Growth in Morocco’s automotive industry demonstrates the country’s smart strategy for infrastructure investment.
By Fatima Hewaidi | October 3, 2017
This summer, Morocco quietly reached a critical milestone. Renault-Nissan, the French-Japanese automotive alliance, produced its millionth car in its Moroccan factories. The car – an unassuming Dacia Lodgy – rolled off the assembly line of a Renault-Nissan plant in Tangier for sale in Turkey. The Tangier operation produces 340,000 vehicles annually and exports to 73 countries.
Although these numbers do not compete with larger European plants, they demonstrate the quiet rise of Morocco’s manufacturing industry. The country has traditionally focused on agricultural exports and financial services, but a shift to manufacturing is underway that could transform the North African country’s emerging market status.
As turmoil hit Morocco’s Arab neighbours during the Arab Spring protests, the country overtook Egypt as the leading car manufacturer in North Africa, second on the continent to South Africa. Foreign direct investment is up as investors are attracted to the country’s skilled workforce, modern infrastructure, and relative political stability. In fact, the country was one of North Africa’s top investment destinations for private equity from 2010 to 2014, mostly due to the political turmoil that has led to recession among Morocco’s neighbours.
Morocco’s auto-making output is still modest compared to the global marketplace. Its 2016 exports ranked 27th globally, behind many of its Eastern European competitors, and captured only 0.4% of world market share. Even so, the sector is growing steadily, and Morocco is projected to become the largest car manufacturer in Africa by 2020. China and India have already entered the fray with significant investments, and Morocco itself is beginning a homegrown automotive industry. If the kingdom can effectively capitalise on this momentum, it has the potential to become a leading industrialised economy in the region.
Morocco as an auto hub
Morocco is in an enviable position among other African states. The country enjoys a close geographic link to Europe. Just 16 km separate the Tanger-Med port from southern Spain, which facilitates links to 37 ports in 21 countries. Free trade agreements such as the Euro-Mediterranean agreement signed with the European Union and a free trade agreement with the United States ensure Morocco is positioned within easy trade agreements with developed countries. There are five industrial sites in the Tanger-Med port, four of which are economic free zones. Some 60,000 jobs have been created in the port and €5bn was generated by 700 companies producing for export in 2015.
Morocco’s success as an automotive hub is a recent phenomenon, as the country has traditionally focused on agribusiness. The rise of the automotive industry can be explained by several factors, including new investment laws, cheap labour costs, and a stable political environment. Foreign car companies setting up shop in Morocco today benefit from a variety of incentives, including a five-year corporate tax holiday, VAT exemptions, and land purchase subsidies. Additionally, the Hassan II Fund for Economic and Social Development generously covers up to 30% of investment costs and up to 15% of new equipment costs in the automotive sector.
Moroccan workers at a Renault factory earn about one-third of what their counterparts make in Romania or Turkey. Additionally, the government is keen to assist in employee training and has created institutes for auto-related jobs. These include management training for plant and vocational school administrators who are responsible for producing qualified operators, technicians, and assembly workers. Crucially, the new automotive industry has provided an outlet for employing Morocco’s youth bubble, a feat its neighbours have struggled to replicate. When the Canadian airplane manufacturer Bombardier shifted manufacturing operations to Mexico under the North American Free Trade Agreement, similar provisions were created to train Mexican employees. Almost a decade later, Mexican labourers are making some of the most advanced passenger aircraft in the world.
As previously noted, Morocco is relatively politically stable compared to its neighbours. Egypt and Tunisia are still recovering from the Arab Spring, Libya is a failed state from an economic perspective, and Algeria is plagued by internal power struggles. Morocco is the obvious choice for investment in the southern Mediterranean.
Main Auto Industry Players Operating in Morocco
- The company began producing cars in Morocco in 1928 and leads the market with its Dacia and Renault models.
- It nets 40% of total vehicle sales locally.
- Renault announced plans in 2016 to invest $1.04bn to build an “industry ecosystem” in Morocco, which will allow companies to source 65% of components locally (up from 32%), thereby generating $2bn in revenue while creating 50,000 new jobs.
- The Tangier plant is Renault’s first with the explicit aim of generating zero carbon dioxide emissions and zero industrial-effluent charges.
- The company is building a €557m factory 40 km north of Rabat to be opened in 2019.
- The new plant will eventually produce 200,000 vehicles per year, employ 4,500 workers, and source at least 60% of its components locally.
- The Canadian auto parts manufacturer is investing in a $280m plant that will supply engine parts to the new Peugeot factory.
- The automotive technologies supplier is planning seven new projects in Morocco, including a factory for electrical distribution systems and a research and development centre.
- It has employed about 12,000 workers since opening units in Morocco in 1999.
- The Chinese car company announced plans in 2016 for a $100m investment in Tangier to produce electric cars and buses for export to Europe.
- This is part of a broader expansion of Chinese foreign direct investment into Morocco since 2011.
- The Indian automotive group announced in 2013 it would close operations in Spain and focus on Morocco for manufacturing bus and coach cabins bound for Europe.
- The boutique Moroccan sports car developer unveiled its newest production vehicle in 2013, a luxury $2m supercar named Epitome.
The road ahead
The story of Morocco’s automotive industry is actually not about cars. It is about the use of infrastructure investment to amplify a country’s geographic position. Morocco’s leaders realised that given the country’s close proximity to developed markets, strategic infrastructure investment would be a major boon for the export sector.
The country has done an admirable job leveraging its geographic position and resources to supercharge its industrial base. What began as a cheap outlet for European companies to assemble vehicles has blossomed into a dynamic epicentre between East and West. As sub-Saharan Africa continues to rise, Morocco has positioned itself as the ideal hub for automotive manufacturers to reach it.
This investment has paid off in a growing automotive export sector and has led to increases in foreign investment. The challenge facing Morocco now is how to diversify its export infrastructure in a virtual world. How long will automotive growth continue until the major players shift gears? Which markets will best unlock future growth opportunities? How can local supply chains expand to accommodate more value-adding activities?
While making cars is beneficial for the export economy, it is not Morocco’s most promising industry. With Africa’s population set to double to 2.4bn by 2050, Morocco is well positioned to expand its financial sector to the rest of the continent. The country has shown a willingness to invest in its economy through the creation of modern manufacturing infrastructure; it would be well served to focus on facilitating bank accounts for Africa’s next billion.
Originally from Benghazi, Fatima Hewaidi is a graduate of the Johns Hopkins University School of Advanced International Studies. She focuses on sustainable development policy in growth markets.