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Morocco risk: Infrastructure risk
(RiskWire Via Thomson Dialog NewsEdge) COUNTRY BRIEFING
FROM THE ECONOMIST INTELLIGENCE UNIT
RISK RATINGSCurrentCurrentPreviousPreviousRatingScoreRatingScoreOverall assessmentC51C51Infrastructure riskC59C59Note: E=most risky; 100=most risky.SUMMARY
Infrastructure in Morocco is poor and a major cost to business. Although roads are generally adequate, congestion is becoming a concern and new roads are not being built as fast as needed. Ports, especially at Casablanca, are busy, but upgrading is under way, led by work on the Tangiers-Med deep-water port at Oued R'Mel on the Mediterranean coast near the Strait of Gibraltar, which will become the second-largest in Morocco after Casablanca. Airport service is barely adequate for commercial purposes, and the railways are well below western standards. Telecommunications infrastructure has been improving, and is generally adequate in major cities. Overall, however, telephone penetration rates are low and Internet and computer take-up is lagging. Power supply is also erratic. The government's infrastructural priority is housing. It argues that urban deprivation contributes to support for radical Islamic political groups, although bureaucratic inertia means that actual investment has been limited.
SCENARIOS
The road network impedes distribution between major cities (Moderate Risk)
Although Morocco's road network is generally good, congestion is a growing concern in a number of places. The country has around 57,000 km of roads, of which about 32,000 km are surfaced. There are currently only 480 km of motorway (from Casablanca to Tangier and from Rabat to Fes), but the government plans to increase this to 1,400 km by 2010, with extensions from Casablanca to Agadir via Marrakesh (already under construction) and from Fes to Oujda on the Algerian border. Short links from Casablanca to El Jadida and from Tangiers to the new deep-water port of Tangiers-Med are also planned. Work is also under way, in sections, on La rocade mediterranee, a 550-km coastal highway linking Tangiers to the Algerian border, designed to break the isolation of the underdeveloped north. Morocco also has a programme under way to upgrade the rest of the road network by widening and surfacing. The rural road network is being extended by 1,500 km a year; currently only 50% of the rural population is served by roads that are usable all year round. Many roads, especially those passing through tourist areas, are dangerous, with frequent traffic accidents and fatalities. Be prepared for delays in the road-building programme, and for a slowdown in future construction and maintenance, because of ongoing budgetary pressures in the government.
Outdated ports and railways create delays in domestic and international trade (Moderate Risk)
Both ports and railways are now being targeted for significant upgrades, with large sums due to be spent on railways, airports and the Tangiers-Med deep-water port during the next few years. A high-speed train service between Casablanca and Marrakesh is being built and should begin operations by 2010. Several major new roads are also under construction. However, as with all infrastructures, businesses should not expect rapid progress on development and expansion plans as long as fiscal pressures persist. Capital investment is the first item to be cut once fiscal pressures bite.
BACKGROUND
(Updated: May 26th, 2006)
Natural Resources and the Environment
Morocco covers 458,730 sq km and Western Sahara a further 252,120 sq km. There are two mountain chains: the Rif in the north and the Atlas in the centre. To the north and west of the Atlas a coastal plain extends to the Atlantic. With its warm climate and fertile soils, this region is the most suitable for agriculture and the most densely populated. To the south and east of the Atlas, bordering the Sahara desert, the land is mostly arid. There are rich fishing grounds off the Atlantic coast, especially off Western Sahara.
Agriculture depends on the annual rainy season, which lasts from November to March. The frequency of drought has increased, with below-average rainfall now occurring every other year on average, compared with once every five years during the 1980s.
Water supplies
Annual water availability is currently around 18bn cu metres, of which 2.1bn cu metres is designated for drinking water and industrial needs, with the remainder used for irrigation. Water storage capacity in dams is scheduled to be increased to 40bn cu metres by 2020 through an extensive dam-building programme, begun in the 1960s, that calls for the building of two dams a year. Demand for water is expanding by an estimated 6% annually, and prices are being raised in a bid to rationalise water use, particularly for agriculture. The authorities have introduced a programme to upgrade the irrigation system; a World Bank report has warned that the country will face a water shortage unless improved water-management techniques are introduced.
Pollution
Pollution, particularly from the phosphate industry, is a growing problem and the government is working to establish a regulatory framework that will curb the damage. Moroccos beaches and waterways are the hardest hit; a survey in 2000 found that 21% of beaches are polluted while 50% are of only medium quality. The effluent from coastal chemical complexes is largely to blame.
The World Bank has recommended that a comprehensive environmental policy be drawn up, linked to water use, pollution and agricultural development. The volume of wastewater produced in urban areas is expected to more than double from 410m cu metres in 1990 to 900m cu metres in 2020. Increasingly, the management of water, wastewater and power systems is being contracted out to foreign companies. Environmental schemes are often funded by concessionary loans from sources such as the Japanese and German governments, the European Investment Bank and the African Development Bank (AfDB). The World Bank and Islamic Development Bank have also both recently extended loans to the government to address water sanitation problems.
Transport, Communications and the Internet
Funding for infrastructure development has traditionally been met through concessional loans and grants, but the Moroccan government is increasingly encouraging private participation. Favoured mechanisms for attracting private capital are build-operate-transfer terms or long-term operating concessions.
Roads
Morocco has around 57,000 km of roads, of which about 32,000 km are surfaced. There are currently only 530 km of motorway (from Casablanca north to Asilah and from Rabat east to Fes), but the government plans to increase this to 1,500 km by 2010. The motorways will be run as toll-road concessions. Work on motorways from Casablanca to Marrakesh (150 km), and Marrakesh to Agadir (240 km) is under way. The Marrakesh-Agadir road is expected to be operational by late 2009, at an estimated cost of Dh6.2bn(US$670m). Also under construction are shorter links from Casablanca to ElJadida, Asilah to Tangiers, Tangiers to Tetouan and Tangiers to the new deep-water port of Tangiers-Med. Contracts to build a 320-km motorway from Fes to Oujda on the Algerian border are to be awarded in late 2006. Work is also under way, in sections, on La rocade mediterranee, a 550-km coastal highway linking Tangiers to the Algerian border, designed to break the isolation of the underdeveloped north. Funding for road building has come primarily from loans from bilateral and multilateral donors.
Morocco also has an ongoing programme to upgrade the rest of the road network by widening and surfacing. The rural road network is being extended by 1,500 km a year; currently only 50% of the rural population is served by roads that are usable all year round.
Railways
Rail passenger traffic has been growing modestly in recent years, but freight traffic (over 75% of it phosphates) has stagnated. Only half of the 1,907-km rail network is electrified and much-needed modernisation and extension has been painfully slow. In 2002 the government provided the state railway company, Office national des chemins de fer (ONCF), with Dh1.95bn to cover debts of Dh1.3bn and stabilise its finances, while ONCF agreed to invest Dh6.5bn to upgrade the system in 2002-05. Progress should be faster in 2005-09 as ONCF plans to invest Dh17bn to modernise 400 km of electrified line; build rail links from Tangiers to the Tangier-Med deep-water port and from Taourit to Nador; and construct a high-speed line between Casablanca and Agadir via Marrakesh. New rolling stock will include 18 double-decker trains, 20 locomotives and 300 carriages. ONCF is being transformed into a limited company and divided into two arms, one to manage the infrastructure and the other to run services. This could be a step towards privatising the company. The government has already liberalised rail tariffs, allowing ONCF to compete more aggressively with road transport.
In 2003 Morocco and Spain reached an agreement to build a double-track railway tunnel under the Strait of Gibraltar, the first direct rail link between Europe and Africa. The two governments will spend 27m (US$34m) in 2004-06 on seismic and other geological studies to identify the best route. Construction is expected to start in 2008 and will cost some 3bn (US$3.7bn). Financial support will be sought from the EU.
Ports
Casablanca handles almost half of all shipping traffic; it is the leading container port and along with nearby Mohammedia handles most of the hydrocarbons trade, whereas most phosphate rock exports are shipped from Casablanca, Jorf Lasfar and Safi. The Office dexploitation des ports completed a US$220m expansion and modernisation programme in 2002. In 2003 work began on the Tangiers-Med deep-water port at Oued RMel on the Mediterranean coast near the Strait of Gibraltar. The Dh11bn port is due for completion in 2007 and will be the second biggest in Morocco after Casablanca. Concessions to equip and run container terminals at the port are being awarded and plans to develop the associated industrial and commercial free-trade zones are under way. The Tangiers-Med Special Agency (TMSA), the government body that manages the Tangiers-Med port, granted the concession licence to equip and run the first and second container terminals to two different international consortia in 2005. The winners agreed to commit a total investment of 270m by 2010 and 400m during the 30-year concession period. The port is seen as an industrial development hub for the Tangiers-Tetouan Special Development Zone and is expected to attract investment into the relatively undeveloped northern region of Morocco. The government is responsible for funding the basic port works, as well as for transport connections and utilities, with the rest to be funded by the private sector.
Air services
Morocco has 12 airports. The state airport authority, Office national des aeroports (ONDA), is planning to enlarge capacity to meet the forecast growth in passenger numbers to 27m in 2020. The work will cost some Dh3.3bn in 2005-08. The biggest single development is the Dh885m extension of Mohammed V Airport in Casablanca (which has 50% of all passenger traffic and 85% of freight) to double capacity to 8m passengers by 2008. Most of the funding for this work has come from the AfDB. Other airport terminals are being extended at Tangiers, Al Hoceima, Essaouira, Errachidia and Dakhla, and runways are being lengthened at Marrakesh (the second-busiest airport), Tangiers and Al Hoceima. A priority of ONDA is to support the governments goal to increase tourist numbers to 10m by 2010. Morocco has received a grant from the US to fund a study of the feasibility of privatising the countrys airports.
The national flag carrier, Royal Air Maroc (RAM), was in financial difficulties even before the September 2001 attacks on the US because of overstaffing, rising jet fuel costs, the strong US dollar and interest payments on loans to buy new aircraft. Business stagnated and insurance premiums rose following the 2001 attacks on the US, the US-led invasion of Iraq and the bombings in Casablanca in May 2003. As a result, the company introduced an efficiency programme to shed staff and non-core activities and returned to financial health in 2003/04 with a 65% rise in net profits to Dh250m (US$28m). RAM operates 900 flights a week with 33 aircraft serving 40 countries. The airline has a fleet renewal programme that involves buying 22-24 new aircraft in 2002-12; most are expected to be Boeings. RAM is also extending its interests in the hotel business. RAMs improving fortunes may lead the government to revive plans to dispose of up to 40% of the firm either by sale to a strategic investor or by flotation on the stockmarket.
The government is hoping that expanding aviation capacity and increasing competition in the airline industry will help develop the countrys tourism potential. The market in air transport was liberalised in February 2004, and most restrictions on foreign airlines flying to Morocco were lifted. In December 2005 Morocco took a big step towards further liberalisation of its air transport sector with the signing of an open skies deal with the EU, giving reciprocal access rights in these aviation markets, the first non-European country to do so. The government forecasts that by 2010 61% of the scheduled-flight market will be held by RAM, 38% by foreign carriers and 1% by private Moroccan operators. Of the charter market, 30% will be held by Atlas Blue, a new Marrakesh-based low-cost airline owned by RAM, 20% by private Moroccan operators and 50% by foreign charter airlines.
Telecommunications
The telecommunications sector is being opened to competition and is expanding rapidly with new services and new platforms, such as fixed satellite very small aperture terminal (VSAT) digital data transmission. The authorities hope that the sector will lift GDP growth and create jobs throughout the economy, including in Internet-based businesses and service firms. Growth potential is good: the penetration rate for mobile phones is still moderate (at 33 subscribers for every 100 people in 2005) and for fixed lines is low (4.5 for every 100 people); the middle class and business communities, though still small, are growing; and the regulatory regime is light but effective. The regulator, Agence nationale de regulation des telecommunications (ANRT), has overseen the liberalisation of the sector, and its independence from government has given confidence to foreign investors.
Liberalisation began with the sale of a 35% stake in the state telecoms firm, Maroc Telecom (MT), to Vivendi Universal (France) for Dh23.3bn in December2000. The government disposed of a further 30.9% of MT stock in November 2004: 16% (for Dh12.4bn) by direct sale to Vivendi (giving it a controlling stake of 51%) and 14.9% (for Dh9bn) by stockmarket flotation in Casablanca and Paris. The Moroccan state will hold its remaining 34.1% at least until 2007.
MT had a monopoly in the sector until 1999. Competition was introduced into the mobile-phone market that year with the sale for Dh10.8bn of a second mobile-phone concession to Meditelecom (Meditel), a joint venture led by Telefonica (Spain) and Portugal Telecom. Since then, the mobile-phone market has been stimulated by competition between MT and Meditel, which has driven down prices and increased the range of services. MT had around 6.7mmobile-phone subscribers at the end of 2005 and Meditel around 3.3m. Two licences to operate third-generation (3G) mobile-phone services (allowing high-speed data transfer) are expected to be awarded in 2006.
MTs fixed-line monopoly was broken in 2005, when licences were awarded to Meditel (to run a local loop, a long-distance service and an international service) and a local firm, Maroc Connect (to run a number of local loops). The fixed-line market contracted in 2000 and 2001 as customers moved over to mobile phones but is now expanding, driven by growing interest in the Internet, broadband, cable television and data services. The introduction of competition in the fixed sector will also encourage expansion. MT had 1.4m fixed-line customers at end-2005.
Internet
Morocco had only 300,000 Internet subscribers at end-2005, but the number of Internet users was estimated by the government at 3m at the start of that year (a figure much higher than the 800,000 estimated by the UN Conference on Trade and Development). Most connections occur in Internet cafes as most Moroccans cannot afford personal computers. In late 1999 ANRT introduced reforms that improved the speed of access in Morocco, providing more Internet bandwidth to potential service providers and the number of ISPs was in double figures by 2002. The entry of foreign competition, including the Internet services arm of France Telecom, Wanadoo, in early 2000, forced MT to cut its monthly subscription rates and abolish connection fees. MT launched an asymmetric digital subscriber line (ADSL) service in October 2003. The high-capacity service is available in the 13 largest cities, and will allow users to access a wider range of web services more easily. There is currently no specific regulation of the Internet in Morocco, although the authorities have occasionally tried to block access temporarily to websites publishing material that it considers out of bounds. Even websites close to the Polisario Front (containing information that cannot be found in the national press) are accessible. However, under pressure from the conservative and Islamist parties, the government is planning to pass laws to block access to pornographic sites (the Moroccan penal code prohibits pornography).
Media
A range of newspapers and current affairs journals are printed in Arabic and French. Most are affiliated to political parties or support the official palace line, but in recent years a number of more outspoken newspapers have appeared. The pro-government dailies include Al Anbaa, Maroc Soir and Le Matin du Sahara. AlAlam and lOpinion back the Parti Istiqlal, while Al Bayane supports the Union socialiste des forces populaires (USFP). Among the new brand of lively, anti-establishment publications are a best-selling French-language paper, Le Nouveau Journal, its Arabic-language version, Assahifa, and two French-language weeklies, TelQuel and Demain (although the latter is currently banned). Two useful business publications are the daily LEconomiste and the weekly La Vie Economique.
Several well-established French and Arabic publications take a sharply critical line against the establishment and devote extensive coverage to past human rights abuses and corruption. Nevertheless, the authorities regularly use criminal prosecutions, censorship and harassment to control press coverage of three highly sensitive topics: the monarchy, Islam and Western Sahara. Under Moroccan law, an insult to the royal family, Islam or the territorial integrity of Morocco is punishable by a jail sentence of three to five years and a fineofDh10,000-100,000 (US$1,100-11,000). Anti-establishment publications occasionally try to push back the boundaries of what is considered acceptable. For example, in 2003, Ali Lmrabet served seven months in jail after one of the publications he edits, Demain, carried satirical cartoons and photo-montages that insulted the person of the king, and in 2005 he was fined Dh50,000 and banned from journalism for ten years after being sued over an article on Western Sahara. The editor of Al Ousbouaaya al-Jadida went on trial in mid-2005 after publishing an interview with a prominent Islamist, Nadia Yassine, that called for a republic. (The trial has been postponed.) Nevertheless, there are signs of a relaxation of the restrictions on the media, including the reporting on local television of human rights reports critical of the government, and the televising of public hearings of the Justice and Reconciliation Commission. The government has also announced that the law will be revised to abolish jail sentences for transgressions.
A 2003 law lifted the government monopoly over all radio and television transmissions. The state runs two television channels--TVM and 2M--and nine regional radio stations. In 2004 the cabinet approved a draft law to transform them into limited companies open to private investors, and to establish an independent body to regulate the sector and award licences. The national press agency, Maghreb Arab Press, will also be partly privatised.
Energy
Few proven reserves
Morocco imports over 90% of the energy it consumes; energy equivalent to 12m tonnes of oil was imported in 2004 at a cost of Dh26.1bn (US$2.9bn). The countrys own energy resources are limited to modest amounts of hydroelectric, wind and solar power; coal reserves that are close to depletion and negligible proven reserves of oil and gas; firewood is widely used in rural areas. A reported oil strike in the Haut Plateau region of the north-east in early 2000 raised hopes that Morocco might be able to meet its own oil needs, or even become an oil exporter, but subsequent tests on the discovery have proved disappointing. There remains the possibility, however, that oil and gas remain to be discovered onshore or offshore.
Electricity generation will shift to the private sector
Electricity supply grew by 7% to 18bn kwh in 2004 and demand by 8% to 15.7bnkwh. Over 80% of supply is generated thermally from imported coal and oil; around 4.8m tonnes of coal and 574,000 tonnes of fuel oil were used for this purpose in 2004. Some 5-9% of electricity is generated by hydroelectric power stations; the amount varies according to rainfall and reached 1.6bn kwh (8.9% of total supply) in 2004. A further 1% comes from wind power (200mkwh in 2004), although this is set to increase. Solar energy is being used in some villages where a connection to the national power grid is not economically feasible. The balance of electricity supply is imported from Spain; imports reached 1.5bn kwh in 2004.
With demand rising, the government has turned to the private sector to provide the necessary extra supply. The states share of electricity supply has fallen to around 35% as private power stations have come on stream and the sector has been linked to foreign grids. The first private power plant was Jorf Lasfar; a US-Swiss consortium took over two existing 330-mw units in 1997 and had added two 348-mw units by 2001. In 2005 a 284m (US$352m) 387-mw combined-cycle plant using gas from the Euro-Maghreb pipeline that runs from Algeria to Spain was brought on stream at Tahaddart near Asilah by a consortium comprising Siemens of Germany (20%), Endesa of Spain (32%) and Moroccos state-owned Office national de lelectricite (ONE; 48%). Moroccos total installed capacity at end-2005 was 4,848 mw, compared with 4,621 mw in 2004. ONE also has a 463-mw pumped-storage (energy transfer) plant at Afourer in central Morocco, inaugurated in 2005.
Supply capacity is set to rise further. The link to Spain, opened in 1998, is being doubled to 1,400 mw by end-2006. An 800-mw plant is planned at Al Wahda in the north, using Algerian gas, and several small plants are under construction to serve the phosphoric acid and oil-refining industries. The government is building a 140-mw wind farm costing 160m in the Tangiers region with European funding. Several solar-power schemes are under way; ONE plans to provide 227,000 rural homes in 4,500 remote villages with solar power by end-2006. Nuclear power is also on the medium- to long-term agenda.
ONE invested Dh4.2bn in the electricity infrastructure in 2004 and Dh4.8bn in 2005, and has a Dh39bn investment programme for 2006-12. The rural electrification programme, launched in co-operation with local councils and residents (who pay part of the connection cost), has made great progress. In 2005 another 220,000 households were connected, lifting the proportion of connected rural households to 81%.
Electricity distribution remains in the hands of ONE. Prices, still high by regional standards, are slowly falling. In late 2005 ONE submitted plans to re-organise the market into two segments, one regulated according to ONEs tariff, the other allowing commercial customers to buy their electricity directly from private or overseas suppliers, which should bring prices down further.
Euro-Maghreb gas pipeline
Morocco currently produces a mere 50m cu metres/year of natural gas and hopes of significant gas strikes remain unfulfilled. Morocco also has access to 600mcu metres/y of Algerian natural gas in lieu of transit fees from the Euro-Maghreb gas pipeline. Morocco plans to increase consumption of natural gas to over 5bn cu metres/y by 2020, equivalent to 25% of the countrys energy needs. Morocco could increase its imports of Algerian gas but is unlikely to want to become over-dependent upon this source because of its fraught political relationship with its eastern neighbour. Instead, Morocco plans to import liquefied natural gas (LNG) through a network of LNG terminals, built and run by local and international private investors. Each terminal would cost over US$500m and Morocco would need several of them to meet the 2020target.
Copyright 2007 Economist Intelligence Unit
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