The report reveals that prior to the COVID-19 crisis, Morocco ranked 72nd globally for Economic Openness, and 9th in the Middle East and North Africa region

New report reveals improvements to Morocco's labour market and domestic market contestability are key to boosting the country's economy

A new report on Economic Openness in Morocco by the Legatum Institute emphasises that improving the country’s labour market is key to reducing the high levels of informality and unemployment in Morocco – in turn improving the quality of jobs available for Moroccans and protecting their employment rights. The report also highlights that increasing the contestability of Morocco’s domestic market would enable smaller and newer businesses to enter the market and grow, so that in time they are able to challenge incumbents. These reforms offer Morocco the best opportunity to increase its economic openness – allowing the country to fulfil its potential as a regional leader in the Maghreb and play a significant role in the world economy.

The report reveals that prior to the COVID-19 crisis, Morocco ranked 72nd globally for Economic Openness, and 9th in the Middle East and North Africa region, in the Institute’s Global Index of Economic Openness, which ranks more than 150 economies according to their performance across four pillars: Market Access & Infrastructure, Investment Environment, Enterprise Conditions, and Governance.

In the past 10 years, Morocco has seen the most progress in its Enterprise Conditions, rising 23 places to rank 70th globally. This is due predominantly to its notable progress in lowering the burden of regulation through a series of reforms which have reduced the amount of time businesses spend complying with regulation and tax obligations. The environment for business creation has also improved. However, the report highlights two major issues constraining the country’s economic development. The first is that the restrictive and burdensome labour market has led to a high rate of unemployment and contributed to a large informal sector, and the second is that the country’s domestic market is highly concentrated making it difficult for new and small businesses to enter the market, compete, and grow which facilitates monopolies and protects incumbents.

Despite rising 17 places in the global rankings over the last 10 years, Morocco ranks just 96th on Labour Market Flexibility. To correct this and enable a dynamic and healthy workplace for both employee and employer, the report recommends slowing the increase of the minimum wage, extending flexibility on temporary contracts further, and making it easier and cheaper for small businesses to use the redundancy process with their staff.

To ensure a fair and competitive domestic market, the report recommends expanding the role of the private sector. It emphasises that opportunities for state-owned enterprises to benefit from privileged access to markets should be reduced, and that lifting entry barriers that protect incumbents, as well as reinforcing the role of sector regulators, would all help improve Morocco’s worsening market contestability.

Dr Stephen Brien, Director of Policy at the Legatum Institute and author of the report, commented: “Prosperity is much more than material wealth, but without an open and competitive economy it is very challenging to create lasting social and economic wellbeing.

“With the uncertainty and disruption caused by the coronavirus pandemic there is a risk that governments may take short-term measures to mitigate against the immediate economic fallout, such as providing financial support to industry, however this could be hard to reverse. Our report shows that enacting policies which encourage competition, innovation and knowledge-transfer will be vital for Morocco’s success post-crisis – softening the effects of the COVID-19 pandemic and helping to improve the lives of all Moroccans.”

Out of the four pillars of the Global Index of Economic Openness, Morocco performs most strongly in Market Access and Infrastructure, ranking 64th. The country has significantly improved its infrastructure, particularly its competitive mobile phone market – which has driven up high quality internet access – as well as the capacity and quality of its seaports.

However, challenges remain as Morocco also faces threats from the impact of environmental pressures on its water resources, compounded by increased demand. The report recommends mitigating the impacts of declining rainfall by continuing programmes that invest in sustainable irrigation infrastructure; progressing with measures to improve the efficiency of water use; and expanding efforts to recycle wastewater; as well as building desalination capacity.

Dr Stephen Brien remarked: “Over the last decade Morocco has been through significant change, progressing on many fronts since 2011 – when the King introduced a new constitution following the Arab Spring which set the foundation for further progress. Virtually the entire population has access to reliable electricity, and over two-thirds of the population can access the internet. Morocco has also continued to expand its already extensive trading networks by pursuing a wide range of trade deals and through the construction and expansion of the largest container port in the Mediterranean. However, the impact of a recent major drought on Morocco’s large agricultural sector has highlighted the country’s susceptibility and vulnerability to growing environmental pressures.

“Looking forward, Morocco will be defined both by internal reforms and by its reaction to major exogenous challenges, such as environmental pressures and the course of the pandemic. Presently, these two challenges are expected to cause a recession in Morocco, with a projected fall in real GDP of 4%. To counter these threats and respond proactively, will require greater innovation and flexibility, which can only come from greater economic openness.”

The report shows that Morocco ranks 68th for its Investment Environment, rising 13 places in the last decade. There have been significant reforms to strengthen intellectual property rights and investor protections, and the financing ecosystem is a particular strength for Morocco. However, the country still has some restrictions on international investment that could constrain development in this area, and so would benefit from easing some capital controls and restrictions on foreign ownership of companies, as well as making it easier to obtain work visas.

Finally, the report shows that Morocco ranks 98th for Governance, having fallen 16 places since 2010. Recent reforms show promising signs of tackling corruption, with a new law to protect whistle-blowers and reforms aimed at making public procurement fairer and safer. However, there is still a perception that executive constraints are not sufficiently strong in practice. The Government’s effectiveness is also hampered by a lack of accountability and a fragmented Parliamentary system; and there are issues with the court system which can be inefficient and prone to corruption. To improve the quality of governance, the report recommends reforming the judiciary, establishing legally independent regulators, as well as continuing to strengthen the role of the National Commission for Integrity and Anti-Corruption by fostering its independence and access to resources.

Dr Brien said: “Morocco has many strengths on which to build. Its extensive trade deals, political stability and improving infrastructure provide a solid foundation for greater economic openness. The government continues to identify a range of economic and legal reforms that will lead to improvements and we expect the Commission for the New Development Model to provide impetus for further development.

“Tackling the challenges presented in this report and introducing reforms will not be straightforward or politically easy, but I am optimistic that, with political will, Morocco can deliver reform and continue to work towards achieving greater levels of economic openness.”