PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB6808 (The report # is automatically generated by IDU and should not be changed) Operation Name Morocco Economic Competitiveness Support Program Region MIDDLE EAST AND NORTH AFRICA Country Morocco Sector General industry and trade sector (100%) Operation ID P127038 Lending Instrument Development Policy Lending Borrower(s) GOVERNMENT OF MOROCCO Implementing Agency Ministry of Economy and Finance and Ministry of General and Economic Affairs Date PID Prepared December 6, 2011 Estimated Date of Appraisal February 13, 2012 Estimated Date of Board May 10, 2012 Approval Corporate Review Decision Following the corporate review, the decision was taken to proceed with the preparation of the operation. I. Key development issues and rationale for Bank involvement In the wake of the Arab Spring, a new constitution has been adopted in Morocco by referendum on July 1, 2011. The new constitution sets the basis for more open and democratic society and provides mechanisms for the construction of a modern state of law and institutions, and lays the foundation for extended regionalization. The heads of political parties, opinion leaders and civil society representatives reacted positively to the proposed reforms and there are high expectations amongst the population that these reforms will have to be implemented in a credible manner. Over the past decade, Morocco has made good progress in carrying out business environment reforms, but the actual impact of these reforms, albeit positive, has been insufficient. The private sector has responded positively to these reforms, but productivity, export diversification and technological intensity still lag other emerging countries. The key PSD indicators (see below) show a weak process of creative destruction in the Moroccan economy,1 and therefore relatively weak economic and productivity growth prospects. The need for structural transformation of the Moroccan economy requires a comprehensive and coordinated set of policies in several key areas: stability of the macroeconomic environment; an improved business environment—including in the area of infrastructure and in regulatory institutions; a trade policy that supports the competitiveness of Moroccan products; a financial sector that better serves smaller firms; a labor force that is better trained and effective social protection and labor market institutions. 1 The process by which less efficient firms exit the market and are replaced by more productive new entrants, leading to overall increase of productivity in the economy. 1 While progress in all these areas is notable (witness the significant improvement in the ranking of Morocco in the 2012 Doing Business report which was the biggest global improvement), there is a strong need to increase the impact of reforms and the response of private investors to these reforms. Weaknesses remain in the business environment, especially in those areas—like regulatory reform—that require a lot of public agency coordination, and where a gap remains between the laws as they appear on the books and how they’re applied to individual investors. While export development plans are in place (Emergence and Maroc Export) and Morocco adopted an ambitious FTA agenda, some areas of the trade policy—including trade logistics and trade finance—remain weak. Financial sector reforms have been impressive in Morocco, but there is room for these reforms to trickle down to domestic SMEs that remain credit constrained. Looking forward, the challenge will be in the implementation and coordination of all the policies that affect private sector development — the success of the sectoral programs launched by the government (in industry, trade, agriculture, tourism, skills development, etc.) will depend on the ability of the government to coordinate, implement and evaluate policies at various levels and through various agencies. This has proven to be especially difficult in the past when strong inter- agency coordination is required — in particular to address persistent cross-cutting constraints in the business environment that affect mostly domestic SMEs. All these interventions and support plans are also heavily constrained by remaining cross-cutting issues in the business environment: the availability of skills; access to land and finance for SMEs; rules and regulations—and especially their implementation by the administrations in charge—that are cumbersome and often arbitrarily and inconsistently applied; and a weak judiciary. The proposed Economic Competitiveness Support Program Development Policy Loan programmatic DPLs (ECSP DPL) is designed to support the economic governance reform agenda of the Government, in view of fostering greater competition and more effective policies to spur competitiveness: reducing discretion in the implementation of regulations, reducing anti-competitive behavior, improving government coordination and private sector participation to policy-making, increasing the efficacy, the transparency and the accountability of government policy making, and increasing access to information are all important objectives that will be addressed by the specific Government policy reforms supported by ECSP DPL. Ultimately, improved competitiveness of the Moroccan economy means increased investment, and increased jobs creation, especially in higher value added sectors. Better jobs, higher-value added jobs that can absorb the increased levels of education of the Moroccan youth population, is what ultimately is expected from stronger private sector development and competitiveness. Research has shown that stable jobs are the strongest channel to escape poverty and vulnerability. The long-term objective of this series of competitiveness policy loans lies precisely in enabling increased Moroccan competitiveness—especially of small and medium enterprises, in view of strengthening job creation and poverty reduction. Rationale for Bank Involvement The proposed ECSP DPL is one of the key operations outlined in the FY10-13 Country Partnership Strategy (CPS) discussed by the Board in January 2010. The CPS is designed to help Government achieve its medium term priority objectives in a flexible and responsive way. It is organized around three main pillars. The first concentrates on activities that encourage growth, competitiveness and employment, including fostering macro-economic stability and promoting private sector development as engine of growth. The second pillar supports the improvement in 2 access to, and quality of, public services, including the development of institutions and management systems. The third pillar aims at ensuring that Morocco’s development can be sustainable and addresses natural resources and climate change challenges. In addition, the CPS places a strong emphasis on the governance agenda which is to be mainstreamed across the Bank program. The ECSP DPL is closely connected with the planned second financial Sector DPL series and the Skills and Employment DPL series as all three underpin the first pillar of the CPS, along with operational support in the justice sector and on information and communication technologies, to support government in enhancing growth competitiveness and employment. II. Proposed Objective(s) The objective of the proposed program is to support policy reforms for increased competitiveness of the Moroccan economy in three key areas of the Government’s comprehensive economic strategy: the investment climate, trade policy and trade logistics and economic governance. This program will clearly position the bank as a strong supporter of the ongoing reforms in these three areas. Also, beyond supporting policy reforms, the loan should help the Government of Morocco finance its budget deficit and maintain macroeconomic stability in the current global environment. This is the first in a series of two programmatic DPLs on the competitiveness theme. The ECSP II DPL will be prepared in 2013 and will continue to support further reforms in these three areas. III. Preliminary Description The reform program supported by the loan is based on three key pillars of Morocco’s economic strategy that correspond to the following Project Development Objectives: I. Improving the investment climate, in particular by removing barriers to entry and competition, simplifying the regulatory environment for doing business and reducing discretion in the implementation of the rules by increasing transparency and access to information; II. Furthering trade policy reform and trade facilitation, in particular by pursuing the ongoing tariff rationalization (levels and bands), strengthening the regulatory framework for import standards and easing logistics at ports of entry; III. Improving economic governance, by strengthening significantly the Competition Agency’s mission and prerogatives, increasing transparency and accountability in the way the investment incentives are granted and sectoral policies conducted, and strengthening the public-private coordination body for investment climate reforms. This program is complementary to the other parts of Morocco’s comprehensive economic strategy, namely macroeconomic stabilization, financial sector reform (supported by a companion DPL), skills development for employment (supported by a companion DPL), justice sector and administrative reforms (supported respectively by a TA loan and a DPL) and infrastructure development (supported by the Bank’s on-going investment project portfolio). The project will contribute to improving the investment climate, through: • Reduced barriers to entry to SMEs by abolishing the mandatory minimum capital requirement for limited liability. 3 • Reduced room for discretion and arbitrariness in the implementation of regulations, by upgrading, standardizing and publishing new forms for a first set of 30 priority administrative procedures identified by the private sector, in addition to simplifying their respective processes. • Strengthened administrative information-sharing among all agencies interacting with firms, by the implementation of a unique enterprise identifier and a central database of firms, sharing administrative information from all relevant agencies. • Reduced delays in payments to SMEs, by the adoption of a “Payment delays� law regulating that aspect of commercial contracts and defining late payment penalties. It also aims at furthering trade policy reform and trade facilitation, through: • Reduced tariff rates for manufacturing goods. • Simplified tariff structure by reducing the number of tariff bands for manufacturing goods. • Updated and modernized legal and regulatory framework for import standards and their enforcement. • Reduced delays for trade operations by streamlining port logistics through the integration of pre-shipment administrative steps into the online Portnet system. Finally, it will support reforms in the economic governance area, through: • Increased transparency and accountability in the process by which investment incentives are granted and monitored, leading to more effective government intervention, reduced discretion and better monitoring for results of industrial and investment policies. • Improved government coordination and private-sector involvement in the design, implementation and monitoring of investment climate reforms, leading to increased and more effective business environment policies. • Reduced monopolistic behavior by strengthening and the competition legal framework and the Competition Council in charge of enforcing anti-trust and competition regulation. IV. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts The proposed ECSP DPL does not support any reforms that are expected to have any significant distributional impacts. The focus of the operation is centered on reforms aimed at: (i) improving the investment climate; (ii) reducing trade distortions and streamlining trade logistics; and (iii) improving economic governance. None of the activities supported by this operation has substantive distributional implications that would warrant a poverty and social impact analysis (PSIA). With regards to the tariff reduction supported by this operation, the planned reform is the final step of the reduction schedule initiated in 2009 and implemented progressively every year. In any event, to further investigate the potential impacts of its trade policy as a whole, the Government is launching 4 in collaboration with the Bank a comprehensive analysis on the impact of trade reform measures taken in the last decade and to the extent possible the distributional impact of the tariff reduction policy will be investigated as part of this study. In parallel, the analytical work program on growth, labor markets and poverty recently launched by the Bank with the Higher Planning Commission (HCP) will also investigate the impact of key macroeconomic reforms on poverty and inequality. Lastly the Department of Treasury in the ministry of Finance is upgrading is macroeconometric model to improve its forecasting capacity and the work will in the future include better ex ante analysis of key reforms including trade. Environment Aspects 72. The ECSP DPL does not have any significant environmental implications. The project is a development policy loan in support of a broad program of policy and institutional reforms, for which the environmental requirements of Operational Policies 8.60 apply. The policies supported by the proposed operation are unlikely to cause significant effects on the country’s environment, forests, and other natural resources. The measures supported under the operation are primarily geared toward improving the competitiveness of the Moroccan economy and the business environment and do not include an investment lending subcomponent or physical investments. None of the Bank’s safeguard policies are triggered by the proposed DPL. V. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 80 Borrower/Recipient IBRD Others (specifiy) Total 80 VI. Contact point World Bank Contact: Najy Benhassine Title: Manager Tel: (202) 473-9213 Fax: (202) 522-2151 Email: nbenhassine@worldbank.org Borrower Contact: Mr. Nizar Baraka Title: Minister in charge of Economic and General Affairs Email: cooperation@affaires-generales.gov.ma VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop 5 6