government of the Kingdom of Morocco,
corruption was not considered a major constraint by 73% of companies. On the other hand,
taxation has always been a problem for private sector development in Morocco, but there has
been an improvement in the quality of tax administration and a modernization of its services.
However, we can observe that tax rates and tax administration remain the main obstacles to
private investment.

Table 2- Biggest obstacles for firms in Morocco

Source: Enterprises Survey, World Bank ,2019

 Secondly, we have the labor market, which is composed essentially by the Financial
and Regulatory Cost of Labor

Figure 3- Labor Market Efficiency

Source: Govdata 360

We see a decrease in labor market regulation, which be a good sign, as empirical

studies have shown that excessive labor market regulation tends to reduce productivity,
growth, and employment. Moroccan firms did not place labor market regulation at the top of
the list of obstacles they encountered.

For other factors, such as land tenure, we do not have up-to-date data and therefore
cannot say anything about them.

3- Conclusion:
Throughout the years, the rate of skilled workers remains low in Morocco due to the
low level of students enrolled in the secondary schools. This situation forces companies to
train their employees to be up to speed. The lack of human capital, a very important factor of
production to long-term growth, is a major challenge to private investment. There is also a
mediocre performance of Moroccans in international tests that suggests that they have not
acquired the elementary skills necessary to pursue their education.
 For the microeconomic risks, corruption has been identified as a main constraint,
followed by tax rates and tax administration, which was not the during the period of 2012.
There is also the flexibility of the market regulation.

Bibliography and Webography:

Morocco world news: www.moroccoworldnews.com
The Global economy: https://www.theglobaleconomy.com/compare-countries/
World Bank: www.worldbank.org