A WORLD BANK COUNTRY STUDY 8928 MOROCCO Economic and Social Development Report OCTOBER 1981 The World Bank issues country economic studies in two series. This report is a working document and is, as such, part of an informal series based wholly on materials originally prepared for restricted use within the Bank. The text is not meant to be definitive, but is offered so as to make some results of internal research widely available to scholars and practitioners throughout the world. A second, more formal series entitled World Bank Country Economic Reports is pub- lished for the Bank by The Johns Hopkins University Press, Baltimore and London. Titles of these and all other bank publications may be found in the Catalog of Publications, which is available free of charge from World Bank, Publications Unit, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. The views and interpretations in this report are the authors' and should not be attributed to the World Bank, to its affiliated organizations, or to any individual acting in their behalf. Copyright © 1981 The International Bank for Reconstruction and Development/The World Bank The World Bank enjoys copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, permission for reproduction of any part of this report is hereby granted provided that full citation is made. MOROCCO Economic and Social Development Report This report was prepared by an economic mission that visited Morocco from November 6 to December 2, 1978. Members of that mission and their principal assignments were: Christian Merat, coordinating author Rene Vaurs, economic prospects and balance of payments Gabriel Sciolli, public finances Rene Bonnel, social sectors Michel Cretin, administration and planning issues Harald Stier, phosphates sector jean Emmanuel Cornu, consultant, urban and regional development Subbiah Kannappan, consultant, employment and job market This report also incorporates the findings of a special economic mission that had visited Morocco from February 22 to March 17, 1978. The latter mission was led by Christian Merat and consisted of Gabriel Sciolli (taxation and budget), Ian Hume (price policy), Rene Vaurs (national accounts), Rene Bonnel (social problems), Catherine Pierce (population and health), Phi Anh Plesh (exports), Nicolas Mathieu (macroeconomic projections) and Tugrul Akqura (consultant, urban problems). The report further includes the results of studies made in the World Bank by Gordon Hughes (consultant, shadow prices) and draws on certain sector reports, especially on agriculture (Kevin Cleaver and Ivan Bergeron, consultant) and industry (Francois Ettori and Antoine Delarue, consultant). The basic data used in this report are those gathered by the basic mission in December 1978, updated in December 1979 on the basis of data received from the Moroccan Government. Europe, Middle East and North Africa Regional Office The World Bank Washington, D.C., U.S.A. MOROCCO: A BASIC ECONOMIC REPORT Table of Contents Page No. MAIN REPORT Country Data Summary and Conclusions ................................... i to xxxi CHAPTER I: INTRODUCTION ......................................... 1 Natural Resources ......................................... 2 Human Resources ........................................... 4 Development Institutions .................................. 5 The International Context ................................. 8 Outline of the Report ..................................... 9 CHAPTER II: GROWTH AND STRUCTURAL CHANGES IN THE MOROCCAN ECONOMY DURING THE PERIOD 1968-77 ... ....... 11 A. Introduction .......................................... 11 B. Development Goals and Strategy, 1968-77 .... ........... 11 Review of Progress Achieved Since Independence ........ 11 Goals and Overall Strategy of the 1968-72 and 1973-77 Plans ....................................... 12 The Quantitative Goals of the 1968-1972 and 1973-77 Plans ....................................... 14 The Revision of the 1973-77 Plan ...................... 14 C. Growth and its Principal Factors ...................... 15 Principal Factors ..................................... 15 Structure of Production ............................... 16 Imports and Exports ................................... 18 Changes in the Structure of the Economy .... ........... 21 The Savings Effort .................................... 23 Investment ............................................ 24 D. Growth and Employment ................................. 27 E. External Financing .................................... 31 Evolution of the Current Account ...................... 31 Financing of the Current Account ...................... 33 The External Public Debt and its Servicing .... ........ 35 Table of Contents (cont'd) Page No. F. Domestic Financing .................................... 38 Review of Main Structural Factors ..................... 38 Overall Evolution of Fiscal and Budget Policy .... ..... 40 The Growing Role of Government Expenditure .... ........ 41 The Low Level of Budgetary Savings .................... 44 The Public and Semipublic Enterprises .... ............. 45 Financing of the Overall Treasury Deficit .... ......... 47 The Fiscal Effort ..................................... 47 Local Finances ........................................ 51 G. Monetary and Credit Policy ............................ 52 Importance of Monetary Policy ......................... 52 Direct Control of Credit .............................. 53 Indirect Measures ..................................... 54 Selectivity of Credit ................................. 55 Interest Rate Policy .................................. 57 Evolution of Consumer Prices .......................... 58 CHAPTER III: OVERALL ECONOMIC PROSPECTS AND PROBLEMS .... ........ 59 A. The 1978-80 Plan ...................................... 59 B. General Prospects for 1980-90 and the Problem of External Financing ....................... 67 Overall Prospects in Quantitative Terms for 1980-90 ... 67 External Financing .................................... 77 Evolution of Employment ............................... 80 C. Export Promotion ...................................... 81 Introduction .......................................... 81 Agricultural and Food Products ........................ 84 Phosphates and Phosphate Derivatives .................. 87 Other Mining Products ................................. 88 Manufactured Goods .................................... 89 Tourism ............................................... 92 International Transportation and Miscellaneous Service ............................... 92 Impact of General Policies ............................ 93 D. Mobilization of Domestic Resources: Prospects and Problems .............................. 95 Financial Adjustments, 1978-80 ........................ 95 Quantified Projections, 1980-90 ....................... 98 Table of Contents (cont'd) Page No. Current Expenditure ................................... 100 Tax Reform ............................................ 102 The Capital Market and Credit Policy .................. 105 Public and Semipublic Enterprises ..................... 107 Local Authorities and Finances ........................ 111 E. Price Policy .......................................... 115 The Role of Prices in the Moroccan Economy .... ........ 115 The Price System ...................................... 118 Principal Product Market .............................. 120 Factor Markets ........................................ 121 Price Subsidies ....................................... 124 Conclusion ............................................ 124 F. Development Planning .................................. 125 Planning within the Government Structure .... .......... 127 Sectoral Planning ..................................... 129 Regional Planning ..................................... 131 Annex (Projections): Note on Methodology .... ............. 134 CHAPTER IV: DEVELOPMENT OF THE ECONOMIC SECTORS ................. 151 A. Phosphates and Mining Products ........................ 151 Phosphates and Derivatives ............................ 151 Other Mining Products ................................. 155 B. Agriculture ........................................... 158 Land use .............................................. 158 Agricultural Performance and the 1978-80 Economic and Social Development Plan ......................... 158 Supply and Demand for Agricultural Products .... ....... 160 Resource Allocation within Agriculture and the Government's Budgetary Constraint ................... 161 Savings Mobilization .................................. 164 Constraints on Agricultural Exports ................... 165 Land Tenure ........................................... 169 Livestock Production, Erosion and Desertification ..... 170 Problems with Agricultural Extension and Research ..... 171 Mechanization ......................................... 172 Agro-Industrial Development Issues .................... 173 Fisheries ............................................. 174 Table of Contents (cont'd) Page No. C. The Industrial Sector ................................. 177 The Role of Industry in the Economy ................... 177 Structure and Problem of Modern Industry .... .......... 179 Investments and the System of Industrial Incentives ... 186 The Plan 1978-80 ...................................... 190 D. Energy and Water ...................................... 194 Energy ................................................ 195 Water ................................................. 198 E. Transportation and Communications ..................... 203 General Aspects of the Sector ......................... 203 Road Infrastructure and Transport ..................... 204 Railway Infrastructure and Transport .................. 207 Ports and Ocean Transport ............................. 208 Airports and Air Transport ................... 210 Postal and Communication Service ...................... 211 F. Tourism ............................................... 213 CHAPTER V: SOCIAL DEVELOPMENT STRATEGY .......................... 218 A. Evolution of Household Living Standards ............... 219 Standard of Living of Rural Households ................ 224 Standard of Living of Urban Households ................ 225 B. Goals and Thrust of Social Policy ..................... 227 Definition of Social Objectives ....................... 229 The Main Components of a Social Strategy .... .......... 230 Increased Social Expenditures and Economic Growth ..... 233 C. Population Policy ..................................... 235 Demographic Forecasts ................................. 236 Demographic Policy .................................... 237 D. Health Policy ......................................... 238 Medical and Paramedical Resources ..................... 238 Table of Contents (cont'd) Page No. E. Nutrition ............................................. 240 Extent of malnutrition ................................ 242 Prospects ............................................. 243 Consumer Subsidies .................................... 244 F. Employment ............................................ 246 Operation of the Labor Market ......................... 247 Wage Levels ........................................... 248 Employment Policy ..................................... 249 G. Education ............................................. 251 The Government's Goals ................................ 252 Cost of Education ..................................... 252 Problems of Education and Vocational Training .... ..... 253 H. Infrastructure ........................................ 256 Electricity ........................................... 256 Potable Water ......................................... 258 Sanitation ............................................ 259 I. Taxation and Government Spending ...................... 259 Social Equity and Taxation ............................ 259 Government Expenditures and Income Distribution ....... 262 J. Conclusions ........................................... 263 Improvement in Living Standards ....................... 263 Complementarity of Social Policies .................... 265 Reduction in the Cost of Public Services .... .......... 266 CHAPTER VI: REGIONAL AND URBAN DEVELOPMENT ...................... 267 A. Introduction .......................................... 267 B. Local Government and Development ...................... 267 Morocco's Local Government Structure .................. 268 Local Government and Development Management .... ....... 273 Communes in Economic and Social Development .... ....... 277 Strengthening of Local Government for Economic Development ................................ 287 Table of Contents (cont'd) Page No. C. Regional Development .................................. 289 1. Regional Disparities: Basis for a Regional Development Strategy ............................ 289 Level of Geographic Concentration and Extent of Regional Disparities .... ........... 290 Are Regional Disparities Increasing or Diminishing? ................................. 294 2. Evaluation of the Results of the Regional Development Strategy of the 1973-77 Five-Year Plan .................................. 296 A Positive Political Commitment to Regional Development ......................... 297 Absence of Any Real Strategic Plan for Regional Development ..... ................ 297 Inadequacy of Regionalization Procedures ....... 299 Recourse to Emergency Measures: the Special Regional Development fund (FSDR) .... ......... 299 Failure of Industrial Decentralization Measures ..................................... 301 3. Key Actions and Proposals for the 1978-80 Three-Year Plan ................................. 301 The Need to Make the Regional Development Strategy an Integral Part of a National Regional Development Policy .... .............. 302 Strengthening of Regionalization Procedures in the Plan and the Budget .... ............... 303 Reinforcement of Industrial Decentralization Measures .................... 303 Conclusion ..................................... 306 D. Urban Development ..................................... 306 1. Urban Development Problems in Morocco in a Context of Rapid Urbanization .... ............... 306 Rapid Rate of Urbanization ..................... 307 High Proportion of Low-Income Households ....... 307 Contrasting Forms of Urbanization .... .......... 307 The Chief Problems ............................. 309 2. Evaluation of the Results of the Urban Development Strategy of the 1973-77 Five-Year Plan .................................. 311 The Slippage in the Housing Program .... ........ 312 Obstacles to Increased Production of Building Sites ............................... 314 Table of Contents (cont'd) Page No. Strengthening the Planning and Control of Urban Development: Advantages and Problems ........ 315 Regulatory and Institutional Framework Strengthened but Sill Not Strong Enough ...... 316 3. Key Actions and Proposals of the 1978-80 Three-Year Plan ................................. 317 Revision of Urban Development Policy: the Strategy Defined by the 1978-80 Three-Year Plan .............................. 318 Redefinition of Roles and Strengthening of the Supervision of the Sector .... ......... 320 Speeding up Production of Building Sites ....... 321 Lowering of Standards and Reducing of Units Costs of Infrastructure and Housing .... ...... 322 Modification of the Financing System for Housing .................................. 323 Conclusion ..................................... 324 STATISTICAL ANNEX COUNTRY DATA - MOROCCO Population in 1979: 18.9 million 1/ Page 1 of 2 pages Population Characteristics (1978) Education(1978) Crude birth rate (per 1,000) 45.0 Adjusted school enrollment ratio Crude death rate (per 1,000) 13.0 Primary 68.0 Gross reproduction rate (X) Secondary 17.0 Total 1971-78 3.2 Adult literacy rate (%) 28.0 Urban 1971-78 4.6 Urban population (%of total) 39.3 Housing and Consumption (1978) Age structure (%) 0 to 14 years 46.5 Access to electricity 15 to 64 years 50.1 (% of all dwellings, urban areas, 1971) 68.4 65 years and over 3.4 Access to safe water (% of population) 55.0 Energy consumption per capita Health and Nutrition (1978) (kilograms of coal equivalent) 285.0 Radio receivers per thousand population 83.0 Population per physician 10,136 Passengar cars per thousand population 19.6 Population per hospital bed 774 Per capita calories supply as % of requirements 105.0 Per capita protein supply (grams per day) 67.0 Life expectancy at birth 55.0 GNP Per Capita in 1978: $670 1/ National Accounts Million $ Share in 1978 GDP-1978 1970-75 1975-77 1978 1979 3/ Gross domestic product 2/ 12,426 100.0 5.3 8.9 3.1 3.1 Agriculture 2,248 18.1 -0.2 -2.1 18.2 -6.0 Industry 4,010 32.3 7.6 10.6 -0.7 4.8 Services 6,168 49.6 5.7 10.4 2.0 4.7 Consumption 11,138 89.6 5.1 6.7 7.4 3.0 Gross investment 3,102 25.0 14.9 15.5 -23.1 -1.2 Exports of goods and non-factor services 2,167 17.4 0.4 8.1 3.4 5.5 Imports of goods and non-factor services 3,980 32.0 7.1 18.5 -16.1 -1.1 Gross national savings 1,753 14.1 16.6 7.8 -16.6 11.5 Employment and Productivity (1977) 4/ Employment Value added per worker (In thousands) (%) (dollars) (%) Agriculture 2,099 43.5 806 39.6 Industry 896 18.6 3,855 189.4 Services 1,248 25.9 3,747 184.1 Unclassified 190 3.9 - - Unemployed 394 8.1 - - Total 4,827 100.0 2,035 100.0 Government Finance 5/ Millions of Dirhams % of GDP 1977 1978 1979 3/ 1977 1978 1979 3/ Current revenues 11,669 10,954 14,820 24.9 21.2 26.0 Current expenditures 11,925 12,940 14,393 25.4 25.0 25.3 Current surplus (-) or deficit (-) -256 -1,966 427 -0.5 -3.8 0.7 Civilian investment 4/ 7,626 4,109 6,696 16.3 7.9 11.7 External borrowing and grants 5,195 3,364 4,016 11.1 6.5 7.0 1/ 1979 IBRD Atlas. 2/ At market prices. 3/ Preliminary estimate. 4/ Estimate 5/ Revenues include special acconnts revenues and annex budgets. Expenditures include subsidies, interest on public debt and military investment. COUNTRY DATA MOROCCO Page 2 of 2 pages Money, Credit and Prices 1975 1976 1977 1978 (Millions of Dirhams; end of period) Money and quasi-money 14,275 16,902 20,045 24,311 Claims on government (net) 6,558 7,935 10,116 13,561 Claims on the economy 6,331 7,606 8,867 9,761 (Percentage or index numbers) Money and quasi-money as % of GDP 39.2 40.9 42.8 46.9 GDP deflator 100.0 101.5 108.5 116.3 Consumer price index 100.0 108.5 122.2 134.0 Annual rate of growth: -GDP deflator -0.8 1.5 6.9 7.3 -Consumer price index 7.9 8.6 12.5 9.7 .Net claims-on gouernment 23.0 21.0 27.5 34.1 -Claims on the economy 23.9 20.1 16.6 10.1 Balance of Payments (million$) 1975 1976 1977 1978 Exports of goods and non-factor services 2,019 1,717 1,867 2,167 Imports of goods and non-factor services 2,996 3,520 4,124 3,980 Resource gap -977 -1,803 -2,257 -1,813 Workers' remittances (net) 490 499 537 699 Other factor revenues -67 -99 -158 -283 Net transfers 8 47 52 49 Balance on current account -546 -1,356 -1,826 -1,348 Private capital 0 38 53 45 -Direct investment 21 *- 68 77 -Other -21 *- -15 -32 Official capital 404 1,273 1,699 1,369 -Borrowing 304 838 1,339 1,119 -Grants 100 435 360 250 Other short-term capital 125 29 68 -73 Increase in reserves (- - increase) 17 16 6 7 Net reserves (end of period) 435 549 609 772 Of which: Gold 85 82 104 154 External Debt ( Million $) Outstanding and disbursed public debt (end of period) 1,753 2,341 4,078 5,139 Debt Service (%) Percentage of exports of goods and non-factor services 7.2 9.5 14.2 25.3 Percentage of exports of goods and services 5.6 7.1 10.7 18.5 Merchandise Exports (Million $) Phosphate 147 495 469 488 Phosphate derived products 15 32 74 97 Agricultural products 358 470 429 534 Mining 45 66 91 100 Industrial products 78 183 221 284 Total IBRD Lending, December 31, 1979 (Million $) Outstanding and disbursed 504 Undisbursed 629 CURRENCY EQUIVALENTS (As of September 1980) SDR 1.00 = Dirham (DH) 5.211 Official Exchange Rate 1/ Trade Conversion Factor 2/ US$ 1.00 = Dirham (DH) 3.970 us$ 1.00 = Dirham (DH) 3.855 Dirham (DH) 1.00 = US$ 0.252 Dirham (DH) 1.00 = US$ 0.259 FISCAL YEAR January 1 to December 31 ABBREVIATIONS BCP Banque Centrale Populaire BNDE Banque Nationale pour le Ddveloppement Economique BRPM Bureau de Recherches et de Participations Minieres CDG Caisse de Depot et de Gestion CIH Credit Immobilier et Hotelier CNA Charbonnages Nord-Africains CNCA Caisse Nationale de Credit Agricole ERAC Etablissements Regionaux d'Amenagement et de Construction FEC Fonds d'Equipement des Communes FDCLG Fonds de Developpement des Collectivites Locales et de leurs Groupements FNAET Fonds National d'Acbat et d'Equipement de Terrains FSDR Fonds Special de Developpement Regional MARA Ministere de l'Agriculture et de la Reforme Agraire MHAT Ministere de l'Habitat et de l'Amenagement du Territoire OCE Office de Commercialisation et d'Exploitation OCP Office Cherifien des Phosphates ODI Office de Developpement Industriel ONCF Office National des Chemins de Fer ONE Office National de l'Electricite ONEP Office National de l'Eau Potable ONP Office National des Peches ONT Office National des Transports ORMVA Office Regional de Mise en Valeur Agricole SAMIR Societe Anonyme Marocaine de l'Industrie du Raffinage Source: IMF, International Financial Statistics, December 1980. 1/ End of period. 2/ Average of the period January-September 1980. SUMMARY AND CONCLUSIONS I. Introduction 1. The Moroccan economy made considerable strides during the Second and Third Plans, which covered the period 1968-77. National income grew significantly faster than the country's population. On an annual average, per capita income rose at a rate close to 3% over the period. Moreover, development both gathered momentum and gained in quality during the Third Plan (1973-77). The GDP target growth rate of 7.5% set by the Plan was virtually achieved (7.3%) in 1973-77, whereas the real annual increase in GDP in 1968-72 was 5.6%. The conservative approach that had tended to predominate in the post-independence years (i.e. after 1956) gave way after 1970-71 to a strong official intention to pursue growth and an active search for the means to improve the distribution of the fruits of that growth. This desire led to a spectacular increase in investment between 1973 and 1977, and especially to a broadening of development project identification, preparation and execution capabilities in all sectors. The emphasis placed on social development generated a rapid expansion in education and training. In addition, the effectiveness of the social approaches followed till then was reconsidered and efforts were made to devise new formulas for a direct attack on the problems posed by the continuing low productivity and living standards of very sizable segments of the population. In brief, Morocco's development strategy became more dynamic and acquired a broader range of instruments. Although much still remains to be done and the advances made are often precarious, Morocco can be justly proud of its appreciable economic and social achievements over the ten-year period 1968-77. 2. The quickened pace of economic growth and social progress is, however, still not firmly established. The fact is that savings and exports did not expand as vigorously as investment and imports during the 1973-77 Plan. As a result, in 1976 and especially in 1977, pronounced financial disequilibria developed, the structural origin of which lay in the sectoral development policies pursued. The very heavy burden occasioned by the modernizing of the Royal Armed Forces further aggravated these disequilibria after 1975. To meet the resultant financing needs, increasing recourse was made to external borrowing. Since 1978, Morocco has been passing through a period of financial adjustment in which the Government has sought to reduce the financial deficits of the economy. These efforts necessarilv entailed a temporary reduction in investment, imports and employment, in view of the constraints bearing on savings and exports. This adjustment was the keynote of the 1978-80 Plan. The chief challenge to be met by the Government during -ii- this plan was, however, that of preparing and initiating implementation of the structural reforms that alone would make it possible to bring savings and exports up to levels that would allow the economy to attain a high and stable growth rate. These reforms are under study; certain of them whicb have been analyzed in sufficient detail are already being put into effect. It has to be admitted, however, that the obstacles in the way are immense and may slow progress in this direction. 3. Another no less important challenge to be met by the Government is the fact that there is still a very large number of Moroccan families with very low incomes. The social policies put into effect by the Government so far show by their successes, even though these are very circumscribed in relation to the needs, that the living standards of the poorest households in Morocco can be raised. What is now needed is rapid improvement of the effectiveness of the social policies already in effect, which would entail: (1) Clearly specifying the target social groups, and reserving for them most of the benefits; and (2) Endeavoring to reduce wherever possible the unit costs of the public services furnished to these target groups. 4. The policies of the Government concerning subsidies and social services have been largely non-discriminatory. For instance, the consumer subsidies and the free or heavily subsidized education and health services have been provided to all Moroccans regardless of household income level. This practice obviously cannot be continued indefinitely. The needs of the population, which are growing steadily as the population itself increases, are mounting faster than the budgetary and human resources available to the Government for meeting them. The critical point has in fact been reached, since social expenditures are now weighing too heavily on budgetary savings while numbers entitled to them are increasing so rapidly that the quality of the overloaded services is deteriorating (education is one example). It is essential that the Government makes it clear without delay that the richest social groups should no longer continue to benefit from State subsidies and social services without paying for what they receive. The principle to follow is that the free or highly subsidized services ought to be reserved by priority for those who are most disadvantaged and who are, therefore, unable to meet their basic needs from their own means. Application of this principle will reduce the strain on the budget, while facilitating the organization of the social services and satisfying the equity criterion that should govern the allocation of Government social expenditures. It is important to note that equity in this respect will also serve the interests of efficiency, since it is logical to presume that if Morocco is able to -iii- augment the productive capacity and improve the living conditions of the low income groups, the capacity for growth of the entire economy will be enhanced. 5. In facing these two challenges -- acceleration of economic growth and raising of the living standards of the poorest households -- Morocco can benefit from several important advantages. Compared with many other developing countries, it is relatively well endowed with natural resources and its geographic location gives it a privileged position in the world economy. Its work force is large, and well disciplined. The authorities manifest a clear-cut desire for equitable development and there is already a solid administrative capacity for translating this desire into fact. An intensified training effort is nevertheless still needed to produce the management and technical staff required. II. Past Growth, 1968-77 6. The growth of the Moroccan economy averaged 5.4% p.a. up till 1974. This rate reflected the prudence that predominated in the formulation of financial policy and held back reforms that bad become necessary in order to raise savings and investment levels. The growth achieved up till 1974 was based on a steady, but slow, increase in the share of available resources allocated to investment. The economy's resource gap and its external financing requirements were small, even though the savings effort was lacking in vigor compared with similar countries. Morocco's economy rested on very sound financial bases, but its growth capacity was limited. From the beginning of the 1970s the Government began to look into measures that would impart greater dynamism to the economy. 7. As of 1974, prudence gave place to the deliberately ambitious goals of the 1973-77 Plan, execution of which coincided with an effort toward democratization in the political sphere. Under this influence, the Plan aimed at both a marked acceleration of economic growth and a rapid improvement in income distribution. To accomplish this, it was initially based on a beavily export-oriented investment strategy and a much greater savings effort. However, taking advantage of the sudden rise in phosphate prices that raised phosphate receipts from less than $200 million in 1973 to over $900 million in 1974 and close to $850 million in 1975, the Plan was revised before it had barely been started. In 1975 the Government launched an extremely ambitious supplementary investment program whicb, led by the public sector and followed by the private sector, was intended to increase -iv- the amounts invested each year more than fourfold between 1973 and 1977. This acceleration was ambitious and was not accompanied by a reinforcement of the original objectives as regards exports and savings. It therefore carried considerable risks of internal and external disequilibria, which in fact materialized quickly, following a succession of unfavorable developments. First of all, phosphate prices began to fall as of mid-1975. The world economic recession and the restrictions imposed by the EEC caused export markets to shrink. The tensions along Morocco's Saharan borders led to a sharp increase in military expenditures. By the end oL 1977, the phase of intensive investment triggered by the revision of the plan had led to a severely unbalanced economic structure, large financial deficits and greatly increased external financing requirements. Accelerated growth had to be sharply slowed down in 1978 to enable the country to address itself to the need for financial stabilization. The Government took advantage of this pause to reconsider the mechanisms for long-term growth and to prepare the structural reforms necessary to ensure its resumption. 8. On the basis of the data available, it is obvious that the rapid expansion of investment as of 1974 was sparked by public sector capital outlays. Gross fixed capital formation (GFCF), which was between 13% and 15% of GDP up till 1974, rose rapidly to nearly 33% in 1977. The proportion of total GFCF accounted for directly by Government rose from 19% in 1970-73 to 27% in 1974-77 and that deriving from public enterprises also increased, whereas the share accounted for by private enterprises declined. Including transfers to enterprises, State investment expenditures made up 46% of total GFCF in 1977, as against less than a third before 1974. 9. The economic sectors that benefitted most from the increase in GFCF between the second and the third development plans -- i.e. between 1968-72 and 1973-77 -- were the public services, followed at some distance by communications and housing. Industry did no more than maintain its position in terms of total GFCF. The shares of agriculture, energy, mining and private services all shrank markedly. It will be noted at the sectoral level that, with the prompting and participation of the State, investment in agriculture and industry in 1975-77 was directed primarily toward import substitution under high tariff protection against international competition. Being an extension of previous similar but much less pronounced trends, this orientation of investment too often led to production structures that were largely uncompetitive and unbalanced vis-a-vis the outside world. The chief exceptions are the phosphate and phosphoric acid sector, certain branches of industry such as textiles and leather, tourism and most agricultural investments. -v- 10. The orientation of investment combined with the unfavorable external economic situation brought about a marked slowing-down in the growth of exports since 1973. Certain exportable products have also unquestionably been diverted to the home market in response to the heightened domestic demand generated by an expansionist budgetary and monetary policy, coupled with various increases in the protection of the domestic market, particularly the increase of the rate of the special tax on imports. The growth of exports which, at 1969 prices, had exceeded 8% p.a. in 1968-72, was no more than 1% in 1973-77. With the exception of phosphoric acid, production of which was started in 1976, all the major categories of exports posted a distinct slackening in their growth in 1973-77, while for agricultural products there was even a decline of 5% p.a. Growth of manufactured exports slowed down to 11% p.a., but starting from a larger base. Morocco derived an ephemeral advantage from the higher phosphate prices of 1974-75 and from the resulting shift of the terms of trade in its favor, but these prices went down almost as fast in 1976-77 and the advantage gained was practically lost by the end of 1977. The country's production capcity was then insufficiently export-oriented, particularly as regards exporting to markets other than Europe. 11. The expansionist policy followed in the budgetary and monetary fields generated a very pronounced acceleration in the growth of government consumption in the course of the 1973-77 Plan. Expressed in 1969 prices, this rate of growth increased from about 6% p.a. in 1968-72 to over 19% in 1973-77. In terms of GDP at current prices, Government consumption amounted to 22% in 1977 whereas it was between 12% and 13% in 1974. Military and social expenditures were the chief factors behind this growth. At the same time, the growth of household consumption, as recorded by national accounts data, slowed down over the 1973-77 Plan (3.2% p.a.) as compared with the 1968-72 Plan (4.7% p.a.). Household expenditures grew slowly over the 1973-77 period, probably on account of the poor performance of rainfed farming, which had repercussions on rural incomes, and especially on those of the poorest households. It should be noted that the latter received very little benefit from Government public services (education, health and subsidies, for example). The faster growth posted in 1973-77 bypassed them, with the exception of a very small number who benefitted from the first rural development (rainfed farming) projects or certain regional development expenditures. 12. The expansion of the various components of demand (investment, exports and consumption) resulted in marked differences in development in the various sectors. The construction and public works sector was stimulated by the rapid expansion of investment to achieve a very high growth rate (22% p.a.) over the 1973-77 Plan, whereas its growth in 1968-72 had remained slow (5% p.a.). Government consumption also grew very fast -- 19% p.a. in 1973-77 against 6% in 1968-72 -- as a result of budgetary policy. Industry (including handicrafts), on the other hand, posted only -vi- slight growth over 1973-77, while the expansion in mining and energy slowed down. The value added by agriculture appears to be fluctuating around a stable trend since 1968, depending on the annual variations in rainfall; it was lower in 1977 than in any year of the 1968-77 period. In view of the considerable expansion of irrigation during that period, the reason must presumably be that the trend in rainfed agriculture has been downward. Unfortunately this trend cannot be documented from the official statistics and is moreover obscured by the pronounced yearly variations in the production of rainfed agriculture. Rainfed agriculture has unquestionably suffered from the priority given by the Government to irrigation. Coupled with the inevitable increase in the number of mouths to feed, the poor performance of rainfed agriculture has become a fundamental diseguilibrating factor in the growth of the Moroccan economy and the distribution of the fruits of that growth, as we shall see below. 13. The expansion of demand and of domestic production would not have been possible without an increase in imports that assumed spectacular proportions during the 1973-77 Plan. Imports, including nonfactor services, grew by no more than 3.2% p.a. between 1967 and 1972 because the economy's requirements of foodstuffs, consumer goods and capital goods declined in volume (1969 prices). Only imports of energy products and intermediate goods rose rapidly, to support the expansion of industrial production and private consumption. During the 1973-77 Plan, on the other hand, imports of capital goods rose by 37% p.a. in response to the expansion of investment demand, while food imports increased by 16% p.a. in order to supply the population's needs following the shortfalls in domestic production (wheat in particular). Morocco's average annual wheat purchases from foreign sources went up from 420,000 tons in 1968-72 to 1,040,000 tons in 1973-77. Imports of consumer goods grew by 7% p.a. by volume between 1972 and 1977, and the expansion of the demand for energy and intermediate products continued at the previous rates. Altogether, the volume of imports more than doubled between 1972 and 1977. Their current value over the same period more than quadrupled, as import prices rose by 120%. The higher prices for oil had a heavy impact, because purchases of this item, in current dollars, rose from $56 million in 1972 to $371 million in 1977. Morocco's purchases of goods and (nonfactor) services abroad came to less than $1 billion in 1972 but topped $4 billion in 1977. It should be noted that the 1977 figure includes about $540 million as payments for offshore procurement of military equipment, an item that did not appear until 1975. About 60% of these payments were offset in 1977 by grants from abroad. 14. In view of the above movements in exports and imports, the economy's resource gap assumed considerable proportions as of 1975, with the result that sizable volumes of external financing were required. This deficit had dropped to $48 million (less than 1% of GDP) in 1974 and had only exceeded $100 million in two years (1970 and 1971) since 1967. It then -vii- shot up to $980 million in 1975, $1,800 million in 1976 and $2,260 million (22% of GDP) in 1977. Despite the grants obtained in 1976 and 1977 to (partially)offset the payments for military equipment, and the increase in remittances from Moroccan workers abroad, the economy's external financing requirements rose sharply. Drawing on a borrowing capacity that had till then been little used, Morocco stepped up its foreign borrowing, chiefly from commercial sources. The country's outstanding external debt rose from less than $1 billion at the end of 1974 to $4 billion at the end of 1977. Although the service of this debt represented no more than 14.3% of exports and workers' remittances in 1977, the heightened accumulation of service obligations for the future is becoming a cause of growing concern. During the last eighteen months of the 1973-77 Plan, it was increasingly clear that the indiscriminate maximizing of recourse to external credit practiced during that plan had to give way to a policy of much greater moderation as regards amounts, coupled with efforts to negotiate longer grace and repayment periods for future loans. 15. As noted, the budgetary policy which was followed was a major factor behind the speeding up of investment, but at the expense of the national savings effort. Budgetary savings in fact slumped alarmingly, becoming pronouncedly negative by the end of the 1973-77 Plan. Domestic savings followed suit: after peaking at 21% of GDP at current prices thanks to phosphate receipts, they fell by the end of the 1973-77 Plan to a level (10%) well below that reached as of 1970 (13%). The inadequacy of budgetary savings is explained primarily by the much too rapid increase in Government operating expenditures as a result of the requirements of defense in particular and also of education. Although the fiscal reform envisaged in the 1973-77 Plan was not brought into effect, the effort to mobilize current receipts raised these from 16% to 25% of GDP between 1972 and 1977. The lags that the Government allowed to develop between the rise in costs for the economy and the officially fixed domestic prices for certain major products and services, such as oil products, staple foodstuffs (wheat, sugar, oil and dairy products), power, irrigation water and transportation, were also significant factors in keeping domestic savings down. 16. Credit policy responded to the needs of the Treasury and of the economy, with the result that the increase in the money supply was very rapid during the 1973-77 Plan. The selective control of credit introduced in 1976 brought about a minor slowing-down in this increase in 1976-77. Money creation and the rise in international prices are the two main causes of the quickening pace of domestic price inflation observed since 1974. The annual increase in the cost of living index averaged 10% between 1973 and 1977, whereas it was less than 3% between 1959 and 1973, and notwithstanding the fact that the GDP deflator increased only slightly between 1974 and -viii- 1977. The raising of interest rates in 1974 had no more than a passing impact on the mobilization of financial savings and the allocation of financial resources, because its effect was soon damped out by price inflation. 17. Employment creation is poorly documented. However, the data available indicate that the growth of employment was 3.4% p.a. between 1971 and 1977 as opposed to 1.9% between 1960 and 1971. These rates were close to those of the labor supply, although there was always a surplus of less skilled job-seekers and an insufficient supply of skilled workers. The poor performance of rainfed agriculture, by far Morocco's largest employer, and the restrictions imposed by the European Economic Community on the supply of foreign labor since 1974, have probably aggravated the divergence between the supply of and demand for unskilled labor in Morocco. Analysis of employment creation at the global and sectoral levels reveals moreover that the allocation of investments remained below optimum from the viewpoint of labor utilization during 1968-77. Between the 1968-72 and 1973-77 Plans this allocation shifted in favor of the highly capital-intensive sectors such as physical infrastructure. Throughout the decade, the system of investment incentives encouraged those activities that were not employment intensive in the various sectors: irrigated agriculture and large-scale modern industry are two examples. The employment creation targets in the 1968-72 and 1973-77 Plans were 80% achieved. III. Future Growth: Prospects and Problems to be solved 18. The preceding section has underscored the fact that at the end of the 1968-77 period the Moroccan economy was faced with two distinct but closely related needs. In the short term, it had to quickly regain control over the excessive upward trends that were affecting investment, Government consumption and imports, because these trends were causing excessive widening of the economy's resource gap and excessive recourse to external borrowing. At the same time, strong measures had become absolutely essential to revive exports, increase savings and raise the living standards of the most disadvantaged households -- in brief, to lay the foundations for a new strategy capable of ensuring that the Moroccan economy would be able to achieve a sufficiently rapid rate of balanced growth over the long term. The 1978-80 Plan 19. To reduce the disequilibria that became apparent toward the end of the 1968-77 period, the Government adopted the 1978-80 Plan combined with annual financial stabilization programs. The Plan sought to reestablish -- if possible by 1980 -- a feasible balance between investment and savings, -ix- and between exports and imports. In order to maintain as far as possible the growth of production and employment, the Plan envisaged increased orientation of investments toward projects that would be rapidly productive and able to produce for export or the local market at costs that are internationally competitive. Special emphasis was accordingly placed on highly labor-intensive industries and on the promotion of small and medium nonagricultural enterprises. Rainfed agriculture was also to benefit through the expansion of credit to small farmers. The Plan looked to private investment and savings to take over the leading role from the State, since the latter's investment capability is limited by budgetary austerity. The public enterprises were to be governed by new price, wage and management control policies, in order to enable them to step up their savings and reduce their dependence on the Treasury and external financing. The chief reforms that the Plan proposed to study, and in certain cases to start implementing, included those of direct taxation, the system of industrial incentives, the prices of the main public goods and services and economic administration at the central, sectoral and local levels. 20. The implementation of annual financial recovery programs since 1978 has already made it possible to control the chief factors causing disequilibrium in the Moroccan economy. Thus the overall Treasury deficit was brought down from DH 8 billion in 1977 to around DH 6.3 billion in 1979, and the balance of payments current account deficit from DH 8.2 billion in 1977 to around DH 6.3 billion in 1979. Thanks to the restrictive credit policy, inflationary trends have been brought under control and the rate of increase in consumer prices slowed down from 12.5% in 1977 to 9.7% in 1978 and 8.3% in 1979. The measures taken under the financial recovery program have, however, been distinctly selective. Budgetary policy has sought to maintain sufficient growth in capital and operating expenditures for the social services and also for development projects designed to benefit the most disadvantaged segments of the population. Similarly, agriculture and exports have been spared the credit restrictions. The GDP growth rate was thus maintained at 3.1% p.a. in 1978-79. Notwithstanding the results already obtained under the Three-Year Plan, in 1979 the economy's resource gap still amounted to 9.1% of GDP at constant prices, and debt service, expressed as a precentage of exports of goods and services (factor and nonfactor), to 21.2%. In 1980, it could probably reach 22.3%. Prospects for 1980-90 21. Quantified overall projections are presented in Chapter III for the ten-year period 1981-90. Two growth scenarios have been adopted, designated minimal and voluntarist. The voluntarist scenario is based on economic policies that are more specifically oriented than in the minimal scenario toward promoting exports, savings and import substitution (especially in agriculture), and assumes the possibility of greater success in these _x areas. In the minimal scenario, the constraint placed on the economy by external financing would dominate throughout the period and the service of the external debt (calculated as a percentage of exports of goods and services) would rise from 22.3% of GDP at constant prices in 1980 to about 29% by 1990, despite the relatively strong growth of exports of goods and nonfactor services (5.9% p.a. at constant prices from 1980 to 1985 and 6.4% from 1985 to 1990). In the voluntarist scenario, the external financing constraint would dominate only at the beginning of the period, with the debt service ratio going down slightly from 22.3% in 1980 to 21.3% in 1985. During a second phase extending to 1990, the economy would move into a faster rate of balanced growth (6.8% p.a. at constant prices) than during 1980-85 (5.8%) as the external financing constraint lessens and as the domestic savings effort rises from 9.5% of GDP at constant prices in 1980 to 18.6% in 1990, and investment from 16.6% in 1980 to 18.9% in 1990. 22. Under the projected growth conditions, the external financing reguirements would be considerable. The service of the existing debt (contracted as of the end of 1979) will exceed corresponding disbursements by a quite considerable margin as of 1980, and this gap would continue to widen until 1984. The external financing of the economy ought, therefore, to be governed by strict rules, especially in the early years of the 1980-90 period when the external debt service burden will be sizable and foreign exchange reserves still on the low side. The projection assumes external borrowing to average $2.3 billion a year over 1981-85 in the minimal scenario and $1.9 billion a year in the voluntarist scenario. 23. It is clear, according to the projections, that external financing will remain a severe constraint on the economy for a number of years to come, unless major and rapid changes are made in the chief components of Morocco's economic policy; these include: (a) A more vigorous promotion of exports, since it will be exports that will determine the amount of foreign exchange available for financing imports--and hence the growth of the economy--and as the Moroccan economy will only have a limited capacity for further external borrowing, expecially in the early years of the decade; (b) A heightened savings effort; (c) As a corollary, a policy of strictly limiting the growth of Government consumption, coupled with a vigorous effort to improve the efficiency of the Government social expenditures in terms of the aims sought; -xi- (d) Appropriate investment strategies at the sector level, especially for agriculture and industry where previous strategies have contributed to the development of disequilibria as regards both foreign trade and employment. Export Promotion 24. Considered over an extended period, the global performance of Morocco's exports has remained inadequate, especially since 1973. While the import requirements of the economy grew normally between 1953 and 1973, and at a faster rate from 1973 to 1977, its import capacity showed increasingly marked signs of weakness. This capacity (measured by dividing exports at current prices by the import price index) grew annually by nearly 4% in 1954-63, then by less than 3% in 1964-73, and by 1977, when the phosphate boom was over, it had dropped back to below the 1973 level. 25. However, Morocco has a considerable export advantage based on the low cost of its unskilled labor (relative to Europe and the Middle East) and the proximity of rich export markets (Europe, North America and Middle East), where its agricultural and industrial products currently have only very modest footholds. This advantage is also significant for services, such as tourism and public works. And, of course, Morocco possesses the world's largest and most readily accessible phosphate reserves. 26. To realize its export potential, Morocco could organize its promotion effort around the following key componentsz (a) Orientation of Government investment and private investment incentives more toward production for export, and use of local unskilled labor, one of Morocco's assets. This requires a change in public investment criteria and private investment incentives. (b) Encouragement of manufacturers producing for the home market to operate more efficiently and at lower cost through continuous adjustment of protection. The study the Government has started on the system of industrial incentives ought to make it possible to begin this process in industry during the 1981-90 period. A similar approach would be necessary for agriculture; (c) Implementation of a much more active financial incentive policy in order to increase the profitability of exporting as compared with selling on the home market. The Customs regulations that allow exporters to have access free of import duties and taxes to imported inputs that are used in the manufacture of products for -xii- export should also be simplified and made generally applicable. The definition of export businesses ought to be expanded and the bank guarantee requirement eliminated. The 0.5% statistical tax of exports should be abolished; (d) Strengthening of the institutional framework for export promotion. This should be done first at the sector level (e.g., OCE and Ministries of Agriculture and Industry for agricultural and food exports; the long-term development planning of OCP and its subsidiaries; and assistance to industrial exporters). However, it also appears necessary to strengthen the central agencies with responsibility for exports and to augment the efforts to train industrialists to be exporters; and (e) Improvement of the reception given to foreign investors able to contribute efficient techonologies and management methods. Mobilization of Domestic Resources 27. The weakness of domestic savings is a major constraint on Morocco's economic and social progress which limits the growth rate attainable over the long term. Increasing of savings depends on a group of measures aiming at: (a) Increasing budgetary savings; (b) Stepping up saving by the public enterprises; (c) Improving the mobilization of savings by the capital market; (d) Achieving greater participation by local savings in the financing of local government investments. 28. To achieve the long-term growth rate envisaged in this report, an appreciable change in budgetary policy would be needed over the coming years. The aim would be to bring the ordinary Government budget into surplus and, over the long term, to generate sufficient budgetary savings to allow Government investments to be financed without excessive recourse to domestic and external borrowing. To do this, the growth of current expenditure would have to be kept down so that in 1990 it would not represent more that 22% of GDP at constant prices in the voluntarist scenario and 25% in the minimal scenario, whereas it amounted to 26% of GDP in 1977. -xiii- 29. Reduction of Government current expenditure in relation to GDP presupposes an unflagging austerity effort, which ought to be backed up by priority actions designed: (a) to maintain the efficiency of Government administration and take better account of the inevitable relationship between investments and the resulting operating expenditures; (b) to raise the efficiency of social expenditures in terms of the aims sought, while accepting the principle that subsidies and free social services ought to be reserved by priority to those (the poor) whose incomes are still too low to allow them to meet their basic needs (food, housing, education, health care, etc.). 30. To maintain Government revenues at approximately 25% of GDP would require, fundamental reforms to be progressively introduced in the tax system, whose weaknesses have been shown up increasingly by the need to increase indirect taxation. A fiscal reform is to be adopted shortly. 31. The increased role assigned to the public and semipublic enterprises warrants that careful thought be given to the broad lines of Government policy regarding those enterprises. First priority ought to be given to revision of the system of price setting, in order to step up the savings effort of public enterprises. The main public services (power, water, land transportation and telecommunications) should be authorized to apply a cost based price policy, possibly incorporating an element of progressivity in relation to the income of users, for power and water tariffs. The control to be exercised by the Government over the public enterprises forms a second subject for immediate reflection. Improvement of the administrative and financial controls would not be a sufficient reform in this respect. What is needed primarily are universally respected procedures to ensure that all new investments show an acceptable economic return; this would entail strengthening of the project appraisal capacities in the financial institutions and supervisory ministries. A third area for reflection is the allocation of budget resources to the public enterprises. Whatever the overall ceiling imposed on transfers from the Treasury to those enterprises, their allocation to individual enterprises should be in accordance with an economic priority ranking to ensure that they are used to the fullest advantage; here, too, computation of an economic return should be the rule that governs this allocation. 32. The capital market in Morocco has a diversified array of institutions, but its functioning (the matching of the supply and of the demand for capital) is encumbered by detailed regulations as involved as those governing foreign exchange control and foreign trade. The attempts -Xiv- begun in 1974 to improve the capital market should be pursued, an effort that is all the more necessary now that Morocco can no longer count, as it could in 1974-77, on a sizable net inflow of external capital to finance its development. As first steps, the taxing of real estate investments could be increased to lessen their attractiveness as compared with financial investments; the channels for mobilizing savings could be improved (Caisse Nationale d'Espargne, Caisse Nationale de Cr4dit Agricole, etc.), and the structure of incentives for saving could be amended (interest rates and taxation of securities). Price Policy 33. Price policy plays a significant, but not yet clearly understood, role in Morocco. The empirical data needed for a quantified analysis of its social costs and benefits are largely lacking. In practice, the price system is mixed, as is the management of the economy. Government intervention, at times far-reaching and decisive, is found side by side with the free interplay of market forces. The Government intervenes in the markets for various products and services through price controls and subsidies. However, taken overall and with the lags deriving from slow-moving administrative procedures, prices adjust to the costs in these markets. The State also intervenes in the markets for production factors. The cost of capital is reduced by investment incentives and by the numerous direct State investments; this cost is also adjusted, generally downward, by the strict regulation of interest rates. The exchange rate is tied to the average value of a basket of currencies. To maintain external payments within bounds during times of inflationary stresses, the Government has recourse to exchange and import controls, in conjunction with budgetary and credit restrictions. Only the labor market is virtually free, although there is social legislation regarding wages and worker representation. 34. The chief conclusions to be derived from an analysis of price policy in Morocco are as follows: (a) The essential components for a global approach to price policy are there, but it would be desirable to strengthen the means of the Prices Directorate and to integrate it better into the macro-economic planning process; (b) The regulation of the prices of goods and services is quite flexible, but the adjustment of prices to costs sometimes takes rather long and this tends to temporarily reduce the savings of enterprises. It would seem that price control ought, in practice, to be limited to those goods and services markets for which it is essential from either the economic (imperfect market) or social (progressiveness of certain tariffs) viewpoints; -xv- (c) The study of the distortions affecting industrial prices has been started. A similar study regarding agricultural prices seems called for. It would appear that raising of the cost of capital and introduction of more competition in this market would be desirable in order to increase the mobilizing and allocatory role of these prices and to better serve the national goal of employment creation; (d) As regards price subsidies, their effectiveness in terms of the objectives sought seems in general low, and instruments better suited to the purposes of the growth and income distribution policy need to be urgently sought. This suggestion applies more particularly to consumer price subsidies, subsidies for agricultural inputs and subsidized interest rates; the financial incentives for exports, on the other hand, are still too small to offset the bias in production costs resulting from protection of the home market. Development Planning 35. Economic development takes place in Morocco in a liberal framework, but the responsibility of the Government and of the public authorities in determining this framework and in the rate of overall investment is decisive. Today, planning could be made the instrument for better management of economic development. This is essential because a restructuring of the economy with a view to increasing exports and savings and to meeting the basic needs of the population can only be undertaken in the framework of a long-term program. To allow planning to play its role, the highest priority would need to be given to three sets of actions aimed at: (a) Better integration of the planning system within the governmental decision structure; (b) Strengthening of sectoral planning capabilities, and (c) Greater rigor in regional planning. These measures also presuppose improvements in the relationship in relating the budget to the plan, and in the monitoring of execution of the plan. 36. Integration of the planning system within the governmental decision making structure is a problem that arises at several levels. At the highest level, the overall direction of planning, presently handled on an informal basis by a group set up in the Conseil de Gouvernement, could be entrusted to a permanent committee and strengtbened by the participation of the Bank of Morocco in that committee. This committee would be responsible for -xvi- preparing the directives for formulation of the development strategy and the main sectoral policies. The creation of this committee could provide a central directing unit without upsetting the distribution of functions among the different ministries. 37. At the sectoral level, the central planning body must be able to rely in the ministries and public enterprises upon a network of units responsible for sector policy formulation and programming of medium and long-term actions and investments. These units should report directly to the permanent secretaries of the ministries concerned for purposes of coordination and evaluation of the work of the technical directorates. 38. As regards regional planning, the most pressing need is to set up an apparatus able to ensure that the goals adopted are consistently pursued and able to draw extensively on local savings and initiative. At the central level, the national policies on regional development, formulated by the Conseil de Gouvernment should be translated into directives for the sectoral and regional levels by the central planning body. These policies and directives should take strict account of the available financial and human resources. At a second level, it is necessary to determine precisely how and at what stage the decentralized authorities (regions, provinces, communes and municipalities) should be brought into the formulation of national policies and decisions on the allocation of resources and infrastructure among the regions. The province and the commune would appear to offer the most potential in this respect. IV. Development of the Economic Sectors Phosphates and Mining Products 39. About 60% of the world's proven phosphate reserves are in Morocco, where production costs are among the lowest anywhere. This advantage gives Morocco an important source of foreign exchange (mining products made up 43% of exports in 1977) and budget receipts in the form of tax payments by the Office Cherifien des Phosphates (OCP), a public enterprise that directly or indirectly controls 80% of the mining sector. 40. Although the proportion of world phosphate exports accounted for by Morocco has declined slightly since 1960 (from 38% in 1960 to 34% in 1978), it is still large enough to allow Morocco to exercise a certain influence over the world price without actually giving the country a dominant monopoly position, as is evidenced by Morocco's fruitless efforts to keep phosphate prices up after 1975. Over the long term, however, Moroccan phosphate exports are projected to grow by about 6% p.a. at constant prices and form the economy's chief source of foreign exchange. -xvii- 41. The new momentum in the conversion of phosphates into intermediate (phosphoric acid) or finished (phosphate fertilizer) products derives from the growing significance of these products in world trade and will enable Morocco to benefit from the expected rise in their prices. Morocco's long term goal is to process 30% of its production locally. Despite the high cost of such a program, this goal is justified by the economic benefit to be gained from processing phosphates where they are produced rather than close to the consumer markets. Moreover, the growth prospects for phosphoric acid exports are extremely favorable (nearly 14% p.a. at constant prices over the next ten years), and could in fact be higher if quick solutions are found to the technical constraints currently bearing on the production, transportation and exporting of these products. 42. The other mining activities are also controlled by the public sector, but with a larger degree of foreign participation. However, for ten years now production and exports have not increased despite the investment program carried out under the 1973-77 Plan. This situation suggests that a critical study of the economic justification for the financial incentives granted to the mining sector, and of the activities of the Bureau de Recherches Petrolieres et Minieres (BRPM), would be worthwhile. Agriculture 43. Agricultural activities accounted for about 14% of GDP in 1978, i.e. distinctly less than the average of 22% achieved during 1967-70. After 1970, agricultural production fluctuated extensively owing to climatic variations, but without achieving any significant growth, although the domestic demand for agricultural products rose as a result of higher incomes and population growth. As a result, food imports rose by about 10% p.a. in constant prices from 1970 to 1977, while agricultural exports did not increase, being no higher in 1977 than they were in 1970. 44. Notwithstanding these less-than-satisfactory overall results, Moroccan agriculture has an appreciable growth potential. Where it has been possible to modernize the farming technigues employed, and when producer prices have been sufficiently remunerative, production has in fact risen rapidly. This has been the case with sugar beet, sugar cane, milk and vegetables, production of which expanded rapidly thanks to the development of the irrigated areas by the Government and the assistance provided by extension staff. Projections to the year 2000 of the supply of and demand for foodstuffs indicate a shortage of cereals, vegetable oils, dairy products and meat. As regards sugar, fruit and vegetables, demand can be met if past growth is maintained. -xviii- 45. Up to the present, the Government has concentrated its efforts primarily in developing the irrigated zones (56% of the 1973-77 Plan's agricultural investments went into these areas), which made it possible to increase production of certain foodstuffs that are imported, such as sugar and milk. However, in order to eliminate the shortage of cereals, vegetable oils and meat, the amount of agricultural investment allocated to the rainfed farming areas would have to be increased. Calculations of the expected economic return on several 'rainfed farming projects in fact show that these investments could offer a greater return than certain large irrigation projects. This observation prompts the suggestion that emphasis ought to be placed on rainfed farming projects, when economically warranted, though without neglecting development of the irrigated sector. Reorientation of Government investment toward the rainfed areas would also make it possible to directly increase incomes among the 80% of the rural population who depend on rainfed agriculture. The resulting increase in income would create additional purchasing power and provide new openings for Moroccan industry and crafts. 46. During the 1973-77 Plan meat production rose by 3.7% and that of milk by 5.6%. In order to reduce the projected milk and meat deficits, the Government has drawn up a policy for developing cattle and goat production. While this does represent a step forward, rangeland improvement and erosion control projects need also to be carried out to improve the incomes of the small-scale stockfarmers who practice transhumance and are unable to benefit from agricultural credit or the Government's agricultural services. 47. Strengthening agricultural research is another priority area for action. Although research in Morocco has produced some positive results, the application of these results and their adaptation to the prevailing socio-economic conditions are still insufficient. Nevertheless, some progress has been made, and the 1978-80 Plan envisaged a reform of the extension services in order to concentrate their work on the establishment of service cooperatives, which they would then advise on all agricultural matters. 48. The policy on agricultural prices and subsidies has sought to guarantee producers a sufficiently remunerative income and to maintain retail prices to consumers at levels affordable by the least well-off social classes. While the repercussions on the agricutural sector of the Government's interventions in price formation have not yet been measured, the data available give the impression that the effect of the overall price policy has been to penalize agriculture as compared with industry. In order to boost the incentive effect of the price and subsidy policy, the following measures would be required: -xix- (a) Progressively reduce agricultural input subsidies and concentrate them on small farmers grouped in cooperatives. Priority in the allocation of subsidies would go to the rainfed sector, and inputs would only be subsidized for a limited period for each farm; (b) Parallel with the reduction in input subsidies, producer prices would be adjusted; (c) Promote production contracts between farmers and processing or marketing enterprises; (d) Increase the activities of the Caisse Nationale de Credit Agricole, because of their high economic efficiency. 49. The rapid growth of the rural active population means that additional sources of employment will also have to be created in rural areas. Development of agro-industries seems desirable in this respect, although the existence of excess capacity in certain subsectors indicates that careful attention needs to be paid to the proper unit size. Until now expansion of small-scale agro-industry has encountered a number of obstacles (lack of financing, technical competence and skilled labor), and a special effort is needed to remove the constraints on its development. 50. Promotion of agricultural exports was one of the objectives of the 1973-77 Plan, but notwithstanding the considerable comparative advantage enjoyed by Morocco these exports did not increase in volume. This stagnation is explained in part by the insufficient diversification of crops, the aging of orchards, the obsolescence of the varieties raised, the heightened competition from the Mediterranean countries in the EEC market and the restrictions imposed since 1976 by the EEC. In order to reverse this decline, the Government has undertaken a program to improve the production of citrus fruit and early vegetables, which should induce the farmers to align their production more closely to demand. 51. Fisheries. The fishery sector is an important source of foreign exchange for Morocco (about 6% of exports), and its potential was recognized in the 1968-72 and 1973-77 Plans. The first steps taken consisted of the establishment of public enterprises to be responsible for production and marketing. The introduction of extremely generous financial incentives in 1973 spurred a spectacular expansion of the fishing fleet, but production and exports did not rise above 1967 levels. A large part of the fleet's catches, the extent of which is not known, was in fact being diverted to foreign ports. Stepping up control and inspection procedures will not be enough by itself, since the port infrastructure would also not be able to cope with any sizable increase in landings (due to lack of cold storage facilities). -xx- 52. To solve the difficulties affecting the fishery sector, long-term programming seems needed in order to coordinate the different aspects of fishery activity and determine precisely what should be the role and contribution of the public sector. An analysis of the impact of financial incentives ought also to be made. Finally, appropriate measures need to be formulated for the processing industry and, in particular, vocational and technical training is needed for the skippers. 53. Industry. During the 1973-77 period industrial production grew at a faster rate (7%) than it had up till then (5.4% in 1968-72). The higher phosphate prices of 1974 led to a very considerable upsurge in investment by modern industry, especially on the part of the Government, in highly capital-intensive projects which had only a limited impact on employment. However, employment creation in industry has increased considerably over recent years (about 7% in 1971-77 against 4.4% in 1960-71) thanks to the pronounced growth of the construction sector. 54. There were no noteworthy changes in the share of GDP accounted for by industry (16%) or in the breakdown of the valued added by the different branches between 1969 and 1975. Moroccan industry, therefore, remained heavily oriented toward production of consumer goods for the home market, exporting only 10% of its production. Notwithstanding the priority initially assigned to exports by the 1973-77 Plan, industrial development was aimed primarily toward import substitution. However, this substitution entailed a sharp increase in imports of intermediate and capital goods needed for local production. The technologically simple substitution of imports of finished goods as pursued up to the present appears to have reached its limits, because local demand is growing slowly. For the future development of industry, the alternatives are therefore either to get existing (or new) industies to export, or else to extend the substitution process to intermediate and capital goods. These two alternatives presume a modification of the incentive policy designed to raise the profitability of exporting, a selective substitution policy, and integration of the different projects in a sector program designed to strengthen the entire fabric of industry. 55. Within such a framework, reform of the system of industrial incentives -- which comprises not just the 1973 Investment Code and price policy, but also tariff protection and export subsidies -- will play a central role. Such reform should aim at reducing the discriminatory impact of protection on exports, the arbitrary inequality of protection levels, and the incentives for using highly capital-intensive techniques and skilled labor. In order to set up a program of action, the Government has started a study of industrial incentives that is to be completed in 1981. -xxi - 56. The general orientations of the 1978-80 Plan seem well chosen. They delineate a new industrial policy, appropriate to the circumstances of the economy, and composed of attaching priority to investments that utilize local resources (phosphates, sugar and cement), selective development of the production of intermediate and capital goods, strengthening of the industrial export policy, and promotion of small and medium industries. 57. About 70% of the investments included in the 1978-80 Plan are for the utilization of local resources. Investment possibilities in this sphere appear very favorable, not only as regards phosphoric acid but also for paper, pulp or chemical products derived from the sugar industry. The implementation of major projects by the public, sector ought also to provide opportunities for engineering and industrial equipment companies. The substitution of imports of intermediate and capital goods envisaged by the Plan must be based on a prior study of these sectors in order to identify which production lines would be economically justified in Morocco. The priority assigned to small and medium industry is a new feature, the policy having up till now been weighted in favor of heavy industry and of handicrafts; this priority is justified by the importance of small and medium industry in terms of employment, exports and the integration of the country's industrial fabric. Finally, exports which have received a major boost from the building of phosphoric acid plants, should also be made the subject of reforms designed to broaden their industrial base and facilitate the use of the existing export-promotion incentives. 58. Energy. To meet its future energy requirements, Morocco will have to rely mainly on imported oil, which already furnishes 78% of the energy consumed, as the country does not have any new energy sources of significance that could be quickly developed. Oil imports, at a time when international oil prices are on the rise, will form an increasingly heavy burden on the balance of payments and make the search for alternative energy sources at internationally competitive prices a matter of priority. The implementation of this strategy is complicated, however, by the large number of agencies or ministries involved in the energy sector , and by the pricing policy for energy. In this field, a firm policy of price increases for energy products and eliminating the related subsidies would appear particularly desirable as a means for containing the increase in demand and in oil imports. 59. Water. Over the period 1955-75, the utilization of rainwater increased by 5% p.a. and if this trend were to be maintained the country's total rainwater resources would be exploited by 1990 (i.e. 16 billion m3). Allocation of water to the different uses (power generation, irrigation, drinking water) will therefore involve increasingly complex trade-offs and will need to be geared to its efficient utilization. This would be facilitated by a tariff policy (for irrigation water in particular) -xxii- designed to recover a larger part of the operating and capital cost. Drinking water requirements are going to rise rapidly over the years ahead as a result of population growth, higher incomes, and the expansion of the water distribution network required to improve access to drinking water. In view of the likelihood of conflict among the various users, a national water plan needs to be quickly drawn up in order to integrate the different development plans for individual catchment areas and to facilitate the planning of the water sector, responsibility for which is currently shared by a large number of ministries. 60. Transport and Communications. During the 1973-77 Plan, Morocco made a significant effort to modernize its communications sytem which, overall, meets the needs of the economy. Nevertheless, certain problems still remain, especially as regards telecommunications, which have been relatively neglected till now, and the highway network, which still does not serve certain rural areas with promising production potential. The problems of rate-setting for transport and communications services further aggravate the problems of autonomy and management which the public enterprises have to face. Thanks to the financial incentives provided by the Government, Morocco's merchant fleet has been greatly expanded, but it appears that the operation and equipment of port facilities are still inadequate. 61. Tourism. Over recent years, receipts from tourism have made up about 15% of total exports, and with a sound sector policy designed to make the most of Morocco's considerable tourism potential they could well show an increase of around 6% to 8% a year. A program of studies of the tourism sector is presently under way; this should serve to improve understanding of the sector and coordination of the different measures to promote tourism. V. Income Trends and Social Policies 62. Over the period 1960-71, there was a net improvement in the average standard of living, which rose by 2.5% p.a. in the rural areas and by 4.7% in the urban areas, at constant prices. The distribution of expenditures did not, however, improve and it appears that the living standard of some social groups deteriorated. In this, Morocco followed a pattern very similar to that of many other developing countries whose economic growth was accompanied by increasing concentration in income distribution up to a certain level of development, after which income distribution improved. 63. During 1971-78 the development of the irrigated zones made it possible to raise the living standards of a large number of farmers, while the increase in producer prices for the main agricultural products brought about a distinct improvement in the terms of trade between agriculture and industry. The expansion of agricultural investment in the rainfed areas as currently envisaged by the Government ought to make it possible to raise incomes among the 80% of the rural population who gain their livelihood from -xxiii- those areas and who make up the great majority of the most disadvantaged households. In urban Morocco, the general improvement in average living standards and incomes for the least well-off housebolds appears to have been satisfactory. The high growth of employment in the urban areas (12% p.a. from 1971 to 1976) has made it possible for the most disadvantaged social groups to share the benefits of economic growth, while also helping to reduce the extent of rural poverty through migration to the cities. 64. The socio-economic characteristics of the most disadvantaged households are difficult to determine, because they have not been covered by the surveys made so far. In the countryside, the most disadvantaged households consist primarily of young persons without formal education, small farmers or farm workers in the non-irrigated areas, and craft workers. The small size of the farms and the low productivity of agricultural labor are the chief reasons for their low living standards. These two factors have, however, been compounded by the fact that small farmers have only limited access to modern production factors. In the urban areas, the characteristics of very low-income households are different. These are mostly older, illiterate families deriving their incomes from a wide variety of activities. As a result of the Government's schooling policy, the younger households have been able to earn higher-than-average incomes in the urban areas. Contrary to a widely held belief the main cause of very low living standards of the most disadvantaged group is not the low daily income earned from the pursuit of "informal" occupations, but the fact that the households concerned are only able to earn this income a few days a month. 65. Government expenditure in the social sectors (especially education) has been greatly increased over recent years, and a clear improvement is already apparent in life expectancy, which rose from 47 years in 1960 to 55 in 1977, and in school enrollment, up from 47% in 1960 to 65% in 1978 for primary education. However, certain social indicators such as infant mortality are still not favorable, and the disadvantaged social groups have not always been able to benefit from the social services provided by the Government. The contrast between a financial outlay that is often quite sizable compared with other countries, and the slow progress actually achieved in certain areas, is an indication that the policy followed in the social sphere has not always had the expected results. 66. The reasons for this situation are multiple, but it is perhaps important to emphasize that it would be incorrect to attribute the slow social progress to insufficient budgetary outlays. Increased budgetary appropriations would not in effect meet the central problem of social policy, which is its lack of precise objectives and appropriate means of action. The fact is that the goals of social policy are rarely explicit and the relative effectiveness of various policies is rarely evaluated. It is -xxiv- not, therefore, altogether surprising to find that very often the beneficiaries of Government social policies belong to the better-off classes. Viewed as a whole, social policy does not appear to have been sufficiently selective. Very often the standards selected for the supply of public services have been out of the reach of the poorer households. Rather than thinking in terms of the provision of uniform "high-quality" services throughout the country, it would be more realistic to consider Government action differentiated according to household income levels and the existing social infrastructure. 67. Elements of an Integrated Social Strategy. In devising a social development strategy, it is important to take into account the links between the different aspects of social policy, because this serves to point up their interdependence and the existence of alternative means for achieving a given goal. The success of any social strategy depends on the successful implementation of three components, which are considered separately here for the sake of clarity but which in fact are and should be closely integrated. These three components are: (a) raising the productive capacity of the disadvantaged social groups; (b) expansion of highly labor intensive activities; and (c) strengthening the measures to redistribute income. 68. The drop in the rate of urban unemployment (from 18% in 1960 to 15% in 1971 and 10% in 1976) indicates that the employment market and wage levels are sufficiently flexible to provide jobs for a rapidly growing active population. The significant variations in wages observed throughout the economy underscore, however, that access to credit, capital and vocational training, and also to industrial and commercial techniques, is still unequal. Inasmuch as one of the main causes of poverty is the low productivity of labor, the first aim of the social strategy must be to step up investments that would directly raise the productive capacity of the disadvantaged social groups. 69. The effort already undertaken in formal education needs therefore to be completed by an increased effort in vocational training, including for those without any education at all. In the rural areas, by far the majority of the poor households are in the rainfed farming regions and consist of small farmers, farm workers and landless farmers. Raising their living standards depends therefore on increased Government efforts in favor of rainfed agriculture and the mountainous areas through integrated rural -xxv- development projects, expansion of agricultural credit and improvement of rangelands and animal husbandry. Special mention should be made of the "Promotion Nationale" program in this respect, because it has provided those employed in the poorest regions under the program with an additional income amounting to as much as 40% of their total incomes. 70. In the urban areas, the occupations of the poor households are very varied. In contrast with the rural areas, the benefits of the growth of industry and services have reached down to the most disadvantaged social groups. This indicates that general economic policy measures designed to facilitate the expansion of highly labor-intensive activities, increasing the job supply and efficient functioning of the employment market, would make it possible to raise the incomes of poorer households. In this connection, the attention recently given to small and medium industry is a new feature of industrial policy and one worth pursuing, in view of its significance for employment. Improving services and information provided by the employment exchanges would help bring the supply of and demand for labor into balance. Existing measures that artificially reduce the cost of capital and credit in relation to that of labor should be terminated, since they encourage employers to reduce their demand for labor. 71. Although the economic and social return on social expenditures proper is difficult to estimate, it seems unlikely in the case of Morocco that strengthening social policy would prove detrimental to economic growth in the long-term. In this context, improving the living standards of the least advantaged social groups is clearly a priority element. This would call for greater selectivity in Government intervention by identifying the group of poor households and their basic needs, and for raising the efficiency of the social services (education, health and family planning), the utilization of which should be extended. A special effort should be made to provide basic and inexpensive services. 72. Concerning education, the low efficiency of the education system, coupled with the extremely rapid rise in enrolments and the fact that education is provided free, constitutes a substantial financial cost that could prove beyond Morocco's means. A switching of public funds from higher education (by requiring that those able to pay should do so) to primary education in rural areas would appear desirable. A better balance between vocational training and formal schooling, plus assessment of the economy's skilled labor requirements, would make it possible to reduce unemployment among the young (in 1976, 73% of the urban male unemployed were under 24), while also lessening the shortages of skilled labor. -xxvi- 73. Up till now, inadequate garbage collection and sanitation services and the limited number of homes with drinking water, especially in the rural areas, have been factors holding back progress as far as health is concerned. The limited access to the public health services of certain groups--children, nursing infants, the rural population and the urban poor--is also responsible for the unfavorable levels of certain social indicators. Past policies concentrated on development of an infrastructure and medical personnel of high quality. The Government is, however, aware of the need to reform the present system of medical care by stressing the need to meet basic health needs and facilitating the use of family planning services in order to bring down the population growth rate and improve living conditions for Moroccan families. 74. Finally, as regards housing and urban services, it would be necessary to place the emphasis on the provision of social services for the poorest segments, while continuing the effort already begun to improve living conditions in the bidonvilles, and progressively extend infrastructure services to the rural areas. 75. The third component of social policy relates to the general measures to redistribute income, i.e. direct and indirect taxes, subsidies, and rate setting for public services. As things are at present, these measures have no more than a very minor impact on the living standards of the poorest households. For instance, these households only receive a small part (about 20%) of the subsidies on the staple food items, whereas the budgetary cost to the Government is substantial. The weak role of the direct income tax also greatly lessens the progressivity of the tax system. Reduction of the subsidies paid on production factors or received by the users of public services through the rate scales applied should be considered, since this would be a means of increasing social equity. 76. In any case, the progress achieved by the investment programs needs to be evaluated at regular intervals. The relative number of poor households benefiting from them should be calculated, together with the increase in these households' incomes. Also, the gathering of statistical data (as for public health purposes) should be improved in order to be able to evaluate movements in the social indicators. VI. Regional and Urban Development 77. The differences in the level of development among Morocco's various regions are reflected in extensive regional disparities in living standards and administrative organization. The desire to achieve more balanced regional development through the inclusion of local initiatives has led to -xxvii- strengthening of the administration at local level and an expanded role for the elected local authorities. The strengthening of the local offices and units of the ministries was thus accompanied by a degree of decentralization, the main stages in which were the establishment of provinces, then regions and, finally, the promulgation of a "Communal Charter" (Charte Communale) in 1976. 78. Local Government. Decision-making powers in the ministries are still extremely concentrated at the highest level. The requirements for medium-term planning and the lack of qualified staff at the local level have so far constrained decentralization efforts, except by the Ministry of Agriculture and the Ministry of Equipment. The Ministry of the Interior is the only ministry with a complete network of representatives covering the entire country down to the city wards and rural douars. Besides their traditional functions of maintaining law and order, these officials act as intermediaries between the local authorities and the Government. 79. In order to ensure harmonious development of the different regions of the country, it has been found necessary both to extend administrative decentralization and to increase the human, financial and technical resources of the local authorities. Generally speaking, it does not appear technically possible to augment the staff of the local offices of the ministries and other central agencies at all echelons of local government. The most reasonable solution would be to decide on a particular level of administrative decentralization, and one only, that would be given priority. The province is presently the best staffed echelon of Government at the local level, and it would seem logical to concentrate on strengthening it, even though the framework of the province is possibly somewhat narrow for the needs of regional development. Such a decision presumes, however, that the creation of new provinces would be subject to strict criteria in view of the pressure it would put on the already limited staff of the ministries, and that the decentralization of central administration to the provincial level would be continued. This decentralization should cover personnel management, procurement, the regionalization of budget appropriations, and the strengthening of the means and coordinating powers of the governor. 80. Although some significant elements of autonomy have been introduced at the local level, the central authorities still exercise very considerable supervision and control over local decisions as far as the regions, the provinces and the communes--the three major local government units--are concerned. The creation of seven regions in 1971 was intended primarily to establish the region as a framework for economic administration, but it has remained no more than a level of regional and physical planning. The provinces (36 in 1978) form the most important echelon of local government, but the provincial assemblies have only a very limited degree of autonomy. Decentralization is in fact greatest at the -xxviii- commune level. The legal authority of the municipal council and of its chairman is quite extensive. In practice, however, their autonomy has, until recently, been limited by the supervision exercised by the Ministry of the Interior, by the unavailability in the municipal administration of the technical staff needed for the preparation of investment projects, and by the inadequacy of the municipalities' financial resources. To build or run major facilities, local governments can, however, combine into associations; these play an important role in certain public services (water, power, urban transport). 81. To enable the local governments to play a larger role in economic development, the Moroccan Government has undertaken a far-reaching reform of the local government system, comprising: (a) A quantitative and qualitative improvement of local administrative structures through the establishment of a commune civil service, increasing the number of commune personnel and setting up a large training program; (b) Increasing the financial resources of the communes. In the context of the 1978-80 Three-Year Plan, an appropriation of DH 1 billion has been made available to the local authorities; a reform of local taxation is under study; and the volume of lending by the Fonds d'Equipement Communal (FEC) to the local authorities has been raised from DH 89 million in 1977 to DH 200 million in 1980, and is to reach DH 800 million in 1985; (c) Development of local public services, especially water, power, sewerage and urban transport; (d) Increased technical assistance to the least privileged local authorities through the FEC and the local offices of the ministries. 82. The differences in the level of development among the various local authorities are still considerable and require that Government assistance be differentiated to take account of their various characteristics (size of population, existing infrastructure and financial resources available). Classification of local authorities on this basis would make it possible to modulate the division of responsibilities between the communes and the Government while ensuring that their sphere of competence, their financial means (local or from central institutions) and the staff available to them (local or provided through a technical assistance program) are all consistent. The proportion of grant-type funding (as compared with loans) and of technical assistance from the ministries (as compared with the establishment of municipal services) should, of course, be greater the poorer the commune. Establishment of a classification of this type appears to be an essential prerequisite for the preparation of differentiated assistance programs and of directives to be addressed to officials concerned -xxix- with local matters in order to guide them in their tasks of motivating and supporting development efforts. These directives, whose degree of complexity ought to be adapted to each type of authority, would relate to; the priorities adopted in the national plan for the area in question; project identification and preparation methods; financial management (simplified accounting and budgeting framework); financial and manpower assistance programs managed by the central institutions and available to the local authorities; and the relations to be established with the local offices of the ministries and agencies. 83. Regional Development. Geographically, economic growth has been concentrated mainly in a zone located in the center and northwest of the country, as a result of which economic activities and social infrastructure are also unequally distributed. Comparison of various economic and social indicators confirms that it is the center and northwest which are best supplied, while the south and the Tensift regions are the most deprived. The midwest and eastern regions are in an intermediate position, but often below the national average. 84. The lack of consistent regional statistics makes it difficult to judge whether the disparities between regions have been reduced. However, partial data appear to indicate that as regards household incomes and economic activity, disparities tended to widen over the period 1960-71. Unlike some other developing countries, however, Morocco has a dynamic network of secondary cities, which enables it to spread the sources of economic growth over the entire country, thus providing a counterweight to the privileged development of the Casablanca region. In a more recent period, 1969-75, the balance of industrial growth thus tended to shift somewhat, with a greater distribution of industrial enterprises and jobs outside the central region (Casablanca). 85. Already in the early 1960s Morocco was aware of the need for a regional development policy, but it was not until the 1973-77 Plan that a more systematic policy was applied, characterized particularly by the strengthening of local governments and the establishment of special institutions such as the Special Regional Development Fund (FSDR) for the disadvantaged provinces. 86. However, although regional development was a clearly stated political aim, the goals of the Plan remained too general, both as regards reducing regional disparities and the promotion of poles of development and were not translated to a consistent strategy expressed in the form of a regional development plan. Nevertheless, a certain number of project identification studies were made in the poorer provinces. The drawing up of a nation-wide regional development plan that could incorporate a medium-term regional development strategy would now appear to be essential, as noted in -xxx- the 1978-80 Plan. In an initial stage, and bearing in mind the scantiness of available statistics, the studies already made should be combined with an analysis of the regions' potentials, to determine the main options open at the national level. The data from the upcoming census would then make it possible to refine this plan by region. 87. During the 1973-77 Plan, the regionalization of investments was effected through a new institutional framework characterized by the formation of sectoral commissions at the provincial and regional levels and by the activities of the regional consultative assemblies. Progress was limited, however; in many instances the sector programs of the ministries were not broken down by region, which made it difficult to assess whether or not they were consistent. To strengtben the methods for regionalizing investments would require in particular the adoption of a regionalized budget system. 88. However, regional disparities will not be lessened or income raised in the disadvantaged provinces without a balanced development of regional economic activities; to achieve this goal, the Government would have to reorient its agricultural policy in favor of the rainfed areas, and to provide the disadvantaged regions with basic infrastructure. Urban Development 89. Morocco is already a highly urbanized country which is having to cope with a very rapid urban growth rate that has resulted in the emergence of shantytowns (bidonvilles) and overcrowding in the traditional quarters (medinas). In spite of what the Government has done and is doing, the demand for housing is continuing to grow faster than the supply, although the latter doubled between 1973 and 1977. 90. The 1968-72 Plan placed the emphasis on rural development and housing in the hope of damping down migration into the cities. However, in view of the scale of urbanization, the 1973-77 Plan adopted a more realistic strategy, devoting appreciably more funds and resources to the development of urban centers. The adopted strategy formed a consistent whole, and included the following main policies: (1) Increased Government intervention in urban areas, especially in the provision of sites and services; (2) Phased provision of sites and services; (3) As regards housing, priority for the population groups able to pay, with the aim of meeting the needs of those categories within five years; -xxxi- (4) Limitation of the grant and subsidy element in State assistance. However, this strategy had two major shortcomings: apart from the "zones a 6quipement progressif" (ZEP 15) program, it was not oriented toward meeting the needs of the poorest categories on a priority basis even though it included the construction of 72,000 dwellings for the poor, and it did not include any program for improving the medinas and bidonvilles. Elimination of these was considered only implicitly. A positive reorientation in this respect has since occurred, however, with the bidonville rehabilitation component included in the Rabat urban rehabilitation project. 91. Questions related to land ownership proved an obstacle to carrying the Plan's strategy into effect. The pace at which serviced lots were placed on the market was very slow. The control of urban development proved ineffective and clandestine urban housing sprung up in parallel with the planned developments. To solve these difficulties, the 1978-80 Plan proposed to complete the programs under way, to assign a certain priority to rehabilitation of the medinas and bidonvilles, to continue the preparation of master plans and to encourage the development of private real estate promotion through coordination of the activities of private and semipublic corporations with those of the Government. 92. The strategy of the three-year Plan contains some highly positive elements, but it is, nevertheless, no more than an interim one. The three-year period has given time for reflection and transition towards preparing a more comprehensive strategy, that could usefully include: (1) A new definition of role of the Ministry of Housing and Regional Planning (MHAT), with a view to relieving it of the responsibility for the purchasing and development of sites, which would be entrusted to local governments, public agencies or private corporations, with a view to strengthening MHAT's control and land-policy formulation function; (2) Speeding up of the production of sites for housing construction, which presumes, as the Plan in fact envisages, that the drawing up of master plans will also be speeded up with a view to defining a policy governing land aguisition by the central and local Governments. The system for expropriating and registering land ought also to be revised; (3) Continuation of the present efforts to bring down the unit costs of infrastructure and housing; (4) Amendment of the housing finance system or order to mobilize household savings. CHAPTER I: INTRODUCTION 1.01 The Moroccan economy made considerable progress during the Second and Third Development Plans, which covered the period 1968-77. National income grew distinctly faster than the country's population over that period, with per capita income rising at an annual rate close to 3%. During the Third Plan (1973-77), moreover, economic growth gathered momentum. Whereas in 1968-72 the real annual increase in GDP remained below 6%, the target rate of 7.5% for the growth of gross domestic production set for the Third Plan was virtually achieved in 1973-77. The conservative approach which had tended to predominate in the post-independence (1956) years gave way after 1970-71 to a strong intention to pursue growth and a better distribution of the fruits of that growth. This desire led to a spectacular increase in investment between 1973 and 1977 coupled with a considerable broadening of development project identification, preparation and execution capabilities in all sectors. The emphasis placed on social development generated a rapid expansion in education, training and health-related services. It also prompted reconsideration of the effectiveness of the approaches followed till then, and the devising of new formulas for a direct attack on the problems posed by the low productivity and living standards of many Moroccans. In brief, Morocco's development strategy became more dynamic and acquired a broader range of instruments. Morocco can be justly proud of its appreciable economic and social achievements over the ten-year period 1968-77. 1.02 However, this acceleration of the economy's growth created problems of its own. Pronounced financial disequilibria developed in 1976 and especially in 1977 because the growth in savings and exports had not kept pace with that of investments and imports. After 1975, the very heavy burden of modernization of the Royal Armed Forces was added to these disequilibria of structural origin, which were further aggravated by the fluctuations in the prices of Morocco's principal exports and imports. To meet the resulting financing needs, the country resorted increasingly to external borrowing. Since 1978, Morocco has been passing through a period of financial adjustment during which it made determined efforts to re-establish the major equilibria in the economy. These efforts included a temporary cutback in investments, imports and employment, and were incorporated in the Plan for 1978-80. The challenge to be met by the Government during this Plan was that of preparing and initiating the implementation of long-term development policies that will make it possible for the economy to again attain a high growth rate based on a sound structural foundation. These policies are under study; certain of them have been analyzed in quite considerable detail and are already being put into effect. 1.03 Another and equally important challenge is that posed by the low income levels that are still the norm for a very large number of Moroccan households. Since these households derive their incomes from activities that offer little return, they are unable to meet their basic needs in terms - 2 - of nutrition, housing, education and health, while access to public services is difficult for them. The social policies put into effect by Morocco so far show that effective methods exist for overcoming this problem. What is now needed is to expand and improve the effectiveness of the social development strategy that is already to a large degree being followed, by better specifying the social groups to be the targets of this strategy and, wherever possible, reducing the unit cost of the services rendered to these target groups. This improvement is all the more essential because Morocco will only be able to count on limited budget resources in the years ahead, and the growth of its population is bound to bring heightened needs in this area. This financial constraint would mean in particular the reduction, or even elimination, of "social" subsidies and free public services for the wealthier social groups, on the principle that these subsidies ought to be limited, as far as possible, to those whose incomes are insufficient to allow them to cover their basic needs. 1.04 A number of factors contributed to the successes already achieved by Morocco, and will also help overcome the difficult problems remaining to be solved. Certain of these factors have a direct impact and can be modified relatively quickly, namely the economic, financial and social policies that enable the country to mobilize and allocate its resources more effectively in pursuit of the goals set. These policies are analyzed in the chapters that follow. Other factors, on the other hand, are of a less malleable nature and govern to some degree the choice of goals and policies; these are the natural resources available and the qualitative characteristics of Moroccan manpower. These are examined below. This examination is not an exhaustive one, but is intended only to underscore certain strengths and weaknesses that can be expected to continue to play an important role in the strategic choices that Morocco would have to make to overcome the obstacles in the way of its development. Natural Resources 1.05 Compared with many developing countries, Morocco has quite abundant natural resources. It has the world's largest and most easily accessible phosphate reserves, which makes the phosphate sector a key one in the economy as a source of both foreign exchange and savings. Other exported minerals are iron ore, manganese and lead, together with zinc, cobalt and copper, although the value of these last three products is much smaller. Construction materials are abundant and conveniently located. Anthracite and hydropower plants help to meet part of the country's energy requirements. Oil and natural gas have been produced commercially for several years now, but in very small quantities; there are, however, promising indications of additional reserves that warrant continued exploration work. Morocco has uranium and tar shales in very sizeable quantities, but the techniques required and returns obtainable have not yet been fully determined. 1.06 Its geographic location and natural factors give Morocco a considerable agricultural potential. The country is under two dominant influences: that of the Atlantic Ocean, whose coast opens up for the greater part onto the plains, and that of a chain of mountains running from the - 3 - central Rif to the western Anti-Atlas. Rainfed agriculture can become intensive on the plains, hills and foothills west of these mountains, where a humid and temperate Atlantic climate combines with sufficiently fertile soils. Moreover, several large rivers flow from the Atlas and Rif to the coastal plains of the west and north, where they provide water for the irrigation of extensive farmlands while also supplying the cities' needs. However, this moist Atlantic air rarely reaches the other side of the mountains, while the air masses moving in from the Mediterranean do not carry enough moisture at that point to compensate. In southern and eastern Morocco water is a major constraint; apart from the oases and some irrigated areas, agriculture can only be extensive or else altogether nonexistent, as in the Saharan regions. In all the regions suited for farming, Moroccan agriculture is still far from achieving the optimum yields possible with existing agricultural techniques; the long-term program for bringing a million hectares under irrigation is only about 70% complete. Morocco's extensive coastline on both the Mediterranean and especially the Atlantic offers it considerable fishery resources that are only partly exploited to date. Moroccan agriculture and fisheries still have very considerable potential for further growth. 1.07 Morocco's geographical location gives it other advantages. It is very close to Europe, with which it is linked by the important freight route via the Straits of Gibraltar. It is also relatively near, by sea and air, to North America, the Middle East and South America. The proximity of the economies of these regions is a factor favorable to the development of international trade. Morocco's international trade has been primarily with Europe, especially France, for historical reasons; this trade can be developed further and diversified. In 1978, imports of goods and services represented 32% of Morocco's GDP and exports 17%. In that year there were about 250,000 Moroccans working in Europe, while over 1.5 million tourists visited Morocco. 1.08 The diversity of natural conditions has greatly influenced human settlement patterns and economic activities in Morocco. Population growth and development have been concentrated in the plains of northwest Morocco; and, to a lesser extent, in the irrigable valleys of the Souss in the southwest and the Moulouya in the northeast, these being the most favorable zones from the viewpoints of climate, relief and access to international transportation. The regions behind the central mountain chain, in the south and east toward the Sahara, on the other hand, have remained thinly populated and characterized by a way of life based on extensive pastoral farming. These natural disparities between the regions have prompted migrations from the less favored to the better endowed regions. The latter thus acquired an institutional advantage in addition to their natural assets in the form of much more developed physical infrastructure and modern services. A better balance between the regions in the provision of infrastrcuture and services is one of Morocco's key goals that it sees as a means for preventing the formation or persistence of pockets of poverty in the disadvantaged zones. -4- Human Resources 1.09 Morocco's population is growing and becoming urbanized very rapidly: in 1979 the country had over 19 million inhabitants, and this figure is expected to increase to 27-30 million by 1992. The cities will have to absorb at least an additional 4 million people between 1977 and 1992. These ineluctable demographic prospects make it necessary for Morocco to achieve a-minimum rate of growth, if it wishes to increase the supply of goods and services per capita and for all Moroccans. This necessity is particularly pressing in agriculture which, in view of its as yet unexploited potential, must be organized to provide sufficient food for every household. It is even more pressing with regard to large segments of the population whose basic needs are not fully met. Raising the productivity of these urban and rural dwellers so that they will be able to earn enough to feed and house themselves to minimum but adequate standards, and providing them with minimum education and health services, are the difficult tasks that demographic growth imposes on the country. Of these tasks, one is becoming more pressing every day, namely the need to make modern means of family planning available to more Moroccan families, especially the poorest ones, both to avert the disastrous consequences that a runaway population explosion would have, and also to give each family greater control over its future and its well-being. 1.10 The high birth rate that Morocco has known for many years means that the population is now very young and that the population of working age is growing distinctly faster than the population as a whole. These demographic characteristics ensure that Morocco will have an abundant labor supply; at the same time they require the economy to create large numbers of jobs and to train workers for those jobs. An estimated 190,000 additional workers have come onto the labor market in 1977. According to this report's forecasts, which take into consideration both the growing participation of women in the labor force and the unencouraging prospects for emigration to Europe, about 300,000 new jobs would be needed each year by 1990. Moroever, for several years now, the supply of unskilled labor has exceeded the economy's requirements, while the reverse has been the case as regards skilled labor, especially since the start of the 1973-77 Plan. To counter this tendency toward imbalance between labor supply and demand according to levels of skill, Morocco would have to make an even greater effort than in the past to train its work force and to raise the effectiveness of that effort. At the same time, it will have to put into effect an investment strategy that places greater emphasis on projects whose cost per job created is low while requiring large numbers of unskilled workers for their operation. 1.11 The Moroccan labor market is essentially a relatively free and well integrated one. The regulations in force and the existence of trade unions have no more than a minor influence on its functioning. Thanks to the well developed infrastructure and low costs of transportation, movement within the country is easy and relatively cheap for workers. Subject to the imbalance between supply and demand at various levels of skill, the range of - 5 - occupations offered is very wide, from the least paid to the most prestigious; in fact the supply pressure of unskilled labor tends to result in a subdivision of jobs at this level into short-time employment paying very little, rather than into full unemployment. The very low productivity and remuneration of many urban and rural jobs constitute the fundamental problem that has to be overcome if there is to be a reduction in the number of households that cannot meet their basic needs. Structural unemployment does not seem to be as serious a problem as that of low productivity and income levels; it mainly affects the youngest workers looking for their first jobs, and the oldest who are likely to be prematurely superannuated from the labor force. 1.12 The abundant supply of unskilled labor tends to keep wage levels down for this category, while also encouraging migration flows out of country. This situation places Morocco at a considerable advantage on international markets; its unskilled labor costs are among the world's lowest. The fact that this labor is often obliged to accept wage rates that do not keep pace with inflation contributes to the stability of Morocco's production costs. However, this advantage is offset, to an extent that is hard to quantify owing to lack of sufficient data, by several concomitant adverse factors: the low productivity of barely or badly trained labor; the fact that the workers who emigrate, even the unskilled ones, are often the best and most highly motivated; the very strong pressures for higher pay for skilled labor; and the shortage of technical and managerial staff. Development Institutions 1.13 The monarchy is the linchpin of Morocco's institutions. Established at the end of the 8th century by Idris ibn Abdullah, who fled from Arabia to seek refuge in Morocco, the Alawite dynasty today rules in the person of King Hassan II. The authority of the monarchy emerged considerably strengthened from the post-independence period following the French Protectorate imposed from 1912 to 1956. Exiled by the French from 1953 to 1955, King Mohammed V returned to Morocco as the extremely popular symbol of the national will. The sovereign governs within the framework of the 1972 Constitution. Under this constitution, Morocco is a democratic and social constitutional monarchy, in which personal political freedoms are guaranteed and the citizens are represented by elected assemblies. The local assemblies were set up after the 1976 elections and the National Assembly (one-third of which consists of representatives of various socio-economic groups elected by indirect suffrage) in 1977. The monarchy seeks to maintain a balance between the different political and social groups acting as an arbitrator above factional interests. 1.14 This policy of seeking equilibrium is reflected in the permanent search for national unity under the direction of the king. After the regime's serious crisis in 1970-71, this unity was achieved to defend Morocco's cause in the dispute dating from 1975 over the Sahara borders. - 6 - All parties agreed to support the Government on this point. It is for the future to show how far the political equilibrium achieved today will permit an effective response to the economic and social pressures building in Moroccan society: inflation, income disparities, concentration of economic growth and modern employment, erosion of the living standards of many rural dwellers, hypertrophy of minor urban services and the growth of shantytowns. It is true that several reforms have already served to meet certain demands, such as recovery of land owned by foreigners, effected in 1973, or the Moroccanization of a large number of sectors, also starting in 1973. However, it should be noted that these reforms have affected only foreigners established in Morocco; in other words, they could be carried out without affecting the interests of the beneficiaries of the present equilibrium. 1.15 Morocco's economic development takes place in a free market setting but the State exercises a determining influence over its orientation and pace. Since 1957, pluriannual plans have served as a guide to investments and reforms. From 1962 onward, these plans have been discussed by the Conseil Superieur de la Promotion Nationale et du Plan, which is chaired by the king, and they have force of law. They do not set quantitative targets for private enterprises, being concerned primarily with proper programming of State investment expenditures. The 1972 Constitution guarantees the right of ownership, subject to the exigencies of economic and social development, and expropriation is only permitted on a case-by-case basis and in accordance with procedures specified by law. The State encourages private enterprise through a number of instruments and a class of Moroccan entrepreneurs has grown up in the commercial, agricultural and real estate spheres. However, notwithstanding this frequently reiterated commitment to private enterprise, public and semipublic enterprises predominate, especially in the industrial and banking sectors, and have been gaining further in significance since 1973. The direction of this trend is still unclear. By all appearances, Moroccan entrepreneurs, except those engaged in certain traditional light industries, are somewhat hesitant to take the risks involved in industrial investments and prefer to see the State carry such risks. Moroever, expanding the public and semipublic sectors provides an additional source of influence for the central authorities, and a means of developing and refining the State's interventions in the economy. These interventions, while justified to begin with, are sometimes characterized by a rigidity that is ill-suited to the changing needs of businesses and the economy. This places constraints on the private sector that is supposed to be encouraged and brings about economic rent situations to the advantage of certain categories of enterprises. The flexibility and dynamism that are the essential advantages of the private system, disciplined as it is by the law of the market place are thus impaired. It appears that the emergence of the most efficient small and medium enterprises is held back by the very regulations designed to encourage them, and the same applies to transfers of technology through foreign participations and their adaptation to the Moroccan setting. An important goal of the 1978-80 Plan is a study of the reforms needed in the instruments of economic regulation, so that they will better serve the development of the private, semipublic and public enterprises sector. - 7 - 1.16 In his memoirs, H. M. Hassan II stresses that "our constitutional and democratic monarchy is also a social monarchy", i.e. "that one of its essential aims is to improve the lot of the lower-income classes". This point is brought out in various chapters of the memoirs, particularly those dealing with agriculture, education and housing. The theme has been reiterated in numerous recent official declarations and decisions and has been translated into a complex strategy of social development, the results of which, though substantial, remain nevertheless limited in relation to the immense needs to be satisfied. The needs in question are those of the country's increasing numbers of young people for whom opportunities for productive employment are presently limited, those of the peasants in the non-irrigated areas who have a hard life struggling for subsistence on tiny holdings, and those of the underemployed urban and rural workers with very low productivity and inadequate earnings. The limitation of the domestic market as a result of this situation in return discourages the expansion of small and medium industries which do not at present find outlets commensurate with their capacities. 1.17 The constraints on action in the social sphere by Morocco are heavy. Income and savings, especially public sector savings, are low, and the financial resources available for social policy are limited. Administrative capability is relatively good in quality terms but still insufficient in quantity, partly because of the limited financial resources. The monarchy is constantly concerned with the preservation of social equilibrium. Intervention by the State to foster redistribution is therefore very cautious, planned in minute detail and designed not to upset the status quo. It touches only the fringe, so to speak, and impinges only on certain additions to assets or incomes. As regards weath, certain strategic sectors that generate considerable savings - such as phosphates - have been nationalized for some time. The Agrarian Reform - a complex long-term exercise in restructuring landholdings - has as its primary concern the formation of economically viable individual holdings. As to the recovery or Moroccanization by the public and private sectors of foreign-owned farms and enterprises, this was encouraged through compensation and did not affect the situation of those who benefit from the present distribution of wealth. 1.18 Concerning incomes, more has been done to further redistribution but here, too, prudence has been the watchword and disparities have probably continued to widen. Redistribution is effected by general measures, such as taxation and price subsidies, or by specific interventions. In view of the difficulties of planning and implementation of general measures, Morocco is shifting more and more to specific interventions. Without abandoning the general measures which it is in fact seeking to render more efficient, Morocco is increasingly using, as instruments for redistribution, development projects or social programs targetted to the lowest-income segments of the population. Although still inadequate, the capabilities for preparing and executing projects of this nature are being actively - 8 - developed. A feature these projects all have in common, and one that is deliberately sought by Morocco, is that they are designed to improve both the distribution and the growth of income by raising the benficiaries' productivity. 1.19 Morocco has a capable corps of administrators for implementing its social and economic development policy. The administration, traditionally prestigious, accustomed to command and competent, has been able to attract high-caliber staff capable of formulating and executing its development programs and policies. However, the most able have up to the present gravitated mostly to the financial and industrial sectors, while the other sectors have insufficient staff to undertake the planning and execution of increasingly complex projects. There is also a shortage of middle-level staff to give proper support to the decision- making echelons. Finally, whereas the central Government is, subject to the above reservations, relatively well-provided with competent staff, the human resources available to the local authorities are very inadequate for their economic and social development responsibilities, except perhaps in Casablanca and Rabat. Morocco has instituted compulsory civil service and is making a major training effort to overcome these weaknesses; this policy needs to be pursued more forcefully. The International Context 1.20 Morocco wants to expand its economic relations with other countries to the degree that it can profitably do so without compromising its political independence. These economic relations are closest with the European Economic Community (EEC). The bulk of its international trade is with the Community and it is to the countries of the Community that most of its emigrant workers go. In 1976 Morocco signed an association agreement of unlimited duration with the EEC. Basically, this agreement provides for: (1) free access to the EEC market for raw materials and industrial products originating from Morocco; (2) the provision by the Community of financial aid to Morocco totaling 130 million units of account over the five years following the signing of the agreement; and (3) a guarantee for Moroccan workers in EEC countries of equal treatment with workers of the member states as regards working conditions and remuneration, and also social security. Although the EEC has reserved the right to limit imports of agricultural products and "sensitive" products (for instance, certain textile products in 1977), Moroccan exporters and workers benefit from a system of favorable access to the Community. The association agreement also contains special provisions regarding transfers of private capital and technology. If one also takes into consideration the bilateral agreements in effect between Morocco and the EEC member states (particularly France), the Moroccan economy is seen to be clearly oriented toward close interdependence with Europe. However, it should be noted that when Greece, Portugal and Spain become members of the EEC in the relatively near future, the attraction of the Community for Moroccan exporters and workers might diminish, since the economies of those three coutries would derive an enhanced competitive advantage from their membership. - 9 - 1.21 Morocco has also strengthened its economic relations with the USSR and several Middle Eastern and African coutries. The agreement signed with the USSR in March 1978 is, potentially, the most significant. This agreement provides for exports of phosphates and phoshate derivatives to the USSR for thirty years following its signing; the quantities involved could reach 10 million tons a year over the coming decade. In return, the USSR will grant Morocco financing on very favorable conditions (annual interest of 3% and repayment over 18 years, including three grace years) for development of the new mine at Meskala and for transportation equipment; the financing in question would total $2 billion. Since 1975, the confrontation in the western Sahara has compromised the Maghrebian cooperation sought by Morocco, although its links with Tunisia remain close. Outline of the Report 1.22 The rest of the report is organized into five chapters. Chapters II, III and IV are devoted to economic growth and Chapters V and VI to the distribution of the fruits of this growth. More specifically, the different chapters are arranged as follows: (1) Chapter II examines the growth and structural changes the economy has experienced at the overall level in the course of the ten-year period 1968-77. In doing so, it brings out the chief strengths and weaknesses of the economic growth achieved by the end of the 1968-72 and 1973-77 Development Plans, pointing up the immediate and structural problems that economic and financial policy would have to solve to attain viable growth in the short and long term. These problems relate to external financing, exports, mobilization of domestic resources, price policy, and planning. (2) Chapter III seeks to determine the results that can be expected from the annual plans of financial adjustment that dominate the period covered by the 1978-80 Plan, and looks ahead to the overall prospects for the economy in the period 1981-90. This leads to a closer analysis of the main problems identified in Chapter II. This chapter therefore leads to the identification of a certain number of pressing and important needs for reform. (3) The overall growth problems are considered at sector level in Chapter IV. This chapter is based on studies made previously for the Moroccan Government and by the World Bank. (4) Chapter V is devoted to the employment situation and the social development strategy pursued by Morocco. It approaches these two questions from the angle of satisfying the basic needs of the population, rather than from that of the inequality of wealth and income distribution. This approach seeks to define the size of the social groups that lack sufficient income, or sufficient access to public services, to meet their basic needs, and endeavors to - 10 - explain this situation. To the extent that these reasons are clear, Chapter V leads to proposing modifications to or strengthening of policies related to employment creation and social development. (5) In Morocco as in many other countries, income distribution has a regional or spatial dimension, in that regional differences in development are pronounced and have an acute impact in the social and political spheres. Chapter VI examines regional development and urbanization policies, and also considers how the regional and local government structures can best be reshaped to implement these policies more effectively. - 11 - CHAPTER II: GROWTH AND STRUCTURAL CHANGES IN THE MOROCCAN ECONOMY DURING THE PERIOD 1968-77 A. INTRODUCTION 2.01 Between 1968 and 1977 the Moroccan economy passed through two quite distinct phases. Up till 1974, economic growth remained steady at around 5.4% per annum. This prudent rate mirrored the financial and monetary policy then followed, being based on a regular, but very gradual, increase in the share of domestic resources allocated to investment and thus making it possible for the economy's resource deficit to be kept at a low level. From 1974 onward, however, this prudence gave place to the voluntarist goals of the 1973-77 Plan which aimed at accelerated economic growth and improved income distribution. Taking advantage of the sudden rise in phosphate earnings, which increased fivefold between 1973 and 1974, the Government embarked on an ambitious investment program which, involving first the public sector and then the private sector, resulted in annual investment increasing 2.6 times between 1973 and 1975. Being ambitious, this acceleration carried with it numerous risks of domestic and external disequilibria, and these disequilibria in fact developed more quickly than expected, following a buildup of adverse and in part unforeseeable external factors. The sudden increase in military spending as a result of the tensions along the Saharan borders was one of the important factors, to which was added the world economic recession that constricted overseas markets plus the fall in phosphate prices as of mid-1975. This phase of intensive capital expenditure under the 1973-77 Plan produced substantial financial disequilibria, which led the Government to take corrective measures and to formulate a three-year austerity Plan for 1978-80. The purpose of this Plan is to re-establish the economy's major equilibria and thus to ensure renewed growth on a sound economic basis. B. DEVELOPMENT GOALS AND STRATEGY, 1968-77 Review of Progress Achieved Since Independence 2.02 Following the achievement of political independence in 1956, three development plans were carried out between 1958 and 1967, the overall results of which were as follows: I/ 1/ The statistics for this period cannot easily be compared for lack of homogeneous series based on constant prices. - 12 - 1958-59 1960-64 1965-67 Plan Plan Plan Capital outlays: - Total in millions of current DH 1,580 5,920 4,860 - Annual amount in millions of 1969 DH 900 1,300 1,800 - Average % of GNP 9.6 11.2 12.2 - Annual GNP growth (b ) 5.5 4.0 2.4 Source: Estimates based on data in Yusuf Sayigh, The Determinants of Arab Economic Development, Croom Helm, London 1978. During this ten-year period, the economy's rate of growth was a modest one reflecting the increasing, but small, share of domestic resources allocated to investment. The planning process, based on the methods followed in France, was slowly adapted to the special requirements of the Moroccan context, enabling the administration to gradually expand its control over the country's development. Not until the 1968-72 and 1973-77 Plans, however, would the planning process become more elaborate, though still limited to the public sector. Goals and Overall Strategy of the 1968-72 and 1973-77 Plans 2.03 The 1968-72 Plan was already concerned with the economy's growth as a means of offsetting mounting demographic pressure. It centered on the following three priorities: - Achieving a high growth rate in agriculture; - Promoting the tourism sector; - Accelerating vocational training to meet the country's need for skilled labor. It attached special importance to improving standards of living through measures relating to family planning, slum improvement and employment creation, particularly through the "Promotion Nationale" program and the development of irrigated areas. The Plan also provided for a special effort to promote industrial development, while seeking to improve the mobilization of private, national and foreign savings, primarily through amendment of the Tax Code and incentives for investment. 2.04 As it was felt that the results of the 1968-72 Plan were modest in relation to the economy's growth potential and the population's needs, the. 1973-77 Plan adopted much more ambitious goals. This Plan aimed at a much higher growth rate (7.5% p.a.), based on a major increase in investment - 13 - and a heavy emphasis on exports. It also sought a more equitable distribution of the benefits of economic growth. To achieve these goals, the development strategy adopted included the following elements; (1) A coordinated array of measures and institutions aiming at attaining a high growth rate of exports; (2) Stimulation of domestic demand so as to improve the utilization rate of installed industrial capacities oriented toward the domestic market; (3) A pronounced increase in agricultural production, by seeking especially to reduce the intervals between the construction of irrigation facilities and the bringing into production of the land served, together with encouragement of traditional crops and stockraising; (4) A restructuring of the industrial sector through the Office de D6veloppement Industriel (ODI), established for this purpose in 1973; (5) Amendment of taxation to enhance the State's saving capacity and favor a better distribution of income; (6) A reform of the education system to adjust it simultaneously to the needs of the people and those of the economy, but with an emphasis on management training; (7) Adaptation of Government services with a view to bringing them closer to the people, through, inter alia, a greater degree of regionalization, more equitable income distribution, and increased social expenditures and housing assistance for low-income families; (8) An improvement in nutrition levels, notably through family education; and (9) A policy favoring access by Moroccans to the management and control of the means of production; this policy included recovery of land beld by foreigners and its distribution to small farmers and the Moroccanization of businesses with a view to placing Moroccans and foreign partners on an equal footing in most subsectors in industry and services. 2.05 The 1973-77 Plan recognized explicitly the need to reduce the disparities between the different social strata, whether at the level of basic needs (especially nutrition), income, regions or access to public services. Parallel with this, it advocated a more dynamic budgetary and monetary policy than in the past, taking the view that priority had to be given to growth, even at the risk of creating inflationary pressures. - 14 - The Quantitative Goals of the 1968-72 and 1973-77 Plans 2.06 The 1973-77 Plan was considerably more ambitious than the 1962-72 Plan and this was reflected in their main quantitative targets. As mentioned earlier, the growth target for the Gross Domestic Output 1/ (GDO) of 4.3% p.a. for the 1968-72 Plan was raised to 7.5% for the 1973-77 Plan. Similarly, the investment target set at about 2.5 billion 1969 dirhams per year for 1968-72, i.e. 15.5% of GDO, was raised to around 5 billion 1969 dirhams per year for the 1973-77 Plan, or 17% of GDO. In overall terms, the macroeconomic goals can be summarized as follows: Annual Growth (%) Percentage of GDO 68-72 Plan 73-77 Plan 1973 1977 Gross Domestic Output!/ 4.3 7.5 100.0 100.0 Imports 5.4 8.0 21.3 21.7 Exports 4.9 10.0 16.1 17.5 Investment (and stocks) 4.4 18.03/ 16.5 22.93/ Government consumption!/ 4.6 3.5 2.9 2.5 Household consumption-2/ 3.3 4.8 81.3 73.5 1/ Does not include civil servants' salaries. 2/ Does not include consumption by tourists. 3/ Before revision of the Plan (see para. 2.08). Source: State Secretariat for Planning, 1968-72 and 1973-77 Plan documents. 2.07 These goals were placed in an official long-term perspective that looked toward an average GDO growth rate of about 7% p.a. by the year 2000, the rates assigned to agriculture and industry being 3.8% and 7.6% respectively. These goals required a marked acceleration of investment over the entire period (10% growth p.a.). Their achievement was to make it possible for household consumption to rise at about 6% p.a. and thus to improve the living standards of the population (with slower population growth also an aim). The 1975 Revision of the 1973-77 Plan 2.08 The 1968-72 and 1973-77 Plans were both revised during the plan periods, but the revision of the second was by far the most extensive. The 1975 revision of the 1973-77 Plan, itself ambitious, was decided on following the increase in foreign exchange earnings (and in savings) resulting from the spectacular rise in phosphate prices in that year. The budget allocations included in the Plan for public and semipublic capital expenditures were revised very sharply upward, whereas those for the purely 1/ Defined as GDP less civil servants' salaries. - 15 - private sector remained indicative. The allocations for the public and semipublic sectors were raised from DH 10.9 billion in the original version of the Plan to DH 29.3 billion in the revised version. The revision assigned particular priority to State participation in industrial development through the establishment of highly capital-intensive plants (steel mill, sugar refineries, cement factories and chemical plants), and to the Special Regional Development Fund, in support of the aim to reduce regional disparities. C. GROWTH AND ITS PRINCIPAL FACTORS Principal Factors 2.09 The real growth of the economy (GDP at 1969 prices) is estimated at an average of 6.5% p.a. over 1968-77. However, this average covers two periods that were distinctly different as regards both the rate and origin of growth. Up to 1972, GDP growth rate was an estimated 5.6% p.a., with the economy deriving its dynamism primarily from exports, which outstripped the cautious targets set in the 1968-72 Plan. Exports grew over this period at close to 8% p.a., whereas the Plan's target was only 5%. Gross fixed capital formation rose at an annual average of 4.2%, slightly below the Plan's target. This growth pattern made it possible both to reduce the economy's resource deficitl/ and to speed up somewhat the growth of consumption (especially public consumption) from its low pre 1968 level. 2.10 The period following 1972, on the other hand, was one of markedly faster economic growth and a considerable widening of the economy's resource deficit. Real GDP growth, at 7.3% p.a., was close to the goal set by the 1973-77 Plan. Investment increased at a record 28% p.a., thus becoming the main impetus for growth. This increase reflected essentially the direct and indirect impact of public investment expenditures, which were stepped up very considerably in 1973-77, while the incentives introduced in 1973 also had a positive impact on private investment. To the stimulating effects of investment on demand was added the rapid increase in military expenditures as of 1975 and the very pronounced rise in Government current social expenditures. The rise in domestic demand brought about a considerable increase in demand for imported goods and services. At the same time, exports of phosphates and agricultural products lost their dynamism, and their international purchasing power dropped back in 1977 to below the 1972 level, following the substantial but shortlived rise in 1974-75. These various factors produced an extremely skewed growth pattern in which the weakness of exports and savings contrasted increasingly witb the dynamism of investment and Government consumption. In 1977 the economy's resource gap exceeded 20% of GDP (at current prices), whereas it had never exceeded 5% up to 1974. To cover this gap, Morocco resorted to extensive external borrowing on commercial terms, as will be noted later. 1/ The economy's resource deficit is defined and measured by the difference between exports and imports (including nonfactor services), which is equal to the difference between investment and savings. - 16 - 2.11 The changes in the economy's resource availability and uses can be summarized as follows (percentages): Annual Growth Percentage of GDP (1969 prices) (current prices) 1968-72 1973-77 1967 1972 1977 Gross Domestic Product 5.6 7.3 100.0 100.0 100.0 Imports 3.2 17.2 20.4 19.8 39.7 Exports 8.3 0.9 18.2 19.1 18.0 - in purchasing power-' 4.9 0.7 - - - Consumption 4.9 6.2 89.0 87.4 89.8 - government 6.2 19.3 12.2 13.0 21.9 - household 4.7 3.2 76.8 74.4 67.9 InvestmentZl 3.5 28.6 13.3 13.2 31.9 1/ Obtained by dividing exports at current prices by the import price index. 2! Gross fixed investment and changes in stocks. Source: Table 2.3, Statistical Annex. 2.12 These figures reveal a slow-down in the growth of household consumption during the 1973-77 Plan (3.2% p.a.) compared with the 1968-72 Plan period (4.7% p.a.). The growth in household consumption probably remained relatively slow in 1973-77 owing to the poor performances of the agriculture sector (and in particular the poor harvest in 1977), which affected the income of the rural population and especially that of its poorest segments. It should be noted, however, that the estimates of household consumption on which the above figures are based were obtained as a residual when preparing the national accounts, without verification by a direct survey. They are therefore subject to a margin of uncertainty that could be significant. Structure of Production 2.13 The pronounced differences in sectoral growth rates between 1972 and 1977 led to a change in the structure of GDP. During the 1973-77 Plan, the construction and public works sector was by far the most dynamic, in response to a very marked increase in investment demand. Despite the considerable increase in investment in 1973-77, the industrial sector experienced a growth rate that may appear deceptive (less than 7% p.a. for the period); however, it must be borne in mind that a certain time is needed before capacities installed can be actually brought into production, and that the impact of the investment during 1973-77 was still only partial in 1977. There was a marked acceleration in the real growth of Government services in 1973-77 and their share in GDP increased. By contrast, agricultural growth remained extremely disappointing during the period 1973-77 owing to bad weather conditions, whereas over the years 1960-71 agricultural production had increased at an annual rate of 3.7% (at 1960 prices). The figures for the individual sectors' contributions to GDP can be summarized as follows (percentages): - 17 - Annual Growth Share of GDP (1969 prices) (current prices) 1968-72 1973-77 1967 1972 1977 Agriculture 6.8 -2.4 21.7 21.6 16.3 Mining 3.9 2.5 4.1 3.4 5.3 Energy 7.5 4.8 3.9 3.7 2.5 Industry 5.4 6.9 16.1 16.5 16.5 Construction and public works 4.9 21.9 4.4 4.2 8.9 Nonpublic services 4.1 7.6 39.3 37.3 33.1 Public services 4.4 11.9 10.5 10.4 11.9 Duties and indirect taxes - 21.0 -- 2.9 5.5 Gross Domestic Product 5.6 7.3 100.0 100.0 100.0 Source: Table 2.1, Statistical Annex. 2.14 The phosphate sector warrants special mention, because of its importance for the country's foreign exchange earnings and Government revenues. The value added by phosphate mining represents no more than a very small percentage of GDP (2 to 2.5%); the actual mining activities do not create much employment, although their impact in the regions concerned is not negligible. The linkage role of the phosphate sector has increased with the growth of the fertilizers industry and, since 1975, that of phosphoric acid, and also in transportation where it accounts for the greater part of railway and port activity. Recent developments show the growing importance of phosphate derivatives, as well as the significant impact of changes in phosphate export prices on the State's revenues and hence its ability to finance investments. The chief indicators of the role of the phosphate sector and their evolution are as follows (percentages): 1969 1974 1975 1977 Share of phosphate sector in: - GDP 2.2 3.5 2.2 2.4 - rail freight traffic .... 66.6 65.0 75.2 - port freight traffic .... 66.7 57.7 59.3 Share in exports of goods: - phosphate (current prices) 22.4 55.0 55.3 36.5 - phosphate (1969 prices) 22.4 33.0 29.6 28.9 - derivatives (current prices) 2.1 1.8 1.7 5.7 Share in State revenues: - mining taxes 7.7 2.8 1.9 0.8 - Treasury receipts from OCP 5.9 30.0 23.0 8.5 - 18 - 2.15 Significant price changes also affected the various other sectors of the economy. Between 1969 and 1977, the growth in value added at current prices was distributed as follows (DH millions): Increase in Value Added, 1969-77 Due to Increase in: Total Price Quantities Agriculture 4,074 4,074 - Secondary sector 10,549 6,379 4,170 (of which: mining) (1,828) (1,575) (253) Tertiary sector 14,207 7,325 6,882 GDP 28,830 17,778 11,052 Source: Tables 2.1 and 2.2, Statistical Annex. The agriculture and mining sectors, which together accounted for 21.6% of GDP in 1977, only contributed 2% of the increase in GDP in real terms between 1969 and 1977, but 32% of the increase in prices. It should be noted, nowever, that the value-added data on which these figures are based are estimated at market prices and include the effect of indirect taxes (net of subsidies). Without estimates at factor costs, it is difficult to draw firm conclusions as to the changes in relative sector prices. Imports and Exports 2.16 Economic growth would not have been possible without a marked increase in imports, especially after 1973. The increase in volume of imports was 17% p.a. over the 1973-77 Plan, and this, coupled with the considerable rise in prices, raised imports to over US$4 billion at current values in 1977, whereas prior to 1972 the figure was less than US$l billion. The real growth in import requirements, if payments for offshore military procurement are excluded, arose essentially from the sharp increase in investment and the resulting purchases of capital goods and related services. The large and increasing quantities of food that had to be brought in to compensate for poor agricultural production in 1973-77 also played a significant part. The growth in intermediate products became relatively low (less than 6% p.a.) after 1973, as imports of raw materials stagnated (except for sulfur, which is used in producing phosphoric acid); imports of semifinished products posted a growth of about 7% p.a. in 1973-77, with chemical products and cement growing fastest. As of 1974, the c.i.f. prices of all categories of imports rose abruptly, particularly those of petroleum products. Taking 1969 as 100, the import price index reached 220 in 1977, compared with 161 for the cost of living. The growth and composition of imports were as follows (percentages): - 19 - Annual Growth Composition (1969 prices) (current prices) 1968-72 1973-77 1967 1972 1977 Food -7.8 15.6 23.1 13.9 10.5 Consumer goods -0.9 10.7 12.7 12.8 7.5 Energy products 10.0 10.5 4.0 5.7 9.0 Intermediate goods 11.8 7.8 26.8 31.5 24.0 Capital goods -2.7 37.1 16.9 15.8 26.8 Total Goods 2.6 15.9 83.5 79.7 77.8 Nonfactor services 6.1 -3.9 11.1 13.4 4.8 Government transactions 7.6 41.0 5.4 6.9 17.4 Total Imports of goods and nonfactor services 3.2 17.2 100.0 100.0 100.0 Source: Table 2.6, Statistical Annex. 2.17 Export receipts grew as rapidly as imports up to 1974, but fell off noticeably thereafter. These fluctuations were largely due to variations in phosphate export earnings, which evolved as follows: Phosphate exports 1967 1972 1974 1975 1976 1977 Quantity (millions of tons) 9.3 13.6 18.7 13.1 14.7 15.8 Average price (US$/ton) 11.5 10.7 49.5 63.8 33.9 29.7 Value (US$ millions) 107.0 145.5 925.6 835.8 498.3 469.3 Percentage of total exports (at current prices) 25.2 22.7 54.7 54.7 39.9 36.5 Source: Tables 3.2 and 3.3, Statistical Annex. In addition, the rise in external demand and higher prices operated in favor of Morocco's other exports up to 1974, but these trends were reversed after that year owing to the world economic recession and particularly its effects in Europe. All export categories suffered from this combination of circumstances. The export sector was the one that posted the worst performances in terms of the 1973-77 Plan goals, despite being the priority sector for that Plan. Some domestic factors were also involved in this poor performance since 1974, but their impact is hard to quantify. The recommendations made and the priority assigned to exports in the 1973-77 Plan were not translated to significant practical measures, either in terms of choice of policies or investments undertaken in that period (see Chapter III). The growth and composition of exports were as follows (percentages): - 20 - Annual Growth itc7Um.-i. C-O, (constant prices) c ur.- pric- 1968-72 1973-77 1,967 Agricultural and food products 5.4 -4.9 4 Q 3 Phosphates 7.7 5.1 21.4 1> Other mining products 1.0 0.0 8 Manufactured goods 16.3 11.1 3 4 8J-7ą Total Goods 6.5 0.8 76f 7 ( Tourism 14.5 0.9 14-3 8 Other nonfactor services 10.3 8.0 9.0 L Total Exports of goods and nonfactor services 8.3 0.9 100 3100C 130u Source: Table 2.5, Statistical Annex. 2.18 As already noted, the purchasing power of Morocco's expo-rts c n external markets rose substantially -- but temporarily -- in 1f974-77 i to the rapid rise in phosphate prices. The difference bet-ween th-i purchasing power and the value of exports at constant prices proc)ides an approximate measure of the gain (or reduction) in real resorrces to economy as a result of the relative variations in export and import, srice-s In terms of 1969 prices, this difference was as follows in rhe per... d 1968-77: Percent-a2e of' DH millions at constarn L9.69 price.2 1968 -28 0.2 1969 0.0 '9 1970 -85 0 1971 -49 1972 -373 1973 -459 2-2 1974 384 1975 399 1976 -251 -0. 1977 -436 -1 Source: Table 2.4, Statistical Annex. - 21 - '.P 9 The above figures show that Morocco derived no more than a minor and very tracs:Lory benefit from the interplay of international prices. W-*`Le pbosphaa,e prices were higher in 1974-75, the cost of imports, es,ecial i 5il products, food and capital goods also rose sharply. Moreover) -.he latter increases continued unabated through 1976-77 whereas pnobDa-e 3>rices dropped back to around US$30/ton. The additional resources bt-a 03ed 4n 1974-75 were followed by growing and substantial losses in 1976-771} Over the period covered by the 1973-77 Plan, Morocco posted a net !oss -r-f 363 mii± ion at 1969 prices. It must be stressed that these figures are- sensitive not only to price variations but also to shifts in the co,Impos- ion of i.mports and exports. It is also pertinent to note that in :ce case of some commodities, the composition of exports in 1976-77 failed to adjusc to chan-es in relative export prices, as had been the case in 1970-73', Viewed in this light, the 1974-75 gains are seen as the result of a C- '^iO3 o. fortunate circumstances, and not as the outcome of a uel.erate adaptacion of the economy to render it more competitive as regazas z'h exports and the substitution of imports. Chahes 7r cn S-tru_cture of the Economy 2=L20 7he-re were quite considerable variations in relative prices in the Moroccar -rcono--v baetween 1968 and 1977, but they are not well documented. Tt i. cc aCc_ng1v difficult to draw firm conclusions regarding the relative evolu-i ior. rt 'mports and exports in relation to the domestic demand for and s pp' o: goods and services. Comparison of the two input-output tables avia.-a"e rL 19669 and 1975 does, however, reveal that significant struccurai changes occurred during that period although the comparison can only ?e Dases on -urrent prices. 2.21 'he importance of external trade for the functioning of the economy Oas been n g , as can be seen from the following percentages that provide an -i.cdi _cai he significance of imports and exports in the chief sectoral prcduci C!1accounts in relation to the total supply of (demand for) goods and servkce. or Lhe individual sectors: Imports Exports 1969 1975 1969 1975 Ag<.iculcure 7.4 17.1 14.2 8.5 'lininl and arS_rai 10.5 15.1 31.0 47.0 27.4 30.1 8.2 4.6 !rc`- ct orlcc-edJ services 4.1 2.6 2.9 5.3 Sourcez rpu-fiut Tables 1969 and 1975. Price moveaaert=; were unquestionably the chief cause of the increase in the relati-ve sigificance of external trade as regards the mining and energy sectnor. -S f.o. C r.cillture, the relative significance of imports has risen and Lhat . -f h-' r as diminished most markedly, underscoring the sector's - 22 - poor performance as regards both expanding exports and substituting imports. In other words, the development of local agricultural production was not in line with the potential export markets, while the expansion of food production was insufficient to keep pace with the growing domestic demand. Regarding industry, the pattern of imports and exports is the same as for agriculture but much less marked. It can, nevertheless, be surmised that the development of export-oriented industry could have been more vigorous, while the substitution of local for imported industrial products was insufficient to reduce industry's dependence on imports. Only in the service sector is a favorable evolution apparent, thanks primarily to tourism as regards exports and to the expansion of the Moroccan air and sea fleets and communications as regards imports. These trends that took shape between 1969 and 1975 led to an aggravation of the economy's resource deficit that became starkly evident in 1976 and 1977. 2.22 To make up for the low rate of growth of external demand during the 1973-77 Plan -- except as regards phosphate-related products and certain other manufactures and nonfactor services -- local production turned to domestic demand. Based on the same sources as for external trade, the evolution of the structure of domestic demand can be derived for 1969 and 1975, and is summarized in the following table: Total Value Percentage of Total of Supply of which: (millions of Domestic Inter- Final 1969 DH) Demand mediate GFCFI/ Cons. 1969 Agriculture 5,960 85.9 32.3 - 53.6 Mining and energy 2,450 70.0 43.2 - 26.8 Industry 13,000 91.8 31.6 9.0 51.2 Construction and public works 1,470 100.0 10.0 85.0 5.0 Production-related services 5,340 97.1 29.7 - 67.4 1975 Agriculture 12,100 91.5 45.0 - 46.5 Mining and energy 7,930 53.0 37.4 - 15.6 Industry 30,580 91.4 37.7 11.0 42.7 Construction and public works 5,520 100.0 6.6 87.3 6.1 Production-related services 10,470 94.7 49.2 - 45.5 1/ Gross Fixed Capital Formation. Source: Input-Output Tables for 1969 and 1975. - 23 - 2.23 The growtb of local final consumption averaged 3.6% p.a. between 1968 and 1977, whereas the figure for GDP was 6.5%, both in 1969 prices. For all sectors except for construction and public works, this relative weakness in final consumption led to a quite clear fall in 1975, as compared with 1969, in the share of household consumption as a percentage of the supply of goods and services (and to a lesser extent in those for consumption by public bodies). These reductions were a repercussion of the leading role played by investment demand in accelerating the growth of the economy. As there were few capital goods industries operating in Morocco during that period, a demand of that type had an impact primarily on imports; in addition, many new projects were highly capital intensive. The Savings Effort 2.24 National savings increased rapidly up to 1974, outstripping gross fixed capital formation in certain years, but fell back in both absolute and relative terms after 1975. The table below shows national savings over the period. 1968 1970 1972 1975 1977 1. Millions of current DH Domestic savings 1,800 2,470 2,850 5,690 4,760 Net current transfers and net receipts from factor services -150 60 360 1,750 1,940 of which: workers' remittances (200) (320) (640) (2,160) (2,650) National savings 1,650 2,530 3,210 7,440 6,700 2. As percentage of GNP Domestic savings 11.0 12.7 12.4 14.9 9.8 Net current transfers and net -0.9 0.3 1.6 4.6 4.0 receipts from factor services of which: workers' remit- tances (1.2) (1.6) (2.8) (5.7) (5.5) National savings 10.1 13.0 14.0 19.5 13.8 Source: Tables 2.3, 3.1 and 5.1, Statistical Annex. In the absence of accounts by economic agent, it is hard to pinpoint the origin of the turnaround in the trend in savings after 1974. However, the budget data do show that savings by the Government shrank steadily from 1970 onward, and very markedly after 1974 with the stepped-up military spending (see Section E) and subsidies for consumer prices. As regards business and households, there are no data available for ascertaining their respective savings. - 24 - Investment 2.25 Actual investment expenditures are difficult to estimate precisely. Several sources provide indications as to trends but no consistent consolidation has been made. The national accounts give an estimate of gross fixed capital formation (GFCF) at current and constant prices and its breakdown by sector at current prices, but as regards Government investment, no distinction is made between investment carried out directly by the Government and transfers for capital expenditures made by the public enterprises (Table 2.10, Statistical Annex). Using data furnished by the State Secretariat for Planning, it was possible to draw up an estimate of the public sector's capital outlays; taking this estimate and the data on disbursements of medium and long-term credits by the development banks, one can arrive at an estimate of the investments effected by the modern private sector, as a residual. This method results in a slight under-estimation of private sector investments, since the data on the other economic agents include relatively small but unknown expenditures for purposes other than investment as defined by the national accounts (land purchases for example). Using the same sources, a sectoral breakdown of investments was made at 1969 prices for the 1968-72 and 1973-77 Plan periods (Table 2.11, Statistical Annex).l/ 2.26 Notwithstanding the low level of disaggregation due to the sparseness of the data used, the figures for GFCF confirm that its spectacular growth after 1975 was triggered by the capital expenditures of the Government and the rest of the public sector which directly or indirectly carried the private sector along. Investment in housing has grown steadily since 1968. The data may be summarized as follows: 1/ Reconciliation of the various sources of information regarding investment is impossible without making a specific and full item-by-item analysis. The sector breakdown analyzed in the following paragraphs is the result of aggregation of some of these sources: this breakdown is purely indicative of the order of magnitude of the sectoral investments that could have been made in the period 1968-77. - 25 - Gross Fixed Capital Formation 1968 1970 1972 1975 1977 1. In millions of current DH Government L/ 500 580 710 2,150 4,650 Public enterprises 950 1,050 950 3,400 4,530 of which: budget transfers (390) (500) (400) (1,190) (1,940) Other sectors 740 1,360 1,520 3,310 6,170 of which: Housing (250) (440) (580) (1,130) (2,180) Total 2,190 2,990 3,180 8,860 15,350 2. In percentage of GDP Government _ 3.1 3.0 3.1 5.6 9.6 Public enterprises 5.8 5.4 4.2 8.9 9.4 of which: budget transfers (2.4) (2.6) (1.7) (3.1) (4.0) Other sectors 4.5 7.0 6.6 8.7 12.8 of which: housing (1.5) (2.3) (2.5) (3.0) (4.5) Total 13.4 15.4 13.9 23.2 31.8 1/ Includes civilian investments only. Source: Tables 2.11 and 2.3, Statistical Annex. 2.27 During the 1973-77 Plan the Government followed a policy of overprogramming its direct and indirect investments in order to remove all financial constraints on governmental and public enterprise investment. As a result, investment appropriations increased very rapidly and the Treasury assumed a growing role in the financing of the nation's total capital outlays. This financing included increasingly large participations in industrial investment projects undertaken by the public and semipublic corporations. At the same time, private investment benefitted from the incentives adopted in 1973 and the assistance provided by the State to facilitate the mobilization of technical services and external financing required. As a result of this State encouragement, public and private investment moved into a period of unprecedented expansion during the 1973-77 Plan. The figures for investment projects approved under the investment code (Tables 2.8 and 2.9, Statistical Annex) and for BNDE operations confirm the quantitative success of these policies. 2.28 Expressed in 1969 prices, investment volumes in 1973-77 were double those of 1968-72 (Table 2.10, Statistical Annex). Direct Government investments increased the most (174%), comprising primarily: (1) Agricultural infrastructure and dams, for which about 300 million 1969 dirhams was allocated each year throughout the period; (2) Transportation and telecommunications infrastructure, with a more than threefold increase in budgetary appropriations between the two plans; - 26 - (3) Socio-educational, administrative and regional infrastructure, where the real amounts invested increased six times between the two plans, raising this type of investment from 5% of total GFCF in 1967-72 to 14% in 1973-77. This increase reflected the goal, adopted for the 1973-77 Plan, of raising the living standards of the population. Capital expenditures by public enterprises accounted for about 34% of total GFCF. These were mainly in the mining and energy sectors where public corporations control virtually all production. In the industrial and communications sectors, outlays by public and semipublic corporations increased substantially during the 1973-77 Plan, to a level roughly equal to that of the private sector. 2.29 The relative importance of private sector investments, which accounted for more than 40% of GFCF before 1976, declined over 1973-77. This decline was particularly apparent in the industrial sector, despite the strong recovery posted by the private sector after 1976. Housing has experienced steady growth, but still accounts for no more than 14% of total GFCF. 2.30 Thus, over the ten-year period 1968-77 the volume of the investments of two sectors showed sizable increases in both absolute and relative terms, these being the socio-administrative sector, which includes education, health, recreation, plus the regional and commune development programs, and the communications sector, especially for the development of air and sea fleets. At the same time, investments rose in absolute terms in all sectors, as the following figures show: Gross Fixed Capital Formation I/ DH Billions Increase Distribution (%) 1968-72 1973-77 (X) 1968-72 1973-77 Government 2.7 7.4 174 21 28 Public enterprises 4.7 8.9 89 37 34 Other 5.2 9.9 90 42 38 Total 12.6 26.2 108 100 100 Agriculture and dams 2.8 4.5 61 22 17 Mining and energy 2.5 3.8 52 20 14 Industry 1.6 3.3 106 13 13 Communications 1.6 4.6 188 13 18 Production services 1.5 2.0 33 12 8 Public services 0.6 3.7 517 5 14 Housing 2.0 4.3 115 15 16 Total 12.6 26.2 108 100 100 1/ At constant 1969 prices. Source: Table 2.10, Statistical Annex. - 27 - The above data show that there has been a significant drop in the proportion of GFCF invested in the sectors that can be qualified as directly productive (agriculture, mining, energy and industry). This would indicate that the recent surge in investment served more to improve economic and social infrastructure than to directly expand the economy's productive capacity. 2.31 Overall, the incremental capital-output ratio (ICOR) worked out at about 3.0 for the 1968-72 and 1973-77 Plans. However, this ratio is calculated by dividing the total invested in 1968-72 and in 1973-77 by the increase in GDP between 1968 and 1972 and between 1973 and 1978, respectively. There is, therefore, a lag of one year between the investment and the increase in GDP, which is too short for the ratio to be considered as a valid indicator of the effectiveness of the investment. In fact, an analysis of changes in value added by sector brings out the important role played by agriculture, owing to the exceptional harvest in 1978, and by Government, in the maintaining of the ratio at the 3.0 level after 1974. D. GROWTH AND EMPLOYMENT 2.32 The demand for labor grew at 3.4% p.a. between 1971 and 1977, whereas the rate was 1.8% between 1960 and 1971. The acceleration in the rate of economic expansion therefore had the effect of speeding up employment creation. The evolution by sector shows a decline in the share of agricultural employment, which since 1976 has accounted for less than half of the total, although still continuing to grow slowly in number. A change in sectoral composition is seen in all the other sectors, as can be seen from the following figures: Percentage Share (%) Growth (% p.a.) 1960 1971 1977 1960-71 1971-77 Agriculture 62.2 54.8 47.3 0.7 0.9 Mining and energy 1.6 1.5 2.0 1.2 8.1 Manufacturing industry 9.0 10.6 11.0 3.4 4.0 Construction and pub. works 1.9 4.2 7.2 9.8 13.0 Transportation, trade, etc. 14.9 17.3 19.7 3.3 7.0 Government 6.9 7.3 8.5 2.5 5.6 Not classified 3.6 4.3 4.3 3.5 3.5 100.0 100.0 100.0 1.9 3.4 (In thousands) Employment demand 2,949 3,631 4,433 1.9 3.4 Unemployment 305 350 394 1.3 2.0 Employment Supplyl/ 3,254 3,981 4,827 1.8 3.3 Total population 11,626 15,379 18,247 2.6 2.9 1/ Not including Moroccan workers abroad. Source: 1960 and 1971 Population census and Mission estimates for 1977. (See Table 10 in annex to Chapter III). - 28 - 2.33 On the basis of available data, it is not possible to assess to what extent the demand and supply of labor have been matched during the 1971-77 period. The uncertainty surrounding employment estimates quoted in the previous paragraph is such that it would be hazardous to draw any firm conclusions from them as to the volume and past trends of unsatisfied employment demand (unemployment). In any event, available statistics show that the annual growth rate of 3.4% in employment demand between 1971 and 1977 was slightly above the increase in supply (labor force), estimated at about 3.3%. On this basis, the number of workers unable to find employment would have been 400,000 in 1977 as compared with 350,000 in 1971. Emigration to the European market played a significant role in easing unemployment pressures in the early 1970s; the number of migrant workers abroad in 1977 is estimated at between 250,000 and 300,000. However, openings in Europe have become less numerous since 1974 with the slowing-down of economic growth there. 2.34 According to the available statistics, employment creation during the 1968-72 and 1973-77 Plans fell by some 20% below target. Planned and actual job creation were as follows (thousands): 1968-72 Plan 1973-77 Plan Planned Actual Planned Actual Agriculture 270 80 100 80 Secondary 30 140 390 220 Government 40 40 70 80 Other 140 140 250 300 Total 480 400 810 680 Source: Mission estimates. However, an analysis of overall and sectoral employment creation leaves the impression that growth was not oriented toward the most highly labor-intensive sectors and that, within individual sectors, the investment strategy did not always seek to minimize the capital cost per job created. 2.35 Overall, during the ten year period 1968-77, a comparison can be made between the periods before and after 1974, the year of the phosphate boom. The period before 1968 can also be given for reference. This comparison reveals the following trends for the main indicators of economic growth and employment: - 29 - Before 1968 1968-74 1974-77 GDP growth (% p.a.) 4.0 5.4 7.5 Share of GDP allocated to GFCF (X) 10.0 13.0 25.0 Incremental capital-output ratio (ICOR) 2.5 2.4 3.3 Employment growth (% p.a.) 0.5 1.4 3.0 Increase in value added per worker employed (% p.a.) 3.5 3.9 4.4 Source: Yusuf Sayigh, op. cit. and Tables 1.4 and 2.4, Statistical Annex. The above figure indicate that economic growth accelerated, as the proportion of GDP invested increased. They also indicate a marked upward trend in ICOR since 1974. The growth of the value added per worker employed increased noticeably after that year, too. In other words, utilization of capital increased as compared with that of labor, especially after 1974. 2.36 The changes by sector in value added per worker can be summarized as follows: Value added per worker (thousands of 1969 DH) Annual Growth (X) 1960 1971 1977 1960-71 1971-77 Agriculture 1.6 2.1 1.7 2.5 -3.5 Mining and energy 21.3 25.7 21.0 1.7 -3.3 Industry 7.8 8.5 9.9 0.8 2.6 Construction 7.1 6.1 7.5 -1.4 3.5 Transportation and services 11.8 10.5 10.3 -1.1 -0.3 Trade 12.0 14.1 17.6 1.5 3.8 Government 5.9 7.6 9.6 2.3 4.0 GDP 4.5 5.5 6.5 1.8 2.8 Source: Mission estimates. The absence of more detailed studies means that interpretation of changes in the sectoral value added per worker can only be superficial. Thus for agriculture, the contrasting figures for 1960-71 and 1971-77 partly reflect the more capital-intensive production methods associated with the growing importance of irrigated agriculture, but also the effect of climatic conditions which have in general been unfavorable since 1971. As regards mining and energy, the policy of employment maintenance followed by the public enterprises has led to a decline in value added per worker between 1971 and 1977 as phosphate production also declined. The steady drop in - 30 - value added per worker in the transportation and services sector since 1960 is probably due to the fact that workers obtain temporary or occasional jobs in the informal service sector while looking for permanent jobs. 2.37 More detailed studies are also needed in order to be able to distinguish the different types of enterprises within each sector, mainly by reference to their size and form of management. This is particularly true for construction, where the value added per worker is relatively less than in the other sectors, thus offering the best employment-creation potential. The industrial sector is the only one that has been studied in depth (see Chapter IV); the studies point up the importance of small and medium enterprises, as such enterprises provided 62% of all industrial jobs in 1975 as against 53% of value added. If the periods 1960-71 and 1969-75 (for both of which data are available) are compared, it can be estimated that investments in modern industry grew by about 14% p.a. between 1969 and 1975 against 5% between 1960 and 1971. Employment in this sector rose by only 5.7% p.a. between 1969 and 1975 as compared with 4.3% between 1960 and 1971, leading one to presume that resource allocation was not to the benefit of the highly labor-intensive subsectors. It should be noted, finally, that the employment provided by small and medium enterprises grew at 3.4% p.a., although the growth of their value added was less than that of modern industry (4.1% and 7.9%, respectively, between 1969 and 1975). 2.38 The distribution of investments by industrial subsectors resulting from the official investment incentives does not appear to have favored employment. The available statistics show that the four subsectors (food, agricultural products, textiles and clothing) that accounted for 62% of the jobs created between 1969 and 1975 received no more than 25% of the investments that were the subject of official financial incentives. 2.39 In conclusion, it appears that investment allocation remained below the optimum as regards employment creation during 1968-77. Between the 1968-72 Plan and the 1973-1977 Plan, this allocation shifted in favor of capital-intensive sectors such as physical infrastructure (communications and government buildings). Throughout the period, the system of investment incentives in the broader sense of the term, i.e. including direct and indirect State financing, seems to have favored capital intensive activities in the various sectors, whether irrigated agriculture or large-scale modern industry, to cite two instances. It is not, therefore, suprising that the employment targets in the two Plans were not reached. This failure, however, preoccupied the Government. It will be seen in the following chapters that the 1978-80 Plan period would be used to formulate and to begin implementing an investment strategy that comes closer to the optimum from the employment-creation angle, both on global and sectoral levels. - 31 - E. EXTERNAL FINANCING Evolution of the Current Account 2.40 The economy's resource deficit has widened rapidly since 1975, following an extended period with only minor deficits and even small surpluses in some years. At current prices, this deficit rose from DH 200 million in 1974 to over DH 10 billion in 1977, as a result of a worsening deficit on the merchandise account and a negative balance on (nonfactor) services as of 1976. The balances developed as follows (in millions of current dirhams): 1967 1972 1974 1977 Goods Exports, f.o.b. 2,150 2,950 7,400 5,780 Imports, c.i.f. 2,620 3,580 8,330 14,440 Balance -470 -630 -930 -8,660 Nonfactor services Exports 650 1,390 1,850 2,630 Imports 520 910 1,120 4,130 Balance 130 480 730 -1,500 Resource deficit -340 -150 -200 -10,160 Source: Table 3.1, Statistical Annex. 2.41 The worsening of the deficit on merchandise account was caused by the very pronounced increase in imports in a time of poor export performance. At 1969 prices, imports of goods more than doubled between 1972 and 1977, whereas exports of goods remained largely static around an average of DH 2.8 billion reached in 1972. On the import side, the main increases were in capital goods, up almost fivefold between 1972 and 1977, and food imports which more than doubled. As regards exports, there were ups and downs in all products over the period. The fluctuations in the terms of trade, due mainly to the shortlived rise in phosphate prices in 1974-75, also played a significant part. After reaching 128 in 1975, the terms of trade index for goods dropped back to 89 in 1977, as can be seen from the following indexes (taking 1969 as base at 100): 1974 1975 1976 1977 Export price index 245 262 207 198 Import price index 199 205 212 223 Terms of trade 123 128 98 89 Source: Tables 2.5 and 2.6, Statistical Annex. - 32 - 2.42 The appearance of a deficit on (nonfactor) services as of 1976 resulted from the increase in imports of services connected with the importation of goods (freight and insurance) and especially from the rise in payments for offshore purchases of military equipment, which are included with services. Nongovernmental services have traditionally shown a surplus since 1969, even when the cost of freight and insurance relating to imports is included; nevertheless, in view of the sharp increase in the latter, the surplus has been tending to shrink and disappeared by 1977, as can be seen from the figures below (million of current DH): 1967 1972 1977 Exp. Imp. Exp. Imp. Exp. Imp. Transportation costs 1/ 76 249 221 432 639 2,901 Tourism 400 189 893 388 1,500 420 Other services 51 100 80 105 266 319 Subtotal 527 538 1,194 925 2,405 2,640 Governmental transactions 126 170 195 310 221 3,227 Nonfactor services 653 708 1,389 1,235 2,626 5,867 1/ Including the c.i.f. - f.o.b. differential on imports. Source: Table 3.1, Statistical Annex. As regards governmental transactions, the payments for offshore purchases of military equipment were responsible for their rapid growth during the last few years. 2.43 The resource deficit has only partially been offset by the surpluses on the other (factor) services and current transfers, despite the considerable growth in remittances by Moroccan workers abroad. The increase in these remittances has been greatly stimulated by the offer of a premium and by the efforts of certain Moroccan banks among the emigrant workers. However, in constant prices, these remittances have tended to level out since 1975. Besides this increase in remittances, the rise in interest payments on the external public debt between 1972 and 1977 should be noted. This latter increase derives from the much larger volume of external borrowing since 1975. The evolution of (factor) services and current transfers are as follows (millions of current DH): - 33 - 1967 1972 1977 Expend- Expend- Expend- Receipts itures Receipts itures Receipts itures Income from investments - private 15 128 19 148 13 186 - public 14 84 41 176 126 665 Workers' remittances 208 213 640 202 2,652 234 Factor services 237 425 700 526 2,791 1,085 Private transfers 196 65 261 66 230 59 Public transfers - 68 79 82 340 277 Total 433 588 1,040 674 3,361 1,421 Source: Table 3.1, Statistical Annex. Financing of the Current Account 2.44 The chief items of the balance of payments are summarized on the next page. The current account balance showed surpluses up to 1974 but posted sizable deficits in 1975-77, reflecting the shifts noted in the preceding paragraphs regarding the economy's resource deficit and the balance of services and current transfers. The current deficits have been financed mainly by external borrowing, but this has not prevented a decline in net external assets in absolute terms and also in relation to imports since 1975. 2.45 Net inflows of private capital from abroad have remained small, despite the high volume of investment that might have prompted recourse to foreign private investment. This was because a considerable proportion of the investments were in the Moroccan public sector; it would also seem that foreign investors showed little interest. The reason may have been the perception such investors had of government policy, since Morocco's economic potential could lead one to expect an opposite developm2nt. This policy is analyzed in Chapter III. It should further be noted that the Treasury onlv rarely authorizes private long-term borrowings abroad without State guarantee. - 34 - SUMMARY OF THE BALANCE OF PAYMENTS (Millions of $; current prices) 1967 1972 1973 1974 1975 1976 1977 Exports 1/ 554 946 1,298 2,107 2,019 1,717 1,867 Imports 1/ -622 -979 -1,377 -2,155 -2,996 -3,520 -4,124 Resource balance -68 -33 -79 -48 -977 -1,803 -2,257 Workers' remittances 41 139 249 355 532 547 589 Other factor income, net -78 -102 -111 -90 -109 -147 -210 Net current transfers 13 43 46 19 8 45 52 Current account balance -92 47 105 237 -546 -1,356 -1,826 Net private M+LT loans 9 14 3 -22 - 38 53 Net public M+LT loans 2/ 59 32 3 66 404 1,2732/ 1,699 Net short-term borrowings -18 -32 -75 -158 -125 29 68 Errors and omissions and fluctuations in exchange reserves (- = increase) 42 -61 -36 -123 17 16 6 Exchange reserves at year end3/ - Foreign assets, not in- cluding gold reserves 55 214 241 391 352 467 505 - Gold reserves at market prices 21 39 67 113 85 82 104 Total foreign assets 76 253 308 504 437 549 609 1/ Including nonfactor services. 2/ Including net use of IMF resources and special grants for defense. 3/ According to international financial statistics published by the IMF. Gold reserves are evaluated at the price of gold on the London market. Source: Tables 3.1, 3.1A, Statistical Annex. 2.46 The greater part of the current account deficit was therefore financed by public loans issued directly or guaranteed by the Government, the Government's policy being to centralize virtually all external borrowing through the Treasury. Moreover, the country has received appreciable grants since 1975 which have enabled it to finance a part of the special expenditures on defense. The actual amounts of these grants have not been made public, but can be estimated from the difference between the capital inflows observed in the balance of payments, on the one hand, and estimates based on data regarding the external debt, drawings on official non-military grants and public borrowings, on the other. These estimates are as follows ($ millions): - 35 - 1973 1974 1975 1976 1977 1978 Gross public capital inflows 82 148 538 1,349 1,824 1,623 Drawings on public loans -94 -258 -664 -736 -1,785 1,191 Recorded official grants -30 -31 -29 -29 -38 -30 Difference -42 -141 -155 -584 -1 -402 Source: Mission estimates. This difference includes, in addition to transactions with the IMF and unrecorded transfers, inevitable but minor discrepancies arising from the differences between the flows obtained from the external debt statistics and those recorded in the balance of payments. In 1976 Morocco utilized IMF resources, making purchases under the compensatory financing and oil facilities amounting to about $132 million (SDR 115 million), with repurchase due in 1979. Special grants for defense, therefore, probably totalled about $1 billion for the years 1976-78. 2.47 Short-term capital movements assumed considerable proportions in 1974 and 1975 because under its phosphate sales policy Morocco greatly increased its short-term credit to phosphate buyers in those two years. This policy brought about a temporary slowdown in the rise in external assets. Since 1975, net external assets have increased in absolute value but declined in relative value. As of the end of 1977 they represented no more than 1.8 months' imports for that year. The External Public Debt and its Servicing 2.48 From 1975, Morocco greatly expanded its medium and long-term external borrowing to cover its mounting balance of payments current account deficits, as can be seen from the table following. The disbursed portion of the outstanding external debt, which had remained moderate in relation to GDP (less than 20%), grew very rapidly thereafter to reach 41% of GDP by 1978. As of the end of 1978, the total amount, disbursed and undisbursed, of commitments entered into or guaranteed by the State was more than US$7 billion, or 60% of GDP. These were primarily State borrowings, but the proportion represented by borrowings by other institutions with the State's guarantee rose steadily, moving up from 25% of total debt in 1972 to 30% in 1977. - 36 - EXTERNAL DEBT: AMOUNTS OUTSTANDING AND SERVICE PAYMENTS, 1972-1978 ($ millions; current prices) 1972 1973 1974 1975 1976 1977 1978 Amount outstanding at year end Total commitmentsl/ 1,216 1,308 1,831 2,405 3,143 5,104 7,421 Total disbursed 919 998 1,218 1,753 2,341 4,078 5,139 - amount disbursed as % of GDP 18.3 16.1 15.8 19.5 25.0 39.3 41.4 Drawings on commitments Annual disbursements 123 98 270 664 736 1,785 1,191 - as percentage of GFCF 17.8 11.6 23.9 27.9 26.2 53.9 40.0 - as percentage of GDP 2.4 1.2 3.5 7.4 7.9 17.2 9.6 Service payments during year _ Interest only 35 42 43 50 66 148 252 Total debt service 103 129 138 145 162 265 548 - as percentage of exports of goods and services 9.1 8.1 5.5 5.6 7.1 10.7 18.5 Average terms Interest (% p.a.) 5.3 5.5 5.2 7.3 7.5 6.8 6.9 Period (years) 22.3 16.6 16.6 14.7 12.2 13.1 13.3 1/ The annual change in total commitments include loans cancellations and exchange rate variations. 2/ IBRD estimates based on data from Ministry of Finance. These figures are not altogether identical with those derived from the balance of payments, which are as follows: 1972 1973 1974 1975 1976 1977 Interest only 38 40 44 55 85 148 Total debt service 117 120 126 129 162 273 Source: Tables 3.1 and 4.1, Statistical Annex. 2.49 To finance the 1973-77 Plan, Morocco relied on its enhanced ability to borrow, brought about by the temporary increase in phosphate receipts in 1974-75. This policy resulted in a sizable increase in borrowings from the Arab countries and funds and especially from private commercial and - 37 - financial sources. Toe volume obtained from traditional official sources, both multilateral and bilateral, also increased, but to a more moderate degree. State or State-guaranteed borrowings (commitments) over 1972-78 were as follows ($ millions): 1972 1973 1974 1975 1976 1977 1978 Source International institutions 97 53 151 67 153 222 212 Bilateral sources (governments) 63 48 227 138 156 640 1,164 Commercial 15 76 20 134 7 158 16 Financial 3 12 126 368 597 970 1,008 Total medium and long term borrowings 178 189 524 707 914 1,990 2,400 Source: IBRD. 2.50 The increase in loans obtained at market rates has resulted in a hardening of the average conditions applying to Morocco's total external debt outstanding, as is apparent from the following figures: Interest Maturity Grace Period Grant Element (X p.a.) (years) (years) (X) Average conditions for total borrowings End 1972 5.3 22 4 31 End 1974 5.2 18 5 30 End 1979 7.1 13.9 4.9 17.1 Source: IBRD. 2.51 Morocco's external borrowings in 1973-77 produced an estimated net resource transfer of $2.2 billion over the space of five years. Taking 1978 commitments also into account, the total net transfer should still be positive for the 1978-80 Plan period. After that date, however, the net resource transfer relating to existing debt will become negative as growing repayments of principal are added to the interest payments. The negative net transfer for the period 1981-85 is estimated at about $4.2 billion. 2.52 In conclusion, the economy's external resource deficit, which had remained modest up to 1974, became sizable by 1977 and occasioned considerable deficits in terms of current external payments as of 1975. - 38 - These deficits were financed almost entirely by the Treasury, which arranged directly or guaranteed practically all the country's external borrowings. The part played by foreign private capital, whether through direct investment or lending (the latter only being authorized in exceptional cases), remained small. The policy of external borrowing followed during the 1973-77 Plan relied in part on access to Arab sources, but primarily on borrowing on market conditions, which surged between 1975 and 1978. This led to a rapid increase in the amount of the external debt outstanding, plus a hardening of the average conditions and a sharp rise in repayment and interest obligations. At the end of the 1973-77 Plan, external debt service represented 18.5% of export receipts (goods and services), and the growth of external borrowing and of the debt service had become clearly excessive in relation to the growth of exports. A financial adjustment program to reverse those trends became a matter of urgency. Being aware of this situation, the new Government that took office in September 1977 addressed itself to the task; this change in the economic and financial policies is discussed in the first part of Chapter III, dealing with the 1978-80 Plan. F. DOMESTIC FINANCING Review of Main Structural Factors 2.53 During the ten-year period 1968-77, domestic financing had to adapt itself to the structural and institutional changes occurring in the economy. Some of the more significant changes were the increase in population, the expansion of the State's role as investor, the emergence of the local authorities, the concern for regional development and the mounting inflationary pressures and defense requirements. 2.54 The high rate of population growth had major repercussions in several areas where the Government has extensive responsibilities, such as social services, supply of basic foodstuffs at prices affordable by all, housing construction and employment creation. Between 1967 and 1977, Morocco's population rose from 14 to 18 million, growing at a rate of 2.7% p.a. whereas income (GDP) increased at close to 6.5% p.a. and the share of Government in GDP rose from 15% to 25%. 2.55 The State's role in the investment sphere was greatly increased in the course of the 1973-77 Plan, reversing the previous trend. The financial prudence that dominated through the 1968-72 Plan was reflected in fact that the proportion of GDP allocated to investment remained at around 14% between 1967 and 1972, and by a drop in the share of Government investment in total investment. By the time of the 1973-77 Plan, this prudence was viewed as excessive and was abandoned in favor of a deliberately more active role for the State as of 1973, which gathered further momentum following the increased phosphate receipts of 1974-75. Between 1972 and 1977 total investment was raised from 14% to 32% of GDP, with the State's share going up from 31% to 52% of the total. A large part of this participation took the form of Treasury transfers to public and semipublic corporations to finance their capital expenditure and sometimes also to cover operating deficits. Available data are inadequate for drawing up consolidated - 39 - accounts for the Moroccan public sector, but it is evident that its relative significance has increased substantially. The 1978-80 Plan comments on this point as follows: "although we are accustomed to thinking of our economic system as liberal, we should be aware of the growing role of the State in our economy". 2.56 The local authorities still play no more than a minor role, but one that appears destined to expand as a result of the 1976 reform envisaging the granting of an increasing degree of political and financial autonomy to local autborities over the long term. For the time being, no more than a start has been made toward this goal owing to the severe constraints bearing on most local authorities, with the exception of the main urban municipa- lities. The fact is that the human resources for preparing, executing and managing development programs are still very thin at local level and can only gradually be reinforced. Moreover, most local authorities have too limited a tax base to become financially independent and will have to rely for a long time on revenues channeled to them by the State for covering their expenses. This should not, however, lead to relaxing current efforts to improve local revenues, especially those from local public services and the new taxes on real property. 2.57 Regional development received considerable allocations under the 1973-77 Plan, which had set itself the goals of reducing regional dispa- rities in development and improving the economic and social lot of the people living in the less well endowed regions of the country. The finan- cial ease by the 1974-75 phosphate earnings made it possible for State action in this sphere to be expanded. According to data given in the 1978-80 Plan, investment allocations available for regional development totaled DH 3.3 billion for 1973-77, of which DH 1.8 billion had been spent as of December 31, 1977 while DH 1.6 billion was carried forward to the 1978-80 Plan. About two-thirds of allocations went to the Special Regional Development Fund and the other third was allocated to direct subsidies to local authorities, "Promotion Nationale" and the Saharan Provinces Fund. An evaluation of the achievements of this effort in terms of the goals pursued remains to be made. The 1978-80 Plan does not include any new allocation to the Special Regional Development Fund because of the volume of funds carried forward. The Plan proposes instead that the current period be used to fully define the aims of regional development and to consolidate its institutional framework. This subject is considered in greater detail in Chapter VI. 2.58 Inflation and defense needs became increasingly significant factors for domestic financing during the 1973-77 Plan. Up until 1974 Morocco earmarked only a small part of its resources for defense, the State's savings were adequate for its investment effort and price inflation was very moderate. However, these trends have been reversed since then. The much higher military spending has placed a severe constraint on the State's savings whereas its capital outlays have increased severalfold. This disequilibrium was a major factor in the acceleration of price inflation in Morocco between 1974 and 1977, although higher export and import prices also played no small role. - 40 - Overall Evolution of Fiscal and Budgetary Policy 2.59 Analysis of the country's fiscal and budgetary policy brings out some very marked contrasts between 1968-73 and 1974-77. Between 1968 and 1973 prudence was the watchword. As a ratio of GDP, current and capital expenditures fell while current receipts increased (especially in 1973), with the result that budgetary savings improved and the overall Treasury deficit was reduced. This policy led to a remarkably low rate of inflation during the period, but also had a generally deflationary impact. The 1973-77 Plan noted that economic growth and employment creation could have been higher in 1968-72 if budgetary policy had been more expansion- oriented. With the benefit of hindsight, it is in fact clear that the reduction of the share of GDP spent on improving economic and social services was hardly warranted, considering the low level of debt service in that period. Considering that the proportion of GDP invested was only about 14%, it is also clear that fiscal and budgetary policy did not contribute sufficiently to raising of level of economic activity. 2.60 These trends were abruptly reversed when phosphate prices soared in 1974-75. Increased phosphate earnings brought in larger amounts of foreign exchange and higher budgetary receipts which made it possible to revise the 1973-77 Plan and to raise investment levels sharply for the years 1975-77. Between 1973 and 1975, Government investment expenditure rose from DH 1.2 billion to DH 4.5 billion and the same trend was apparent in private and semipublic investment. In 1977, Government investment was stepped up to DH 10 billion, the rise this time accounting for almost the entire increase in gross fixed investment in Morocco and bringing the Government's share of total investment up from 37% in 1973 to 67% in 1977. The following salient features of the period should also be noted: defense spending increased very fast in response to tensions along the Saharan borders; consumer price subsidies were raised for staples because of the higher cost of importing the products concerned; phosphate receipts began to shrink rapidly as of 1976; and tax revenues -- apart from those from phosphates -- could only be increased gradually owing to the socio-political obstacles to a full-scale reform of the tax system. These various factors bore increasingly on the public finances and aggravated the overall Treasury deficit (17% of GDP in 1977). To cover this deficit the Treasury was obliged to resort increa- singly to monetary financing, which fueled inflationary pressures, and especially to borrowing from external commercial sources, which led to a very rapid rise in external debt service obligations. During the course of 1977 the need for financial adjustment became increasingly pressing, although it would imply a slowdown of economic growth and employment creation. 2.61 Analysis of the fiscal and budgetary policy followed from 1974 to 1977 shows the dominant factors to have been defense requirements, price subsidies and the fluctuations in phosphate earnings. These factors quickly reduced freedom of decision in this field. Again with the benefit of hindsight, it would appear that the expansion of investment spending should - 41 - have been slowed down in 1976, as soon as it became apparent that the Government was unable to increase its savings. A slowing-down of expansion then would have made it possible to moderate inflationary pressures of budgetary origin, which would have eased the stresses on domestic investment costs observed in 1975-77. The Growing Role of Government Expenditure 2.62 As already noted, Government expenditure rose very rapidly after 1973. This is apparent from the figures below (expenditures in relation to GDP at current prices, in percentages): 1968 1972 1973 1975 1977 Government expenditure 20.4 20.0 19.4 32.4 41.8 of which: Investment 1/ 5.4 4.9 4.3 10.2 16.3 Defense 2/ 2.5 2.6 2.8 4.3 9.2 Subsidies 0.1 0.1 0.1 5.6 2.6 Misc. current expenditures 12.4 12.4 12.2 12.3 13.7 Budgetary investment in % of total GFCF 42.0 37.4 34.8 50.3 67.1 Total GFCF as % of GDP 13.2 14.0 13.9 24.3 32.8 1/ Excluding defense, but including capital transfers to the public and semipublic corporations. 2/ Mission estimates. Source; Ministry of Finance. The above figures clearly show the growth of the chief components of Government expenditure, confirming the qualitative observations made in the preceding paragraphs. As regards defense, it should be explained that in the published budget data a considerable part of expenditure is included among transfers made by the Ministry of Finance; this part, when added to the amounts shown under the Defense Ministry, makes a total of 9% of GDP in 1977. As for subsidies, they appear to have peaked in 1975. 2.63 The following table provides a breakdown of Government expenditures by nature of service rendered (functional classification) and combines, for eacb service, operating and capital expenditures: - 42 - 1968 1972 1973 1975 1977 Expenditure In DH million: Economic services 1,057 1,139 1,169 3,426 6,342 1/ of which : Agriculture (588) (418) (521) (849) (1,360) Social services 872 1,311 1,397 2,475 3,446 of which: Education (601) (1,007) (1,041) (1,867) (2,628) Health (271) (304) (356) (608) (818) Defense 2/ 408 586 699 1,561 4,304 Administrative services 368 618 588 1,186 2,117 Subsidies 169 142 206 2,046 1,109 Debt 3/ 298 423 450 566 1,004 Unclassified 238 320 323 539 768 Total 3,410 4,539 4,832 11,799 19,090 As percentage of total: Economic services 31 25 24 29 33 of which: Agriculture (17) (9) (11) (7) (7) Social services 26 29 29 21 18 of which: Education (18) (22) (22) (16) (14) Health (8) (7) (7) (5) (4) Defense 12 13 14 13 23 Administrative services 11 14 12 10 11 Subsidies 5 3 3 17 6 Debt 9 9 9 5 5 Unclassified 6 7 8 5 4 Total 100 100 100 100 100 1/ Including the Special Regional Development Fund (DH 354 million). 2/ Mission estimates. 3/ Interest plus repayment of certain domestic loans. Source: Ministry of Finance. 2.64 The changes in the pattern of Government expenditures in this period occurred in the framework of the overall drop in the ratio of total Government expenditures to GDP between 1968 and 1973, followed by a sharp upsurge in the following four years. The most notable changes were those in the spending on social services and defense, on the one hand, and on the economic services, on the other. The relative share of the latter became smaller between 1968 and 1973, whereas that of social services increased. There was then a pronounced turnaround between 1973 and 1977, when the social services lost ground in some measure to the economic services, and also because of the lower spending on subsidies and debt service between 1975 and 1977. Taken together, the shares earmarked for defense and - 43 - administrative services, which include sizable allocations for internal security, increased substantially after 1975. The marked expansion of the economic services, in absolute and relative values, between 1973 and 1977, reflects the growing role the State has assumed in the economy, particularly through transfers to the public and semipublic enterprises. 2.65 Expenditure on social services has, nevertheless, greatly increased in real terms, while in relation to GDP it rose from 5% to 7% between 1968 an 1977. In real terms, the per capita increase of this expenditure in the period was almost 70%, as is shown by the following figures: Expenditure on social services (in 1969 prices) 1968 1972 1973 1975 1977 Total expenditures (DH million) 1/ 893 1,161 1,183 1,648 1,944 Population (million) 14.2 15.8 16.3 17.3 18.3 Per capita expenditure (DH) 63 73 73 95 106 1/ The deflator used is that of government consumption. Despite the considerable effort in favor of the social services reflected in the above figures, the question arises whether Morocco may not have well spent even larger volumes of resources on the social sectors in view of the extent of the needs not yet satisfied and the country's relatively low ranking on the world scale of social development indicators. This question is considered in Chapter V. Here it can be noted provisionally that the expenditures on health could well have been both higher and better programmed, and that in education and training the effort was probably as great as resources permitted but perhaps not sufficiently well adapted to the economy's needs. 2.66 To conclude, a question of budgetary procedure should be noted. In 1973 the Government introduced the concept of zero-base budgeting, which meant that at the close of each development plan all budget appropriations for investment have to be formally justified before they are carried forward to the following period. This procedure was applied at the end of the 1968-72 and 1973-77 Plans. It amounts to a compromise between annual zero-base budgeting in respect of all appropriations and their automatic continuation, two procedures that often cause delays and complications in the execution of development programs and projects. The compromise adopted in Morocco reduces these adverse affects, since the appropriations are carried forward automatically within the planned periods, but are reviewed at the end of each such period. - 44 - The Low Level of Budgetary Saving 2.67 The Treasury accounts are summarized below (DH millions): 1968 1972 1973 1975 1977 Current revenue 1/ 2,586 3,604 4,316 8,337 11,669 of which: From public monopolies (120) (34) (89) (1,080) (582) Current expenditure 2/ 3/ 2,475 3,424 3,748 8,076 11,925 of which: Defense 3/ (408) (586) (699) (1,561) (4,304) Budgetary saving 111 180 568 261 -256 Investment expenditures 892 1,115 1,084 3,723 7,626 of which: Transfers (--) (66) (80) (954) (1,725) Total deficit 781 935 516 3,462 7,882 1/ Including the special Treasury accounts and the supplementary funds of the "annexed" budgets. 2/ Including military procurement. 3/ Mission estimates. Source: Ministry of Finance. 2.68 Conventional analysis of budgetary savings treats all military expenditures as current expenditure, since they represent consumption of resources. However, in the official presentation of Morocco's budget accounts, military procurement expenditure is classified with Government investment expenditure. As a result of this difference, budgetary savings shown in the preceding paragraph is much smaller than that appearing in the official accounts, expecially for 1975-77 when military capital expenditure increased sharply. In relation to GDP, the chief budget aggregates varied as follows (percentages): 1968 1972 1973 1975 1977 Current revenue 15.7 15.9 17.3 22.9 25.0 Current expenditure 15,0 15.0 15.0 22.2 25.5 Balance 0.7 0.9 2.3 0.7 -0.5 Investment 5.4 4.9 4.3 10.2 16.3 Overall Treasury deficit 4.7 4.1 2.0 9.5 16.8 Current balance as percentage of investment 12 16 52 7 -- - 45 - 2.69 During the 1968-72 Plan, budgetary savings hardly changed; although current expenditure remained stable in relation to GDP, current revenue rose only slightly. In fact, the level of current revenue in terms of GDP was low by international standards; for example, the corresponding ratio for Tunisia at that time was 27%. The improvement already noted in budgetary saving in 1973 derived from a higher tax effort, resulting from various measures, and the continuation of a strict policy of containing current expenditures. 2.70 The erosion of budgetary savings between 1973 and 1977 resulted primarily from the very substantial rise in current expenditure. The increase in current revenue was considerable, although deriving largely from the 1974-75 upturn in phosphate prices and the increased flow of imports that followed. However, the rise in current expenditure was even higher, owing mostly to the stepped-up military spending and increased subsidy outlays until 1975, with the result that budgetary saving showed a deficit by 1977. Between 1975 and 1977, subsidies went down by about DH 900 million, but over the same period military expenditure rose by DH 2.7 billion and other expenditures by DH 2.1 billion. The increase in current revenue amounted to DH 3.3 billion, despite a DH 1.5 billion decline in phosphate receipts by Government. The mobilization effort was, therefore, considerable, although insufficient to stave off the erosion of budgetary saving. 2.71 Except in 1973, budgetary savings were not sufficient to cover more than a minor part of Government investment. This is still true even compared only to direct government investment. The stepping-up of capital transfers to public and semi-public enterprises in 1975-77 raises a question concerning the soundness of this policy, which entailed substantial borrowing requirements for the Government, with resultant pressure on the banking system and the balance of payments. This question leads to another, namely whether the public and semi-public enterprise sector did not have savings of its own that the Government could have mobilized instead of resorting to borrowing. In view of the lack of consolidated accounts for Morocco's public sector, only a very partial answer can be given to this important guestion (see below). The Public and Semipublic Enterprises 2.72 The financial flows between the Treasury and the public and semipublic enterprises are of three types: (a) the mandatory transfer of surpluses of these enterprises to the Government; (b) Government subsidies to cover possible operating deficits of these enterprises; and (c) contributions in various forms (participations in equity capital, loans, etc.) by the Government to finance their investment. The figures available on mandatory transfers of surpluses in the period 1973-77 are as follows (DH million): - 46 - Office Cherifien des Phosphates (OCP) 4,245 Banque du Maroc 227 Regie des Tabacs 107 Caisse de Depot et de Gestion 72 Office National des Transports 65 Office de Commercialisation et d'Exportation 6 Annexed budgets (ports, postal service, etc.) 143 Miscellaneous 104 Total 4,967 Altogether, these transfers made up about 13% of the Government's current revenue in 1973-77, with OCP accounting for 85% of this total. The data available regarding operating subsidies are very uncertain, because it is hard to distinguish such subsidies from contributions toward capital expenditures in the accounting procedures currently used for these enterprises. Subject to this reservation, the Ministry of Finance provides the following figures (DH million) for operating subsidies incorporated in annexed budgets and to various public establishments: Year Amount 1973 46 1974 54 1975 68 1976 101 1977 142 The figure for total operating subsidies for 1973-77, DH 411 million, when compared with total mandatory transfers of surpluses for the same period, i.e. DH 4,967 million, indicates a net surplus of the order of DH 4.5 billion. 2.73 According to State Secretariat for Planning estimates, contributions by the Government (capital transfers) to investments by the public and semipublic enterprises totaled DH 5.9 billion in 1973-77, the sector break-down being as follows (DH billion): Agriculture 1.8 Mining 0.9 Energy and water 0.8 Industry 0.6 Transport 1.6 Miscellaneous 0.2 Total 5.9 - 47 - These figures underscore the scale and diversity of the transfers by the Government. If the mining sector is excluded from the capital transfers, and OCP from the transfers of surpluses, the Government is seen to have put about DH 5.4 billion into the public and semipublic enterprise in industry in 1973-77 while receiving surpluses totaling about DH 0.7 billion from the sector, making a net contribution by the Government of DH 4.7 billion to the investment financing needs of the public and semipublic enterprises over the five-year period 1973-77. Financing of the Overall Treasury Deficit 2.74 The chief sources of financing for the overall Treasury deficit have been as follows: 1968 1972 1973 1975 1977 1. DH million Deposits with Treasury 50 94 7 638 492 Net domestic borrowings 238 295 282 606 777 Net external assistance 220 320 7 1,350 5,195 Central Bank advances 273 225 220 868 1,418 Total 781 935 516 3,462 7,882 2. Percentages Deposits with Treasury 6 10 - 18 6 Net domestic borrowings 30 32 55 17 10 Net external borrowings 28 34 - 39 66 Central Bank advances 36 24 45 26 18 Total 100 100 100 100 100 Source: Ministry of Finance. The above figures show that during the 1968-72 Plan, recourse to Central Bank advances lessened while net domestic and external borrowings increased. External borrowing was negligible in 1973 but soared thereafter, reaching 66% of total financing in 1977. Utilization of Central Bank advances increased in absolute value but remained of lesser significance in relative terms. The domestic consequenses for the economy of the mode of financing the overall Treasury deficit are considered below as part of the analysis of monetary policy. The Fiscal Effort 2.75 An in-depth study of taxation in Morocco is in progress, so the analysis made here will be limited to the main general aspects. The elasticity of the Government's current revenue with respect to GDP increased after 1973, reaching 1.5; this rise resulted from the substantially higher - 48 - phosphate earnings of 1974-75 and the resultant surge in imports, and from the raising of certain taxe rates, including the special tax on imports. Government current revenue represented 25% of GDP in 1977, a proportion that is seen to be moderate, comparing Morocco with other countries in its per capita income class. By that criterion, it would still have been possible to raise the burden of current revenue on the economy without any serious risk of depressing private consumption and economic activity. It should be noted, however, that the ratio of current revenue (including miscellaneous Treasury receipts) to GDP is only a rough, global indicator of the revenue system's performance. This indicator is influenced by the elasticity of each tax (or category of current revenue) with respect to its base, and also by the elasticity of the bases of the various taxes in relation to GDP. The impact of these two effects on the global indicator should, therefore, be distinguished. In time of rapid price inflation, it is particularly important to isolate the taxes having physical bases, such as duties on oil products and tobacco, because the proceeds from these vary with the volume and not the current value of their bases. The Moroccan system is analyzed below from these various viewpoints, with a view to bringing out its chief structural strengths and weaknesses. 2.76 As a first step, all receipts that do not derive from either a tax or a duty in respect of a service rendered are eliminated from the total current Treasury revenue, in order to arrive at the concept of fiscal revenue that is then shown as a percentage of GDP as follows: Year Percentage 1970 16.6 1972 14.8 1973 16.6 1975 23.3 1977 23.0 The evolution followed by these percentages is similar to that noted for the ratio of total current revenue to GDP. The ratio of fiscal revenue to GDP fell between 1970 and 1972, rose sharply, thanks to phosphate earnings between 1972 an 1975, then dropped back again slightly between 1975 and 1977. The elasticity of fiscal revenue in relation to GDP worked out at 1.7 between 1970 and 1977, but was not more than 1.0 between 1970 and 1973. 2.77 In a second stage, and to obtain a better reading on the performance of the fiscal system, the following additional adjustments can be made: (1) Elimination of agriculture from fiscal revenue and GDP since, as in many other countries, that sector did not make any substantial contribution to fiscal revenue during the period under study (about DH 70 million p.a. on average); - 49 - (2) Elimination of the customs receipts related to imports from fiscal revenues; (3) Elimination of the contribution of the mining sector (i.e. mainly phosphates) from fiscal revenues and GDP owing to the considerable price variations in 1973-77. Applying these adjustments, the figures for fiscal revenue as a percentage of GDP then become: Year Percentage 1970 17.5 1972 16.2 1973 17.8 1975 18.8 1977 20.8 These percentages are of special interest because they reflect the real trends of the fiscal policy pursued, stripped of the effect of the main exogenous factors. They indicate a slight increase in the fiscal burden between 1970 and 1975, followed by a definite increase between 1975 and 1977. The conclusion can, therefore, be drawn that the availability of phosphate receipts in 1974-75 served to postpone the need to step up fiscal pressure to meet the increase in public expeditures. 2.78 As regards the behavior of the various taxes in relation to their bases, the low tax revenue generation from agriculture has already been noted. Agriculture provides about 16% of the value added in Morocco, but makes only a tiny contribution to the Government budget. The "impot agricole" is the only tax bearing directly on agriculture activities, as Morocco does not tax domestic or export sales of agricultural produce, or farm lands and fixed assets. The tax only produced DH 52 million in 1977, derived from the approximately 210,000 farmers with taxable incomes in excess of DH 1,400/year. There is, therefore, scope for further taxation of Moroccan agriculture, both on grounds of equity and to encourage more intensive use of arable land. This is a point deserving priority in the fiscal reform currently under study. 2.79 The supplementary tax on personal income (progressive income tax) is another component of the fiscal system that has played no more than a modest role so far. The revenue generated by this tax has remained below DH 50 million/year since its introduction in 1972. The rates at which it is payable by most of those concerned are low and the basic exemption is high; except in the case of salaries, taxable income continues to be poorly assessed. As part of the reform of personal income tax, this surtax could well be combined with the schedular taxes on income to which it is currently supplementary. - 50 - 2.80 The profits tax, payable by both individuals and legal entities, is the direct tax that brings in the highest yield. In relation to GDP, less agriculture and mining, and with a lag of one year, this tax represented the following percentages (excluding OCP payments): 1970 1972 1973 1975 1977 2.4 2.3 2.2 1.9 3.2 The percentage declined steadily through 1975, while the increase in 1977 still did not bring it back up to the level of the 1960s. The different exemptions allowed, especially the financial incentives for investment and exports, go some way toward explaining the disappointing performance of this tax, but administrative difficulties in ascertaining the amount of taxable profit appear to have been the primary cause. A greater collection effort is, therefore, called for. As regards investment and export incentives, the question arises whether these are the most effective means for achieving the goals sought. It can after all easily be demonstrated that these exemptions are of greatest value to established enterprises which are already generating sizable profits, rather than to new ones for whom large-scale profits are still a thing of the future. In other words, such exemptions provide most encouragement to enterprises that least need it. 2.81 The tax on wages and salaries is withheld at source, and about half of its base comes from government payrolls. The yield from this tax has grown rapidly -- 1.0% of GDP in 1970 to 1.8% in 1977 -- because its base has expanded equally swiftly. Other direct taxes are the "taxe urbaine", the proceeds of which have remained below DH 30 million/year, which is low; the tax on earnings from stocks, which was introduced in 1972 and has been generating growing receipts; and, since 1978, the tax on real estate profits. As has been noted, a reform of direct taxation of individuals ought to aim at consolidating these schedular taxes into a global income tax. 2.82 As regards indirect taxes, the data on domestic excise taxes and the turnover tax in relation to GDP (percentages) have been as follows: 1970 1972 1973 1975 1977 Domestic excise taxes in relation to GDP (%) 2.7 3.2 3.1 2.5 2.5 Turnover tax in relation to GDP, excluding agriculture (%): - on imports - 2.9 3.0 3.0 4.1 - domestic - 2.4 2.3 2.3 2.4 - total 4.0 5.3 5.3 5.3 6.5 - 51 - The domestic excise taxes failed to keep pace with the rise in GDP after 1973 because their rates -- based on physical items such as wine, alcohol, sugar, oil products, tobacco, matches, etc. -- were not adjusted fully to the rise of prices. The increase in the yield from turnover tax in relation to GDP, agriculture excluded, was due to the rise in imports. 2.83 Import taxes -- customs duties and import turnover taxes -- displayed a relatively high elasticity in relation to GDP, as can be seen from the above figures for turnover tax and those given below regarding customs duties (percentages): 1967 1972 1973 1975 1977 Customs duties in relation to: - GDP 3.0 2.5 2.0 4.0 4.7 - imports 18 16 16 15 17 - imports, excluding food 25 19 20 19 19 Imports in relation to GDP 17 15 18 28 29 The higher figures for import taxes in relation to GDP derived primarily from the relative increase in imports; the ratio of these taxes to GDP varies with that of imports to GDP. A second factor also features in maintaining the elasticity of customs duties, namely the raising of the special import tax, which was put up from 3% ad valorem in 1973 to 5% in 1975 and 8% in 1977 (and to 12% in 1978 and 15% in 1979). The proceeds from this tax have accordingly increased very substantially, reaching DH 908 million in 1977 as against DH 84 million in 1972 and DH 61 million in 1967. It is interesting to note, however, that the ratio of the customs duties to the value of the goods concerned (i.e., not including food, raw materials and oil products) has declined noticeably. This decline paralleled the increase, among the imports in question, of industrial capital goods that are either exempt or only subject to very low duties (the share of industrial capital goods in imports rose from 32% to 52% between 1973 and 1977). Local Finances 2.84 As noted at the start of this section, a basic reform of local authorities was instituted in 1976, but its implementation has only just started and is to be spread over a number of years. The statistical data available are inadequate for an analysis of local finances. If this analysis were to be based on the figures in Table 5.8. of the Statistical Annex, the conculsion would have been that, surprisingly, local government budgets generated growing and quite sizable surpluses. This arises from the accounting procedure applied, which has since been amended by the 1976 reform. Under that procedure, local authorities were required to keep separate accounts for operating and capital expenditure, the latter only - 52 - being approved several months after the start of the fiscal year. At the close of the preceding year, the authorities, therefore, had quite large appropriations to carry forward. These carry-overs grew over the years to such an extent that the true evolution of local finances can no longer be ascertained from the figures available. A certain number of fundamental problems nevertheless arise in connection with local finances, and are considered in Chapter III. G. MONETARY AND CREDIT POLICY 1/ Importance of Monetary Policy 2.85 In many developing countries, monetary and credit policy plays the minor role of accomodating the public sector's financing needs. This model normally has the following consequences: credit to the private sector becomes residual; the central bank acts as paymaster for the Treasury; loans to public establishments are provided in the form of capital contributions; the banks act as automatic sources of finance for the public sector; and interest rates play a very limited role in resource mobilization and allocation. All of these factors reduce the value of monetary and credit analyses for proper understanding of the development process and its determinants. 2.86 A study of Morocco's economic history since 1967 shows that this model does not apply to it. Morocco is a country with a very broad array of monetary policy instruments which it uses both consistently and flexibly. As will be seen below, direct control of credit has been applied temporarily in difficult situations. Generally speaking, however, it has been indirect instruments, such as rediscount ceilings and obligations to purchase Treasury bonds or maintain reserves, and especially persuasion, that have been employed to achieve the State's economic policy goals. In addition, a reform of interest rates was started in 1974 to improve the functioning of the capital market in the wider sense. 2.87 The distribution of domestic bank credit between claims on the Treasury and credit to the economy varied little between 1967 and 1977. Each of these two sectors received about half of the domestic credit granted by the banking system, the year-by-year variations in this distribution being relatively minor; however, since 1975 claims on the Treasury have shown a slight tendency to exceed 50%. This stability of the distribution of domestic bank credit between the Treasury and the economy is all the more 1/ An excellent analysis of the institutional aspects and history of Moroccan monetary and credit policy since 1969 is given in Etudes et Statistiques (No. 44 of June 1977), a Banque du Maroc publication. Reference may also be made to Surveys of African Economies, Vol. 7, IMF, Washington, 1977. - 53 - striking in that the credit to the economy includes credit to the public and semipublic enterprise sector, the relative significance of which expanded considerably between 1973 and 1977. This stability prompts one to assume that monetary policy has been based essentially on economic rather than institutional criteria such as the type of economic agent. The distribution of credit between the Treasury and the economy was as follows in 1967-77 (percentages): 1967 1972 1973 1975 1977 Claims on Treasury 47 52 49 51 53 Credit to economy 53 48 51 49 47 Direct Control of Credit 2.88 Quantitative controls were imposed on credit between 1969 and 1972 and after 1976. In 1969 these restrictions were introduced to check the outflow of foreign exchange and cut back the growth of the money supply in relation to that of the economy. Except for the financing requirements of cereal crops, expansion of short-term credit was limited to 5% of the level reached at the end of 1968. These restrictions were kept in effect until 1972, but in addition to cereals, export and medium-term rediscountable credits were also exempted. In 1976, the pressures on exchange reserves and on domestic price levels prompted the Credit Supervision Committee to impose a 20% limit on credit expansion, with the same exceptions as in 1969-72. It is noteworthy to mention the evaluation of these restrictions made by the central bank in the reform study mentioned earlier: "The (credit) restrictions thus applied constitute an efficient measure that takes effect quickly and precisely but is not in itself sufficient to contain the expansion of the money supply under all circumstances. It also has other drawbacks, particularly that of hampering the normal interplay of competition between the banks and distorting the distribution of credit, notwithstanding the exemptions granted for purposes considered to have priority. This method does, however, appear appropriate in periods of pressure when the indirect mechanisms for controlling bank liquidity are not capable of achieving the desired goals rapidly, particularly of adjusting the means of payment to the growth of domestic production and the availability of external financing." 2.89 This quotation makes it clear,that the Moroccan monetary authorities do not resort to quantitative credit restrictions except to counter exceptional pressures, as they are aware of the disadvantages of this instrument. As regards the situation that has prevailed since 1976, it is hard to see when the restrictions applied since that year might be lifted bearing in mind the extent of the disequilibria to be corrected. - 54 - Indirect Measures 2.90 Indirect measures to control credit expansion include rediscounting with the central bank, compulsory purchase of Treasury bonds and the obligation to maintain reserves with the central bank. The rediscount ceilings have been adjusted according to the economic situation, varying from 10% of total bank deposits in 1969 to 7% in 1976. It is interesting to note, however, that rediscount authorizations have not been fully used by the banks (see the Banque du Maroc study already quoted). The reasons for this underutilization should be ascertained. 2.91 Compulsory purchases of Treasury bonds by the banks were introduced in 1966, and fixed in 1969 at 30% of the amount of bank sight and time deposits (excluding foreign exchange deposits). The central bank checks the level of subscriptions each month and can impose penalties if this requirement is not observed. This instrument allows control of banks' liquidity. Above all, it gives the Treasury privileged access to financial savings; between 1970 and 1977 about one-third of the Treasury's credit reguirements was financed by such bond purchases, as can be seen from the following figures (DH billions): Claims on Treasury 1970 1972 1973 1975 1977 Holder Central Bank (net) 1.6 1.7 1.9 3.0 5.1 Deposit banks 0.9 1.2 1.4 2.5 3.3 of which: Treasury bonds (0.9) (1.2) (1.4) (2.5) (3.3) Private sector 0.5 0.7 0.7 1.1 1.7 Total 3.0 3.6 4.0 6.6 10.1 Source: Table 6.2, Statistical Annex. 2.92 The obligation to maintain reserves with the central bank was introduced in 1966, and up till 1971 it applied to part of the increase in bank deposits. As this formula worked to the disadvantage of the more dynamic banks it was amended in 1971: as of that date, the obligatory reserves were fixed at a rate that could vary between 4% and a maximum of 7% of bank deposits. However, as the banks kept an unused rediscount margin with the central bank, they were able to evade the impact of obligatory reserves on their liquidity by stepping up their use of rediscounting. Because of this, a set of reforms was brought in after the removal of credit restrictions in 1972. Firstly, the full refinancing of medium-term credit was no longer permitted, and the banks were required to use at least 4.5% of their sight and time deposits for rediscountable medium-term credit. Secondly, the short-term financing of cereal crops was made the subject of - 55 - special unlimited rediscounting arrangements. Thirdly, the specialized institutions were allowed flexible rediscounting facilities to enable them to perform their functions; this was done for the Caisse de Depot et de Gestion to allow it to finance the local authorities and to subscribe to development bank (BNDE or CIH) bonds. Selectivity of Credit 2.93 Selectivity of credit in Morocco has been assured by the establishment of specialized institutions, control of lending conditions and facilities (interest rates, rediscounting, etc.) and persuasion. The specialized institutions include BNDE (industry, transportation, fisheries), CIH (housing and tourism), CNCA (agriculture) and CDG (a diversified public fund deriving its resources from savings banks and the social security system). The consolidated accounts of these institutions reveal that their provision of credit to the economy increased in importance between 1973 and 1977 in relation to the deposit banks; this growth corresponded to the expansion of investment in 1973-77. During this period the institutions concerned greatly increased their recourse (with State guarantee) to external borrowing, while the share of domestic sources, primarily deposits, declined. Their consolidated accounts read as follows (DH billions): 1970 1972 1973 1975 1977 Claims on: - local authorities 0.1 0.1 0.1 0.2 0.3 - the economy 1.1 1.5 1.6 2.7 4.4 - the Treasury 0.2 0.3 0.3 0.3 -0.3 - the banks 0.1 0.1 0.2 0.3 0.5 - others 0.1 0.2 0.2 0.3 0.4 Assets-Liabilities 1.6 2.2 2.4 3.8 6.1 Sight deposits 0.7 0.9 1.0 1.4 2.0 Domestic borrowings 0.1 0.2 0.3 0.5 0.6 External borrowings 0.2 0.3 0.3 0.7 2.0 Loans and advances from central bank 0.3 0.4 0.4 0.5 0.6 Government contribution 0.1 0.2 0.1 0.3 0.4 Other 0.2 0.2 0.3 0.4 0.3 Percentage breakdown: - external borrowing 13 14 13 18 33 - domestic sources 87 86 87 82 67 Source: Table 6.4, Statistical Annex. - 56 - 2.94 At the time of the 1974 reform of interest rates, the rate for rediscounts with the central bank was raised from 3.5% to 4.5%. Preferential rates were set for certain economic activities, including: 3% for claims on foreigners; 4% for export credit; 3.5% for agricultural cooperatives; 3.625% for medium-term credit; and 3-4% for the refinancing of credit granted by the specialized institutions. These preferential rates for refinancing with the central bank are sometimes accompanied by exemption from ceilings for certain types of credit, such as cereal crop credit, export credits, rediscountable medium-term credits and, since 1979, credit to small and medium businesses. In addition, the banks are required to use at least 4.5% of their sight and time deposits for discountable medium-term credit, as a means of channeling bank financing into productive investments. Preferential interest rates and exemptions from ceilings are potent intruments for directing credit toward priority sectors, especially when they are used together. 2.95 The persuasion applied takes the form of recommendations to the banks by the central bank. These recommendations most frequently serve to reinforce the selectivity already effected by the instruments just described. In 1975, for instance, the central bank asked the banks to give priority to the financing requirements of investors and exporters, while suggesting at the same time that they refrain from financing excessive or speculative stockpiling and in more general terms, not provide too much ready cash for business so as to encourage them to draw on their own resources or on foreign investment. The central bank has encouraged the banks to increase the mobilization of savings accounts. 2.96 The statistics showing the percentage breakdown of credit to the economy by the deposit banks and specialized institutions are as follows: 1969 1972 1973 1975 1977 1. Breakdown by sector Agriculture 16.0 13.3 17.1 10.3 8.6 Mining and industry 31.5 31.8 29.9 30.1 27.2 Commerce 17.7 16.1 17.9 15.9 13.1 Construction 5.4 4.0 4.6 5.1 6.4 Tourism 4.4 4.6 3.4 2.3 1.5 Others 8.6 11.7 11.8 15.9 18.1 Unclassified 16.4 18.3 21.3 20.4 25.1 Total 100.0 100.0 100.0 100.0 100.0 2. Breakdown by term Long and medium-term 27 33 29 31 35 Short-term 73 67 71 69 65 Source: Table 6.3, Statistical Annex. - 57 - 2.97 These statistics do not allow a precise evaluation of the impact of the selective control of credit on its sectoral distribution. Unclassified credit, consisting essentially of loans below DH 50,000, has grown to the extent that it distorts the data for the classified sectors. In itself this is a positive element, as it can indicate that the needs of small entrepreneurs are being increasingly met by the banking system, and, therefore, that the system is doing an increasingly better job of converting savings into credit for the benefit of all borrowers. Agriculture's share in classified credit has gone down year by year for the past ten years. This can be interpreted in several ways: the number of small farmers with access to credit has increased, and they have helped to swell the volume of unclassified credit; private capital expenditure in agriculture has declined; a growing part of agricultural investment has been financed by the farmers themselves. The first interpretation seems the most likely, bearing in mind what is known about the efforts of the Caisse Nationale de Credit Agricole to broaden its clientele. The relative significance of credit to mining and industry is possibly underestimated if, as in the case of agriculture, small entrepreneurs are now playing a relatively larger role. The share of tourism has declined steadily since 1972. 2.98 The growing significance of medium and long-term credit should be stressed; it rose from 27% of the total in 1969 to 35% in 1977. The bulk of this increase occurred during the vigorous expansion of investment between 1973 and 1977. Interest Rate Policy 2.99 The 1974 reform that raised the rediscount rate from 3.5% to 4.5% also made some important changes in the structure and level of interest rates in Morocco. The reform sought to bring rates to borrowers closer to the opportunity cost of capital in Morocco, and thereby to discourage highly capital-intensive investments and encourage self-financing. Regarding rates to lenders, the reform aimed at improving the mobilization of savings and the functioning of the capital market. Sight and time deposits did in fact increase following the reform, thus showing it to have been effective. However, the acceleration of price inflation after 1976 must be noted. At the time of the reform, inflation was running at between 6% and 7% p.a., so that the new interest levels (10-12% for term loans for construction and industry) could be expected to promote the aims of the reform. Similarly, the interest paid on deposits for over 24 months and on five-year Treasury bonds (6.5%) and on long-term bonds (7.5%) was enough to attract savers. The increased price inflation (8.6% in 1976, 12.5% in 1977 and 9.7% in 1978) made the revised rate levels no longer consistent with the aims of the 1974 reform. One of the aims of that reform was to improve the functioning of the capital market. Improvements have been minor so far. The reasons for this are discussed in Chapter III which deals with the prospects and problems of the economy. - 58 - Evolution of Consumer Prices 2.100 During the period 1959-73, price increases in Morocco remained very moderate, the average rise in consumer prices being no more than 2.9% p.a. At first, during the 1960-64 Plan, Morocco experienced a rising rate of inflation, which reacbed 5.8% in 1963. In the same way as during the period 1975-77, the setting of ambitious economic goals resulted in aggravating the budgetary and balance of payments deficits, thereby imposing the need for a financial adjustment program as part of the three-year Plan for 1964-67. Thanks to this program, the annual rate of inflation fell from 4.4% over the period 1960-64 to 0.5% over the period 1964-67. During the subsequent Plan period, 1968-72, consumer prices rose by only 2.5% p.a. 2.101 By contrast, the recent period 1973-77 has been one of accelerated inflation resulting from factors of external origin (rises in oil and import prices), reinforced by the substantial growth in the money supply (20% p.a. between 1973 and 1977) and the ambitious revision of the economic and social development plan that took place in 1975. Whereas prices rose by 4.1% in 1973, the increase was 16% in 1974, 8% in 1975, 8.6% in 1976 and 12.5% in 1977. The average rise in consumer prices over the period 1973-77 was 9.7%. 2.102 Since 1977, the financial adjustment measures taken as part of the three-year Plan have made it possible to considerably reduce the increase in the money supply, which dropped from 19% in 1977 to 16% in 1978 and to 13% in 1979. The rise in consumer prices, which in 1977 threatened to get out of control, was thus checked and the rate of inflation gradually declined from 12.5% in 1977 to 9.7% in 1978 and 8.3% in 1979. - 59 - CHAPTER III: OVERALL ECONOMIC PROSPECTS AND PROBLEMS 3.01 Chapter II underscored that at the end of the 1973-77 Plan the Moroccan economy was faced with two distinct but closely related imperatives. In the short term, the very sharp upward trends affecting investment and imports, which were causing excessive widening of the resource gap and mounting recourse to external borrowing, needed to be brought swiftly under control. At the same time, radical measures were called for to reactivate exports, increase savings and maintain the rate of social progressl these measures have to be implemented in a longer-term context because of the obstacles to overcome. 3.02 This Chapter first presents a relatively brief analysis of how the 1978-80 Plan responds to the needs stated above, then seeks to quantify the macroeconomic prospects for the decade 1981-90, primarily in order to identify the basic options of development stategy during that period and to evaluate them in terms of their overall compatibility. It concludes with a discussion of the main problems that will have to be solved in the long term if economic growth is to be both rapid (to satisfy demographic imperatives) and balanced (to meet financial requirements). However, two problems -- employment and the attainment of adequate social objectives -- are discussed in Chapters V and VI because their importance and complexity make it necessary to consider questions that go beyond the horizon of Chapter III. A. THE 1978-80 PLAN 3.03 In order to help correct the economic disequilibrium that developed in 1977, the Government introduced an annual program in 1978, with the following elements: (1) Budgetary austerity made it possible to reduce the overall Treasury deficit; excluding free transfers from abroad, this deficit was brought down from DH 8 billion in 1977 to about DH 6 billion in 1978. The reduction was achieved by cutting Government capital expenditures by over 40%, and to a lesser extent through increased taxation and a strict limitation on current expenditures. The Treasury was thus able to reduce the net utilization of foreign borrowing by nearly one-half. However, Treasury use of bank credit, including utilization of the advance import deposits introduced in 1978, increased sharply, owing in particular to the decline in special grants from abroad and in deposits of Treasury correspondents. (2) Credit policy also was made more restrictive; notwithstanding the Treasury's needs, the Government succeeded in holding the increase in domestic credit to 14%, - 60 - against 22% in 1977. At the same time, interest rates on time deposits and bonds were raised to encourage the mobilization of financial savings. The increase ranged from 1% to 1.5%, depending on maturities, to give an average of 7%. However, price inflation remained significant: the consumer price index rose by 9.7%, against 12.5% in 1977. (3) Sharp restrictions were imposed on imports; in conjunction with the limitations on Government capital expenditure and credit, these restrictions trimmed purchases of goods abroad by 22% at current prices and 14% in constant prices. Although phosphate earnings and special grants from abroad were significantly below the levels projected at the beginning of the year, this policy made it possible to reduce the deficit in the current account balance, and the net inflow of foreign borrowing was reduced. The loss of foreign reserves was limited to about DH 33 million in 1978, and the country's net foreign exchange reserves represented slightly over two months of imports at the end of the year. (4) The measures described above were distinctly selective in nature. While giving priority to defense requirements, budgetary policy sought to maintain sufficient growth in capital and operating expenditures for education, training and health, as well as for development projects that directly benefit the poorest segments of Moroccan society. Similarly, agriculture and exports were exempted from the limitations imposed on domestic credit. Finally, the import restrictions were applied selectively so as to discourage speculative inventories and imports of nonessential consumer goods, but without, insofar as possible, hindering imports of intermediate and capital goods essential to economic expansion. 3.04 The measures introduced in 1978 enabled the Government to control the inflationary trends in the economy. However, they were only a first phase and the estimated resource gap of 15% of GDP at current prices in 1978 was still much too large. Furthermore, general domestic and external conditions were still not very favorable to a rapid expansion of exports and savings. The Government, therefore, drew up the 1978-80 Three-Year Plan, which continues the restrictive policies and the selectivity introduced in 1978. This Plan was approved by a very large majority in Parliament at the end of 1978 and has three main objectives: (1) To re-establish, if possible as of 1980, the financially feasible long-term balance between investment and savings and between exports and imports; - 61 - (2) To maintain adequate increases in the budgetary and human resources earmarked for social programs; (3) To draw up and begin implementation of the necessary reforms so that as soon as possible the economy will enjoy rapid and balanced growth that will facilitate the solving of the problem of poverty. 3.05 To achieve the first two objectives, the Plan continues the strategy adopted in 1978. Investment and consumption expenditure would continue to be limited to the extent required by the import capacity of the economy, the principal instruments still being selective restrictions on budgetary expenditure, domestic credit and imports. However, to maintain maximum growth of production and employment, the Plan calls for stepped-up efforts to channel investment into rapidly productive projects that can increase exports or substitute imports at internationally competitive costs. Special emphasis would be placed on highly labor-intensive industries and on the promotion of small and medium-scale nonagricultural enterprises; small-scale agriculture also would be given preference, especially through credit. A greater proportion of short and long-term financial resources would be allocated to priority projects and sectors. Private investment and savings would be tapped to supplement those of the Government, constrained by budgetary austerity, and further incentives would be provided for this purpose. In addition, through an appropriate price and wage policy and measures to control public and semi-public enterprises, the Government would seek to increase the productivity and savings capacity of those enterprises, enabling them to reduce their dependence on the Treasury and on external sources of financin . Finally, social programs would be continued. In quantitative terms 1/ the Plan envisaged the following main developments from 1978 to 1980: a moderate increase (less than 7% per year) in exports; a sharp slowing of economic growth (4.6% per year); and a sharp fall (20%) in wage-employment generation with respect to the average for 1975-78. The Plan further anticipates much lower investment and import levels compared with those of 1976-77. 3.06 The considerable number of projects still uncompleted at the end of the 1973-77 Plan meant that only a few new projects could be included in the State investment program for 1978-80. The only new projects included in the State investment program for 1978-80 are those for small-scale agriculture, small and medium-scale industry, low-cost housing, education and vocational training. In comparison with the accomplishments of 1975-77, the objectives of the 1978-80 Plan signalled a very similar sectoral distribution of appropriations, as can be seen in the table below, which shows the percentage shares of State investment by sectors (excluding defense): 1/ The growth rates given here are those of the Plan. They are based on projections at constant 1978 prices and have been calculated by comparing 1980 with 1978, which is used as the base year rather than 1977. - 62 - 1975-77 1978-80 Appropri- Expen-- ations ditures Appropriations 1. Production support 59 58 58 Agriculture and dams 23 23 26 Industry (inc. mining and energy) 17 15 14 Infrastructure 19 20 18 2. Social programs 36 31 37 Education and training 13 12 17 Health and other socio- cultural programs 9 8 9 Regional development 14 11 11 3. General administration 5 5 5 4. Not classified - - Total 100 100 100 Total (billions of current DH) 20.1 14.8 21.4 Source: State Secratariat for Planning, Projet de Plan Triennal 1978-80, Volume I, Annexes I-III. 3.07 In order to give new impetus to long-term development, the 1978-80 Plan called for a substantial number of reforms. The most important concerned export promotion, the mobilization of public and private savings (including taxation), the strengthening of local authorities and economic administration, and the improvement of social programs. In many cases, however, these proposed actions would depend on the further studies which are essential to specify their content. The three-year period should be devoted to such studies, although some reforms can be implemented more rapidly inasmuch as the studies were already well advanced. Proposed reforms also were well advanced at the sectoral level, and are discussed in the following chapters. 3.08 The objectives set forth in the 1978-80 Plan were carefully chosen and the overall atrategy proposed to achieve them seems appropriate. However, implementation of the Plan proposals faced two difficult problems: (1) There were still important unknown factors, expecially as regards defense expenditures and exports, which introduced a high degree of uncertainty into planning, even for the short term; and - 63 - (2) Financial adjustments were bound to cause acute problems for the various ministries and would entail major sacrifices on the part of the nation. 3.09 Because of these unknown factors and the uncertainty to which they give rise, the Government continued in 1979 and 1980 the practice begun in 1978 of implementing annual programs, based on tight control of domestic credit, imports and budget expenditure, and which can be revised at various intervals depending on the circumstances. This policy permitted reductions of some 20% each in the overall Treasury deficit and the balance of payments current account deficit during the period 1977-79, and the Government proposes to pursue the financial recovery effort on the same bases in 1980. Developments in the principal economic indicators are depicted below: % annual 1979 1980 growth rate 1977 1978 (estimates) (projections) 1977-80 National Accounts (Millions of dirhams; 1969 prices) Gross domestic product 29,028 29,932 30,859 31,939 3.2 Investment 8,019 6,167 6,243 5,319 -12.8 Consumption 24,352 26,150 26,939 28,334 5.2 Exports 1/ 4,295 4,395 4,638 4,917 4.6 Imports 1/ 8,392 7,040 6,961 6,631 -7.6 1/ Goods and nonfactor services, including, in particular, income from tourism and Government transactions. Source; Statistical Annex and mission estimates. - 64 - 1977 1978 1979 1980 (estimates) (projections) Balance of Payments (Millions of dollars; current prices) Exports 1/ 1,867 2,167 2,754 3,306 of which: goods f.o.b. ( 1,283) ( 1,488) ( 1,925) ( 2,401) Imports 1/ -4,124 -3,980 -4,694 -5,187 of which: goods f.o.b. ( 2,821) ( 2,629) ( 3,205) (3,719) Resource gap -2,257 -1,813 -1,940 -1,881 Workers' remittances 589 760 975 1,100 Interest payments (net) -129 -222 -367 -388 Other factor income -81 -123 -135 -127 Net current transfers 2/ 52 50 49 26 Current account balance -1,826 -1,348 -1,418 -1,270 Disbursements of external loans 1,786 1,191 1,434 1,495 External debt service 265 548 799 990 (of which: interest) (148) (252) (411) (427) External holdings 609 772 917 867 (of which: gold) 3/ (104) (154) (360) (360) 1/ Goods and nonfactor services. Government transactions. 2/ Not including special grants. 3/ Gold reserves are evaluated at the price of gold on the London market, as quoted in International Financial Statistics published by the IMF. Source: Statistical Annex and mission estimates. 3.10 These projections give a less optimistic picture than that assumed in the 1978-80 Plan, but one that seems more in keeping with the annual financial recovery programs. These programs placed a ceiling on external borrowing with the aim of controlling the increase in the external debt and thereby imposed a very tight foreign exchange constraint on the economy. With the selective restrictions introduced by the Government, this constraint affected imports of nonessential consumer goods and above all imported capital goods, while imports of intermediate goods and raw materials were maintained at a level deemed sufficient to meet the requirements of existing production capacity, especially of export-oriented industries. Nevertheless, the rise in world prices, and particularly the - 65 - considerable surge in oil prices in 1979 and 1980, mean that goods imports are expected to increase by 9.4% p.a. in current DH from 1977 to 1980. At constant prices, a reduction in imports can be expected, estimated here at over 20%, between 1977 and 1980. The anticipated result is a decrease, now estimated at about 40%, in investment, between 1977 and 1980 (at 1969 prices). This reduction will be felt chiefly in State-financed investment, in particular outlays for industry and infrastructure projects; as already noted, private investment has been exempted from the financial restrictions imposed since 1978. 3.11 As a result of this contraction of imports and the expected increase in exports, the resource gap (difference between imports and exports of goods and nonfactor services adjusted for the variation in terms of trade) should decline, at constant prices, from DH 4.6 billion in 1977 to DH 2.8 billion in 1979 and 2.3 billion in 1980. It would then represent only 7% of GDP, against 16% in 1977. External borrowing will remain high, however (over $1 billion a year in the period 1979-80), corresponding to new commitments of $1.4 billion in 1979 and $1.7 billion in 1980. External debt service will reflect this development, rising to 22.3% of exports of goods and services in 1980, from 10.7% in 1977. 3.12 The implementation of financial recovery programs reduced annual growth of GDP in 1978-79 to 3.1% and growth is expected to be only 3.5% in 1980. The necessary cutback in investment is reflected in a slowing of activity in the public works and construction sector. Coupled with this direct impact is the multiplier effect, on the economy as a whole, of income reductions resulting from reduced investment. The severe limitations imposed on current Government expenditure operate in the same direction. Finally, the restrictions on imports of intermediate goods and raw materials used in the manufacture of certain consumer goods dampen industrial activity. Estimated national accounts data for this report show the following picture by sectors (in 1969 prices): - 66 - 1977 Level Variation (%) (millions of 1969 DH) 1978 1979 1980 Agriculture 3,538 18.2 -6.0 4.0 Energy and water 1,061 5.1 32.1 Mining 901 6.5 5.7 Industry 4,802 5.6 2.4 Construction and public works 2,414 -18.5 -4.9 Secondary sectors 9,178 -0.7 4.8 4.0 Services 14,905 4.1 4.7 3.3 Indirect taxes 1,407 -20.1 3.5 5.1 Gross Domestic Product 29,028 3.1 3.2 3.5 Source: Mission estimates. 3.13 The cutting back of budgetary expenditure have led to major changes in Government programs compared with the 1977 levels. As regards current spending, the budgetary restrictions have a particular impact on expenditures for supplies and maintenance since personnel costs are difficult to reduce in view of the requirements of the priority sectors (education, health and defense) and the statutory protection accorded to public employees. This results in a shortage of supplies and inadequate maintenance, which could seriously jeopardize the proper utilization of existing facilities if the situation is prolonged. As for capital expenditure, except in the infrastructure sector, where programs have traditionally been well controlled, the authorities face substantial problems in adjusting their physical programs in keeping with the reduced financial appropriations. 3.14 The impact of the slowing of economic growth on employment creation cannot be measured precisely with the data available. Nonetheless, very rough estimates can be made on the basis of coefficients obtained from the historical analysis which relate employment to value added by sector, and by applying these coefficients to the projections of sectoral growth given above. The estimates indicate that a slackening of the growth of total employment can be expected from 1978 to 1980, owing primarily to decreases in the public works and related service sectors, which would be offset by increases in the other sectors 1/. At the same time, the labor force would continue to grow at an annual rate of about 3.3%; in other words, there would be nearly 350,000 additional persons seeking employment between 1978 and 1980. In view of the nature of the labor market in Morocco this excess labor supply will mean lower labor-force participation rates, greater underemployment for unskilled workers and greater pressure on pay. It is possible, however, that the excess labor supply will not be totally absorbed in this way, in which case it will be reflected in a more or less apparent increase in unemployment. 1/ See table 10, in Projections Annex to this Chapter. - 67 - B. GENERAL PROSPECTS FOR 1980-90 AND THE PROBLEM OF EXTERNAL FINANCING 3.15 This section presents an attempt at quantified economic and financial projections of the Moroccan economy for 1980-90. The methodology used is simple, 1/ because the data are still lacking for a more complex exercise and the primary objective is to shed light on the main parameters of economic and financial policy during that period. Essentially, the quantification of the 1980-90 outlook is aimed at ascertaining the conditions under which external financing of the economy would remain feasible. This in turn makes it possible to identify some of the principal constraints that should be relaxed through the adoption of appropriate policies, for example on exports, savings and import substitution. But it does not allow analysis of other equally important constraints, such as the efficiency of resource allocation and use of price policy (including interest rates). Nor does it permit analysis of the impact of the expected growth on income distribution, while the indications that it gives regarding the outlook for employment and internal financing are very approximate. These problems are dealt with through partial and largely qualitative analyses in the pertinent sections of the report. Overall Prospects in Quantitative Terms for 1980-90 3.16 The overall prospects for the economy for 1980-90 are presented in the form of two scenarios -- the minimal scenario (MS) and the voluntarist scenario (VS). The presentation of two scenarios is dictated in part by the usual uncertainty in forecasting, enhanced in the case of Morocco by the magnitude of the structural changes the Moroccan economy has experienced since 1975, the long-term effects of whicb are still difficult to measure. The hypothesis adopted is that national defense expenditure will return to a normal level 2/ by 1982. Another purpose of presenting two scenarios is to highlight the differences between their underlying economic policy premises and to draw attention to the long-term economic consequences of these. 3.17 Subject to these preliminary remarks, the main results of the projection are as follows: 1/ It is presented in Projections Annex to this Chapter. 2/ Meaning about 5% of GDP and the ending (or offsetting by grants) of special payments for purchases of military equipment abroad. - 68 - Annual Real Growth Rate Minimal Voluntarist 1980 Level Scenario Scenario National Accounts (millions of DH) 1977-80 1980-85 1985-90 1980-85 1985-90 (in 1969 DH) Gross Domestic Product 31,939 3.2 4.1 4.5 5.8 6.8 Imports 1/ 6,631 -7.6 2.7 3.6 2.6 4.4 Exports 1/ 4,917 4.6 5.9 6.4 7.9 7.2 Total consumption 28,334 5.2 3.5 3.9 4.3 6.1 Investment 5,319 -12.8 3.9 5.0 8.0 7.3 Domestic savings 3,029 10.6 9.6 8.3 17.6 10.0 External Debt 1980 1985 1990 1985 1990 Disbursements of MT and LT Loans (millions of current DH) 5,839 11,785 21,359 8,223 9,559 Debt service as % of exports of goods and services 22.3 25.1 29.9 21.3 17.3 1/ Goods and nonfactor services. Source: Tables 1,2, and 8 of the Projections Annex to Chapter III. 3.18 The financial recovery programs implemented since 1978 should result in a reduction of the resource gap to about DH 2.2 billion (at 1969 prices), i.e. 7% of GDP, by 1980. Aitnough the resource gap has narrowed sharply since 1977 (16% of GDP) its continued high level would make financing of the balance of payments deficit difficult and would further inflate debt service to 22.3% of goods and services exports in 1980 (28.3% of goods exports and workers' remittances). This constraint imposes strict limits on growth of investment, imports and production during an initial period. The duration of that phase will depend largely on the vigor and success of the policies of export promotion, import substitution and savings mobilization; and as such, it is longer in the minimal than in the voluntarist scenario. In the minimal scenario reduction of the resource gap to 3% of GDP would not be attained until toward 1987, whereas in the voluntarist scenario this could occur in 1984. During the second phase, ending toward 1990, the economy would achieve a sufficiently rapid pace of long-term growth, with the external financing constraint becoming gradually less pronounced and the savings effort moving into proper balance with the investment effort. In the minimal scenario investment would rise slightly, from 16.6% of GDP in 1980 to 16.8% in 1990 (at 1969 prices), domestic savings rising to 14.6% of GDP in 1990. In the voluntarist scenario investment and savings would reach higher levels, 18.9% and 18.6% of GDP, respectively, in 1990. - 69 - 3.19 The minimal scenario depicts the evolution of the Moroccan economy over the period 1980-90 on the basis of an extrapolation of recent trends and the assumption that the annual financial recovery programs will be continued up to 1981. In this scenario, the absence of substantial changes as regards the main structural coefficients of the economy and the external debt burden would severely limit the rate of growth of the economy that can be achieved under conditions compatible with a gradual reduction of the balance of payments deficit. Here, narrowing of the resource gap (difference between imports and exports of goods and services) would be achieved by a downward adjustment of the main macroeconomic aggregates from their 1977 levels. In spite of the marked slowdown of annual growth (at constant prices) of imports (2.7%), gross fixed capital formation (3.4%), Government expenditure (3%) and GDP (4.1%) over the years 1980-85, debt service as a percentage of exports of goods and services would rise from 22.3% in 1980 to 28.9% in 1990. Not until toward the end of the period 1980-90 would the Moroccan economy regain a balanced rate of growth; even then it would remain low -- 4.5%, i.e. below that achieved during the years 1967-72 (5.6%) and 1972-77 (7.3%). 3.20 The voluntarist scenario is based on a different economic policy. Here, narrowing of the resource gap would be obtained essentially through modification of the main structural parameters of the economy, reflected in a sharp increase in domestic savings and exports. This increase would also make it possible to avoid the deflationary effect of the downward adjustment of investment and imports in the minimal scenario, and would permit a gradual acceleration of GDP growth (5.8% in 1980-85, 6.8% in 1985-90) under conditions compatible with a reduction of the resource gap and of debt service (21.3% in 1985, 17.3% in 1990). It would also allow per capita consumption to grow at a more rapid rate, of the order of 1.3% a year during 1980-85 and 3% during 1985-90. 3.21 In contrast to the minimal scenario, in the voluntarist scenario the contraction of imports would not result essentially from restriction of purchases of goods abroad (apart from oil). It would result rather from an effective policy of import substitution, notably by agriculture, local production of energy and intermediate goods, and deliberate reduction of the capital-intensiveness of investment through the selection and preparation of appropriate projects. Export promotion, 1/ aimed at exploiting Morocco's comparative advantages as regards phosphate and phosphate derivatives and the favorable prospects for export of manufactured goods (as well as tourism), plays an essential role in the voluntarist scenario. It would determine the import capacity of the economy and enable imports of capital and intermediate goods to be maintained at a level compatible with the recovery of investment growth (at constant prices) from 1982 onward. In the minimal scenario, the assumption that exports of goods and services would 1/ See section D of Chapter III. - 70 - grow at a lower rate (5.9% a year at constant prices from 1980 to 1985) than in the voluntarist scenario (7.9%) would limit the import capacity of the economy and thereby the rate of growth of investment. The probability of the voluntarist scenario materializing depends also on the savings growth that can be achieved. In view of the need to reduce the resource gap, a growing proportion of investment financing would have to be provided during the period 1980-90 by domestic savings, which would have to rise from 9.5% of GDP in 1980 (in 1969 prices) to about 19% in 1990. Although this savings effort may appear substantial, it would still be lower than that accomplished by other countries comparable to Morocco. 3.22 The statement of sources and utilization of resources resulting from these hypotheses is summarized in the following table, which shows the main macroeconomic indicators as percentages of GDP (at 1969 prices): Minimal Scenario Voluntarist Scenario 1980 1985 1990 1985 1990 Gross domestic product 100.0 100.0 100.0 100.0 100.0 Imports 1/ 20.8 19.4 18.5 17.8 15.9 Exports 1/ 15.4 16.7 18.2 16.9 17.3 Adjusted resource gap 2/ 7.2 4.2 2.2 2.4 0.3 Investment 16.6 16.4 16.8 18.5 18.9 Consumption 88.7 86.2 83.4 82.3 79.7 Domestic savings 9.5 12.2 14.6 16.1 18.6 National savings 14.3 13.8 14.4 17.9 19.6 1/ Goods and nonfactor services. 2/ Imports less exports of goods and nonfactor services plus variation in terms of trade since 1969. Source: Table 3 of the Projections Annex to Chapter III. 3.23 Investment and Savings. The voluntarist scenario, like the minimal scenario, assumes that the financial recovery of the years 1978-79 will be continued during the years 1980-81. It is during the latter period that the groundwork will have to be laid in the areas of savings, import substitution, export promotion and investment allocation to enable the economy to achieve a balanced rate of growth more rapidly than in the minimal scenario. Although in both scenarios the external financing constraint would necessitate reducing investments during the years 1980-81 in order to contain imports of capital and intermediate goods, the rapid increase in domestic savings in the voluntarist scenario would justify the expectation of a resumption of investment growth from 1982 without this entailing increased (net) recourse to external financing. Another effect of a more rapid growth of domestic savings in relation to net external financing would be to increase the share of investment financed by local resources; this would make it possible to finance a greater proportion of - 71 - social projects, particularly housing, and to create additional jobs. Investment expenditure would thus rise gradually from 16.6% of GDP in 1980 to 18.9% in 1990. In the minimal scenario, on the other hand, the adjustment of the economy and the return to balanced growth would take place only very gradually and the increase in external debt service throughout the period 1980-90 is only brought under control by reducing investment expenditure. Investment thus declines (as a percentage of GDP) over the years 1980 to 1985 and would not regain its 1980 level of 16.8% until toward 1990. Actual and projected investment and savings can be summarized as follows (in 1969 prices): Projections Actual _ Senario Minimal Voluntarist Senario 1972 1977 1980 1985 1990 1985 1990 Investment - Amount 1/ 2,284 8,019 5,319 6,428 8,219 7,834 11,135 - % of GDP 11.2 27.6 16.7 16.4 16.8 18.5 18.9 Domestic savings - Amount 1/ 2,011 4,240 3,029 4,788 7,130 6,819 10,973 - % of GDP 9.8 14.6 9.5 12.2 14.6 16.1 18.6 ICOR 2/ 2.6 3.3 7.2 3.9 3.6 2.9 2.7 1/ In millions of 1969 DH. 2/ Calculated on a period of 5 years, this coefficient relates investment to growth of GDP. Source: Statistical Annex, and Projections Annex to this Chapter. 3.24 The future rate of growth of the economy will depend on the sectoral allocation and the efficiency of investment as well as on its volume. The incremental capital-output ratio (ICOR) reached 2.6 during the 1968-72 Plan and 3.3 during the 1973-77 Plan. Following the 1978-80 austerity period, the projections assume that this ratio would rise to 3.9 in the minimal scenario during 1980-85 but would fall in the voluntarist scenario and would be only 2.9 in 1985. This evolution would be the consequence of a different investment policy followed in the voluntarist scenario. In the minimal scenario, the increase in ICOR would reflect the growing impact of the amortizations required to renew the highly capital-intensive production capacities installed between 1975 and 1980; it would also reflect the need to allocate an adequate share of total investment to housing and to social infrastructure, the return on which is to a large extent deferred. Although this tendency exists in the voluntarist scenario, it would be offset by a different allocation of investment toward sectors and projects that are not capital intensive and by increased efficiency of investment. - 72 - 3.25 Thus, in the voluntarist scenario the share of total investment allocated to the agricultural sector would be higher than in the past. This increase should make it possible to ensure development of the production of cereals, sugar, milk and meat in particular, to reduce food imports and to supply the leather and carpet exporting industries. This allocation of investment should also result in an increase in the share of agricultural investment allocated to the bour (rainfed farming) areas, and, to the extent that these investment projects are labor intensive, in a lowering of the ICOR. The development of production in the bour areas, where the great majority of the poorest farming families live, would make it possible to increase the incomes of those families and thereby provide a supplemental market for Moroccan industry. As regards the industrial sector, the amendment of the investment code and the introduction of a system of incentives to ensure efficient import substitution and the expansion of exports should make it possible in the voluntarist scenario to increase the efficiency of capital utilization. Thus, the expansion of exports and the enlargement of the domestic market should lead to an improvement in the rates of utilization of industrial production capacities. The allocation of investment to the labor intensive sectors, already undertaken in Morocco with the small-scale industries project, should also lead to an improvement of capital utilization in the voluntarist scenario in relation to the minimal scenario. Taking into account the unsatisfied urban and rural housing needs, the construction and public works sector could grow by about 7X a year in the voluntarist scenario during the period 1980-90. 3.26 Once the period of financial recovery has been completed, the transition to a period of faster-growing investment and production will depend on the ability to mobilize savings, which has been seriously limited up to now. The means of overcoming this weakness are discussed in section D of this chapter. They involve primarily an improvement in public sector savings (which have become negative). This in turn presupposes a reform of tax administration, strict respect for the principle of moderation in current Government expenditure, and an increase in the savings capacity of public and semipublic enterprises, especially through price policy and better control of the capital and operating expenditures of those enterprises. An improvement in the channels for mobilizing private savings also seems desirable, together with greater flexibility in the regulation of interest rates. It should be noted, however, that the data remain seriously deficient for empirical study of the savings patterns of enterprises and households. The Government needs to fill that gap so as to facilitate the formulation of more suitable savings mobilization policies. 3.27 In the minimal scenario, the absence of substantial structural modifications as regards the propensity to save of the different economic agents (including the Government) would be reflected in a very slow recovery of domestic savings, which (as a percentage of GDP) would not rise to a level comparable to that of 1977 (14.6%) until the end of the period 1980-90. In contrast, the voluntarist scenario assumes that the propensity to save of the economy would increase appreciably throughout the years - 73 - 1980-90 and that domestic savings would represent 18.6% of GDP in 1990. Although this savings effort may appear substantial in relation to the rate anticipated for 1980 (9.5% of GDP), it remains below that achieved in 1976 by countries such as Tunisia, Malaysia and Thailand which in that year had savings rates of 26%, 22% and 22%, respectively (see IBRD, World Development Report, 1978). 3.28 Consumption. In the minimal scenario, the combination of the assumed production growth and the structural changes affecting that growth would permit an average annual increase in final consumption of 3.7% at constant prices from 1980 to 1990. This rate would be markedly higher in the voluntarist scenario (5.2%) because it assumes a faster increase in household consumption. Per capita household consumption would increase by 0.7% a year in the minimal scenario and 2.4% in the voluntarist scenario from 1980 to 1990, compared with 1.3% a year during the periods 1977-80. The following table shows past and projected consumption as a percentage of GDP (at 1969 prices): Projection Actual Minimal Senario Voluntarist Senario 1967 1972 1977 1980 1985 1990 1985 1990 Final consumption Government 12.4 12.7 21.5 24.4 23.2 22.7 21.5 20.2 Households 78.9 75.6 62.3 64.3 63.0 61.7 60.9 59.5 Total 91.3 88.3 83.8 88.7 86.2 83.4 82.3 79.7 Per capita household consumption in 1969 DH 840 975 990 1,019 1,052 1,104 1,102 1,304 Source: Table 3 of the Projections Annex to this Chapter. 3.29 The Government's objective is to improve the situation of the poor, particularly through budgetary expenditures for social services, and it will have to meet the operating requirements of existing economic and social structures. The acute demographic pressure requires a minimum growth rate of expenditures for social services (primarily education and health) if the Government wishes to raise the very low current levels of service per capita. In other words, Government expenditure will remain under very strong upward pressure. Given the constraints on budgetary receipts and the need to earmark an adequate proportion of total resources for the consumption requirements of households -- which are themselves subject to demographic pressures -- the Government would have to follow a strict policy of limitation on the growth of public consumption. This policy would also be necessary in order to increase Government savings, as already noted. As - 74 - will be seen in section D of this Chapter and in Chapter V, on social policies, attainment of the Government consumption target would have to be accompanied by an improvement in the effectiveness of State social outlays in terms of the objectives sought, and an effort to reduce the costs of the services rendered. 3.30 Sectoral growth rates. For each of the productive sectors distinguished in the projection it has been endeavored to find a prospective balance of inputs and outputs for the sector. However, the available data was not sufficient to prepare a complete set of prospective balance sheets by sector. The annual growth rates adopted for sectoral value-added levels estimated at 1969 prices are as follows: Projections Actual Minimal Senario Voluntarist Senario 1960-71 1971-77 1980-85 1985-90 1980-85 1985-90 Agriculture 3.6 -2.4 2.4 2.5 3.5 3.5 Industry 4.9 8.4 4.7 5.5 6.5 7.3 Services 4.1 7.7 4.1 4.4 5.9 7.2 GDP 4.2 6.2 4.1 4.5 5.8 6.8 Source: Table 9 of the Projections Annex to this Chapter. 3.31 Although comparatively low in relation to those of the other sectors, the growth rate of the agricultural sector is a key determing factor of the overall growth rate. It averages 2.4% a year in the minimal scenario and 3.5% in the voluntarist scenario over the period 1980-90. It has decisive implications for imports of agricultural and food products and for satisfaction of the nutrition needs of the rural population. Although it contrasts with the poor performances since 1970 it appears to be justified by the productive capacity that has been built up in the irrigated areas and that is to be stimulated in the bour areas. As already stated, the voluntarist scenario assumes that the effort to develop the production of the bour areas (particularly of cereals) will be stepped up and that the efforts already undertaken with respect to sugar, milk, meat, fruit and early and other vegetables will be continued. In the voluntarist scenario, the execution of these investments would thus make it possible to reduce imports of food products throughout the period 1980-90. In the minimal scenario, on the other hand, it has been assumed that food imports will rise throughout the period in step with the development of household consumption, as they did during the period 1971-77. 3.32 Having regard to the unsatisfied housing need, construction and public works should be one of the dynamic sectors of the economy. It could expand during the period 1980-90 by 7.3% a year in the voluntarist scenario and 4.3% in the minimal scenario. With the exception of phosphate cbemicals, industry would have to undergo important structural changes to - 75 - respond to the need to sustain a high level of exports and to take advantage effectively of import substitution opportunities, particularly as regards intermediate products and capital goods. The projected growth of the mining sector from 1980 to 1990 --5.5% and 5.8% in the minimal and voluntarist scenarios, respectively-- reflects above all the prospects open to exports, although probable local consumption has been taken into account for certain mineral products in which it plays an important role; the projection distinguishes between phosphates, closely linked to the anticipated development of world demand, and other mining products. A sustained growth of manufacturing --5.6% in the minimal and 7.3% in the voluntarist scenario-- would be necessary over the period 1980-90 to enable it to play an ever-greater role in both exporting and import substitution, particularly in the voluntarist scenario. 3.33 Imports. The projection assumes that the economic sectors --especially industry and agriculture-- will undertake a sustained effort of import substitution and will endeavor to make such substitution increasingly efficient. Up to now Morocco has followed an active policy of protecting local production against imports. However, as will be seen in Chapter IV, this policy was formulated without a global approach to protection, above all as concerns industry. With the encouragement and direct intervention of the Government in investment, this policy has contributed greatly to the appearance of imbalances in production structures which do little to foster efficiency, exports and employment generation. The basic problem raised by protection for the continuation of economic growth could not be analyzed in quantitative terms in this report because of its complexity. Nevertheless, it is among the immediate concerns of the Government, which, as will be seen in Chapter IV, has undertaken a study of effective protection and of the efficiency of resource utilization in the modern industrial sector; the study should form the first stage of a reform of the present system of industrial incentives. A similar approach needs to be taken with regard to agriculture, where the system of protection and incentives is just as complex and its effects as little known. 3.34 Imports of goods and services have been projected by relating the major categories of imports to their final uses by elasticity coefficients 1/ based on past experience and a rough estimate of future import substitution possibilities. It has further been assumed that from 1981 onward the payments for special military imports by the Government will decline. For that reason, projected imports of services decline between 1980 and 1982. The projected evolution of the major import categories is as follows (at 1969 prices): 1/ See Table 11 in the Projections Annex. - 76 - 1980 Level Annual Growth Rate (x) (millions of Minimal Senario Voluntarist Senario 1969 DH) 1980-85 1985-90 1980-85 1985-90 Food products 1,061 2.9 2.5 -0.3 -0.2 Oil 501 4.5 5.0 2.0 2.0 Intermediate goods 1,837 4.5 4.7 5.0 5.7 Capital goods 1,200 5.9 6.2 10.4 8.7 Consumer goods 492 2.9 3.9 0.8 5.4 Total goods 5,092 4.4 4.6 4.3 5.4 Nonfactor services 1,539 -4.0 -2.1 -4.0 -1.4 Source: Table 6 in the Projections Annex to this Chapter. 3.35 In the minimal scenario, the reduction of imports is the essential variable that determines the reduction of the current account deficit. As already indicated, the effect of this reduction of import growth in relation to past trends would be to limit severely the growth of industrial investment and of CDP. In the voluntarist scenario, the reduction in the rate of growth of imports would not result from a stringent quota policy but essentially from an effective policy of energy conservation and import substitution. This policy, and the vigorous promotion of exports, would enable the growth of imports of captial and intermediate goods to be maintained at a rate consistent with the replacement of investment and the execution of the projects provided for in the voluntarist scenario. This strategy emphasizes the substitution of imports of food products (cereals, sugar, edible oils and dairy products), intermediate industrial products and international transportation. In this scenario it is assumed that a determined policy will be followed in 1980-85 in the area of energy conservation, including in particular the adjustment of domestic prices and of taxes on energy products with the objective of limiting the growth of oil imports to 2% a year. This scenario further assumes that over the long term the petroleum exploration activities currently under way will result in increased local energy production and that the development of new energy sources (oil shale, uranium associated with phosphoric acid, solar energy) will make it possible to limit the growth of oil imports. Import substitution of capital goods (transportation equipment and simple machine tools) would begin during this period. Overall, elasticity of goods imports to GDP over the years 1980 to 1985 would be 1.07 in the minimal scenario and 0.7 in the voluntarist scenario. - 77 - External Financing 3.36 Application of the hypotheses on international export and import prices adopted in the projection makes it possible to project external payments in current prices. The price assumptions are based on a rate of world inflation of 7.4% a year from 1980 to 1985 and 6% thereafter until 1990. Under these hypotheses Morocco's terms of trade would deteriorate slightly from 1979 to 1981 (consequent on the rise in oil prices) and then regain their lost ground up to 1985. Given this framework, the main components of the balance of payments current account could develop as follows (in millions of current dollars): Projections Minimal Senario Voluntarist Senario 1980 1985 1990 1985 1990 Exports of goods and nonfactor services 3,306 6,729 12,514 7,355 14,032 Imports of goods and nonfactor services -5,187 8,996 15,279 8,902 15,242 Resource gap -1,881 -2,267 -2,765 -1,547 -1,210 Workers' remittances 1,100 1,500 1,914 1,500 1,914 Net interest payments -388 -857 -1,745 -703 -915 Other factor income -127. -189 -305 -189 -305 Current transfers (net)l/ 26 0 0 0 0 Current account deficit -1,270 -1,813 -2,901 -939 -516 1/ Excluding special grants. Source: Table 7 of the Projections Annex to this Chapter. 3.37 The deficit of the current account balance, which reached $1.8 billion (current dollars) in 1977 would be reduced to $1.3 billion in 1980. In the minimal scenario, the current deficit would rise progressively throughout the period 1980-90 ($1.8 billion in 1985 and $2.9 billion in 1990, in current dollars). In the voluntarist scenario, on the other hand, the deficit would decrease throughout the period and by 1990 would be down to $516 million in current dollars, reflecting the more vigorous export and import substitution effort than in the minimal scenario. 3.38 From 1975 to 1978 Morocco greatly increased its external borrowing on financial markets (see Chapter II), which meant that a hardening of average loan terms has accompanied the sharp increase in the country's indebtedness. This has resulted in an accumulation of external debt service - 78 - obligations which will weigh heavily on the balance of payments in the early 1980s. According to the estimates in Table 4.2 (Statistical Annex), projected transactions under external borrowings contracted through December 31, 1979 will develop as follows (amounts in $ millions); Year Projected transactions Projected (3)/(5) Disbursements 1/ Service (2) - (4) exports 2/ % (1) (2) (3) (4) (5) (6) 1978 1,191 543 643 2,995 18.5 1979 1,434 798 635 3,772 21.2 1980 635 990 -355 4,445 22.3 1981 643 982 -349 5,056 19.6 1982 425 1,000 -575 5,728 17.5 1983 171 1,145 -974 6,485 17.7 1984 145 1,200 -1,055 7,341 16.3 1985 107 1,026 -915 8,302 12.3 1/ Estimated disbursements on debt outstanding but not disbursed as of December 31, 1979. 2/ Including goods and services, minimal scenario. Source: Table 4.2 and mission estimates. 3.39 The estimates presented in the foregoing paragraph make it possible to specify the nature of the constraint that external borrowings contracted through December 31, 1979 will impose on the economy at the beginning of the 1980s. Taking into account the projections of exports of goods and services, the debt service ratio for the existing debt contracted through December 31, 1979 will reach a maximum in 1980 and decline rapidly thereafter. Nevertheless, net transactions on this debt (expected disbursements less projected service payments) will become negative beginning in 1980, and the net outflow will reach a maximum in 1984, declining thereafter. This twofold evolution indicates that the external financing constraint due to borrowings contracted through December 31, 1979 will have its most pronounced impact during 1980-84. As indicated in the first section of this chapter, the Government is aware of this outlook and in 1979 adopted an external debt policy aimed at limiting new commitments that create heavy additional service obligations during the early years of the 1981-90 period. The main elements of the policy are: (1) An active search for loans on favorable conditions, particularly from bilateral (Arab) and multilateral sources; (2) A limitation on borrowings with maturity of one to ten years. For 1979 a ceiling of SDR 450 million has been placed on this type of borrowing, and those with maturities of one to five years may not exceed 7% of that total. - 79 - Inasmuch as Morocco's access to external financing on favorable terms is limited, it is obvious that the policy of restricting borrowings on the hardest market terms will have to be pursued for several years, in order to lengthen the average grace and repayment periods on new loans. On the basis of the economic growth scenarios and export projections adopted here, the amounts of new commitments would be as follows (in millions of current dollars): Projections Actual Minimal Senario Voluntarist Senario Source 1975 1977 1979 1985 1990 1985 1990 Official loans 205 862 690 1,116 1,490 1,116 1,450 Private sector loans 502 1,128 703 1,902 4,151 1,034 1,129 Total 707 1,990 1,393 3,018 5,641 2,150 2,619 Source: Mission estimates. 3.40 The consequences of these financing plans in terms of the relative size of the external debt would be as follows: Minimal scenario Voluntarist scenario 1977 1980 1985 1990 1985 1990 Debt outstanding and disbursed at end of year Amount ($ millions) 4,078 7,117 14,500 27,123 12,085 16,167 % of GDP 30.2 42.6 49.6 55.4 38.1 27.4 External debt service Amount ($ millions) 265 990 2,084 4,217 1,900 2,781 % of exports of goods and services 10.7 22.3 25.1 28.9 21.3 17.3 Source: Table 8 in the Projections Annex to this Chapter. 3.41 The above figures show high debt service ratios at the beginning of the 1980s. Because the level of foreign exchange reserves will be low in relation to imports (only a little more than two months of coverage), the first years of the decade will undoubtedly see a continuation of the strong pressures on external liquidity that marked the 1978-80 Plan period. These pressures should lessen gradually as the measures taken to promote exports and savings begin to have positive results. Any failures in these areas would mean a prolongation of the pressures on external payments. - 80 - 3.42 Up to now Morocco has been able to mobilize only comparatively small amounts of private long-term foreign capital. Government policy on external borrowing is to permit foreign borrowing without Government guarantee only in rare cases, and it would be unwise to abandon this practice under the present circumstar,ces. Moreover, as noted in Chapter II, direct private and portfolio investment from abroad have been limited. In Chapter IV it will be seen that foreign participation in State-promoted investment has remained quite low (11% in 1975, 10% in 1976, 13% in 1977 and 11% in 1978) despite the measures taken to encourage it, including a service bureau for foreign investors. Nonetheless, private foreign investment could play a much more important role than in the past in supporting the expansion and diversification of Moroccan industries, especially those which are export-oriented, and in doing so it could make a greater contribution to the financing of the current account deficit. Evolution of Employment 1/ 3.43 The evolution of demand for labor has been estimated on the basis of hypotheses of probable growth of value added per job, and that of employment supply on the basis of a population participation rate taking into account emigration of Moroccan workers which has been subtracted from the projected active population. Attention is accordingly drawn to the precarious nature of these projections, since the methodology does not allow account to be taken of the adjustment of the labor market through, for example, variations in wages. Over the period 1978-80 the expected deceleration of growth should result in a fall in the job creation rate (about 2.8%) owing essentially to the decline in the construction sector. In the minimal scenario employment demand over the decade 1980-90 would grow by only 2.7%; in the hypothesis that the participation rate would hold at its 1977 level, this would entail a rise in the unemployment rate. In the voluntarist scenario, the long-term evolution of employment is clearly more favorable. The more rapid growth of GDP and the reorientation of investment, giving preference to the execution of highly labor-intensive projects, is reflected in a job creation rate of 3.5% of year and a fall in the unemployment rate. The projections for the period 1980-90 are as follows: 1/ See also Chapter V. - 81 - Number (thousands) Annual Growth Rate (x) 1980 1990(MS) 1990(VS) 1980-90(MS) 1980-90(VS) Agriculture 2,252 2,518 2,537 1.1 1.7 Industry 951 1,491 1,690 4.6 5.9 Services 1,404 2,003 2,272 3.6 4.9 Unclassified employment 205 273 273 2.9 2.9 Employment demand 4,812 6,285 6,772 2.7 3.5 Unemployment 516 828 528 Labor Force 5,328 7,113 7,300 2.9 3.2 Unemployment rate 9.7 11.6 7.2 Participation rate 1/ 26.4 26.4 27.1 Population 20,181 26,945 26,945 2.9 2.9 1/ The participation rate in the voluntarist scenario is higher than in the minimum scenario to take into account the higher growth rate of the economy and its effects on labor supply. Source: Table 10 of the Projections Annex to this Chapter. C. EXPORT PROMOTION Introduction 3.44 Export activity was among the basic targets of the economic development strategy proposed in the 1973-77 Plan. However, this policy does not seem to have been implemented with sufficient determination, especially after the revision of the Plan in 1975 which tilted the investment effort in favor of import substitution by the public sector. Moreover, foreign demand for Moroccan goods and services has declined with the international recession and the resurgence of protectionism in respect of certain goods, that followed the oil price increased of 1973-74. Export earnings have conseguently been low in comparison with the Plan targets and with the performance of 1968-72, as may be seen in the annual growth rates for the major categories of goods and services (in 1969 prices): - 82 - 1968-72 1973-77 Agricultural and food products 5.4 -4.9 Phosphates and derivatives 7.7 5.1 Other mineral products 1.1 0.0 Manufactured goods 16.3 11.1 Total goods 6.5 0.8 Tourism 14.5 0.9 Other private services 14.2 13.7 Government transactions 5.5 -3.2 Total nonfactor services 13.0 1.2 Grand Total 8.3 0.9 Source: Table 2.5 of the Statistical Annex. 3.45 Morocco's exports showed a tendency to diversify during 1968-77. Their composition by major categories of goods and services indicates that manufactured goods, tourism and other services (especially international transportation) have incresed in relative terms. Exports of the phosphate sector also have accounted for a rising sbare of the total, owing to the increase in sales of phosphate derivatives (phosphoric acid and fertilizers). The other categories have declined, and the decrease has been felt especially in agricultural and food products. The percentage distribution of exports has varied as follows: Current prices 1969 prices 1967 1972 1977 1967 1973 1977 Agricultural and food products 44.5 38 23 41 36 26 Phosphate and derivatives 21.5 17 29 20 20 24 Other mineral products 7.5 5 5 9 6 6 Manufactured goods 3.5 8 12 5 7 12 Total goods 77.0 68 69 75 69 68 Tourism 14 21 18 16 20 19 Other services 5 7 12 5 6 13 Government transactions 5 4 1 5 4 1 Total nonfactor services 23 32 31 25 31 32 Grand Total 100 100 100 100 100 100 Source: Table 2.5 of the Statistical Annex. - 83 - Mention should also be made of the increasing diversification of Moroccan exports by geographic destination. For goods alone, at current prices, European markets (especially France) have lost their relative importance, as the developing countries (especially Arab and African nations) have gained in relative importance. The shares of the European Economic Community and France in Moroccan exports of goods at current prices have decreased as follows (percentages): 1967 1972 1977 Exports to EEC 66 63 55 Exports to France 41 33 25 Source: Office des Changes. 3.46 On the basis of the available data it is difficult to say whether the changes in the composition of Moroccan exports have represented an optimization of the relative shares of the different groups of goods and services. The growth of exports of phosphate derivatives and manufactured goods and of tourism seems to reflect Morocco's comparative advantage in raw materials, low labor costs and the excellence of its tourism facilities. On the other hand, the expansion in international transportation, and above all the fall in agricultural and food products, are hardly consistent with the country's comparative advantage in the use of labor (and the advantages afforded by the climate and irrigation with regard to agricultural production). This question warrants a special study which could not be undertaken for this report. Studies on the costs and benefits of the production increases of the principal branches of industry and of tourism, which the Government proposes to undertake (see Chapter IV), should permit an initial answer to this complex question. 3.47 Seen in a longer-term perspective (1953 to 1957), the overall export performance of the Moroccan economy was weak particularly since 1973. While the import requirements of the economy grew normally between 1953 and 1973, and at a faster rate from 1973 to 1977, its import capacity showed increasingly marked signs of weakness. The latter, which expanded at an annual rate of 3.9% in 1954-63, rose by no more than 2.9% p.a. in 1964-73, and showed a slight decline between 1973 and 1977. The figures in this regard were as follows (DH million): - 84 - 1953 1963 1973 1977 Exports at current prices 1/ 1,407 2,469 5,342 8,407 Index of international prices 2/ (1969 = 100) 82 98 160 258 Import capacity 3/ 1,716 2,519 3,339 3,259 For Memory (at current prices): - Imports 1/ 1,909 2,947 5,667 18,571 - Resource gap 502 478 325 10,164 1/ Including nonfactor services. 2/ Index of international prices, IBRD definition. 3/ Exports at current prices divided by the corresponding index of international prices (IBRD definition). Source: Tables 2.5 and 2.6 of the Statistical Annex, and IBRD, Commodity Price Forecasts. The above figures indicate that exports, which increased gradually from 1953 to 1973, have lost dynamism since 1973. They have ceased to match the country's growth objectives and the import requirements that those objectives entail. The preceding sections have shown that as a source of foreign exchange and savings, exports have become the major constraint on Morocco's economic growth and that during the 1980s the country's overall growth potential will be closely bound up with its export performance. 3.48 The following analysis considers the principal causes of the steady weakening in Moroccan exports and the corrective measures that can be taken, first at the level of major categories of exported goods and services and then with regard to general economic policies that affect exports. Agricultural and Food Products 3.49 Agriculture (including fisheries) has been a major factor since 1973 in this loss of dynamism in the Moroccan economy. The balance of trade at current prices in agricultural and food products, which was in surplus until 1974, has shown a deficit since that year. There was a similar reversal in 1977 in terms of constant (1969) prices. While imports rose steadily throughout the period, exports reached a peak in 1973 which has not been regained since. Exports and imports of agricultural and food products have been as follows (amounts in DH million): - 85 - 1967 1973 1974 1977 Current prices Exports, f.o.b. 1,244 2,122 2,023 1,932 Imports, c.i.f. 863 1,407 2,488 2,668 Balance 381 715 -465 -736 Constant 1969 prices Exports, f.o.b. 1,106 1,652 1,298 1,122 Imports, c.i.f. 876 1,010 994 1,337 Balance 230 642 304 -215 Price indexes (1969 = 100) Exports, f.o.b. 112.5 128.5 155.8 172.2 Imports, c.i.f. 98.5 139.3 249.3 199.6 E/I Ratio 114.2 92.2 62.5 86.3 Source: Tables 3.2, 3.2A, 3.4 and 3.4A of the Statistical Annex. 3.50 The movement of export and import prices of agricultural and food products shown above indicates that the terms of trade for agriculture deteriorated between 1967 and 1977. Moroccan agriculture generated surpluses for export of products (primarily fresh and preserved fruits and vegetables) whose prices have risen comparatively slowly. In fact, the prices of Moroccan export commodities have risen somewhat slower than the average prices of products exported by the developing countries as a whole; the latter reached an index of 319 in 1977 (1969 = 100), compared to 172 for Moroccan products. In contrast, imports of items (chiefly wheat, sugar, oil and dairy products) whose prices have risen comparatively rapidly, have been increasing. 3.51 These price movements raise the question whether the agricultural development policy -- including price policy -- has properly oriented agricultural production in the most desirable direction from the standpoint of international competitiveness. This matter is discussed in the next chapter, in the section on agriculture. It may be observed here that the majority of agricultural and food exports come from the irrigated areas (and from fisheries). It will be seen in the following chapter that the economic benefits from developing these regions as compared with intensification of rainfed agriculture have not yet been studied fully. 3.52 The Office de Comercialisation et d'Exportation (OCE) has a monopoly on the exportation of most fresh or processed food products. However, its function is purely one of promotion. OCE does not attempt to stabilize prices to producers, as is done by the stabilization funds or marketing boards of several African countries, but confines itself to the collection, transportation and marketing of export commodities, charging a - 86 - fee for its services. For fresh produce it also handles packaging and carries out extensive promotion work; however, as regards processed products it allows Moroccan processors a considerable role in the marketing of their products abroad. During the 1968-72 and 1973-77 Plans, exports handled by OCE and other exports were as follows (f.o.b. figures in DH million at 1969 prices): 1963 1972 1973 1977 Citrus fruits 350 414 494 390 Canned fish 108 121 174 113 Canned fruit and vegetables 66 121 136 133 Wine, olive oil and cotton 110 168 166 62 Total OCE 845 1,038 1,257 869 Other exports 251 402 395 253 Grand Total 1,106 1,440 1,652 1,122 Source: Office de Commercialisation et d'Exportation. 3.53 As the above figures show, agricultural and food exports reached a maximum in 1973, returning in 1977 to levels close to those of 1968. Conditions in the European market, for which a substantial part of these exports are intended, largely explain this movement. The recession that followed the oil price increases of 1973-74 had an adverse impact on Moroccan sales, which are highly sensitive to changes in income. Moreover, the EEC has adopted restrictions to protect its producers which have sharply narrowed the market for Morocco's products, especially fresh and processed fruit and vegetables. The efforts made by Morocco to diversify its markets have helped to soften the impact of these restrictions to some extent. The forthcoming entry of Spain and Greece -- direct competitors of Morocco -- into the EEC will mean a further squeezing of the market for Moroccan exports. In 1979 Morocco opened negotiations with the EEC with a view to obtaining guaranteed outlets for its products. 3.54 Although the market constraint was dominant between 1973 and 1977, mention should be made of the purely Moroccan factors that limit exports of agricultural and food products in the long term. OCE has made a study of these factors for the Government. The first one that should be noted is that for most Moroccan export commodities, very close integration of the various stages of the export process (production, packaging or processing, transportation, warehousing and marketing) is essential, so that production will be strongly encouraged to adjust constantly to the changing market situation. Such integration presupposes in turn that the agencies involved collaborate closely. In Morocco most of these agencies are governmental, beginning with OCE, but coordination has often been a weak link in the past, except possibly as regards citrus fruits. The Government is aware of this deficiency and intends to correct it. An integrated project for the - 87 - exporting of fresh vegetables is about to be implemented, and should allow a test of the new procedures for interagency cooperation and a doubling of exports of these products. However, the need remains to devise and implement similar forms of collaboration for other export commodities. 3.55 A number of constraints arising from this institutional situation still burden export activity. At the farm level extension services and credit are often inadequate, but recently some progress has been made. In some cases, such as those of olive oil and cotton, the price policy discourages producers. At the processing level, food industries must bear the additional costs imposed by the protection of inputs (e.g. packaging materials) used in processing. In the case of fish (aside from the problem of sardines, which migrate from Moroccan waters at irregular intervals), the policy for development of industrial and small-scale fishing has shown serious defects; despite very large subsidies the development of fishing has not brought visible benefits to Morocco, partly because of clandestine exports. As regards sea transport, the imposition of high monopoly tariffs by new national companies is cited as a reason for higher costs. At the level of marketing, efforts to study and win new markets have not always been sufficiently vigorous. All of these constraints have been studied in detail in Morocco, and it can be expected that with the improvement of interagency collaboration mentioned in the preceeding paragraph, they should be gradually removed. Given Morocco's comparative advantage in the low cost of its labor -- an important component of the selling price of agricultural and food products -- moderate growth (between 2.5% and 4% p.a.) in exports of these products during 1980-90 should be possible. Phosphates and Phosphate Derivatives 3.56 The problems posed by the expansion of the phosphate sector in Morocco are discussed in Chapter IV, Section A. This sector is completely controlled by the Office Cherifien des Phosphates (OCP), a public enterprise. During the period 1973-77 it became Morocco's leading export sector. 3.57 OCP enjoys a substantial advantage over most of its international competitors from the standpoint of costs of extraction and domestic transportation of the rock. Moreover, there seems to be a well-established tendency to locate processing facilities (phosphoric acid) at the site of the deposits, rather than near markets. Phospbate projects in Morocco have high rates of economic and financial return; thus, the investment and price policies followed by OCP will have a determining effect on the expansion of exports of phosphate and its derivatives. From this standpoint the lack of a firm long-term development plan for the phosphate sector, including the ancillary physical infrastructure and training of the required personnel, leaves a degree of uncertainty about its prospects. The hypotheses adopted for this report are as follows:l/ 1/ See Table 5 in the Projections Annex to Chapter III. - 88 - (a) As regards phosphate rock, it is assumed that OCP will regain its share of the world market in 1980 and that its sales will increase at the same rate as world demand (5% p.a.). (b) As regards derivatives (basically phosphoric acid), the report assumes an expansion of capacity permitting an increase in the output of these products at an average rate of 14% during 1980-90. The foregoing assumptions are based on a study of the outlook of the world market for phosphates and fertilizers. Other Mining Products 3.58 More than two-thirds of Morocco's mining production in value terms is exported, since with the exception of quarry products, energy sources, salt and sulfur, domestic consumption of most of the minerals is small (see Chapter IV). Exports of the chief mining products have been as follows (f.o.b. figures in DH million at 1966 prices): 1967 1972 1973 1977 Lead 74 118 116 103 Iron 34 11 18 5 Manganese .49 27 34 30 Other 86 100 121 118 Total 243 256 289 256 Export price (Index: 1969 =100) 86 80 88 159 Source: Table 3.2A of the Statistical Annex. 3.59 The Bureau de Recherches et de Participations Minieres (BRPM) controls the mining sector in Morocco; foreign participation may not exceed 50% of the capital stock of mining companies. Under the supervision of the Ministry of Mines and Energy, BRPM serves as a national mineral exploration agency. The State provides generous incentives for public and private mining development, and there is a quite significant traditional cooperative mining sector. The information compiled for this report indicates that exports of mining products could increase by 2 to 6% p.a. depending on the scenario during 1980-90; even this would call for a sustained exploration program in order to maintain the level of reserves. - 89 - Manufactured Goods 3.60 Excluding products exported by food industries (already mentioned) and petroleum products (of minor importance), exports of manufactured goods were as follows from 1967 to 1977 (f.o.b. figures in DH million): 1967 1972 1977 At current prices Semifinished goods 123 189 564 Finished goods 58 239 752 At 1969 prices Semifinished goods 148 149 458 Finished goods 100 231 416 Price index (1969 = 100) Semifinished goods 83 127 123 Finished goods 58 103 181 Source: Tables 3.2 and 3.2A of the Statistical Annex. 3.61 The spectacular increase in exports of semifinished (intermediate) goods between 1972 and 1977 was due primarily to the commissioning in 1976 of the first phosphoric acid unit of Maroc Phosphore, an OCP subsidiary. Phosphoric acid exports in 1977 were valued at DH 224 million (current prices). Exports of perfume oils have also risen steadily since 1967. On the other hand, cork exports have remained static and those of leather had to be cut back in order to meet the demand for processing for export. 3.62 Finished goods also have expanded very rapidly. Exports of capital goods have remained very small, since apart from truck assembly Morocco has not developed industries of this kind. Thus, exports of finished products have consisted almost entirely of consumer goods. The increase in such exports is based primarily on textile (including clothing and carpets) and leather processing plants benefiting from the export incentives introduced in 1973. These plants bave typically been private and highly labor intensive. On the basis of available data, it can be estimated that industrial exports, including processed food products, generated about 30,000 new jobs between 1969 an 1975 -- some 26% of total employment generated in the modern industrial sector -- while their contribution to the increase in industrial production was only 13% over the same period. 3.63 Morocco's industrial export promotion policy involves several elements aimed at increasing the profitability of this activity, reducing the risk involved in it, and facilitating sales. These elements are: - 90 - (a) In addition to the general investment incentives, there is a total exemption from the tax on business profits and the turnover tax on exports, guaranteed repatriation of dividends and invested capital, and a foreign exchange allocation of 3% of the amount of foreign sales to cover promotion expenditures. These benefits are granted without regard to the nationality, location or size of enterprises; (b) Refund of the tax on goods and services as regards inputs used in the manufacture of products exported, and the benefit of in-bond arrangements (exemption from import duties and taxes) for inputs imported for that purpose; (c) Preferential interest rates on export credit and exemption from ceilings imposed during periods of restricted credit; (d) Special benefits for marketing companies since 1977 (exemption from the business profits tax for ten years); (e) Supplementary benefits for small-scale production units; and (f) The establishment of a Moroccan Export Promotion Center (CMPE) in 1976. 3.64 Despite these incentives, industrial exports are still in an unfavorable position compared to import substitution. The fact is that the tariff and quota protection provided makes production for the domestic market more profitable for enterprises that would otherwise be able to export. Such protection tends to raise the cost of domestic production; for this reason, the most dynamic export industries have been those operating under in-bond systems, as industrial enclaves subject to international prices and relying, for the success of their operations, on the low cost of Moroccan labor. Moreover, fiscal and foreign exchange policy has not been aimed at increasing the profitability of industrial exports; on the contrary, the increase in the special import tax from 5% in 1973 to 15% in 1979 can be interpreted as an asymmetric devaluation, affecting only imports, which has increased the protection of the domestic market. Finally, export incentives are not granted very freely and involve cumbersome administrative procedures in many cases. 3.65 Although a study of the system of incentives for industry has recently been initiated (see Chapter IV), there is little likelihood of a rapid rationalization of protection that would enable Moroccan industry to approach a free trade system. Under these conditions, large segments of Moroccan industry will probably continue to face costs too high to permit exports during the immediate future. Nonetheless, the export promotion policy can help expand the indutrial export sector if the following measures are adopted; - 91 - (a) Simplification and generalization of in-bond systems giving exporters access, free of import duties and taxes, to imported inputs used in the manufacture of goods exported. The definition of exporter should be broadened and bank guarantees eliminated. The "statistical" tax of 0.5% on exports should be abolished; (b) Authorization of greater financial incentives (within the GATT limits) for industrial exports. This can be done particularly by increasing the provision for losses in manufacturing and shipment, by further reducing the cost of export credit (interest rates and maturities), by lengthening the period of the exemption from the business profits tax, etc. Direct export subsidies may also be feasible in the case of new products planned for manufacture; this possiblity should be explored as soon as possible; (c) Strengthening of services to assist exporters, by stepping-up the expansion of CMPE's activities, establishing trade advisors abroad and introducing export training programs for manufacturers. Such measures would enable the Government to assume responsibility for a number of promotional expenditures that are deterrents to potential exporters, especially in Morocco where none exceeds medium size; (d) Improvement of conditions for foreign investors who can bring technology, management practices and effective marketing techniques to Morocco. In this regard, a study should be made of the reasons why foreign investors are hesitant about Morocco. 3.66 Although they carry the risk of further distorting the Moroccan price system, these measures as a whole could permit a sustained high rate of expansion of industrial exports, of 7.4% per year in the minimal scenario and 11% in the voluntarist scenario, in real terms, as assumed in the 1980-90 forecast. Concurrently, and for the longer term, Morocco should aim at a system of industrial incentives that gives equal treatment to production for the domestic and foreign markets. Such a system is desirable because it permits a simultaneous improvement in resource allocation, industrial efficiency and employment creation. The experience of many countries shows, however, that the transition to such a system is generally a complex and delicate process because it entails reorganizations and rationalizations in enterprises that are always difficult to bring about. Nonetheless, it is important to begin this process as soon as possible and to pursue it unswervingly toward a clearcut goal: creating efficient establishments that can hold their own against foreign competitors, regardless of whether they produce for the home or the export market. Here, the above-mentioned study of the system of industrial incentives takes on special importance; if properly carried out, such a study could afford the empirical basis which is essential to make protection and other industrial incentives more rational. - 92 - Tourism 3.67 The tourism sector is analyzed briefly in Chapter IV. The increase in foreign exchange receipts generated by this sector was very rapid between 1967 and 1972, but slowed during 1973-77. Still, in 1977 and at current prices, tourism was in third place -- after agriculture and the phosphate sector -- as a source of foreign exchange earnings for Morocco, and its potential for further expansion is considerable. Although it enjoys superior advantages from the standpoint of guality of resort locations and proximity to Europe, Morocco attracted only 1.5 million foreign visitors annually compared with 1 million for Tunisia. 3.68 The slowing of the growth of tourism in 1973-77 was due largely to the economic problems that beset Europe in 1974-76. However, to ensure the long-term growth of this sector, a problem of structural adaptation must be overcome. Despite extremely generous investment incentives, hotel construction is not always tailored to demand; some hotels in the north, and those established by government agencies, are not sufficiently profitable. Moreover, hotel owners complain about control of their rates and the inadequate supply of labor. To solve these problems the Government has already modified its policy on the control of hotel rates and has stepped up the training of skilled staff. It has also begun a study of the profitability of the sector which should make it possible to improve incentives to invest in tourism. On this basis, and in view of Morocco's attraction for foreign tourists, the projection in this report assumes an increase in tourism receipts of 6% per year in the minimal scenario and 7.8% in the voluntarist scenario in real terms during 1980-90. This rate is conservative in comparison with the period prior to 1973 and the past experience of similar countries such as Spain. International Transportation and Miscellaneous Services 3.69 Morocco has made a great effort to establish a sea and air fleet for the international carriage of freight and passengers, especially during 1973-77. Generous incentives have been offered since 1973 for investment in shipping, although questions may be raised as to their usefulness, given the fact that such investments are made basically by public enterprises which in principle should not be very sensitive to incentives of this kind. However that may be, earnings from international transport (and related insurance) rose from DH 76 million in 1967 to DH 221 million in 1972 and DH 639 million in 1977. The balance of external payments in this category has nonetheless remained heavily in deficit (nearly DH 1.3 billion in 1977), which indicates that Moroccan transport has significant potential for further growth. 3.70 Receipts from miscellaneous services rose from DH 80 million to DH 266 million between 1972 and 1977, owing in particular to the expansion of Moroccan public works abroad. Given the high quality of Moroccan public works contractors and their low labor costs, this item could be increased still further. A useful step in this direction would be to improve the credit terms that such enterprises are authorized to offer. - 93 - Impact of General Policies 3.71 As will be seen in greater detail in Chapter IV, the sectoral policies on public investment and incentives for private investment are based primarily on an artificial lowering of the domestic price of capital (particularly imported captial) with respect to that of local labor in order to promote investment. At the same time, the various forms of protection against imports encourage production for the domestic market (except in sectors which are totally export-oriented such as phosphates and tourism). This protection allows enterprises to produce at higher than international costs. Rarely adjusted except upward, it leads to an increase in domestic costs which hinders the emergence of new exporting branches. The price distortions thus introduced have tended to cause an imbalance in trade and to perpetuate inefficiency, while discouraging the use of unskilled labor, which is the most abundant factor of production in Morocco. 3.72 To help exporters overcome the effects of these distortions, a number of fiscal, financial and institutional incentives are given for exports. As already seen, however, the fiscal and financial incentives are still granted in a restrictive manner, sometimes involving complex administrative procedures, and their field of application could be broadened. The institutional incentives are weak as regards both promotion of agricultural and industrial exports and the long-term programming of the phosphate and tourism sectors. 3.73. The exchange rate for the dirham is in fact fixed with respect to the weighted average of the currencies of Morocco's principal trading partners. To bring its balance of payments into equilibrium, Morocco relies on import duties and taxes as well as quotas during tight periods, together with budgetary and credit restrictions to hold domestic demand down. The immediate result of this practice is revenue for the Treasury from import duties and taxes, and an effective curb on foreign exhange outflows. However, it also leads to a further increase in protection, to the detriment of exports. In that respect, as already mentioned, the special tax on imports has been increased to 15%, and the imposition of quotas for certain categories of imports has the well-known effect of creating an economic rent for either holders of import licenses or local producers, without benefit to the Treasury. 3.74 A revision of Morocco's export promotion policy should seek to eliminate the adverse effects mentioned in the preceding three paragraphs and could be based on the following main elements: (a) Reorientation of policies on public investment and greater encouragement of private investment toward production for export and the use of local labor, Morocco's chief asset. This presupposes a change in the decision criteria for public investment and a restructuring of incentives for private investment. It will be seen in the following chapter. that Morocco is now moving in this direction, but perhaps still too slowly; - 94 - (b) Stimulating enterprises producing for the domestic market to increase their efficiency and reduce their costs, through continuous adjustment of protection. The study that the Government has initiated on the system of industrial incentives should make it possible to begin such a process within industry during the 1980's. The same approach will be required for agriculture; (c) Implementation of a more flexible exchange rate policy no longer concerned solely with the immediate objective of budgetary equilibrium and aimed at maintaining the competitiveness of exports and restraining imports and at attracting emigrant workers' remittances; (d) Strengthening of the institutional framework for export promotion. This strengthening should take place first at the sectoral level (e.g. OCE plus the Ministries of Agriculture and Industry for agricultural and food exports, long-term planning of the development of OCP and its subsidiaries, and assistance to industrial exporters). However, it also seems necessary to strengthen Government agencies responsible for export activities in order to ensure proper coordination of sectoral efforts, maintain impetus in those efforts, and guarantee that the export objective is taken into account when overall policy decisions are made. 3.75 The speed and decisiveness with which export promotion is organized around these main elements would go far toward determining the growth of exports of the principal categories of goods and services. This projected growth is summarized in the following table: 1980 Level Rate of growth at constant prices (In millions (X) of 1969 DH) 1980-85(MS) 1985-90(MS) 1980-85(VS) 1985-90(VS) Phosphate 1,030 5.0 6.0 5.0 6.0 Phosphate derivatives 362 8.3 10.0 23.8 4.5 Agricultural products 400 2.5 2.5 3.8 4.4 Mineral products 333 1.7 3.0 1.7 11.0 Industrial goods 645 7.4 8.4 9.8 11.4 Total goods 2,270 6.0 6.1 7.9 6.9 Nonfactor services 1,447 5.4 7.0 7.7 8.0 Total 4,917 5.9 6.4 7.9 7.2 Source: Table 5, Projections Annex to Chapter III. - 95 - 3.76 The objective of this necessary effort of export promotion is to overcome the inevitable and very largely unpredictable difficulties that Moroccan exporters will meet in their foreign markets and to make up for the loss of outlets that is likely to follow upon the enlargement of the European Economic Community. Clearly, such an export promotion effort can be regarded as ambitious in the present international context, characterized by a slowdown of the growtb of the industrialized countries and the rise of protectionism in certain countries. It is important also to note that the pursuit of economic growth depends in large measure on the volume of raw materials and capital goods that it is possible to import and that this volume in turn depends on the import capacity secured by export earnings. Over the medium and long term, therefore, a strong economic growth can be envisaged only if it is based on vigorous export promotion. D. MOBILIZATION OF DOMESTIC RESOURCES: PROSPECTS AND PROBLEMS 3.77 The low level of domestic savings has been identified as one of the major constraints on the economic and social progress of Morocco. The quantitative macroeconomic forecast presented for illustrative purposes in the second section of this chapter clearly shows that this constraint should be removed so that the economy may achieve an adequate long-term growth rate. The main problems in the mobilization of domestic savings are analyzed in this section in several stages. With regard to the long term, 1981-90, a quantitative projection of the Government budget is presented, corresponding to the growth scenarios mentioned in the second section of this Chapter. This exercise is limited to the Government budget, in the absence of quantitative data on other economic agents. It is followed by an analysis of the chief long-range problems that must be solved in order to raise the level of domestic savings and improve their mobilization through institutional channels. Financial Adjustments, 1978-80 3.78 As already seen, the magnitude of the budget deficit in 1977 and the pressures that it exerted on domestic prices and external payments made the adoption of strict financial adjustment programs imperative. A period of limitation of public expenditure had become a vital necessity. The 1978 and 1979 finance laws reflect a program of severe austerity, and this is also likely to be the case in 1980. Nonetheless, three factors make the Government's task especially difficult. First, the continued tension along the Sahara borders and the resulting modernization and operating costs of the Royal Armed Forces; defense expenditures rose sharply in 1975-77 and remained high in 1978-79. A second factor is the international demand for phosphate, which has weakened since 1977; for the Moroccan budget, this has meant a stabilization of OCP receipts at the 1977 level. Finally, the very success of the measures to reduce imports (quantitative restrictions, - 96 - increase in the special import tax, and advance deposit of 25% for importers) has adversely affected customs revenue from imports which rose only very slightly in 1978-79. On the other hand, because of the fall in world market prices for some imports and the expansion of domestic production, the Government was able to maintain subsidies and budget transfers at their 1977 level. 3.79 The financial adjustment measures embodied in the 1978 and 1979 finance laws included: (1) a reduction of one-half in Government capital outlays in 1978; (2) maximum restraint on operating expenditures, except for defense, education and health; (3) an increase in excise tax rates; and (4) control of credit. The expected results of these measures are summarized in the following table referring to the Government budget (in DH current million): Actual Estimate 1977 1978 1979 Current revenue 11,669 10,954 14,820 Direct taxes (excluding OCP) 2,251 2,625 3,202 Customs duties 2,403 2,528 2,897 Indirect taxes 3,900 4,168 4,659 OCP receipts 917 800 700 Miscellaneous and special accounts 2,198 793 3,362 Current expenditure 1/ 11,925 12,940 14,393 Defense 2/ 2,680 2,520 2,320 Other goods and services 7,187 8,275 9,339 Subsidies 1,311 1,098 1,374 Interest on public debt 747 1,047 1,360 Current balance -256 -1,966 427 Nondefense capital expenditure 2/ 7,626 4,109 6,696 Overall deficit -7,882 -6,905 -6,269 External borrowings 5,195 3,364 4,015 Domestic borrowings 3/ 1,269 1,724 1,538 Advances from Central Bank 1,418 1,007 715 1/ Including capital outlays for defense, which are partly estimated. 2/ Mission estimates. 3/ Including deposits at the Treasury and Postal Administration. Source: Ministry of Finance. - 97 - 3.80 The reduction in budgetary capital outlays put into effect in 1978 was an extremely difficult operation because of its magnitude and the rapidity with which it had to be prepared and implemented. The operation was carried out in two stages. In the 1978 budget, investment appro- priations were voted only for the most advanced of the projects then under execution. During 1978 the Government made a detailed study of ongoing and new programs as the basis for preparation of the list of projec-ts to be included in the 1978-80 program. The latter was introduced in September 1978 in the draft 1979 budget. 3.81 With regard to current Government expenditure, the Government had little latitude for trimming in the course of 1978-80. Debt service increased because of the borrowings made in 1975-77. Personnel expenditures rose even without wage increases, owing to the upward progression of staff on the salary scale, and in particular because of the additional recruitment required to operate recently installed facilities, expecially in the priority sectors of education and health. The only categories that lent themselves to reductions were supplies, maintenance and economic services. In these categories austerity was extreme for 1978-80, to the point of compromising the effectiveness of essential services and facilities. The severity of the limitations imposed on supplies (e.g., gasoline, office supplies, etc.) and maintenance contrasts with the situation as regards personnel, whose numbers cannot be pruned because of the system of tenure in civil service; however, the efficiency of personnel can only suffer if they lack the basic resources and supplies for their work. In general, it appears that the differentiated imposition of austerity on the various categories of current expenditure resulted in lower efficiency of services, which cannot be prolonged without serious consequences. 3.82 With regard to current revenue, the measures taken included in- creases in the special import tax to 12% in 1978 and 15% in 1979 and, also in 1979, an increase from 4% to 10% in the stamp duty on imports and in the excise taxes on tabacco, beverages, petroleum products and sugar. Further- more, fiscal innovations were introduced in 1978: reform of the "taxe urbaine", institution of a tax on increases in the value of real property and of a tax on nonbuilt land; and a special "national solidarity" tax was decided in 1980; these measures should serve as a prelude to the in-depth reform of the tax system, whose preparation was speeded up in 1978-79. 3.83 Along with budgetary austerity, the selective restrictions applied to credit since 1976 have been refined since 1978. In that year as in 1979, strict ceilings were placed on Central Bank advances to the Treasury and on increases in credit to the economy. However, with regard to the latter, financing of grain crops and exports was exempted. In 1979, credit to small and medium-size enterprises was also exempted from the credit restrictions in order to foster expansion of this previously neglected sector (see Chapter IV, section on industry). These measures, and the requirement of an advance import deposit of 25%, strained the cash flows of enterprises and helped discourage speculative imports. - 98 - 3.84 Overall, the financial adjustment measures taken in 1978-79 have unquestionably been effective from the strictly financial angle. The reduction of the overall budget deficit and the slowing in the increase of the money supply attest to this. However, as noted in the first section of this chapter, this adjustment had a bigh price in terms of slowing of economic growth, employment creation and social progress, despite the efforts made by the Government to maintain a rising level of expenditure for social services and programs directly benefiting the poor. It is well to note that a less restrictive spending policy would have been possible if the Government had been more successful in easing the constraints on the mobilization of domestic savings and expansion of exports. 3.85 The trends of 1978-79 should continue in 1980 although in that year a sharp increase in wage and salary costs tends to worsen the budget deficit. The economic slowdown consequent on the present austerity policy restricts direct and excise tax yields and this diminishes the possibilities of boosting current revenue. With the object of limiting the adverse social consequences of the slowing of economic growth, the Government also decided to raise the guaranteed minimum wage by 40% (30% in 1979 and 10% in 1980), to relieve the lowest incomes from tax by raising the exemption threshold from DH 3,000 to DH 6,000, and to extend the social risks coverage provided by the National Social Security Fund. (CNSS). 3.86 Credit restrictions can be expected to remain strict in 1980, with the exceptions, already noted, of exports, and small and medium enterprises, and this should slow down the rise in prices. It would however be desirable for medium and long-term agricultural credit to be increased substantially, given the high economic and social rate of return that this would make possible, and the contribution that agriculture can thereby make to the balance of trade (see Chapter IV). Quantified Projections, 1980-90 3.87 The probable development of Morocco's budgetary situation in 1980-90 should be placed within the context of the macroeconomic projections, particularly as regards possible economic growth and external financing patterns, since the latter will affect the factors that determine the mobilization of domestic resources. The budgetary projections in the minimal scenario (MS) and in the voluntarist scenario (VS) are summarized in the table below: - 99 - Actual Projection 1972 1977 1980 1990(MS) 199((VS) 1. In millions of current DH Current revenue 1/ 3,604 11,669 15,317 48,414 57,281 Current expenditure 2/ 3,424 11,925 17,100 47,134 51,222 Budgetary savings 180 -256 -1,783 1,280 6,059 Investment 1,189 7,626 4,100 11,966 15,839 Budgetary deficit -1,009 -7,882 -5,883 -10,686 -9,780 2. As % of GDP Current revenue 1/ 16 25 23 25 25 Current expenditure 2/ 15 26 26 25 22 Budgetary savings 1 -0.5 -3 1 3 Investment 3/ 5 16 6 6 7 Budgetary deficit 4 -17 9 6 4 1/ Including net receipts of special Treasury accounts and annex budgets. 2/ Including military capital expenditure. 3/ Civil capital expenditure only. Source: Table 12, Projections Annex to Chapter III. 3.88 The quantified projections presented above correspond closely to the overall growth scenarios adopted in section B of this Chapter. In particular, they assume that military expenditure will return to a "normal" level beginning in 1982. In both scenarios, current revenue of the Government would rise more rapidly than current expenditure between 1980 and 1990. The resulting savings would suffice to finance 10% of public investment in the minimal scenario and 38% in the voluntarist scenario. As as result the budgetary deficit could decline (in percentage terms) to only 6% of GDP in the minimal scenario and 4% in the voluntarist scenario; in the latter case this would signify a return to the proportions prevailing at the beginning of the 1970s. 3.89 Current revenue of the Government has been divided into customs revenue, resources deriving from the OCP, and other current revenue. It has been assumed that customs revenue will rise more or less in step with the amount of imports and the OCP contributions, which include taxes and dividends paid by OCP to the Government, in step with receipts from phosphate rock exports. As regards other current revenue, it is assumed that indirect taxes will increase at the same rate as GDP at factor cost, and direct taxes at a rate found by multiplying the GDP growth rate by an elasticity coefficient of 1.15. It emerges from this set of hypotheses that fiscal revenue would represent about 25% of GDP in 1990 in both scenarios. In the voluntarist scenario, the substitution of certain imports by domestic production would have the effect of moderating the growth of customs revenue, and thereby the increase in the overall fiscal burden, in spite of the fact that direct taxes would rise more rapidly than GDP. - 100 - 3.90 Current expenditure of the Treasury has been divided into three categories: interest on public debt, subsidies, and other current expenditures. It has been assumed that interest on public debt will follow the same growth curve as total interest payments on public debt guaranteed by the State, and that subsidies will rise at the same rate as per capita nominal GDP. By definition, the category other current expenditure comes out at an amount close to the equivalent in current DH of public consumption, already calculated in the part of the model relating to national accounts. For the sake of homogeneity, this expenditure category has been projected on the basis of the evolution of public consumption. As regards capital expenditure of the Government, it is assumed that this will follow the same growth curve as total gross fixed capital formation calculated at current prices following the adjustments recorded in 1978-80.1/ In these circumstances, current expenditure of the Treasury would decline (as a percentage of GDP) between 1980 and 1990. In 1990 it would represent 22% of GDP in the voluntarist scenario and 25% in the minimal scenario, i.e.less than its high 1977 level (26%). 3.91 Under these conditions budgetary savings could rise progressively to reach 1-3% of GDP in 1990. Although this scenario implies observance of constant discipline with respect to Government expenditure, it is clear that this effort is feasible. In fact, a greater fiscal effort might be desirable, to put the Government in a position to improve its economic and social services rapidly without the expansion of its activity necessitating increased recourse to bank credit. 3.92 As already noted, the financial scenario depicted in the projections implies the adoption of a number of measures relating to current expenditure and tax administration. It also has major implications for the policies to be followed on public enterprises, local governments and the capital market. These structural problems are analyzed in the paragraphs following. Current Expenditure 3.93 A first structural problem affecting current expenditure in Morocco is the low priority assigned to economic services and the consequent inadequacy of the resources allocated to them during a period of austerity such as the one that has prevailed since 1978. In Morocco as in many countries, the Government does not confine itself to playing a redistributive role, but provides a significant number of economic services in several sectors -- such as agriculture, transport and communications -- where it makes substantial investments. In the specific case of 1/ These various hypotheses are summarized in the table of structural coefficients of the Treasury in the Projections Annex to this Chapter. - 101 - agriculture, the Government can increase the productivity of bour (rainfed farming) areas without large additional outlays, through such support actions as research and extension. The insufficiency of resources allocated to economic services thus leads either to an underutilization of existing facilities and their deterioration because of a lack of maintenance, or a failure to derive economic benefits because the investment made is too small. This policy cannot be justified even if the savings realized in economic services make it possible to undertake more social programs. If the proper functioning. of economic services cannot be ensured because of social considerations, the Government can increase current revenue so as to accomodate both or, if this is impossible, it can to transfer certain economic or social services to the private sector with appropriate regulation. 3.94 A second structural problem concerns the maintaining of a satisfactory balance between personnel, supplies and maintenance, given an overall policy that does not allow current expenditure (excluding defense and debt service) to increase more rapidly than GDP. This problem arises in all functional categories of expenditure. However, it is especially acute in the case of social services where, because any increase in capacity brings an immediate need for additional personnel, the tendency is to treat materiel requirements as of purely subsidiary significance. This tendency is particularly harmful for certain services such as health, where supplies and equipment are as important as personnel for their proper functioning. Given the tendency of social services to balloon uncontrollably when they are made available to all free of charge, the Government can envisage one of the following alternatives: (1) A progressive system of fees for social services, with the exception of compulsory education, based on the principle of full payment for service rendered by those who can afford to pay and free service for those whose incomes are insufficient; or (2) A systematic policy of encouraging private enterprise in education and health so as to meet the demand of those who can pay without subsidies, while reserving free public services for the needy segments of society. 3.95 A third structural problem has to do with the relationship between investment and the associated operating expenditure, and which has not yet received sufficient attention. Indeed, annual operating budgets are based essentially on the actual figures for the preceding year. Moreover, the tendency toward tenure in public employment deprives this category of current expenditure of any flexibility. As will be seen later in this Chapter, the operating and capital budgets are to a large extent drawn up separately, the only unifying element being the overall ceiling to be observed. Hence it is not surprising that operating expenditure tends to be insufficient for the proper operation of facitities and equipment installed several years previously. Systematic attention to the relationship between - 102 - capital and operating expenditure is required for the future, which means that capital projects should not be approved unless they include a detailed projection of their annual operating costs. These projections of operating costs sbould in turn be aggregated at various levels to show their future impact on the operating budget of the Government. 3.96 The three structural problems just mentioned are closely interrelated. The balance between economic and social services, the distribution between personnel and supplies (and maintenance) for each Government service, and the relationship between capital outlay and subsequent operating cost actually have many elements in common. The solution of these problems will depend above all on the perseverance with which it is sought. Rather than taking an overall approach, it migbt be more productive to select two sectors at the outset, such as agriculture (economic service) and education (social service), in which improved budgetary policies and procedures would be introduced. This experience could later be extended to other sectors. Tax Reform 3.97 Tax reform has been a subject of discussion in Morocco for many years, but strong resistance to any change in the distribution of wealth and income, and administrative difficulties, might impede its progress. The Government has made tax reform one of its principal objectives since 1978 and, as already indicated, preliminary measures have been adopted with regard to taxes on urban property, capital gain taxes on real estate and direct taxation of income. The Government has requested technical assistance from the International Monetary Fund to draw up even more fundamental reforms, and a draft reform is expected to be adopted soon. 3.98 The following aspects of the tax situation in Morocco emerge from the analysis presented in Chapter II. During 1968-77 the tax structure was dominated by import duties and taxes, and total tax revenue had an elasticity exceeding unity with respect to GDP; although the proceeds of import duties and taxes had an elasticity of less than unity with respect to imports, the latter bave increased more rapidly than GDP, especially since 1973. The turnover tax, tied to a base that has been increasing sbarply, has given the tax system a good measure of dynamism. The business profits tax has not increased as much as might bave been expected because its base has proved difficult to identify and its yield has been reduced by the exemptions authorized for investors and exporters. One failure that should be noted concerns the expansion of the agricultural tax and urban tax base. The absence of taxes on inheritances and on appreciations in the value of real property bas deprived the tax system of a significant source of revenue. The reforms adopted in 1978 and 1979 are intended to remedy the last-mentioned deficiencies. A further increase in the elasticity of the tax system with respect to GDP is certainly possible. 3.99 The problem of the yield (or efficiency) of the tax system is closely linked to that of its equity (or justice). The fact that property and a number of income sources are still untaxed or lightly taxed in Morocco - 103 - -- such as agriculture, real estate, capital gains and inheritance -- means that the system is not making sufficient use of direct taxation, which makes it possible to combine the objectives of equity and yield. The equity of the system has also been reduced by administrative deficiences that often enable the wealthy to avoid paying the taxes they owe. Furthermore, the system is both archaic -- to the extent that it is based on such taxes as specific excise taxes -- and too modern -- when it includes a tax as complex, yet with very low yield, as the complementary income tax. 3.100 It is not uncommon for overall tax reforms such as the one that Morocco seems ready to introduce to founder because of a lack of precision in the specification of the objectives sought, their ranking according to priority, and the programming of their implemenation. It is important to stress that the "universality" of tax reform is not measured by the number of taxes modified, but rather by attainment of the objectives sought through the reform. In this connection it is well to distinguish true reforms from technical modifications that are not innovations but rather measures to maintain and modernize the system. 3.101 It is also important to avoid the danger of fiscal "indigestion" that can easily result from the simultaneous introduction of too many changes. Tax reforms are often difficult for tax administrations to absorb. A good tax reform is one whose implementation is carefully prepared; often, this preparation work is skimped. For these reasons, progressive and meticulous implementation of each and any tax reform is as desirable in Morocco as elsewhere. There is no reason to fear adverse consequences of slow progress, since a tax reform must be based on the political will to carry it out and cannot be substituted for that will. 3.102 It should be kept in mind, also, that there can be no true tax reform without an attempt to solve the problem of tax fraud. Any such action is undoubtedly less spectacular than a reform of structure, but certainly more important. This aspect is linked to the preceding ones because the resources of the tax administration are limited. It is always difficult to increase these resources, and one must be on guard against the risk that the tax administration may collapse under the weight of the reforms. Morocco cannot ignore this risk without grave danger to its social stability. 3.103 As noted above, the success of tax reform depends first of all on the absence of any ambiguity in the specification of the objectives sought and in their ranking by order of priority. In Morocco today these objectives are clear: equity, yield, protection of certain economic activities and incentives for investment and export. While it is accepted that tax reform is an instrument that makes the attainment of these objectives possible, it should also be recalled that this instrument is not the only one available and that it is not necessarily the most effective one for achieving certain of the objectives. One example is the tax yield objective. An increase in the tariffs charged by the public enterprises providing major public services (such as electricity and water) would make - 104 - it possible to achieve the objectives sought (increase in public sector revenue) very quickly, but the consequences of this option for the functioning of the economy and for eguity should be carefully analyzed. Likewise, if the increase in revenue is obtained through a tax on wealth, for example, the resulting consequences would be different from those that would follow an increase in the tax on earned income. The objective of protecting certain economic activities can be sought either through imposing duties or setting quotas; here again, the consequences for tax revenue are different. Equity -- i.e. the objective of income redistribution -- can be achieved by differentiation of the tax in accordance with income classes or through public expenditure; the subsidizing of consumer prices or the implementation of projects benefiting certain social groups can be cited as examples of Government interventions through public expenditures. In short, the attainment of the objectives sought through a tax reform will not depend on it alone. Other available instruments must be considered as well, for it is often the case in economic policy that the effectiveness of an instrument diminishes beyond a certain threshold. The full range of instruments that serve the purposes sought should be used in order to prevent this from happening. 3.104 The tax yield is certainly one of the priority objectives of any tax reform aimed at increasing the saving capacity of the Government. The quantitative projections presented above are based essentially on the expected elasiticity of the tax system with respect to economic growth, and they implicitly assume that the Government will endeavor to improve the various taxes (especially by replacing specific excise taxes with ad valorem taxes). Efforts in the area of taxation should be stepped up as guickly as possible during 1981-90 so that the Government can pursue adequate spending programs leading to economic and social progress, while avoiding any increase in budgetary deficits and the consequent inflationary pressures. This reasoning may seem paradoxical since normally an increase in tax pressure is the sign of a deflationary policy. But the fact is that in Morocco since 1978 budgetary policy has been obliged, in the absence of any alternative, to overemphasize cutbacks in spending to the detriment of the proper functioning of public services. With the financial adjustments now underway it will be necessary to rely more on increased revenue, particularly through better identification of the base offered by the incomes and assets of the social groups that have benefited from development up to the present. 3.105 Fiscal reform should also be concerned with incentives for investment. Measures of this kind have become costly to the Treasury, and it is difficult to show that they have a favorable impact on the desired composition of investment, both from the standpoint of economic efficiency and from that of employment generation. In theory, these measures entail an immediate loss of revenue which is offset in part by an increase in future receipts from an expanded tax base, the increase in that base being due to investment which would not have been made in the absence of the incentive. However, if the investment would have been made without the incentive, the revenue forgone is not recovered. Such a situation arises especially when - 105 - the investment is made by public enterprises, whose investment decisions are largely dictated by the State. This observation is of considerable importance in Morocco where the majority of the investments promoted in this way have been made by public or semipublic enterprises since 1975 (see Chapter IV). As for private investments influenced by the incentive measures, more information is needed on their profitability in order to ensure that they are properly oriented toward the activities with the greatest return from the standpoint of the country's economic and social objectives, and that the loss of revenue accepted to encourage them is not in vain. As is noted in the section of Chapter IV on industry, the Government is concerned with these fundamental questions. A detailed study of the system of industrial incentives is planned for 1979-81. 3.106 In 1978 the taxation of increases in the value of real property was introduced and the administration of taxes on urban property was improved. The purpose of these measures is to capture for the Government increases in wealth resulting from the general economic expansion, and to discourage speculation. While it is still too early to assess their impact, their implementation clearly requires a special effort on the part of the Government. 3.107 The yield of the agricultural tax has remained virtually static for many years. The problem of the agricultural sector's tax burden should be examined in the context of the system of regulated prices for agricultural inputs and outputs and for the credit farmers obtain. Only by taking these factors into account will it be possible to ascertain the extent to which agriculture in Morocco should be subjected to additional taxation. It would probably be desirable for the Government to concentrate its attention on agricultural taxpayers whose incomes exceed a fairly high minimum level. inasmuch as the adminstrative constraints are such as to jeopardize any attempt at reform embracing the sector as a whole. The Capital Market and Credit Policy 3.108 The development of the financial market -- which would permit an improvement in the effectiveness with which domestic resources are mobilized and used for productive investment -- remains a fundamental problem for the years ahead. The 1973-77 Plan called for an expansion of the capital market, but this has not been achieved for the following main reasons: (a) Savers in Morocco are attracted more by real estate than by financial investments. Real estate values rise very quickly because of demographic pressure and the increase in incomes in urban areas, even in the absence of price inflation. Moreover, public housing programs have been limited and have suffered from problems in implementation, and thus have not made up the deficit in the supply of housing. The mounting price inflation since the mid-1970s has made real estate investment a shelter against the shrinking value of money. At the same time, the taxation of real estate investment has remained very low until recently, contributing greatly to the attraction of this type of investment; - 106 - (b) A large number of enterprises are family-owned, a situation which does not encourage utilization of the capital market since this form of borrowing can lessen family control. This is especially true in an environment where individuals are not very interested in stocks and bonds, which are only purchased by large financial institutions; (c) The institutions established to promote the securities market have been distinctly lukewarm about their function. They do not want to sell off the securities they have acquired because they do not want to reduce the yield of their portfolios; (d) The taxation of income from securities, which has been increased in recent years, is yet another factor discouraging such investment; (e) Finally, the mechanisms for mobilizing individual financial savings are still insufficiently developed, and this hinders the development of the capital market since a bank deposit often precedes the purchase of securities. This problem is especially serious with regard to the National Savings Bank, which operates through post offices throughout the country. The post offices give only minor importance to serving depositors, which means that this form of savings, usually appreciated by small savers, is discouraged. In general, the network of bank branches (including CNCA) is not very developed outside the large cities. 3.109 Morocco already has a highly diversified set of financial institutions including fifteen commercial banks, five institutions specializing in medium and long-term financing, and two savings institutions, besides the Treasury. Nonetheless, the system still handles a comparatively small volume of capital, and the regulations in force tend to compartmentalize the market and to safeguard the profit margins of the institutions operating in it. The development of a true capital market, in which the stimulus of competition would foster both the mobilization of savings and reduction of the cost of converting them into credit, will undoubtedly be a long-haul undertaking in Morocco. To prevent the present system remaining at so depressed a level of operation that development is hindered, vigorous action must be taken in the areas already mentioned, particularly: increasing of the taxation of real estate investments to make them less attractive than financial investments; a reminder to certain financial institutions of their primary purpose; improvement in the channels for mobilizing savings; and review of the taxation of securities. However, such actions will be only a first step and must be followed by more fundamental reforms to be brought in after in-depth studies as the development of the economy progresses. 3.110 In the area of credit policy, the problem of the years ahead will undoubtedly be the maintaining of its independence vis-a-vis the public sector, which is bound to grow in importance and to remain relatively preponderant. This problem is faced at two levels: - 107 - The distribution of credit between the Treasury and the economy (i.e. the sector of enterprises and households); and The distribution of credit to the economy between private businesses on the one hand, and public and semipublic enterprises on the other. However, bearing in mind that the financing requirements of the Treasury are dictated by, among other factors, the need to provide transfers to public and semipublic enterprises for their operation and their investment programs, the amount of credit available to private businesses could easily become a residual doomed to erosion. The distribution of credit between public and private enterprises will depend largely on the quality of the investments made and the price policy applied to them. The experience of many countries that have attained a level of development comparable to that of Morocco indicates that credit institutions are subjected to mounting pressures to cover the financial needs of large-scale public enterprises with cash flow problems. Such pressures become irresistible when the denial of credit would mean a suspension of activities that would be harmful to employment and to the reputation of the public sector in general. Morocco has avoided this risk up to now and it would be advisable to continue the present policy of equality in the distribution of credit to enterprises, whether public or private. Public and Semipublic Enterprises 3.111 Analysis of the public and semipublic enterprise sector is based on the findings of a study covering an intersectoral sample of about 30 enterprises. While the sample is small, the study has revealed a number of problems typical of the sector as a whole. The following paragraphs briefly recapitulate those problems. 3.112 The public and semipublic enterprise sector in Morocco comprises enterprises controlled directly by the Government (e.g. SAMIR in petroleum refining) and those which it controls indirectly through holding companies (e.g. BRPM in the mining sector). The public holding companies, in turn, hold interests in affiliates which may be either productive enterprises or financial holding companies (e.g. SOFICOM is the financial holding company of OCE, the public agency with a monopoly on the marketing of Moroccan agricultural products abroad). The equity participation of the Government or of its holding companies in enterprises ranges from ownership of their entire capital stock to a minority share. The legal structure of the sector is not the result of a deliberate policy on forms of Government inter- ventions in economic activity, but rather the consequence of a broad desire to intervene through the various agencies of the Government; it has been shaped primarily by historical circumstances. Thus, in the textile sector there is an enterprise controlled directly by the State (COTEF) along with another (SICOME) which is controlled through ODI, the State industrial holding company. In summary, there are three levels in the structure of the sector: the enterprise, the holding company and the Government. - 108 - 3.113 The presentation of the problems of the sector of public and semi-public enterprises is facilitated if a distinction is made among the three levels just mentioned. In general, these problems are experienced most acutely at the lowest level of responsibility, i.e. that of the enterprise. The most important problems are the following: (1) The financial performance of the public enterprises is sometimes disappointing. There are many reasons for this. In some cases the design of projects has been unsuitable, but such examples are not numerous. More important seems to be the lack of rigorous economic and financial analysis of investment projects. In many cases the investment programs are accepted as presented as long as they make no claim on the Government budget; and for those enterprises whose programs are examined, the analysis is often limited to a study of the physical impact of the projects and rarely takes account of their economic impact on the other sectors of the economy; (2) Generally speaking, the autonomy of the enterprises is too limited so far as their main operating parameters are concerned, though some enterprises enjoy almost total independence; (3) The enterprises are often in conflict with the Government about the adjustment of their selling prices to increases in their costs when they operate under a system of fixed prices; (4) Enterprises subject to a system of fixed profit margins have little incentive to reduce costs. Nevertheless, two factors must be taken into account to appreciate the seriousness of the problems mentioned above. First, many enterprises are new and therefore face the normal difficulties inherent in start-up. Second, the financial adjustment presently under way and the accompanying economic slowdown are bound to cause temporary difficulties (e.g. demand and credit) for a number of businesses. These factors tend to aggravate the adverse consequences of poorly prepared investment decisions. 3.114 The holding companies provide the supervisory framework for the public and semipublic enterprise sector because these companies are responsible for implementing the general directives of the Government, receive financial transfers from the Government and must see to the proper execution of the investment programs of the enterprises. The main problems that have affected their operations are: (1) They have increased their equity participations and the establishment of affiliates, particularly during the period 1973-77, without always first making sure that such actions were compatible with national objectives. Also, the Government has in many cases failed to exercise adequate control over the activities of these entities even though they were receiving budgetary transfers; - 109 - (2) The monopoly situation of certain holding companies (e.g.. marketing of agricultural products abroad) has not been accompanied by adequate control of the efficiency of their operations, the quality of the services rendered and the justification for the prices set for such services; (3) Mining exploration (BRPM) has been financed by budgeta7ry transfers, but has not been subjected to precise efficiency criteria. The expanded role that has devolved upon the public and semipublic enterprises -- especially since the surge in phosphate prices in 1974-75 -- has opened a debate in Morocco in which some have contended that this expansion may be excessive and carries the risk that the country will move away from its national objective of development through private enterprise subject to market competition. This debate on the respective roles of the public and private sectors seems futile in a country where domestic private enterprise has fallen short whenever projects essential to the growth of the economy are needed. The true problem lies in the quality (economic and social justification) of the investments made by the public sector. In this connection the holding companies bear a heavy responsibility as agencies of the Government, even taking into account cases when the decision to invest has been imposed on them. 3.115 At the level of the Government, the manifest inadequacy of the data needed to measure transfers between the Treasury and the public enterprises is the first problem. It should be noted further that: (1) The control exercised over the enterprises is basically administrative. It is very strict in the matter of current transactions. On the other hand, Government representation on enterprise boards is often inadequate from the standpoint of the general policy to be pursued. The directors representing the Government sometimes have insufficient experience in the particular field of activity concerned, or else they are on too many boards to play an effective role; there are also boards of directors that merely note decisions made by others; (2) The criteria followed in the allocation of budgetary funds to the enterprises are not always clear. It appears that the needs are met essentially in the chronological order in which they arise, and that the personal influence of officers and the concern to maintain employment are significant factors; (3) Only a small number of enterprises pay their dividends into the Treasury, which explains to some extent why the level of budgetary savings remains low with respect to the volume of budgetary transfers to the enterprises. Whether or not this situation is the result of a deliberate choice, it is nevertheless true that some of these transfers serve to cover insufficiently justified operating deficits; - 110 - (4) For the numerous enterprises subject to systems of fixed prices or margins, the true operating profit or loss cannot be gauged without taking into account the cost to the enterprise resulting from the setting of an artificially low selling price, which is not necessarily offset by Government subsidies; (5) Finally, there is the policy problem of the participation of the Government in the economy. This policy is explained largely by historical factors that have determined direct control or participation through holdings companies. It has become imperative to state the objectives sought through this policy and to specify its main elements. 3.116 The problems that face the public and semipublic enterprise sector are too numerous and too complex to admit of satisfactory solution through an overall reform. In 1978 two measures were taken with a view to beginning a process of reform. Following the reorganization of the Ministry of Finance, a Directorate of Public Enterprises was established, bringing together essentially the units concerned with financial control, financial participations and the economic and financial study of new projects, the aim being to improve the satistical monitoring and accounting control of the enterprises. At the same time, a new Minister at large with responsibility for public enterprises was appointed, with the initial task of submitting a report on the situation of the enterprises and proposals for reform. 3.117 As far as the activities of the new directorate are concerned, it is important that the study of the enterprises' situation should not be made at the expense of a review of the broad outlines of Government policy concerning them. Such a review can, in fact, be made without waiting for the results of an exhaustive survey, and still point the way to major reform proposals. It would be well to draw up a comparatively tight schedule for the preparation of a report to the Government and Parliament. The aspects to which this report might give priority are discussed in the next three paragraphs. 3.118 At the level of the Government, highest priority needs to be assigned to revision of the system for the setting of prices and profit margins. The same criteria will not be possible for all sectors of economic activity, but precise objectives can be laid down so as to minimize conflicts between the Government and its enterprises. The control that the Government exercises over them constitutes the second immediate area of review. The improvement of administrative and financial controls will not be a sufficient reform in this regard. Above all, procedures must be instituted that will be observed by all and will ensure that new investments are economically profitable; provision will, therefore, first have to be made for the strengthening of project appraisal capability in the financial institutions and the supervisory ministries. A third area of review concerns the allocation of budgetary resources to the enterprises. Whatever - Ill - the overall ceiling imposed on Treasury funding for the enterprises, the allocation of such funds should be based in order of economic priority to ensure their full effectiveness; again, economic and social return should be the criteria for allocation. 3.119 With regard to the holding companies, it seems important to safeguard their autonomy, which is the expression (implicit up to the present) of the policy of decentralization of Government economic action, because this policy has numerous advantages. Nonetheless, the Government can improve and tighten its control when budgetary resources are allocated and when the holding companies submit their accounts and transfer their surpluses to the Treasury, and when their investment decisions are approved by their boards. At the same time, it must be made clear that the corollary of autonomous management is the full responsibility of managers for the economic and financial performance of their enterprises. This corollary does not conflict with the fact that for some operations the Government may decide to authorize significant free transfers; the managers of enterprises receiving such funds remain fully responsible for their proper utilization. Finally, the Treasury should be able to fully exercise the right to review the accounts of enterprises required to pay over their surpluses to the Government, so that it may assess the portion of operating surplus that should be paid over, giving due consideration to self-financing requirements. 3.120 As regards the enterprises themselves, the most serious problems are due to the above-mentioned deficiencies at the levels of the holding company and the Government. However, for those whose prices or profit margins are fixed by the Government, one priority measure should be to ensure that they operate at the lowest cost. Their management should be subject to strict operating criteria and made responsible for meeting the financial and economic targets agreed upon between the enterprise and the supervisory authority. This must not be construed as guestioning the justification for control of certain prices; it simply means that the enterprises should minimize the cost of achieving the objectives set for them. Local Authorities and Finances 3.121 As will be seen in the last Chapter of this report, the role of the local authorities is going to assume increasing significance under the regional development policy adopted several years ago. Thus, in 1979 and 1980 financial transfers by the Government to local governments (operating and capital expenditure subsidies) increased sharply, whereas there was a marked slowdown in the growth of total Government expenditure. The problems of the local authorities should be considered in the context of the objectives laid down for regional development. Morocco is a country of very diverse regions, and in some cases with extensive variations even within regions, on which has been imposed a uniform structure of municipalities, rural communes and autonomous centers. However, the regional differences in social organization place a strong imprint on the present-day political and administrative structure. This diversity should be the starting point for any analysis of local governments in Morocco. - 112 - 3.122 Strengthening the role of Government at the regional level (normally the province) is a prerequisite for the proper functioning of the local authorities. Such strengthening can be sought through the regionalization of Government expenditure and expansion of the local establishments of the various ministries when justified by the volume of services provided locally. During 1979 it was decided to undertake substantial decentralization of budgetary appropriations toward the local authorities: About DH 1 billion is to be made available to the Governors of the prefectures and provinces, who will act as representatives of the central Government and of each ministry. Although this does not involve a transfer of power but merely a delegation of capital expenditure appropriations, the importance of this decision should not be underestimated since it strengthens the Governors' powers of coordination and obliges certain ministries, until now highly centralized, to strengthen the staffs of their local establishments. Tne strengthening of the local offices and units of the ministries will, however, entail additional costs which should be offset by the higher productivity to be expected from closer association between Government and people. Some services cover such vast geographic areas at present that their quality and accessibility leave a great deal to be desired. The expansion and better distribution -- even if gradual -- of the ministries' local establishments would mean moving staff out to stations far from the capital and with few amenities; the difficulties involved in such major relocations must not be underestimated. 3.123 An increase in the absorptive capacity of local authorites -- i.e. their ability to carry out expenditures while satisfying the efficiency criterion -- is essential. This is probably a more important question than that of increasing local revenue, because in Morocco (as in many developing countries) local authorities' lack of skilled personnel limits their capacity to identify, monitor and follow up investment projects, so they they have some difficulty in using budgetary transfers by the Government. In order to strengthen the resources available to the local authorities, an integrated progam of training of local managers is being gradually implemented, a civil service code was instituted for local government employees in 1977 and the number of local jobs was increased by 20% in 1978-79 in relation to 1977. 3.124 However, the absorptive capacity of the local authorities can only be improved gradually. In the short term, the means of the most needy communes can undoubtedly be strengthened by seconding Government employees to them, but such strengthening quickly reaches a limit given the scarcity of experienced personnel and the necessarily large scale of some interventions. For local capital expenditures the principle of a central financing fund is very useful. The fund would be a channel for transfers of resources allocated to local governments for development, and above all would ensure that such transfers are accompanied by technical assistance properly attuned to the specific conditions of the communities involved, so that efficient utilization of the resources will be ensured. The senior decision-making staff of this fund should share full responsibility for - 113 - proper use of the resources with the local authorities, particularly if the transfers are made for specific purposes such as development projects. This would obviate a problem that has recently marked financial relations between the Government and local governments in several countries, and which could well arise in Morocco in the future. 3.125 In many countries the system of grants for specific projects submitted by local authorities has had an adverse effect on the distribution of such transfers, in that the authorities which are wealthiest and best equipped to meet the criteria imposed by the transfer mechanism have captured an excessive share of the available funds. This has led to more importance being placed on the system of revenue sharing, under which local governments receive fixed shares of the available resources regardless of their absorptive capacity. While this system does mean there is some wastage of resources by the less well-endowed authorities, it has the advantage of providing a strong incentive to them to increase their absorptive capacity in as much as they can plan around a predetermined volume of funds. As already noted, Moroccan local authorities sbow extensive differences in level of development. The great majority are poor, and up to the present the available resources have been channeled primarily to the advanced autborities in the most developed regions of the country, despite the efforts made by the Government since 1973 to achieve a better balance. If the system of specific grants is preferred to that of revenue sharing for reasons of efficiency in the utilization of resources made available to local governments, it is important to counter the undesirable effect noted at the beginning of the paragraph through technical assistance aimed at benefiting chiefly the authorities that are at the greatest disadvantage. 3.126 The local authorities have also had to deal with a number of problems related to their own capacity to generate revenue and to obtain transfers from the Government. Local revenues are insufficient in most cases to cover their operating expenditures, which to a large extent are mandatory (e.g. civil registry). Transfers from the Treasury are, therefore, used to finance their operating deficits; the amount required for this purpose rose from DH 100 million to DH 200 million between 1973 and 1977 (budget estimates). The insufficiency of local authority revenues against their mandatory expenditures is a common feature of many developing countries; in those countries, as in Morocco, the small urban municipalities and rural communes find themselves in the most precarious and difficult situations. The local authority reform adopted in 1976 aimed at increasing local revenues, to reinforce the decentralization sought through the reform by providing for a certain degree of local financial autonomy. Wbile this orientation is highly desirable, the difficulty of increasing local revenues must not be underestimated. Even in countries founded on a federal basis the recent trend has been toward an increase in the taxing power of the central government at the expense of the individual states and local governments, and toward financial deficits for the latter if transfers from the central government are excluded from their revenue. - 114 - 3.127 Financial autonomy through a system of automatic sharing of the proceeds of the major national taxes is a more realistic means of increasing local authority revenue than financial independence. It is in fact the discretionary nature of Government transfers that causes difficulties for the local governments in Morocco today. Interestingly enough, until the mid-1960s, Moroccan local authorities actually did receive a fixed share of the proceeds of the sales tax. This tax, which initially was a local tax, was taken over by the central Government, and toward the end of the 1960s transfers back to the local authorities ceased to be automatic, placing them in a situation of growing dependence and uncertainty as to their resources. A return to the system of automatic sharing of national revenue ought to help ensure sufficient financial autonomy for the local authorities. 3.128 Furthermore, it must be stressed that the principle of increased taxing power for the local governments runs counter to the objective of balanced regional development. Such a system favors the wealthiest and most developed communities with sizable tax bases. As the vast majority of the local authorities are not in this position, this system condemns them to a lack of financial resources for their development, so that they fall ever farther behind the wealthy communities. This points up the need for a mechanism for redistributing resources among the local authorities, which is easier to achieve under a system of automatic revenue sharing. The redistribution should be based not only on present population but also on indicators of economic and social development, as is done in some countries. The main purpose of automatic revenue sharing would be to enable local authorities to meet their operating expenses, including debt service, while the central development fund mentioned above would be responsible for financing their development. 3.129 The foregoing discussion should not be taken to mean that there is no possibility of increasing local revenues in Morocco. On the contrary, this would be possible, especially by increasing the yield of existing local taxes and fees. First of all, the local authorities should make a greater effort in regard to property taxes under their control namely the municipal tax based on rental income ("Taxe d'edilite") and the "taxe urbaine" administered by the Government. Rental values are now reviewed every two years, so that this base should now follow more closely the increases in commercial value due to inflation. While such a revaluation is a complex operation, it is justified, inasmuch as property taxation is bound to become the primary source of local revenue, as in many other countries. The tax on increases in the value of real property resulting from local infrastructure programs, whose beneficiaries are easy to identify, is a second source of revenue that should be exploited more intensively. Local public services, the charges for which are often too low and usually only adjusted with a lag with respect to cost inflation, are a third important source. However, the difficulty of making more intensive use of these three revenue sources should not be underestimated. The local administrations are hardly able now to perform their collection responsibilities; rapid progress on their part cannot be expected. - 115 - E. PRICE POLICY The Role of Prices in the Moroccan Economy 3.130 This section describes the general features of the price system in effect in Morocco, and attempts to explain how price regulation makes it possible to achieve the economic and social objectives of the nation. This study is primarily qualitative because there is little empirical data that would permit a quantitative analysis of the role of prices in the Moroccan economy. 3.131 To better understand the role assigned to price policy in the system of economic management in Morocco some understanding of the historical background is essential. The country's free enterprise economy has its roots in a long tradition of crafts and trade which remains strong today and explains the fact that business still tends to be organized -- even in the public sector -- around certain prominent families. The French practices of centralized management and regulation of the economy, particularly through price control, have been grafted onto these traditions. After independence Moroccan nationalism found expression not only in programs of land recovery and "Moroccanization" of businesses owned by foreigners, but also in extensive State intervention in the appropriation and management of national resources. This interventionism does not stem from Marxist ideology. It simply reflects a desire to speed the economy's progress toward national growth and income distribution goals. It springs from a marked preference for direct action and a certain mistrust of the "classical" mechanisms (as propounded by Adam Smith) of the economy, which are not entirely accepted. The present system can be characterized as a temporary mixed-economy system that is intended to evolve gradually into a free-enterprise system over the long term, once private enterprise has acquired the requisite capabilities to take over the work of attaining the national goals. During the transitional period, industrialization and diversification of the economic base are major subsidiary objectives of the State's intervention. 3.132 In principle, Morocco has a system of free prices within which competition obliges domestic market prices to fall in line with economic costs. In practice, however, the system is mixed like the form of economic management, combining extensive State intervention with the free play of market forces. The Government intervenes in the goods and services market through price controls and subsidies for goods and services which are essential to meet the needs of the population or which are of strategic importance for economic development. Similarly, the Government intervenes in the factor market. The price of capital is reduced through investment incentives and many direct investment operations by the Government and it is moderated, and held down in general, through the regulation of interest rates. The rate of exchange is tied strictly to the average value of a basket of foreign currencies, and in order to control the balance of payments in periods of inflationary pressure the Government intervenes through exchange control, tariff restrictions and import quotas, and some - 116 - export subsidies. In practice only the labor market is comparatively free, although there are social laws that provide for minimum wages and various benefits, as well as forms of representation of workers in their bargaining with employers. 3.133 A recent estimate of the shadow prices to be used in Morocco for the economic appraisal of development projects makes it possible to measure the extent of the distortions in the Moroccan price system. These distortions are not due solely to price policy in its strict sense, but also reflect, in particular, the impact of protection and market imperfections. Nonetheless, it seems useful to mention here the accounting ratios of the principal goods and factors in order to show the extent of the gap that separates domestic market prices in Morocco from border (or shadow) prices. These ratios are obtained by dividing shadow prices by domestic market prices; some examples are given below:l/ A. Principal inputs Standard rate of conversion for internationally traded goods 0.59 Standard rate of conversion for nontraded goods 0.51 Transportation (general) 0.54 Wholesale and retail trade 0.42 Construction 0.51 Electricity and water 0.68 Gasoline 0.29 Kerosene 0.77 Fuel oil 1.10 Machinery 0.65 Imported machinery/Investment Code 0.83 1/ The shadow prices used are the traditional efficiency prices. These estimates are from a 1979 World Bank study (unpublished) on shadow prices in Morocco. - 117 - B. Intermediate goods Range 0.56 - 0.76 Iron and steel 0.69 Cement 0.66 Chemical products 0.64 Electrical equipment 0.62 C. Local industrial products Range 0.41 - 1.17 Cotton yarn and textiles 0.60 Automobiles 0.55 Agricultural machinery 0.51 Phosphate fertilizers 1.17 D. Raw materials and foodstuffs Range 0.56 - 0.86 Cotton and wool 0.72 Cereals 0.84 Bread 0.56 Urban foods 0.76 Rural foods 0.80 E. Miscellaneous consumer goods Range 0.21 - 0.76 Miscellaneous fabrics and textiles 0.72 Clothing 0.58 Urban consumer goods 0.66 Rural consumer goods 0.71 3.134 Private enterprises in Morocco necessarily have to align themselves on the domestic price system, although in some cases they can take advantage of market imperfections or even influence the regulation of prices and protection in their favor. With this reservation (which is an important one in Morocco), it can be stated that the-distribution of investment and the efficiency with which the private sector functions are regulated by the criterion of financial profitability at domestic market prices. In otber words, the pattern of investment and the efficiency of the private sector approach the economic optimum to the extent made possible by the price system, as regulated (influenced) by the State. As for public and semipublic enterprises, their behavior is in principle subject to the rules applicable to the private sector. In practice, however, it appears that some of them have privileged access to Government financing on favorable terms, enabling them to overcome difficulties stemming from investments that right from the start are incompatible with domestic market prices. Given the limitations of the data available on these enterprises it is impossible to state precisely the extent to which this occurs. (See the pertinent sections of Chapters II and III). - 118 - The Price System 3.135 Under the provisions of the 1971 law which serves as the legal basis for price regulation, the Government has established three lists (A, B and C) of prices based on their social importance or their point of formation. List A contains the price of goods and services that are essential for consumption or for the economic growth of the nation. These prices are set, with the advice of a Price Commission, by the Prime Minister, or by the competent ministers to whom that power has been delegated, subject to approval by the Prime Minister. Lists B and C fall within the competence of the local authorities, Governors and Caids respectively, and include less important goods and services. A Central Price Commission and local committees also advise on the setting of list B and C prices. Price control is applied in principle at all stages of production and marketing. It is exercised in the form of a fixed price (as is the case for most essential goods) as a profit margin fixed in absolute or relative terms, or as a mark-up rate. The reasons that led to the establishment of price controls appear to have been the following: (a) To ensure that the population's needs for essential products (e.g. bread, sugar, dairy products and edible oils) are satisfied. (b) To control profit margins on products benefiting from protection or of strategic importance. (c) To encourage the production of certain goods (agricultural support prices) and the use of inputs (fertilizer). (d) To combat inflation and speculative hoarding. (e) To control monopolies and quasi-monopolies in order to prevent abuses. (f) To control enterprises producing subsidized or strategic. products. 3.136 Despite the existence of this formidable legal apparatus, the price system remains, with a few exceptions, flexible and sensitive to cost movements. Overall, price controls have not prevented prices from moving in step with costs since 1973, although consumer price subsidies and the freezing of energy prices have made it possible to delay the impact of inflation for a few months. At the level of invidual prices, and aside from the staple food and energy prices just mentioned, producers and merchants can request and obtain adjustments of their fixed prices or margins when they can show that their profit margins are being narrowed excessively by higher costs. For this reason, and although the information available is limited, it appears that the relationship between costs and prices is not unduly distorted by price control. It cannot be excluded, however, that administrative lags in the revision of prices or profit margins fixed in absolute terms (about 120 products) hold down business savings; numerous complaints of this kind have been received by the central and local authorities. - 119 - 3.137 The 1971 law introduced centralized administration of prices in Morocco. The establishment of the Directorate of Prices in 1972, which serves as a permanent secretariat for the Central Price Commission, provided a framework for coordination of price policy in the various sectors of the economy and at the different levels of administration. The framework remains weak, however, because the Directorate has a very small staff in relation to the scope of its function. Its responsibilities of compiling statistics and reviewing price policy, plus its objectives and the means of best accomplishing them, have been particularly neglected. 3.138 The administration of prices has sought to gain acceptance for the principle that controlled prices should take into account real costs as long as this is socially possible. Thus, the rates for certain public services (electricity, water supply and rail transportation), the prices of energy products (coal and oil) and certain strategic industrial and agricultural products (cement, fertilizer, cereals and sugar) have been raised to reflect higher production and import costs as well as to encourage greater output (especially in cereals, sugar and cement). In some cases, however, the increases have only been authorized after long delays, placing further temporary pressure on an already strained cash position and an already limited capacity for self-financing on the part of the enterprises concerned. Similarly, the general level of interest rates was raised by the reform of 1974 but that increase proved to be insufficient and further increases were made in 1978. This brief summary of the recent history of the application of the principle of realistic pricing in terms of costs in Morocco offers a general lesson valid for all systems of centralized price administration in periods of rapid price inflation: their ability to adapt to rapidly rising costs is constantly tested by administrative complications and social factors. This lesson suggests that so far as possible the aim should be to use automatic formulas for adjusting prices to costs, such as a profit margin fixed in relative terms or the rate of return on invested capital. 3.139 Unfortunately, these automatic formulas tend to freeze or even discourage efficiency. Enterprises subject to such a system naturally attempt to inflate the base for calculation of the price (operating costs or capital employed) in order to ensure as large and comfortable a profit margin as possible. Quite often the price administration agency encounters serious difficulties in effectively monitoring the declarations of enterprises regarding the base of calculation. The result is an insidious tendency to waste capital and labor, and to pay excessively high prices for inputs without any effective countervailing force whenever market conditions (i.e. the absence or insufficiency of competition) so permit. In monopolistic markets, such as electricity, water or petroleum products in Morocco, this situation is inevitable and in fact is comparatively well controlled by the administration. In nonmonopolistic markets Government intervention which diminishes the play of competition (e.g. cereals and many protected industrial products), creates favorable conditions for the appearance of such a situation. These observations suggest that in the case - 120 - of automatic formulas for price control the administration should be in a position to verify in detail the bases used for calculating prices, and should keep constant pressure on the enterprises to bring their capital and operating costs down. In free, nonmonopolistic markets competition exerts this pressure constantly and effectively, which suggests that the maintaining or establishing of competitive market conditions should be a major and continuing objective of the Government. This is all the more essential because the Moroccan economy must be more export-oriented than in the past if it wishes to achieve sufficiently rapid, balanced growth. The success of such a reorientation of the economy will depend, as we have seen in the section on exports, on the competitiveness of real unit production costs in Morocco, including those of production oriented primarily toward the domestic market. Principal Product Markets 3.140 Industrial products. The main question that arises in regard to the policy on industrial prices is the extent to which market prices are equal to the shadow (or efficiency) prices of the sector. The estimate of shadow prices for Morocco shows that there are significant deviations; the prices of exported industrial products are in general close to their efficiency level, while those of goods sold chiefly in the domestic market deviate sharply from that level, the differences being greater for more advanced stages of processing, except in the case of capital goods which still have little protection. The deviations are due primarily to the level of protection and to exemptions from tariffs, while export incentives are limited. The effect of price regulation as such cannot be distinguished from the effect of protection and subsidies. The estimate of shadow prices gives few indications about the activities of the public sector in industry and their efficiency with respect to private sector operations. The study of the system of industrial incentives just begun by the Government should permit further analysis of these aspects and formulation of appropriate recommendations. 3.141 Agricultural prices. Agriculture is the sector that most clearly evidences the problems of price policy in Morocco. The Government intervenes in the market for essential food products (flour, sugar, oil and dairy products) where producers' interests are opposed to those of consumers. A complex system of fixed and support producers prices (aimed at encouraging expansion of production) and subsidies for consumer prices (aimed at protecting the purchasing power of consumers) has been adopted for these products. Subsidies are paid to farmers to encourage them to use modern agricultural inputs. (See paragraph 4.38 to 4.42). This system requires large budgetary outlays which place constant pressure on the savings capacity of the Government, but the net benefits that it yields for the nation have not yet been evaluated, except in a few special cases discussed later in this report. Such an evaluation seems urgently needed. - 121 - 3.142 Prices of energy products are strictly controlled under List A of the 1971 law. The tendency since the rise in oil prices as of 1973-74 has been to adjust them on the basis of the cost of these products (most of which are imported), but always with some delay because of social opposition. The prices of petroleum products are regulated so that gasoline subsidizes the other fuels used mainly for productive purposes, through a compensation system. 3.143 Transportation within Morocco is subject to a system of rate setting by the supervisory ministry. In addition, the management of road haulage is highly centralized through the Office National des Transports, while the railways are run by a state monopoly, the Office National des Chemins de Fer. Rates are low, especially for rail transport, but the centralized managment of the sector permits satisfactory efficiency and rail-highway coordination. (See Chapter IV, Section E). Factor Markets 3.144 Among the main factors of production, the prices of land and labor in general seem to be determined by market forces. With regard to land the functioning of the market is nonetheless hindered by very high taxes and transaction costs, and by the substantial amount of agricultural and urban land for which property rights are poorly defined and protected. A lowering of taxes on real property transactions, an improvement in transaction procedures and an effort to establish property rights precisely would undoubtedly result in more efficient use of the available land. Moreover, property taxes and the recovery of expenditures made by the Government for the improvement of agricultural land (especially irrigation) and urban land (putting in and maintaining of streets, etc.) are still very insufficient. The result is a low level of utilization of improved land by those holding it, plus very high windfall profits for them (especially in periods of high inflation), which contributes greatly toward further widening of the gap between the rich and the poor. The Government has launched a reform of taxes on agricultural and urban real property which should be stepped up sharply. It is becoming increasingly urgent for the public authorities (Government, public agencies and local governments) to implement a more active policy for recovery of their expenditures in improving agricultural and urban land. 3.145 Chapter V, Section F describes the labor market in Morocco. This market seems to function freely and to be integrated at the national level (and even the international level, through emigration). In response to the law of supply and demand the wages of unskilled workers correspond to the lowest levels of marginal productivity, while pressures for wages to rise characterize the situation of skilled workers. These forces promote better utilization of the labor factor, encouraging use of the abundant group rather than the scarcest categories (skilled labor) or than capital, whicb also is relatively scarce. The chief imperfections lie in the matching of the supply and demand for labor and the deficiencies of training. The Government should focus its efforts on these two points rather than being - 122 - excessively concerned with the enforcement of existing social laws which are largely ineffective (the legal minimum wage) or which cover only a limited number of workers (collective agreements and statutory employee benefits). It seems especially urgent to improve the functioning of labor exchanges in urban areas and to facilitate the finding of employment by landless rural workers in the farms which need additional manpower. The manpower training program, which is a priority of the Government, should be strengthened further; because training apparently yields substantial benefits to the workers who receive it and to their employers, it would be useful to generalize the principle of recovery of training costs from the beneficiaries (when the training is provided by the Government). 3.146 The functioning of the capital market, and some of the problems related to it, have been discussed in the preceding section on the mobilization of domestic resources. It has been seen that the capital market in Morocco already has an abundance of institutions, but is also very highly regulated. What is needed now is to analyze the general problem of the lowering of the relative cost of capital, and the differentiation of that cost according to the purpose of the investment. This reduction and differentiation is achieved through a complex system of regulations (setting of interest rates and rigorous compartmentalization of the market among financial institutions) and subsidies (interest rate reductions, tax exemptions and direct subsidies for the purchase of imported capital goods, and financial participation by the Government on favorable conditions). The system is aimed at increasing investment (and thereby accelerating growth) and at channeling capital toward uses to which the Government assigns priority. The question is whether these objectives are properly achieved through this system. A number of sections of this report address this question; the following major comments may be made here: (a) Despite the subsidies, the lowering of the interest rates to encourage investment has as its corollary a reduction in the interest rates payable, which tends to discourage financial investment and to stimulate a movement of financial savings into real property and hoarding; (b) The lowering of the relative cost of capital with respect to capital goods in particular tends to encourage the underutilization of such goods -- a tendency which is strengthened by protection -- and the adoption of imported technologies without any effort at adaptation, while also discouraging the use of unskilled labor despite its abundance and low cost in Morocco; (c) The lowering of the relative cost of capital results in excess demand at domestic markets prices, and financial institutions have to set up a system of rationing of loans. The criteria followed in this process are not made public in most cases, but they seem to favor established customers over newcomers, and to serve the better-off (e.g. housing). Being aware of this situation, the Government has set up special credit programs for small and medium enterprises in agriculture, industry and the services that support those sectors, and for low-cost housing; - 123 - (d) The differentiation of capital according to the purpose served is undoubtedly efficient, but one must recognize the limits imposed on this efficiency by the ease of movement of capital and by the attraction of the real returns offered particularly by speculation in inventories and real property. The foregoing observations suggest that the present system of regulation of the capital market and price subsidies for capital do not well serve Morocco's objectives in terms of efficiency and equity. It would undoubtedly be useful for the country to continue taking steps -- such as the 1974 reform of interest rates -- to increase the relative cost of capital and to introduce more flexibility and competition into the system. 3.147 The foreign exchange market is controlled very strictly. The liberalization process begun in 1967 had to be temporarily halted because of the serious balance of payments difficulties that arose in 1977-78. The official exchange rate is indexed to a basket of foreign currencies, and pressures on reserves are controlled through variations in import taxes and quotas, together with budgetary and credit restrictions. In particular, and mainly for budgetary reasons, the special import tax has been increased sharply. The section on exports indicated that from this standpoint the recent exchange rate policy has diminished Morocco's export capacity. It seems useful to review this question from a global point of view, but the inadequacy of the available empirical data makes it necessary to confine the discussion to the qualitative aspect. 3.148 Three arguments have been advanced in support of continuation of the present exchange rate policy. First, the ultimate effect of a devaluation is to lower the real price of labor (nominal wages increase less in average relative terms than the variation in the exchange rate) and thereby to increase the competitiveness of the economy with regard to exports as well as imports. But in Morocco the labor market is such that a fall in the real price of labor can occur even if the exchange rate remains constant. Thus, it would not be essential to adjust the exchange rate. Second, only a small proportion of traded goods (about 15%) is sensitive in the short term to price variations induced by a change in the exchange rate -- basically exported manufactured goods and imported consumer goods. Thus, the impact of a devaluation on foreign trade would be minor. Finally, and again in the short term, the budgetary impact of a devaluation would be negative or at best nil, whereas an increase in import duties and taxes brings an immediate and substantial increment in revenue. 3.149 Nevertheless, these arguments are not entirely convincing in a long-range perspective. The first (lowering of the price of labor) is undoubtedly valid, but judging by the social problems that accompanied the fall in real wages in early 1979, it is obvious that the Moroccan Government (like most governmeents) runs a serious risk when it attempts to stabilize nominal wages in a climate of price inflation, and that it is bound to yield to popular pressure in the end. A strategy of differentiated increases in wages and prices, coupled with sliding variations in the exchange rate, - 124 - would perhaps be more acceptable socially. The second argument -- that the majority of exports and imports are not sensitive to prices -- is valid only in the short term. In the long term, since manufactured goods are those for which markets do not represent an insurmountable constraint, an exchange rate policy aimed at increasing the local currency profit margins of exporters ought to have positive results. The effect would be the same for exports of agricultural products and services. It is important to note that such a policy would lead to the emergence of new export branches, while the present policy has the opposite effect (for example, the profit margins on exports of fresh vegetables have been declining for several years). Such a policy would also have a beneficial effect on production oriented toward the domestic market, since it would discourage the use of imported inputs whose prices would rise compared with those produced locally, and would exert greater pressure to bring costs down. Price Subsidies 3.150 Subsidies are a key element of Government intervention in the matter of prices. Their main purposes are: (1) to stimulate agricultural and export production; (2) to encourage investment; and (3) to protect the purchasing power of consumers. The section of the report dealing with agriculture, exports, investment incentives and the satisfying of the population's basic needs examine the effectiveness of the present subsidies with respect to the objectives sought and as regards the use of other instruments available for achieving those purposes. Although based on empirical data which are often deficient, the studies show that the effectiveness of the subsidies is on the whole limited and suggest that instruments better suited to the purposes of growth and income distribution policy should be adopted. Conclusion 3.151 The following main conclusions are drawn from the analysis of price policy in Morocco: (a) The essential elements are present for a centralized approach to price policy at the national level, but it would be well to augment the resources of the Directorate of Prices, whose task is to develop the empirical basis for pricing policy and to integrate it better in the macroeconomic planning process. While this Directorate will always depend on other central planning agencies (general and sectoral) for analytical data, it should increase its capacity to analyze relevant aspects of price policy so that it will be in a position to provide evidence (quantified whenever possible) of the impact and effectiveness of the various actions that are possible; (b) It is imperative to improve the data base for the analysis and planning of price policy as soon as possible. The improvements already made in that base are substantial (e.g. cost of living and agricultural prices). But there are still areas in which the data - 125 - remain very inadequate (public and semipublic enterprises) or are compiled with the aim of statistical refinement rather than for economic analysis of the policies adopted. Because of this problem the following conclusions should be regarded as preliminary and subject to the findings of subsequent and more precise analysis; (c) The application of price regulation remains flexible and domestic market prices seem to be adjusted to economic costs. Nonetheless, there are lags in the adjustment process which tend to temporarily impair the saving and self-financing capacity of enterprises; (d) In view of these lags, it appears that the application of price regulation could be limited to the goods and services market where it is essential from the economic or social standpoint. One of the aims of price regulation should be to identify markets where it would be better to allow the market mechanisms free play, with the Government laying down the ground rules for free competition in those markets; (e) As regards the markets for the chief goods and services, study of the distortions in industrial prices has begun. A similar study on agricultural prices seems needed. Such studies should permit a more accurate determination of the costs and benefits that these distortions entail for the country, and that part of the distortion which is due to price regulation as such; (f) Regarding the chief factors of production, an increase in the price of capital and greater competition in the capital market would appear desirable to improve the allocative role of that price and to better serve the national objective of employment creation. It also appears that export activity would be facilitated by a more active exchange rate policy; (g) Insofar as price subsidies are concerned, their effectiveness in terms of the objectives sought seems generally low, and there is an urgent need to devise instruments more in keeping with the purposes of growth and income distribution policy. This suggestion applies in particular to consumer subsidies, subsidies for agricultural inputs, and interest rate reductions; some possible measures are discussed in other parts of the report. On the other hand, export subsidies are still too low. F. DEVELOPMENT PLANNING 3.152 The framework for economic development in Morocco is a liberal one, but the responsibility of the State and public agencies for establishing that framework and for the overall rate of investment is highly determinant. This responsibility calls for a general evaluation of the medium-term economic outlook and the extent of public intervention, and of the impact of that intervention on the various economic sectors. To meet - 126 - this reguirement a planning process has been adopted. Six consecutive plans, all of which have been indicative and have consisted of economic and financial policy objectives and public-investment projections, have been drawn up since 1956: a two-year program for 1958-59; a five-year plan for 1960-64; a three-year plan for 1965-67; a five-year plan for 1968-72; a five-year plan for 1973-77; and a three-year plan for 1978-80. Planning now could be made the instrument for better management of economic development. Two factors make this necessary. On the one hand, Morocco has entered upon a period of financial austerity during which stricter management of very tightly stretched resources will prove necessary. On the other hand, the restructuring of the economy with the aim of increasing exports and savings and satisfying the basic needs of the population can be undertaken only in the context of a complex and consistent program of long-term measures. Some steps have been taken to raise the status and improve the effectiveness of planning: the proposed three-year plan for 1978-80 was thoroughly discussed in Parliament; the participation of the local authorities has been definitely encouraged by the new Local Authorities Charter; and a reorganization of the public enterprise sector is under way. 3.153 Planning meets two basic concerns: the formulation of an economic strategy and its translation into consistent policy and investment proposals; and the provision of an instrument for coordination and management of administrative action. In order to implement these objectives, priority would need to be given to three sets of actions aimed at: (a) Better integration of the planning system in the structure of government decision-making; (b) Strengthening of sectoral planning capabilities; and (c) Greater rigor in regional planning. These actions also presuppose that improvements are made in relating the budget to the plan, in the monitoring of the implementation of the plan, and in strengthening the technical services. Before discussing these various points, however, the nature of the planning exercise must be considered. 3.154 In most countries, the difficulties encountered in the drafting and implementation of the five-year plans have raised the question of whether they should be replaced by more operational, shorter-term plans (annual plans or "sliding" plans which are extended for one year every year). The criticisms of medium-term planning are well known. Too much time and energy are expended on drawing up a document that is quickly forgotten because it cannot be used as a reference point for preparation of the annual investment budget or the formulation of sectoral policies. Moreover, the present instability of the international environment gives an illusory quality to the best prepared plan in a country that is highly sensitive to trends and - 127 - events in the rest of the world. In contrast, the advantages of a shorter-term plan (one or two years) are evident. It is both more limited, and more realistic and constitutes an instrument of economic management that can be used directly. The projections on which it is based are more definite; it includes only projects whose preparation is completed and for which financing is assured; it is consistent with the accompanying capital and operating budgets. However, this conception nullifies the very idea of planning, which is important because it requires a weighing of structural factors, envisioning various possible economic strategies, the associated benefits and risks, and the measures necessary for their success. Planning should cover a sufficiently long period to permit the actions and investments of the plan to mature. Such study and forecasting cannot be repeated every year. These guidelines and decisions have still to be translated into concrete measures; this is often the weak point of planning efforts. But it is not the period that is the problem. Efforts should be directed towards improving the quality of preparation, the realism of the plan's objectives, and the political will to embody those objectives in the annual budgets. These problems are just as much present for short-term plans. However, review of the plan during preparation of the budget for the third year of execution, as was done for the 1973-77 Plan in Morocco, can allow the necessary adjustments to a new environment which could not be fully foreseen. 3.155 Regardless of the type of plan finally adopted, its effectiveness wfill depend heavily on a reorganization of the planning apparatus at the central level. Above all, there is need for better coordination of excessively fragmented and often overlapping responsibilities. Two types of solutions can be envisaged; concentrating the responsibility for planning as a whole within a single agency (a Ministry of Planning with broadened powers, or the Ministry of Finance); or placing the planning function above the ministerial level, i.e. under the Prime Minister. The first proposal favors close liaison between plan and budget, which strengthens the role of the plan as an instrument of management. But because planning must first of all perform a function of orientation and supervision of the administration as a whole, the second solution seems preferable. Moreover, it appears better suited to the present organization of the central Government of Morocco. Nonetheless, a change in that organization may be necessary to give the planning unit an increased drive and a capacity for coordination that it has lacked up to the present. Planning within the Government Structure 3.156 The overall direction of planning is provided informally by a group formed within the Conseil de Gouvernement and including the principal ministers and secretaries of state concerned with economic affairs; its chairman is the Prime Minister. To ensure operational efficiency, this practice can be given institutional status in the form of a permanent committee, strengthened by inclusion of a representative of the Bank of Morocco. The present Conseil Superieur de la Promotion Nationale et du Plan - 128 - does not serve this purpose because it is intended to represent all categories of economic agents, and therefore is too large. The proposed committee would be responsible for drawing up directives on the formulation of development strategy and the main sectoral policies; studying the proposed plan and the major public investment projects; reviewing the periodic reports on the implementation of the plan; and issuing the instructions required for preparation of the current plan and the annual capital budget. The formation of this committee could make it possible to have a directive body without altering the present distribution of functions among the ministries. The secretariat of the committee could be carried out by the central executive body in charge of planning, directly under the Prime Minister. 3.157 Coordination between the present State Secretariat for Planning and Regional Development and the Direction of Economic Affairs should be further strengthened. The former is responsible for coordinating the planning activities of ministerial departments, drawing up the final version of the plan, and -- with the Ministry of Finance -- preparing the capital budget. The coordination function of this secretariat could be strengthened by strengthening its statistical and economic services and by recruiting staff specialized in fields such as agronomy, sociology, civil engineering, industry etc. The Direction of Economic Affairs under the authority of the Prime Minister, has key functions in the orientation of economic policy (prices; discussions of large public and private investments; relations with international development assistance agencies). These activities are not strictly related to planning from the organizational standpoint, which means that coordination with the State Secretariat for Planning takes place through ad hoc meetings organized for the purpose. Moreover, the staff of this Direction also is small, and for this reason its activities consist basically of organizing interdepartmental coordination meetings on the problems for which it is responsible. 3.158 The work of the commissions!' is directed and coordinated by the central planning agency. The commissions give their reactions to its proposals, as well as critiques or suggestions. Even if (as is normal) the basic data comes from the technical departments, the central planning agency reviews them critically, and modifies them or has them modified if l/ The draft plan is prepared by a group of about 25 commissions comprising representatives of the government agencies concerned and the private sector, under the general direction of the central planning agency. This draft is then reviewed by the Council of Ministers (under the chairmanship of the King), which makes the final decision after discussion by the Conseil Superieur de la Promotion Nationale et du Plan. The Government draft is then submitted to Parliament for approval. - 129 - necessary. However, it should indicate financial allocations for each sector to the commissions from the beginning of the Plan preparation on the basis of the economic projections of the Plan. The ministries will thus be induced to state their priorities within the context of the proposed financial allocations. The planning agency would then ensure that these proposals are compatible with one another and that they are integrated in the overall strategy laid down in the directives issued by the planning committee. This also presupposes that the quantitative and qualitative deficiencies of the available statistical data (particularly with regard to prices, employment, industry and income distribution) are corrected. 3.159 The capital budget (multiannual program of public investments under the plan and the annual budget) is adopted in a series of tripartite meetings of the Ministry of Finance, the State Secretariat for Planning and the technical ministry responsible for the sector concerned. Conflicts that cannot be resolved at these meetings are referred to the Government for its decision. These methods could be improved in the light of past experience. The list of projects retained in the data bank could undoubtedly be trimmed so that only the most important capital projects will be retained, and the quality of the information on those projects could be improved substantially. Detailed accounts showing the situation of the public enterprise sector and indicating financial flows between the budget and the public enterprises could be prepared. The formulation and discussion by the commissions of financial allocations by sector would enable them to reconcile the proposed projects and available financing at the beginning of the process. 3.160 The preparation of the operating budget needs to be linked more closely to the capital program. Operating expenses related to investment projects need to be systematically reviewed at the time of preparation of the budget. Their merits should be compared with those of new investments that may have lower priority than the proper functioning of capital projects already in place. Ideally, the preparation of the budget in the form of program budgets taking into account all expenditures associated with an action or an investment would ensure a much closer link between the plan and the budget, and would be an excellent instrument for the monitoring of plan implementation. However, in all countries the drawing up of program budgets encounters many difficulties and may be a premature objective for Morocco. Nonetheless, the implementation of the foregoing recommendations would make it possible to advance in that direction. Sectoral Planning 3.161 The planning agency should be supported, in the various ministries and public enterprises, by a network of units responsible for the evaluation of sectoral policy and programming of medium-term actions. At present these units are still insufficiently equipped to perform a true coordinating function. The result is that the proposals of the ministries, relayed by the commissions, present capital projects that are sometimes ill-adapted to the objectives proposed to the commissions by the central planning agency. - 130 - The priorities assigned to these projects are very largely determined by the relative influence of the major technical directorates of the ministries. Moreover, the quality of the projects prepared and included in the plan is apt to vary from one sector to another: excellent in the case of large-scale infrastructure projects, but inadequate in otber cases, particularly the social sectors. For this reason, it is essential to continue the establishment of such units and to strengthen those that already exist. They should report directly to the Ministry's general secretariat to enable it to coordinate and evaluate the work of the technical directorates. In addition to compiling basic data on the individual sectors -- their main function up to the present -- they would have four principal responsibilities: (1) Formulation and updating of sector and subsector policies in accordance with the directives of the Planning Committee of the Council of Government and the guidelines set in the plan; (2) Preparation and updating of the documentation on projects included or to be included in the capital budget (including the evaluation of operating reguirements); (3) Monitoring of the implementation of ministry programs and preparation of regular reports; and (4) Close and continuing liaison with the central planning agency, which presupposes the immediate transmittal of their working documents to that agency. 3.162 The strengthening of these units, particularly with qualified technical staff, would make it possible to broaden the content of sectoral planning. That content is too often limited to an inventory of feasible projects, based on financial constraints and the production objectives adopted at the national level. This approach could be expanded to include consideration of the socio-economic organization of the area in which the projects will be implemented. New investments cause considerable stresses within that organization, and if nothing is done these stresses can nullify the benefits sought through modernization. Some of these problems are observed today in the relative stagnation of agricultural production in dryfarming regions, in the failure of the industrial base to expand in response to major public investments, or even in shortcomings in the health situation despite the new facilities provided. Sectoral planning should be aimed at ensuring consistency between capital outlays and other economic actions; price policy (prices to producers and prices of the goods and services required by producers), credit policy, training, extension services, organization of marketing channels (particularly for export), etc. The actions already taken in the area of major infrastructure projects show that better coordination of physical activities and the use of institutional instruments is possible and leads to better overall results (e.g. in the transport sector). - 131 - 3.163 The weakness of mechanisms for monitoring implementation of the plan -- a deficiency found in many countries -- is one of the major reasons for the poor results often blamed on planning. This is not only because the implementation of the current plan is neglected, but also because the problems encountered are not analyzed and taken into account in the preparation of subsequent plans. At the technical level, close monitoring of plan implementation is made difficult in Morocco by three features of the budgetary process: (1) the nomenclature of capital budgetary outlays is not comparable with that used for the plan, although there is a cross-reference table. There is an economic classification of budgetary expenditures, but it is not used at the time the finance law is drafted; (2) capital and operating expenditures are not always clearly distinguished; and (3) the structure of the operating budget of the ministries, in which expenditures are classified in two very general categories (personnel and supplies), does not permit identification of the cost of a particular program. The impossibility of ascertaining that cost hinders a precise evaluation of the results of programs whose effectiveness is not measured only in physical quantities or in capital appropriations. Regional Planning j/ 3.164 Although the introduction of a regional dimension in planning dates only from the preparation of the 1973-77 Plan, Morocco has a broad spectrum of political and administrative institutions in this field. Economic regions with elected assemblies were constituted in 1971, and the role of the commune councils was broadened considerably by the Local Authorities Charter of 1976. At the national level, an Interministerial Committee on Regional Development was established in 1968 (but has never met); a Divison of Regional Planning and regional offices have been set up in the State Secretariat for Planning. Three institutions take part in the financing of capital projects at the local level: the Fonds d'Equipement Communal (commune infrastructure fund) managed by the Caisse de Depot et de Gestion; the Fonds Sp6cial de Developpement Regional (special fund for regional development) managed by the State Secretariat for Planning; and the Fonds de Developpement des Collectivites locales et de leurs Groupements (fund for the development of local authorities and their associations) managed by the Ministry of the Interior. Other agencies operate in specific areas; the Offices R6gionaux de mise en valeur agricole (regional agricultural development offices) for infrastructure and management of specific areas; the Entreprises Regionales d'Amenagement et de Construction (regional development and construction corporations) for urban development; and the Societes de Developpement Regional (regional development corporations) for the study and financing of regional projects. Finally, a large number of 1/ This subject is analyzed in greater detail in chapter VI. - 132 - surveys and studies of regional, national or sectoral possibilities have been undertaken and others are in progress. However, results were insufficient until 1976, not only in terms of accomplishments but also from the standpoint of the information made available (for example, there is not yet a map showing the distribution of income or migratory movements. 3.165 With regard to regional planning it seems useful to distinguish three levels of intervention. At the central level, national guidelines on regional development are drawn up by the planning agency and approved by the Conseil de Gouvernement. Directives prepared on the basis of these guidelines by the central planning agency are then sent to the sectoral and regional levels. In accordance with the objectives and possibilities of the national economy for the period covered, the guidelines are based on social criteria ("better" regional balance in development) but also on technical and economic criteria (to the extent the available data permit economic calculation of the costs and benefits of the proposed actions for the nation). 3.166 At a second level, it would be necessary to specify the role of the decentralized agencies in the setting of national guidelines and in the distribution of resources and facilities among the regions. At present, the Regional Consultative Assembly draws up a proposed public investment program for the region, in collaboration with the Provincial and Commune Assemblies on the one hand, and with the regional offices of the State Secretariat for Planning of the other. The proposals are transmitted to the State Secretariat for Planning and to the Commission on Capital Projects for Local Authorities (one of the national commissions formed for preparation of the plan, with many representatives of the local assemblies). The State Secretariat makes the necessary decisions. This procedure seems quite sound, but it would be useful if the central planning agency notified the regional coivmissions, at the beginning of preparation of the plan, of the amount of the central resources allocated to the region for local development purposes with a view to greater realism in their discussions and criteria so that they can set priorities. 3.167 Finally, with regard to the implementation of the actions decided upon within the plan, there is the problem of management of the financial resources made available to the regions. This question belongs to the wider context of the development of the local authorities. It is, therefore, dealt with in more detail in Chapter VI. 3.168 The major constraint on regional planning is the lack of personnel competent in the areas of economic analysis, project preparation and the management of investment programs. However, waiting for such personnel to become available, when they are also lacking at the central level, would mean postponing any regional planning to the very distant future. It is, therefore, preferable to lay down limited objectives and a restricted area of action for regional planning and to begin its implementation with the personnel now available locally. This practical start, assisted insofar as possible by the central Government (organization of in-service training, - 133 - preparation of simplified project preparation guides) is the best means for developing local capability. In this effort priority should be given to strengthening the provincial technical committee chaired by the Governor from the standpoints of economic analysis and project appraisal. 3.169 Thus, the lack of qualified personnel -- already encountered at the central and sectoral levels -- is also a major constraint at the regional level. The establishment of a sound mechanism for economic planning and management requires that priority by given to the assignment of specialized staff to these tasks. However, the most qualified personnel will only be attracted to these functions if they are offered real responsibilities. This, in turn, would only be possible if the present institutional arrangements were modified to reflect the significance the Government attaches to planning. The 1978-80 Plan also recommends the study and implementation of a new distribution of the senior staff of the central agencies, "taking into account the priorities assigned to the different functions of the State". Implementation of this recommendation will certainly be a significant element in Morocco's effort to improve the planning process. In the longer term a systematic training program will be necessary. Special courses and on-the-job training should be provided for personnel now working in the central agencies, the sectoral planning units, the regional offices of the Secretariat for Planning and the divisions responsible for economic and social affairs within the provincial administrations. The content of this training, which should be diversified in accordance with the level and specialization of the participants, should include as a minimum economic analysis of economic and social policies (such as price and subsidy policies), project evaluation, project monitoring, budgetary procedures and techniques of financial management. For senior personnel, special courses abroad, especially in the quantitative analysis of econmic and social policies, should be envisaged. - 134 - Annex (Projections): NOTE ON METHODOLOGY General methodology 1. Available statistics and economic studies impose strict constraints on the method that can be used for long-term projections. For that reason, this method must remain simple. It is broken down into three main phases: (i) A manual projection of exports, principal economic sectors and investment, incorporating studies of long-range potential and prospects on a sectoral or product basis, when available; (ii) A simulation based on the standard programming model used by the World Bank, which integrates these exogenous manual forecasts into the consistent framework of national accounts in order to estimate changes (in constant prices) in the principal economic aggregates and analyze the resulting external financing needs, using IBRD's forecasts of relative world prices and based on assumptions concerning the terms of loans that Morocco could obtain and the policy to be followed in this regard; (iii) An analysis in the form of a growth-type scenario involving a set of assumptions on the major exogenous variables used in phases 1 and 2, examining in particular (a) at the technical level, the changes in structural coefficients such as elasticity of imports in relation to final uses, debt service ratio and incremental capital-output ratio, as they compare with those observed for similar economies, and (b) on the economic level, the ex-post consequences on the structure of the economy, of variables such as final consumption, public finance and employment. 2. Two sets of equations were added to the standard model developed for Morocco in order to determine the effects of growth on Treasury accounts and employment. This addition to the model was used with both growth scenarios. Active population and employment 3. In the employment sub-model, projections were made for each sector. Workers who could not be assigned to a specific sector were added to the total for the sectors to obtain total employment. Cyclical unemployment was taken to be negligible since workers losing their jobs are not considered part of the active population, until they find another job. The total labor force, therefore, covers all those employed plus unemployment. The activity rate, i.e., the ratio of available labor force to the population, is one of the principal variables in the sub-model. - 135 - Annex (Projections) 4. Net imigration is excluded from this definition of active population. Moreover, workers participating in the National Promotion program were included in the labor force figures. For each economic sector, an assumption was made as to the future growth rate of value added per worker. The figure thus obtained for the value added was applied to the projected production of that sector to obtain the resulting level of employment. Treasury accounts 5. The following equations were used in the Treasury accounts sub-model: Current Treasury revenue Customs duties IMPTX = Bl * (IMPORT/EXCHR) where IMPTX: Customs duties, in millions of DH Bl: Fiscal coefficient of custom duties IMPORT: Imports of goods and services, in dollars EXCHR: Exchange rate (dollar/dirham) Revenue from OCP REVOCP B2 * (XPH05 * x PlPHO) wbere REVOCP: OCP contributions, in millions of DH B2: OCP fiscal coefficient XPHOS: Exports of unprocessed phosphate, in millions of constant 1969 DH XPIPHO: Index of export prices for unprocessed phosphate (1969=100) Indirect taxes INDTTX = INDTTX-1* (GDPFCR/GDPFCR-1) where INDTTX: Indirect taxes in millions of dirhams, including domestic sales taxes and taxes on goods and services GDPFCR: Gross domestic product at factor cost, in millions of DH Direct taxes and other current revenue DIRTAX = DIRTAX-1 *(I + ELDTX * ( (GDPCUR/GDPCUR.1)-l) where DIRTAX: Direct taxes and other current revenue (including special accounts and annex budgets), in millions of DH - 136 - Annex (Projections) GDPCUR: Gross domestic product at current market prices, in thousands of DH ELDTX: Elasticity of direct taxes in relation to GDP Other taxes and current revenue OGRTX =INDTTX + DIRTAX Tax burden B3 = (OGRTX/(GDPFCR - CYAGR - CYGOV) * 100 where B3: Coeficient of other taxes and revenue OGRTX: Other taxes and current revenue, in millions of DH GDPFCR: GDP at factor cost, in millions of DH CYAGR: Value added in agriculture, in millions of DH CYGOV: Value added in the public sector, in millions of DH Total current revenue GR IMPTX + REVOCP + OGRTX Current Treasury expenditure Interest on public debt CGINT = B4 * (INTPUB/EXCHR) where CGINT: Interest on public debt, in millions of DH B4: Coefficient tying interest payments on external loans to interest payments on public debt INTPUB: Interest on public and state-guaranteed loans, in millions of dollars EXCHR: Exchange rate (dollar/dirham) Subsidies CGSUB = CGSUB-1 * (GDPCUR/POP)/(GDPCUR-./POP-l) where OGCUR: Other current expenditure, in millions of dirhams GDPCUR: Gross domestic product at current market prices, in millions of dirhams POP. Population, in thousands - 137 - Annex (Projections) Other current expenditure OGCUR = B5 * (GC * IPD/100) where OGCUR: Other current expenditure, in millions of DH B5: Coefficient tying current public consumption to other current Treasury expenditure GC: Public consumption, in millions of constant 1969 DH IPD: GDP deflator (1969 = 100) Total current expenditure GD = CGINT + CGSUB + OGCUR Investment expenditure CGINV = B6 * (IFIX * IPD/100) where CGINV: Capital expenditure by central Government, in millions of DH B6: Coefficient tying total formation of fixed capital to capital expenditure by the central Government IFIX: Total formation of fixed capital, in millions of constant 1969 DH IPD: GDP deflator (1969 = 100) Annex (Projections) 138 Table 1: Main Development Indicators Actual Projections Minimum scenario Voluntarist scenario 1977 1980 1985 1990 1985 1990 A. National Accounts (Millions of 1969 Dirhams) 1. Gross domestic product 29,028 31,939 39,089 48,806 42,377 58,869 2. Ajustment for variation in -434 -576 -605 -951 -663 -975 terms of trade 3. Gross domestic income 28,594 31,363 38,484 47,855 41,714 57,894 4. Imports 1/ 8,392 6,631 7,569 9,043 7,534 9,357 5. Exports 1/ 4,235 4,917 6,534 8,905 7,182 10,171 6. Exports adjusted 2/ 3,801 4,341 5,929 7,954 6,519 9,196 7. Resource deficit, adjusted 3/ 4,591 2,290 1,640 1,089 1,015 161 8. Total consumption 24,352 28,334 33,697 40,724 34,895 46,920 9. Private consumption 18,072 20,537 24,635 29,647 25,794 35,032 10. Government consumption 6,280 7,796 9,062 11,078 9,101 11,889 11. Gross fixed investment 8,280 5,049 5,972 7,679 7,170 10,166 12. Change in stocks -261 270 456 540 664 969 13. Domestic savings 4/ 4,242 3,029 4,787 7,130 6,819 10,978 14. National savings 5,445 4,567 5,405 7,017 7,609 11,552 15. Gross national product 30,086 32,877 39,595 48,693 43,055 59,448 B. Sectoral Value Added Percentage of GDP in Constant Prices 1. Agriculture 12.2 14.0 12.9 11.7 12.5 10.7 2. Industry 31.6 30.6 31.6 33.0 31.6 32.4 3. Services 56.2 55.5 55.6 55.3 55.8 56.9 C. Prices Indices 1969 = 100 1. Export price index 198.0 350.2 548.8 755.0 545.1 737.7 2. Import price index 223.4 419.9 630.9 890.2 626.8 855.3 3. Terms of trade 0.887 0.834 0.869 0.848 0.869 0.863 4. GDP deflator 161.3 204.1 292.4 391.7 292.4 391.7 5. Exchange rate (dollars per Dirham)0.222 0.256 0.256 0.256 0.256 0.256 1/ Goods and non-factor services. 2/ Exports of goods and nonfactor services plus the change in the terms of trade. 3/ Imports less adjusted exports. 4/ Gross domestic income less total consumption. 5/ For 1977, import taxes are included in services. For following years, value added shares are computed on the basis of gross domestic product at factor cost. Source: Statistical Annex and Mission estimates. 139 Annex (Projections) Table 2: Main Development and Economic Growth Indicators ----------------------…Annual Growth Rate in Real Terms ()------------------------ 1/ Minimum Scenario Voluntarist Scenario 1967-72 1972-77 1977-80 1980-85 1985-90 1980-85 1985-90 1. Gross domestic product 5.6 7.3 3.2 4.1 4.5 5.8 6.8 2. Adjustment for variation in terms of trade - - - - - - - 3. Gross domestic income 5.0 7.4 3.1 4.2 4.5 5.9 6.8 4. Imports 3.2 17.2 -7.6 2.7 3.6 2.6 4.4 5. Exports 8.3 0.9 5.1 5.9 6.4 7.9 7.2 6. Exports, adjusted 4.9 0.6 4.5 6.4 6.1 8.5 7.1 7. Deficit in resources, adjusted - - - - - - - 8. Total consumption 4.9 6.2 5.2 3.5 3.9 4.3 6.1 9. Household consumption 4.7 3.2 4.4 3.7 4.1 4.5 6.3 10. Government consumption 6.2 19.3 7.5 3.1 3.8 3.5 5.5 11. Gross fixed investment 4.2 27.7 -15.2 3.4 5.2 7.3 7.2 12. Change in stocks - - - - - - - 13. Domestic savings 5.7 16.1 -10.6 9.6 8.3 17.6 10.0 14. National savings 10.1 19.7 - 5.7 3.2 5.8 10.7 8.7 1/ Projections. Source: Table 1. 140 Annex (Prolections) Table 3: Main Development Indicators (Percentage of GDP in Real Terms) ------Actual…------ --------------------Projections----------------------- --Minimum Scenario---- --Voluntarist Scenario-- 1967 1972 1977 1980 1985 1990 1985 1990 1. Gross Domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 2. Adjustment for variation in terms of 1.1 - 1.8 - 1.5 - 1.8 - 1.5 - 1.9 - 1.6 - 1.7 trade 3. Gross domestic income 101.1 98.2 98.5 98.2 98.5 98.1 98.4 98.3 4. Imports 20.9 18.6 28.9 20.8 19.4 18.5 17.8 15.9 5. Exports 17.5 19.8 14.6 15.4 16.7 18.2 16.9 17.3 6. Exports, adjusted 18.6 18.0 13.1 13.6 15.2 16.3 15.4 15.6 7. Deficit in resources, adjusted 2.3 0.6 15.8 7.2 4.2 2.2 2.4 0.3 8. Total consumption 91.3 88.3 83.8 88.7 86.2 83.4 82.3 79.7 9. Household consumption 78.9 75.6 62.3 64.3 63.0 61.7 60.9 59.5 10. Government consumption 12.4 12.7 21.6 24.4 23.2 22.7 21.5 20.2 11. Gross fixed investment 12.8 12_0 28.5 15.8 15.3 15.7 16.9 17.3 12. Change in stocks - 0.7 - 1.5 - 1.9 0.8 1.2 1.1 1.6 1.6 13. Domestic savings 9.8 9.8 14.6 9.5 22.2 14.6 16.1 18.6 14. National savings 8.6 10.6 18.8 14.3 13.8 14.4 17.9 19.6 1/ Goods and non factor services. 2/ Exports of goods and nonfactor services plus the change in the terms of trade since 1969. 3/ Line 4 minus line 6. _/ Domestic savings plus net factor service income and current transfers. Source: Statistical Annex and Table 1. 141 Annex (Projections) Table 4: Structural Indicators -Actual------ -------------------Projected…------------------ 1967-72 1972-77 1980 1985(MS) 1990(MS) 1985(VS) 1990(VS) 1. Incremental capital-output ratio (ICOR) 1/ 2.6 3.3 7.2 3.9 3.6 2.9 2.7 2. Elasticity of import/GDP 1/ 3/ 0.6 2.8 - 1.4 0.6 0.8 0.5 0.8 3. Average national savings rate 10.4 16.5 14.3 13.8 14.4 17.9 19.6 4. Marginal national savings rate 2/ 16.8 36.4 -38.8 18.1 18.5 22.4 24.0 5. Importi/GfDP 3/ 20.2 24.5 20.8 19.4 18.5 17.8 15.9 6. Investment/GDP 13.6 20.3 16.6 16.4 16.8 18.5 18.9 7. Resource deficit/GDP 2.1 7.8 7.2 4.2 2.2 2.4 0.3 1/ Calculated over the period 1980-85 and 1985-90 for the projection. 2/ Calculated without taking into account changes in the terms of trade. 3/ Goods and non factor services. Source: Statistical Annex and Mission estimates. 142 Annex (ProLections) Table 5: Exports -----------Actual…-------------- ------------------Projections--------------------- ---Minimum Scenario-- --Voluntarist Scenario-- 1967 1972 1976 1977 1978 1980 1985 1990 1985 1990 A. IN CONSTANT 1969 PRICES (Millions of DP) 1. Phosphate 500 727 786 845 925 1,030 1,315 1,759 1,315 1,759 2. Phosphate derivatives 54 77 75 184 223 362 807 1,299 1,055 1,314 3. Agricultural products 1,106 1,440 1,201 1,122 1,112 1,100 1,245 1,408 1,325 1,644 4. Mining products 243 256 193 256 266 333 362 420 362 610 5. Manufactures 142 302 405 512 510 645 920 1,375 1,028 1,763 6. Non-factor services 674 1,242 1,197 1,316 1,359 1,447 1,885 2,644 2,097 3,081 7. Total 2,719 4,044 3,857 4,235 4,395 4,917 6,534 8,905 7,182 10,171 B CURRENT VALUES (Million of dollars) 1. Phosphate 108 147 495 469 488 718 1,549 2,814 1,549 2,814 2. Phosphate derivatives 11 15 32 74 97 235 871 1,878 1,138 1,900 3. Agricultural products 246 358 470 429 534 693 1,123 1,702 1,196 1,987 4. Mining products 41 45 66 91 100 205 320 498 320 724 5. Manufactures 19 78 183 221 269 550 1,178 2,450 2,325 2,911 6. Non-factor services 129 303 469 583 679 905 1,688 3,172 5,477 3,696 7. Total 554 946 1,715 1,867 2,167 3,306 6,729 12,514 7,355 14,032 Source: Statistical Annex (Table 2.5) and Mission estimates. Annex (Proiections) 143 Table 6: Imports -------------- Actual…-------------- -------------------Projections------------------- --Minimum Scenario-- --Voluntarist Scenario-- 1967 1972 1976 1977 1978 1980 1985 1990 1985 1990 A. IN CONSTANT 1969 PRICES (Millions of DH) 1. Foodstuffs 741 495 767 1,022 1,109 1,061 1,228 1,393 901 824 2. Petroleum 137 221 318 364 403 502 626 799 554 612 3. Intermediate goods 822 1,438 1,917 2,042 1,650 1,837 2,293 2,881 2,349 3,098 4. Capital goods 530 463 1,686 2,246 1,251 1,200 1,600 2,160 1,964 2,986 5. Consumer goods 494 473 786 789 639 492 569 684 513 668 6. Non-factor services 517 712 1,918 1,929 1,988 1,539 1,153 1,126 1,253 1,169 7. Total 3,241 3,802 7,392 8,392 7,040 6,631 7,569 9,043 7,534 9,357 B CURRENT VALUES (Millions of dollars) 1. Foodstuffs 144 136 447 432 481 615 1,020 1,550 748 917 2. Petroleum 25 56 294 371 428 1,007 2,122 4,224 1,878 3,236 3. Intermediate goods 167 308 791 991 958 1,385 2,476 4,168 2,537 4,482 4. Capital goods 105 155 778 1,104 813 936 1,788 3,233 2,195 4,469 5. Consumer goods 79 125 309 308 287 282 467 753 422 736 6. Non-factor services 102 199 897 918 993 962 1,122 1,350 1,122 1,402 7. Total 622 979 3,516 4,124 3,960 5,187 8,996 15,279 8,902 15,242 Source: Statistical Annex (Table 2.6) and Mission estimates. 144 Annex (Projections) Table 7: Balance of Payments (in millions of dollars) ---Actual---- --------------Projections------------------- Minimum scenario Voluntarist scenario 1977 1978 1980 1985 1990 1985 1990 A. BALANCE OF PAYMENTS 1. Exports of goods and services 2,486 2,955 4,445 8,302 14,578 8,926 16,088 of which: FOB Goods 1,283 1,488 2,401 5,041 9,341 5,477 10,336 Non-factor services 583 679 905 1,688 3,172 1,878 3,696 Factor services 620 788 1,139 1,573 2,065 1,571 2,056 2 Imports of goods and services 4,365 4,353 5,838 10,195 17,577 9,944 16,698 of which: FOB Goods 2,821 2,629 3,719 6,931 12,261 6,848 12,182 Non-factor services 1,303 1,351 1,468 2,065 3,017 2,054 3,060 Factor services 241 373 651 1,199 2,299 1,042 1,456 3. Resource deficit 1/ -2,258 -1,813 -1,881 -2,266 -2,765 -1,547 -1,210 4. Current transferts (net) 52 50 26 0 0 0 0 5. Current amounts balance -1,827 -1,348 -1,270 -1,813 -2,901 -939 -516 6. Current accounts balance including special grants -1,467 -1,098 -920 -1,713 -2,901 -839 -516 7. Direct private investment (net) 53 45 25 39 79 39 79 8. Official medium and long term loans 2/ Disbursements 736 459 613 1,081 1,328 1,081 1,328 Amortization -57 -66 -116 -469 -710 -469 -710 Net disbursements 679 393 497 612 618 612 618 9. Private medium and long term loans 2/ Disbursements 1,050 732 882 1,936 4,140 1,024 1,119 Amortization -60 -230 -448 -684 -1,620 -657 -1,011 Net disbursements 990 502 434 1,252 2,520 367 108 10. Other short term capital and omissions 261 150 99 - - - - 11. Net use of IMF funds - - -87 - - - - 12. Change in foreign reserves 6 8 50 -190 -316 -179 -289 13. Level of foreign reserves Amount 609 772 867 1,598 2,827 1,556 2,681 Reserves as months of imports 1.7 2.1 1.8 1.9 1.9 1.9 1.9 1/ Exports of goods and non-factor services less imports of goods and non-factor services. 2/ These data are from the external debt Department and are not directly comparable to the balance of payments source. Source: Statistical Annex and Mission estimate. 145 Annex (Projections) Table 8: Debt Indicators Minimum Scenario Voluntarist Scenario 1977 1978 1980 1985 1990 1985 1990 A. MEDIUM AND LONG-TERN DEBT (Millions of dollars) 1. Total debt committed and disbursed at the end 4,078 5,139 7,117 14,500 27,123 12,085 16,167 of the year 2. Including the portion committed but not 5,104 7,422 9,579 17,164 30,438 14,749 19,482 disbursed 3. Debt service 265 548 990 2,084 4,217 1,900 2,781 of which: interest 148 252 427 931 1,895 774 1,057 B. DEBT BURDEN (%) 1. Debt service/exports of goods and services 10.7 18.5 22.3 25.1 28.9 21.3 17.3 2. Debt service/GDP 2.5 4.4 5.9 7.1 8.6 6.0 4.7 C. LOAN TERMS 1. Average interest rate or new official 7.3 7.7 7.6 8.2 8.7 7.5 7.3 loans (M) Source: Mission estimates. Amnex (Projections) 146 Table 9: Value Added by Sector --------------Projection in millions 1969 Dirhlus-------------- -----------------------Annual Growth Rate in Real Term------------------------- Minimum Scenario (MS) Voluntarist Scenario (VS) -----Actual------ ----------------------Projections------------------------- 19781- 1980 1985 1990 1985 1990 1960-71 2/ 1971-77 1978-80 1980-85(?19) 1980-85(VS) 1985-90(VS)1985-90(VS) Agriculture 4,053 3,962 4,461 5,047 4,706 5,589 3.6 -2.4 -1.1 2.4 2.5 3.5 3.5 Industry 8,038 8,676 10,914 14,264 11,863 16,873 4.9 8.4 3.9 4.7 5.5 6.5 7.3 Services 14,563 15,751 19,217 23,879 20,933 29,635 4.1 7.7 4.0 4.1 4.4 5.9 7.2 GDP at Factor 26,654 28,389 34,592 43,190 37,502 52,097 4.2 6.2 2.7 4.0 4.5 5.7 6.8 Cost E/ Fstimate. 2/ World Bank Atlas Source: Mission estimates. 147 Annex (Prolectiuns) Table 10: Employment by Sector -----(In Thousands)----- - ___ --------Average Annual Growth Rate (%)--------- 1960 1971 1977 1980 1l990 1990 1960-71 1971-77 1977-80 1980-90 1980-90 (SM) (SV) (SM) (SV) Agriculture 1,834 1,988 2,099 2,252 2,518 2,537 0.7 0.9 2.4 1.1 1.7 Industry 368 593 896 951 1,491 1,690 4.4 7.1 2.0 4.6 5.9 Mining and energy 48 55 88 - - - 1.2 8.1 - - - Manufacturing 265 384 487 - - - 3.4 4.0 - - Construction and public works 55 154 321 - - - 9.8 13.0 - - Services 641 895 1,248 1,404 2,003 2,272 3.1 5.7 4.0 3.6 4.9 Transportation 220 365 548 - - - 4.7 7.0 - - - Commerce 218 264 324 - - - 1.8 3.5 Public adoinistration 203 266 376 - - - 2.5 5.9 Total classified employment 2.843 3476 4_243 4_607 6.012 6.499 1.8 3.4 2.8 2.7 3.5 Non classified 106 155 190 205 273 273 - - - - - Total demand for labor 2,949 3,631 4,433 4,812 6,285 6,772 1.9 3.4 2.8 2.7 3.5 Unemployment 305 350 394 516 828 528 - - - - - Unemployment (% of labor force) 9.3 8.8 8.2 9.7 11.6 7.2 - - - - - Labor force 3,254 3,981 4,827 5,328 7,113 7,300 1.8 3.3 3.3 2.9 3.2 Population 11,640 15,379 18,310 20,181 26,945 26,945 2.8 3.0 3.3 2.9 2.9 Activity rate 28.0 25.9 26.4 26.4 26.4 27.1 Source: Statistical Annex snd Missiom esti-ates. 148 Annex (Projections) Table 11: Imports Elasticity ------Actual ------- ----------Projected---------- 1968-72 1973-77 1980-90(MS) 1980-90(VS) Foodstuff/household consumption -1.88 6.24 0.74 -0.46 Consumer goods/household consumption -0.13 3.88 0.89 0.57 Petroleum/PIB 1.78 1.50 1.1 0.32 Capital Goods/Gross fixed investment -0.68 1.63 1.4 1.32 Intermediary goods/secondary sector 2.53 0.67 0.90 0.78 Imports of goods/PIB 0.56 2.75 1.04 0.77 Imports/PIB 0.56 2.75 0.73 0.56 Source: Mission estimate. 149 Annex (Projections) Table 12: Current Treasury Revenues and Expenditures Million of Current Dirha=s Annual Growth Rate in Real Terms(7.) 1972 1977 1980 1990(4S) 1990(VS) 1980-90 (ME) 1980-90 (VS) Current revenue Import taxes 562 2,307 2,840 8,705 8,649 4.8 4.7 O00 contribution 74 1,013 1,120 4,671 4,671 8.1 8.1 Other current revenue 1/ 2.968 8.349 11.357 35,038 43,961 4.9 7.3 Total 3,604 11,669 15,317 48,414 57,281 5.1 6.9 Current expenditure Interest on debt 142 1,311 1,372 2,933 3,583 1.1 3.1 Subsidies 265 747 1,600 5,675 5,675 6.3 6.3 Miscellaneous current expenditure 2/ 3,159 9.867 14.128 38.526 41 964 3.6 4.5 Total 3,424 11,925 17,100 47,134 51,222 3.7 4.6 Balance 180 -256 -1,783 1,280 6,059 - - Investment 4/ 1,189 7,626 4,100 11,966 15,839 4.3 7.2 Global Deficit -1,009 -7,882 -5,883 -10,686 -9,780 -0.5 -1.4 Deficit as % of GDP 4.1 16.8 9.0 5.6 4.2 - - 1/ Profit taxes, dividends and export taxes. 2/ Including treasury special accounts and annex budgets. 3/ Including military investment, but excluding debt amortication. 4/ Civilian investment only. Mission estimates. Source: Ministry of Finance and Mission estimates. 150 Annex (Prolections) Table 13: Structural Coefficients of Treasury Accounts- 1971 1972 1973 1974 1975 1976 1977 1978 1990(M8) 1990(VS) Current Revenue Import taxes/imports (B1) 0.130 0.125 0.130 0.129 0.130 0.127 0.129 0.124 0.160 0.160 OP contributions/Phosphate exports (B2) - 0.110 0.254 0.571 0.767 0.478 0.480 0.423 0.425 0.425 Other current reve2ye/ 0.208 0.195 0.198 0.215 0.197 0.237 0.283 0.220 0.271 0.264 Adjusted GDP (B3)- Current Espenditure Interest on public debt/total interest 1.552 1.709 1.626 1.532 1.773 1.949 1.286 0.990 0.730 0.40 on external debt (B4) Misoellanesus current expenditure/ 1.022 0.999 1.052 1.014 0.917 0.910 0.963 0.966 0.977 0.995 public consumption (B5) Investment. Treasury investment / total fixed 0.325 0.351 0.312 0.415 0.378 0.412 0.426 0.289 0.398 0.398 capital formation (B6) 3/ 1/ Calculations based on current dirhams. 2/ The special Treasury accounts and annex budgets are included under other current revenue. Adjusted GDP is GDP at factor oset less value added in the mining and agricultural sectors. 3/ Military investments are classified under miscellaneous current expenditure. (149): Minimum Scenario (VS): Voluntarist Scenario Source: Ministry of Finance and Mission estimates. - 151 - CHAPTER IV: DEVELOPMENT OF THE ECONOMIC SECTORS A. PHOSPHATES AND MINING PRODUCTS 4.01 Morocco has a long tradition of mining. It possesses the world's largest reserves of phosphates, and modest but not insignificant quantities of various ores. The mining of phosphates by the Office Cherifien des Phosphates (OCP), a public enterprise, accounts for more than 80% of all mining operations in Morocco. The contribution of the mining sector to the Moroccan economy is especially important, in terms of foreign exchange earn- ings and budgetary savings. In the face, however, of the volatility of export prices of mining products as a whole and of phosphates in particular, this contribution has been subject to sharp and sudden fluctuations. Thus the share of mining products in commodity exports dropped steadily from 33% in 1967 to 28% in 1973, rose to 60% in 1974/75 then fell back to 43% in 1977, with phosphates primarily responsible for this pattern. Similarly, payments of OCP taxes and dividends to the Treasury rose from DH 200 million in 1973 to DH 2.3 billion in 1974 and DH 2.6 billion in 1975, then leveled out at around DH 1 billion in the subsequent five years. The authorities' strategy is to process locally an increasing proportion of the phosphates and ores mined in Morocco and this, in the long term, should enable the country to put its foreign exchange earnings and budgetary revenues on a more stable footing, while increasing, in relative terms, the value added and the number of jobs created through the mining sector. At present the sector's contributions to GDP and employment continue to be very small -- 5% and 1% respectively in 1977 -- and the processing of mining products is still of relatively minor though growing importance. Mining operations are, however, frequently located in remote and desolate regions and their local impact is significant, as is evidenced by, for instance, the Tensift phosphate centers and Cadetaf, a cooperative undertaking in the south of the country that is the means of livelihood for some 10,000 miners. Phosphates and Derivatives 4.02 The phosphates and phosphate derivatives sector covers the produc- tion of phosphate ore, its beneficiation, and its haulage from mine to port for export in ore carriers or for conversion into phosphoric acid and fertilizers. This sector is totally integrated in its activities and exercises a very significant influence -- and growing influence in the case of phosphoric acid -- on the world phosphates market. In view of the oligopolistic nature of the world market for phosphate products, decisions made by Morocco will therefore influence long-term prices of these products. 4.03 The specific characteristics of the sector derive from of the existence within Morocco's borders of exploitable reserves of phosphate rock representing more than 60% of proven world reserves. Although both the con- cept and evaluation of reserves should be treated with some caution, proven Moroccan reserves amount to 10 billion metric tons, distributed among four productive deposits. The mining conditions and geographic location - 152 - of these Moroccan deposits are such that the cost of production f.o.b. is among the lowest in the world -- an advantage that is likely to increase in the future as competing deposits become exhausted. Until recent years local beneficiation has mainly taken the form of a drying operation. In the future, washing and calcination, for which the necessary processes are being developed and the equipment installed at the new sites, will become necessary. 4.04 Processing of phosphates, up to 1976, comprised the production of phosphate fertilizers; since that year, Morocco has launched a major program to build plants to produce phosphoric acid for export. The production of phosphate derivatives is being undertaken by OCP subsidiaries whose capacities, actual or under construction, are as follows: Name of Subsidiary Start-up Name of Installed Capacity Date Product (tons/year: P205) Maroc Cnimie I 1965 P205 120,000 with expansion 1979 P205 150,000 TSP 300,000 DAP 60,000 ASP 50,000 Maroc Chimie II 1976 P205 165,000 Maroc Phosphore I 1976 P205 495,000 MP1 Expansion 1981 P205 165,000 MAP 22,000 Maroc Phosphore II 1981 P205 495,000 Recent projects and those under way will increase the phosphoric acid pro- duction capacity from 120,000 t/a (P205) in 1965 to 1,590,000 t/a in 1981. All these plants are located at Safi. In addition, extraction of the uranium contained in phosphoric acid is planned in the medium term on the basis of commercial-scale production trials that have already been started. 4.05 Except for rail transport, all mining and chemical operations related to phosphates are controlled by OCP, which acts as a sectoral holding company for the Moroccan Government. OCP has only minor investments and participations abroad, but its turnover (US$600 million in 1976) and its place in the world phosphates trade (averaging a third of the whole) give it the status of an international corporation whose standing in international financial markets has been used by Morocco since 1975 to mobilize subtantial loans. 4.06 OCP has considerable management autonomy. In addition to its purely business activities, it provides for the social and educational needs of its personnel and ensures the construction of mining towns needed for its operations. To facilitat-e its control of the sector, OCP has established a - 153 - complex network of subsidiaries, covering all aspects of its operations. Its portfolio of participations is estimated at more than DH 1 billion and represents investments in the mining sector (55%), chemical sector (32%), transport sector (7%) and other sectors (6%). Rail transport, however, is provided by another public enterprise, ONCF; phosphates account for more than half of ONCF's "freight" operations and the same is also the case for the ports. 4.07 The following table gives the figures for world phosphate produc- tion over the past six years, together with the shares of the three main producers: 1973 1974 1975 1976 1977 1978 World production (millions of tons) 97.3 109.1 107.4 107.3 115.8 124.9 Percentage share: USA 38.6 37.2 40.3 41.3 40.8 40.1 USSR 21.8 20.6 22.5 22.6 20.9 19.9 Morocco (OCP) 17.0 17.6 12.5 14.5 14.9 15.8 Others 22.6 24.6 24.7 21.6 23.4 24.2 These figures show that Morocco's share has fallen noticeably since 1973, while that of the United States and "other" producers in particular has risen. The same pattern is apparent in exports. Morocco continues to be the major world exporter, with close to a third of the international trade, but this proportion has shrunk somewhat since 1975. During 1974-77 OCP sought to keep the price of phosphates at as high a level as possible and it is possible that this policy has had the effect of temporarily reducing its share of the market in favor of its competitors. 4.08 The data on OCP's production and sales of phosphates are as follows (millions of tons): 1973 1974 1975 1976 1977 1978 Production 15.6 19.3 13.6 15.5 17.6 19.7 Exports 16.0 18.6 13.0 14.6 15.8 17.7 Local sales and stocks -0.4 0.7 0.6 0.9 1.8 2.0 From 1976 onwards, local sales have increased markedly to meet the requirements of Maroc Phosphore I for producing phosphoric acid, which started in 1976. As a result, exports of phosphate derivatives have risen significantly, from DH 106 million in 1975 to almost DH 400 million in 1978. - 154 - 4.09 OCP accounts for a substantial volume of investment. Its direct investments during the 1973-77 Plan represented some 5% of the total amount invested in the economy (4% during the 1968-72 Plan). The following table shows the structure of these investments in the past and as envisaged in the 1978-80 Plan (millions of current DH): 1968-72 1973-77 1978-80 Plan Plan Plan Direct Investments Mining activities 629 1,253 2,662 Chemical industries - 781 2,465 Social investments n.a. 186 75 Total 629 2,220 5,202 Related Investments Railway n.a. 281 657 Port infrastructure 23 136 385 Source: Estimate made for the report. The OCP investment program was substantially expanded during the 1973-77 Plan and appears to have been given priority in the climate of austerity prevailing since 1978. In 1978-80 expansion and development programs for OCP alone (Ben Guerir mines; Maroc Phosphore II and III) exceed DH 5 billion. With the infrastructure-related investments (ONCF railroads and port of Jorf-Lasfar) they amount to almost 15% of the total investment envisaged in the 1978-80 Plan. The priority given to these investments in 1978-80 is largely justified by the contributions they are expected to make to exports and savings when they become operational. 4.10 Morocco has set itself the goal of processing some 30% of its phosphate production before export (almost entirely through conversion into phosphoric acid). This goal appears to be justified and realistic. From the economic point of view, it seems more advantageous to convert phosphate into phosphoric acid close to the phosphate deposits rather than in the consumer markets, as was done in the past. However, the realisation of this goal poses certain problems that Morocco still has to solve, aside from the uncertainties of the world market and the quality of future reserves. These include long-term planning, technical and transport problems, and the availability of skilled personnel. Despite the wholly integrated nature of its operations and the impact of its policies on world market prospects, OCP appears to exercise only partial control over the programming of its investments, particularly in the chemical sector, and the - 155 - long-term objectives that have been set for it continue to be ill-defined. These include, for example, the targets with respect to its share of the world phosphates market; the stage at which the conversion of phosphates into phosphoric acid would be expected to reach 30%; the investments and pricing strategies to be adopted? 4.11 The techniques of phosphoric acid production do not appear to have been entirely mastered in the new Maroc-Phosphore I plants, which are operating at only 55% of their theoretical capacityl/. These start-up difficulties have been aggravated--despite the quality of the existing personnel--by the inadequate numbers of qualified staff in the production units. Solving these personnel problems calls for additional efforts in the areas of training and recruitment, as well as improvements in the wages and conditions of employment offered in the mining areas so as to attract and keep staff of the necessary caliber. 4.12 The shipping and port handling capacity is only partly under OCP's control, but affects the competitiveness of exports. If the tonnage to be handled is to double between 1977 and 1990, adequate shipping, storage and handling capacities will have to be developed in good time. The difficulties already noted in these areas will have to be overcome in the future. These difficulties are related to dry storage facilities (currently sufficient for only six days' production), the extent to which the length of trains can be increased and congestion in the port of Casablanca reduced (three-to-five-day waiting period for phosphate carriers), and to possible delays (mainly as a result of a shortage of funds) in the completion before 1983 of the port installations at Jorf-Lasfar. These delays could temporarily prejudice the expansion of exports, which depends on how efficiently the production of the Sidi Hajjaj mine and Maroc Phosphore III can be moved out. Other Mining Products 4.13 Other mining activities are also controlled by the public sector, although technical and commercial management in the mining sector is still heavily dependent on foreign demand and technology. For some years now the volume of their activity has not risen. If the sector is to be revived, the public agencies responsible for it will need to formulate long-term guidelines and policies based on a thorough analysis of the economic return on those operations to be continued in the light of world market prospects, of the impact of local costs and of the system of incentives for mining investments. 4.14 The mining sector is under the administrative aegis of the Ministry of Energy and Mines, which provides general guidance and supervision through the Directorate of Mines (Direction des Mines) and undertakes research, development and operational activities through the Bureau de Recherches et de Participations Minieres (BRPM) and its subsidiaries. The latter are numerous (over 30). In the case of new companies, BRPM quite often shares the equity on a 50-50 basis with private shareholders, who are encouraged by 1/ Refers to 1978. Capacity utilisation in Maroc Phosphore I plants has since increased considerably. - 156 - the Government to invest in the sector. BRPM's portfolio is estimated at about DH 350 million and is divided amongst mining activities (78%), in which BRPM owns some 40% of the total capital stock of the enterprises, petroleum and chemical industries (10%), and industries associated with the processing of ores (12%). 4.15 Mining production and exports have tended to stagnate over the past ten years. The output of the main mining products (Table 8.1 of the Statistical Annex) has remained behind forecasts in the last two plans, except for lead and manganese. The average value of ores extracted over 1972-77 at 1969 prices was divided as follows: 30% for lead, some 10% each for iron, manganese and copper, and around 40% for miscellaneous ores and products. Total exports of the sector were as follows (DH millions): 1967 1972 1974 1975 1977 Exports at current f.o.b. prices 208 204 438 256 409 in percent of total exports 7.4 5.4 7.4 3.1 4.8 Exports at 1969 f.o.b prices 242 256 340 207 263 Price index (1969 = 100) 86 80 129 124 152 Source: Tables 3.2 and 3.2A Export figures at 1969 prices show a pattern of stagnation. In addition, the increase in the export price of Moroccan mining products has remained below the general rise in both Moroccan and international price levels. This suggests that the profitability of mining operations as a whole must have declined (although there are insufficient data to fully substantiate this inference). 4.16 The future of iron ore mining in the Rif region (reserves of 35 million tons) does not appear very encouraging. Recent investments have increased extractive and initial processing capacity to 850,000 tons of pellets and 60,000 tons of pyrites, but the world crisis in the steel industry and the low content of the ore have substantially reduced market outlets and selling prices for these products. In an effort to keep the 1,200 jobs involved, a reduced volume of production is being maintained, with heavy operating subsidies from the Treasury. 4.17 The prospects for other ores and especially for non-metallic minerals appear better. As a result of current prospecting activities a limited expansion in the production of traditional ores (manganese, lead, zinc, copper and soon cobalt) may again be expected. The diversification of mining activities will be more marked in the case of certain products for which there is a strong local demand (salt, pyrrhotite). 4.18 The investment programs implemented by the Government, BRPM and the public and private enterprises had three objectives: continuation of geological and mining surveys, exploiting ore deposits, and increasing - 157 - local value added. These programs rose from DH 300 million at current prices in 1968-72 to some DH 1.3 billion in 1973-77 (excluding OCP and exploration for oil) but, as already noted, they had no great impact on production and exports, which tended to stagnate between 1967 and 1977, while the average economic return has probably fallen. Concerned over this trend, the Government has decided to sharply cut back the mining investment program under the 1978-80 Plan and to undertake a critical examination of the costs and benefits of the various production activities with a view to retaining, in the long term, only those that are most advantageous. Considering the volume of known reserves and the cost of working them, the sector is not expected to show more than a low growth rate between 1981 and 1990. 4.19 The mining sector benefits from the general official incentives to investment (exemption from customs duties on imports of plant; accelerated depreciation; guaranteed transfer of profits; 2% rebate interest on BNDE loans). In addition, it receives certain specific benefits, the two most important of which are a budgetary subsidy that may amount to 50% of project-related infrastructure investments but must be less than 15% of the total project cost, together with the opportunity to establish a tax-free depletion reserve within a limit of 50% of net profits and 15% of operating income. In the absence of data it is impossible to determine the effect of these incentives on the financial returns of mining operations in Morocco and therefore their effectiveness in terms of achieving their goals, particularly the goal of attracting Moroccan and foreign private investment into the sector. It is equally impossible to draw any firm conclusions as to the economic importance of these incentives to the country as a whole. The case of iron ore, however, shows that investment incentives in mining can result in unfavorable economic consequences from the larger national standpoint. An important step, envisaged in the 1978-80 Plan, will be to make a critical examination of the economic justification for incentives of this kind in other branches of the mining sector, as well as the forms of intervention of BRPM , which remained dependent on budgetary transfers throughout the 1968-77 period. This dependence does not appear to have been the result of any systematic intention to impose State control on the sector, since private investments have been strongly encouraged. Rather, it seems sometimes to have been the result of a general desire to maintain operations, though they have become unprofitable. In the future BRPM needs to exercise strictly its role as a source of public financing for mining investment-- a role that calls for the observance in its participations of clearly defined economic and financial criteria. B. AGRICULTURE 4.20 Agricultural activities contributed some 14% of GDP in 1978, a drop from the average of 22% for the 1968-72 period. Agriculture still provides some 40% of all employment in Morocco; although this proportion is diminishing, the absolute number of jobs in agriculture continues to increase. Agricultural exports represented only 35% of total exports of goods in 1977, a marked reduction compared with the pre-1975 level of 60%. - 158 - Morocco's agricultural economy is predominantly subject to market forces but with significant State interventions through agricultural pricing and credit policies, import duties and controls, supply of a wide range of agricultural services, and investments in infrastructure, in agricultural enterprises and in agro-industry. The Caisse Nationale de Credit Agricole (CNCA), the sole source of medium and long-term credit for agriculture, is a bank with a semi-autonomous management structure whose capital is entirely held by the State. 4.21 Land Use. Morocco has 7.7 million ha with soils and moisture suit- able for cropping, while 20 million ha are in semi-arid or mountain regions suitable only for grazing and forests. Some 720,000 ha were under permanent irrigation in 1977. About 5.3 million ha of the 7.7 million of agricultural land are cultivated each year; the remainder is under tree crops (0.4 mil- lion ha) or left fallow (2.0 million ha). About 4.3 million ha are planted under winter cereals, 500,000 ha under pulses, 140,000 ha under vegetables, 60,000 under sugar beet, and the remainder under oil-seeds, cotton, and for- age crops. About one-third of agricultural value added is generated by the livestock subsector.Livestock raising is primarily extensive, based on grazing of natural pasture. Intensive livestock production based on cultivated forage crops, barley, or industrial crop residues is rapidly becoming important in irrigated and high-rainfall areas. Most industrial crops, forage crops, vegetables and citrus fruits are grown under irrigation, as are almost all exports crops. About 50% of Morocco's cultivable land receives about 350 mm or less of rainfall, and is generally cultivated under a barley/fallow rotation. Most of Morocco's rainfed areas are characterized by traditional agricultural practices. Despite efforts undertaken since promulgation of the Agricultural Investment Code in 1969, limited use is made cf fertilizers, pesticides, herbicides, high-yield seed, and farm machinery. As a result, crop yields and livestock productivity are generally low. Agricultural Performance and the 1978-80 Economic and Social Development Plan 4.22 Agricultural Performance. Over the last 15 years, agricultural output (in constant prices) grew at an average rate of 2.4% per annum. Agricultural output fluctuates annually mainly because of variation in weather conditions (for example, it increased by 10.5% in 1976 and declined by 13.4% in 1977). Domestic agricultural production has not kept up with the increased demand caused by urbanization and by income and population growth. The result has been a 21% p.a. average increase in food imports from 1970 to 1977 (in current prices), 9.6% p.a. in volume. About 15% of merchandise imports consist of foodstuffs, primarily sugar, wheat, dairy products and vegetable oils. Agricultural exports rose by 6% p.a. in nominal terms between 1970 and 1977, but declined by 1.2% p.a. in volume over the same period. The expansion of agricultural imports, along with some switching of exportables to domestic consumption as a result of marketing difficulties overseas, has permitted maintenance of a generally adequate food supply and nutrition level. However, there are poverty pockets containing people who have nutritional deficiencies. - 159 - 4.23 Performance has varied between agricultural products and between agricultural zones: irrigation perimeters, high-rainfall areas (400 mm per year and above), and low-rainfall areas. Irrigation and high-rainfall areas have progressed most rapidly. Where it has been possible to bring in modern production techniques and inputs, together with a price structure providing a sufficiently remunerative net income per hectare and per day of family work, rapid progress has been noted. Examples are sugar beet and sugarcane production, which have been introduced in modern irrigation areas with the assistance of extension agents. Irrigation water is subsidized and the marketing of production is provided through contracts between producers and processors. Sugar beet production grew by 13% p.a. between 1967-69 and 1976-78. Similarly, milk production increased from 500,000 tons in 1971 to 650,000 tons in 1977 (4.3% p.a.) due to the introduction of improved high-yield cows, construction by the Government of milk collection centers around which milk producer cooperatives have been created, promotion of irrigated forage production, provision of animal health services, sub- sidization of milk prices paid to producers, and investment in milk pasteurization plants. Production of vegetables has grown at 8% per annum largely due to the additional area put under irrigation. Government efforts to increase crop production which were not accompanied by successful efforts to alter farming practices in non-irrigated areas (cereals and pulses), or when Government price policy did not permit farmers to obtain sufficient income (oilseeds, cotton, maize), have had limited or no success. Cereal yields increased by only 0.12 tons/ha in 18 years (with considerable annual variation). The production of pulses, olives and fruit has shown no long-run improvement, largely as the result of stagnation of farm technology used in production, lack of investment over a number of years, and lack of Government promotion. However, significant investments were made in fruit tree plantations beginning in 1970-71, which have now begun to cause fruit production to expand. Promising results have also been obtained by agricultural research in Morocco, especially for cereals, basic seeds and tree cropsl!. 4.24 The 1978-80 Plan 2/. The Government's Economic and Social Devel- opment Plan specified that agriculture was to receive 18% of public invest- ments, as it did under the Third Plan (1973-77). Public investment in 1/ See paragraph 4.48. 2/ "Plan de Development Economique et Social", 1978-80, Secteur Agricole, September 1978. - 160 - agriculture would equal about DH 3.8 billion, out of a total Government in- vestment of DH 21.4 billion. 1/ Another DH 1.2 billion in medium-term agricultural credit would be lent by CNCA to finance farm investment during the plan period. The Government's objectives were: (a) agricultural self-sufficiency; (b) maximizing agriculture's contribution to exports and import substitution; (c) improvement of rural living conditions through better distribution of income and employment generation. 4.25 The Three-Year Plan was a transition plan, calling for the same distribution of Government investment between categories as under the Third Plan. About 57% of Government agricultural investment would go to irrigation projects, 16% to the extension service and to the agricultural components of rural development projects, about 6% to livestock development, 5.6% to forestry and soil conservation, and the remainder to agro-economic studies, the cadastral survey, research, rural water supply, and agricultural education. 2/ Irrigation projects are under way in nine irrigation zones spread over the country with a view to fostering regional development poles. In each of these zones, except for the Office du Draa and the Office du Tafilalet, compulsory crop rotation is designed to promote crop and livestock production. Studies undertaken by the Ministry of Agriculture indicate that present agricultural production is considerably below its potential if proper farming methods and inputs were used. It is estimated that present production of vegetable oil is at about 10% of potential, and that production of pulses, vegetables and cereals is at about 40% of potential.3/ In order to reach this potential, the major actions the Ministry of Agriculture intended to take in the Three-Year Plan included; (a) completion of the irrigation projects already under way; (b) organization of farmers into service cooperatives which would more effi- ciently obtain credit and farm inputs; (c) continued input subsidies to encourage use of modern inputs; (d) improved relative prices for agricul- tural products; (e) creation of basic infrastructure such as milk collecting centers, grain storage facilities, vegetable and cereals packing centers, animal health stations, and workshops for repair of farm machinery; (f) an expanded land reform program; and (g) improved facilities for supplying farm inputs. Only modest improvements in price policy and the land tenure situation were to be expected during the three year plan period. Supply of and Demand for Agricultural Products 4.26 Demand for agricultural products is projected through the year 2000 in Table 7.13 (Statistical Annex). Supply projections are based on the assumption that, like the Three-Year Plan, future plans will maintain, but not accelerate, current growth rates of agricultural production. The result would be an increasing gap between supply and demand for foodstuffs, to be satisfied by imports. To reduce this gap, an acceleration of agricultural growth will be required. Removal of the major constraints to growth could contribute significantly to such an acceleration, thereby reducing the 1/ Table 7.11 Statistical Annex. 2/ Table 7.10, Statistical Annex. 3/ These figures indicate the increase in yields that could be obtained with no increase in land use. - 161 - demand/supply gap. Some of these constraints are recognized by the Ministry of Agriculture, and would be removed if the Ministry's recommendations were implemented (see para 4.29). 4.27 For cereals, present trends suggest production of 6.5 million tons by the year 2000, compared to demand of 7.5 to 8.5 million tons (Table 7.12 of the Statistical Annex). For vegetable oils, production is projected to reach 100,000 tons by the year 2000 compared to projected demand of 390,000-440,000 tons. For sugar, demand in the year 2000 is projected at about 1,150,000 tons, which would be satisfied from domestic production if current production trends continue. For dairy products, demand is projected at about 3.5 million tons milk equivalent by the year 2000, compared to the Government's production goal of 3.2 million tons. This production increase is dependent on (a) the cultivation of forage on about 25% of the 400,000 ha of additional land expected to be irrigated by the year 2000, and (b) ex- panded forage production in non-irrigated areas. If the necessary accelera- tion in the growth of forage production is not achieved, and forage produc- tion expands at its 5.6% p.a. rate of recent years, milk production would be about 1.7 million tons in the year 2000. Demand for meat in Morocco is largely met from domestic production. Production is growing at 3.7 p.a., and would reach 540,000 tons in the year 2000. Demand is projected to reach 850,000 to 1 million tons. Therefore, meat imports, which became significant only in 1977, are likely to increase in the future. Morocco is self-sufficient in fruits and vegetables. Resource Allocation Within Agriculture and the Government's Budgetary Constraint 4.28 Issues in the agricultural sector are closely linked to the evolution of the Moroccan economy and the current austerity policy. The Three-Year Plan reflected this austerity for agriculture, with many projects either delayed or cut back in size. This was particularly true for new projects in non-irrigated areas. Therefore, any increase in Government investment in agriculture compared to that budgeted in the Plan was difficult to implement at that time, despite the evident desirability of such an increase for the sector. The Plan emphasized completion of ongoing projects for which considerable investment had already been made. Since most ongoing public investment in agriculture had been directed to equipping the irrigation zones, the Plan emphasized completion of such investments (57% of planned investment in agriculture was foreseen for irrigation areas). In 1978, 720,000 ha of land were irrigated in Morocco compared to an irrigation potential of 1,180,000 ha. Morocco expects to reach this potential before the year 2000. Given the difficulties involved in increasing budgetary resources allocated to agriculture, an assessment of the costs and benefits of various projects in agriculture is extremely important. In particular, an assessment of the current emphasis on large-scale irrigation compared with rainfed projects is urgently needed. 4.29 The Technical Feasibility of Rainfed Projects. Government studies indicate that rainfed agricultural production could be increased considerably if certain constraints were overcome, including the land tenure - 162 - problem, inefficient farming practices, insufficient use of agricultural credit and inputs, and inadequate infrastructure (roads, water supply). 1/ The two integrated rainfed agriculture projects now being implemented in Morocco provide examples of coherent strategies for agricultural development in non irrigated areas. Both of these projects (the Meknes and the Fes-Karia-Tissa Projects) emphasize the training of farmers and extension agents who introduce new farming techniques and inputs. In addition to these integrated agricultural development projects, agricultural credit has been found to be highly productive in Moroccan rainfed agriculture by financing the following types of investments: wells, pumps, livestock, agricultural implements, equipment, draft animals, and vegetable and fruit production. The cost to the Government of distributing credit is negligible, since such credit is reimbursed with interest, while other agricultural projects require substantial non-reimbursable Government expenditure. An additional advantage of credit projects is that they distribute investments widely over the entire country, compared to regionally specific rural development or irrigation projects. Other interesting project possibilities for the rainfed areas include: (a) integrated soil conservation, forestry and pastureland development linked to livestock production in heavily populated mountain areas (modeled after the Loukkos Rural Development and Middle Atlas Livestock Development Projects now being prepared); (b) pasture improvement (14 project possibilities covering 249,700 ha have been studied, as well as projects based on seeding of rangeland and introduction of new livestock varieties, such as the Ranch Adarouch project); and (c) farm improvement in semi-arid regions (modeled after U.S. AID's "Aridoculture" project). Only DH 50 million of the investment foreseen in the Three-Year Plan was allocated to these three types of rainfed project (1.7% of Government investment in agriculture). 4.30 The Economic and Social Feasibility of Rainfed projects Compared with Large-Scale Irrigation. Since an alternative agricultural development strategy giving greater emphasis to rainfed agricultural development is technically feasible, the issue is the economic desirability of increasing the allocation of scarce public resources to such projects. Although experience with both irrigation and rainfed agriculture projects in Morocco is not sufficient to permit definitive conclusions, it would seem that, compared to large-scale irrigation projects, rainfed and credit projects have lower cost per hectare, per family, and per Dirham of additional output (i.e., have a higher economic rate of return). Recent large-scale irrigation projects studied by the IBRD in Morocco have projected economic rates of return varying between 7% and 12%. Projected economic rates of return to rainfed and agricultural credit projects studied by the IBRD generally are close to 20%. Rates of return to the more poverty-oriented mountain, forestry, and pastureland improvement projects are probably in the 10% to 15% range. The deficit in cereals, vegetable oils and meat cannot be 1/ A summary of the Government's analysis is provided in the "Plan de Developpement Economique et Social", 1978-90, Secteur Agricole, September 1978. - 163 - covered except by an intensification of agricultural production in rainfed areas, starting with the most favorable zones. The increase in production of cereals, forage crops, and vegetable oil requires a persistent effort in rainfed areas rather than in irrigated areas. In addition to the economic benefits of shifting the emphasis in favor of rainfed projects, there is a social benefit in that the rural poor live mostly in areas with little irrigation potential, and that eighty percent of Morocco's rural population is dependent on rainfed agriculture. The investment costs per farm family tend to be lower in rainfed projects than in irrigation, and they benefit a much larger number of households, as is seen in the following table. Projected Investment Investment Economic Cost per Rate of per ha Farm Return ___------ (DH) -------( ) (1978 prices) Irrigation Projects /a (Large Scale) Souss 21,400 111,400 10.0 Doukkala I 23,800 114,500 11.4 Doukkala II 32,000 152,500 11.6 Haouz (under preparation) 44,000 190,000 7.0-9.0 Small-Scale Irrigation /b n.a. 1,950 n.a. Vegetable Production and Marketing (for export) 41,000 51,000 46.0 Rainfed and Credit Projects Agriculture Credit IV /d 700 5,600 20.0 Meknes Agriculture 790 10,500 24.0 Fes-Karia-Tissa 2,610 20,000 21.0 Agriculture and Forestry Mamora, Gharb Reforestation 3,250 n.a. n.a. Rif (DERRO) 2,500 n.a. n.a. Boumoussen 460 n.a. n.a. Loukkos 3,360 32,300 15.0 Pastureland Improvement Middle Atlas Livestock /c 3,750 n.a. 10.0-15.0 Ranch Adarouch 800 n.a. 10.0 /a Excludes cost of dams. /b Program undertaken during the 1973-77 Plan. /c Currently known as the Plaine d'Aarid Project. /d Ex-post analysis of the results of the Second and Third Agricultural Credit Projects suggests an economic rate of return equal to 20%. n.a. = not available Source: IBRD investment projects data. - 164 - 4.31 The Benefits of Investment in the Irrigation Zones. Despite the desirability of according a higher priority to rainfed agricultural projects, it is natural for the Government to want to insure that the limited resources available in the framework of the Three-Year Plan be used to complete the irrigation projects in which considerable sums have been invested. The rates of return to the incremental investments required for completion of these irrigation projects are likely to be relatively high in most cases. In addition, due to the relatively limited Government actions in the rainfed sector in the past, only a few projects are ready for implementation, and there is only limited scope for accelerating the execution of rainfed projects already prepared. Morocco's administrative capacity is much more developed in the large irrigated areas than in rainfed areas, considering the large resources allocated to the relatively small irrigated zones. Furthermore, although rainfed projects appear to have higher economic rates of return than do irrigation projects, the latter have a favorable potential for producing certain products in short supply, such as milk and sugar. Rainfed projects would face important constraints to producing these commodities. This is important given the Government's objective of agricultural self-sufficiency. 4.32 Recommendations. The arguments presented above suggest that the Government needs to study the incremental costs and benefits of irrigation projects under alternative hypotheses concerning the rate of implementation during the Three-Year Plan, and for the subsequent five-year period. These would be compared to the likely returns on the rainfed projects. If the rate of return on rainfed projects proves more attractive, greater effort would then be focused on implementing projects of this type, without neglecting ongoing efforts in the development of irrigation. In order to implement such a reallocation of investments, prepration of rainfed projects must be accelerated. The staff which prepares rainfed projects would need considerable strenthening. Other issues relating to land tenure and legislation which affect rainfed projects should also be tackled. The establishment of a permanent sectorwide monitoring and evaluation system would permit an ongoing assessment of the merits of various project types, and contribute to efficient resource allocation. Savings Mobilization 1/ 4.33 Savings Mobilization by the Banking System. Domestic savings mobilization has been poor (about 15% of the GDP in 1975, 11% in 1976). In agriculture, this is reflected by the difficulty faced by the Caisse Nationale de Credit Agricole (CNCA) in mobilizing domestic financial resources. Savings are not adequately tapped by CNCA despite publicity campaigns and etablishment of banking service facilities in many of its branches. One of the reasons for poor domestic savings mobilization by CNCA is that until recently CNCA has barely attempted to mobilize savings from the non-agricultural sector. Farmers put their savings primarily into livestock or other real assets. CNCA needs therefore to consider mobilizing 1/ Resource mobilization is also analysed in Chapter III, Section D - 165 - savings from other sectors which complement agriculture. A difficulty which CNCA will have to confront is the low level of its interest rates. CNCA offers rates varying from 3% on savings deposits to 8% on 18 to 24 month deposits and bonds. With inflation at more than 8% in 1979, interest rates on savings instruments are negative in real terms, thus discouraging financial savings. 4.34 Savings Mobilization by the Government and Agricultural Taxation. Taxes collected from the rural sector are low, equaling about 50 to 60 million dirhams per year. A recent study by the Ministry of Agriculture estimated net monetary income of the farm sector before taxes at 1.3 to 2 billion Dirhams in 1977. 1/ Taxes collected from the farm sector thus equal less than 5% of the net annual monetary surplus generated by the sector. Agriculture contributes 17% of GNP, but only 1.9% of direct taxes. A reform of the tax code and tax collection system is underway. It should make it possible for the Government to mobilize a larger fraction of rural savings, particularly from larger landowners. Within the framework of that reform, the coefficients used to estimate net income per farm, on which the tax liability is determined, is to be revised upwards. The present system estimates net income per farm on the basis of a standard net income, per hectare, per fruit tree, and per head of livestock declared by the farmer. The standard coefficients vary by region, depending on the region's average agricultural potential. They were established in 1961 and have not been changed since. Inflation has led to an increasingly large underestimation of net farm incomes and taxes paid by the agriculture sector are therefore declining as a percent of real income. It would be necessary therefore to increase these coefficients, increase the tax rates in the upper income brackets, and establish a mechanism that would allow an annual revision of the tax coefficients to take account of the rise in agricultural prices. The Government is now considering a tax reform under which farmers would pay taxes on the basis of their declared income as is the case for other professions. The present system has the advantage that agricultural income taxes are based on potential (rather than actual) income, thus providing farmers with an incentive to fully exploit their land. Absentee landlords whose land is not cultivated but rather held for speculative purposes, are thus penalized. If Morocco introduces a tax based on actual income to replace the one based on potential income, it would be useful to introduce at the same time a land tax to ensure that cultivable land is used optimally. Finally, it would be desirable for a portion of the tax revenue collected to be made available to local communities to finance local development projects. Constraints on Agricultural Exports 4.35 Promotion of agricultural exports was one of the objectives of the 1973-77 Plan. Nevertheless Morocco's agricultural exports have stagnated in volume (Table 7.7, Statistical Annex), despite the country's potential for increased exports of high-quality fruit and vegetables. The quality of 1/ MARA, Division des Affaires Economiques, "Evaluation de la Capacite de Financement du D4veloppement par l'Agriculteur", November 1977. - 166 - Moroccan products is appreciated in external markets in spite of a strong competition. The actual relative decline in exports is due as much to the shortage of suitable supplies as to marketing problems (the EEC import calendar, and trade barriers created by certain industrial countries). 4.36 Production of citrus fruits increased from 500,000 tons in 1962/63 to about one million tons in 1978. Exports of citrus increased from 350,000 tons in 1962/63 to 600,000 tons in 1972/73. Since then, exports have stagnated due primarily to the increasing age of the orchards and the obsolescence of varieties. The Government has initiated a citrus improve- ment program of replanting and overgrafting with the objective of expanding citrus exports to 720,000 tons by 1980/81. Total vegetable production amounts to about 2,300,000 tons, of which about 200,000 tons are exported, mostly from October to May. Tomatoes and potatoes have been the main export products. In contrast to citrus production which is undertaken mostly by large farms, vegetable production is concentrated on small and medium-size farms. As a result of the trade agreement with the European Economic Community (EEC) of March 1969 and the associated loss of its trading advantages in the French market, Morocco has been confronted with increased competition, resulting in reduced demand for Moroccan vegetables. The supply of quality vegetables has also been constrained by insufficient crop diversification, low productivity, and obsolete agricultural techniques. In 1976, in order to protect its own greenhouse vegetable production, the EEC further restricted vegetable imports during May to October of each year. This explains in part why, Moroccan production and export of vegetables have declined by about 30% in the past three years. 4.37 Developing the production and marketing of out-of-season vegetables constitutes part of the Government's strategy to stop this decline and to maintain a share of the West European market. This strategy is based on an exploitation of Morocco's several advantages over its competitors: (i) lower production costs than those of European countries, particularly labor cost; (ii) favorable climatic conditions; (iii) the proximity of the EEC market compared with non-European competitors (Israel, Senegal, Kenya, etc.); and (iv) the reputation of Moroccan products, particularly their taste qualities. Better Government services could induce farmers to coordinate production plans more closely with market demand and therefore with the needs of European importers. This strategy invloves inherent risks related to the uncertainty of foreign markets for vegetables, and the management problems that may face the institution responsible for exporting fruits and vegetables, the Office de Commercialisation et d'Exportation (OCE). Despite these risks, this strategy for increasing vegetable exports is justified . 4.38 Price Regulation and Subsidies. The Government establishes producer support prices for hard wheat, barley, and maize. For soft wheat, most industrial crops, and milk, on the other hand, the sale price is fixed by the Government. In addition, subsidies are provided to wholesalers and processing industries to maintain low retail prices (fixed by the Government) for flour, bread, sugar, vegetable oil, and milk, as well as for fertilizers and high-yield seeds. Additional subsidies are provided - 167 - directly to farmers to encourage the use of fertilizer and high-yield varieties of seed. Agrarian Reform Cooperatives and Farmers' Associations receive special subsidies on their purchases of inputs. No attempt has yet been made to measure the impact of Government price intervention on the agricultural sector, although the available information suggests that agriculture and export industries are relatively penalized by the overall price policy compared with manufacturing particularly import-substituting industries. 4.39 The Impact of Fixed Producer Prices on Production. The two objectives of the Government's price policy are to guarantee a sufficiently high producer price to induce production, and to maintain retail prices for consumers at a level they can afford. Attractive producer prices in relation to production costs have been partly responsible for stimulating increased production and marketing of sugarbeet and milk. In contrast, declining quantities of soft wheat and oilseeds marketed through enterprises paying official prices indicate the inadequacy of the fixed prices for these two commodities compared to free market prices and to farm production costs. 1/ For wheat and olives, there is an uncontrolled market in which prices are free to fluctuate in response to supply and demand. However, the present Government policy of subsidizing imports of cereals and oilseeds enables importing firms to market flour and vegetable oils for less than the cost of the primary materials (wheat and olives) produced in Morocco. This increases demand for imports to the detriment of local production. Since much of the demand for flour and vegetable oils, particularly in the towns, is met by these enterprises, the prices of olives and soft wheat are thus kept artificially low on the free market. 4.40 The Distribution and Incidence of Farm Input Subsidies2/. In order to stimulate the use of modern inputs, and to offset the penalty on agiiculture caused by the unfavorable structure of effective protection and low producer prices, the Government subsidizes many farm inputs. Thus subsidies are given for the purchase of fertilizers, high yield seeds, tractors and combine harvesters bought by Agrarian Reform Cooperatives and Farmers Associations, as well as for the purchase of purebred livestock and the construction of cow sheds. In addition, irrigation water charges are so low that they do not even cover the operation and maintenance costs for the irrigation zones (60% to 80% on average).3/ In principle, input subsidies 1/ MARA, Division des Affaires Economiques: "Le Marche des produits Agricoles", 1977. Sixteen percent of domestic production was sold through the official enterprises in 1976, compared to 22% in 1971. The prices paid to producers were increased in 1979. Unfortunately, no data are available on the cost of inputs in 1971, and as a result it is impossible to determine whether the situation has improved or deteriorated. 2/ For a more detailed analysis, see the Memorandum on Morocco's Agricultural Sector, Report No. 2667a-MOR, May 1980, IBRD. 3/ However, the Government decided in 1980 to sharply increase the water irrigation charges. - 168 - benefit all farmers. No analysis has been undertaken in Morocco to determine the actual distribution of subsidies between different farmer groups. However, a study of the allocation of subsidies within a large irrigation zone (the Gharb) shows that most subsidies benefit a small number of the farmers. According to this study, farms of more than 20 ha, representing roughly 2.7% of the total number of farms, received almost all of the subsidies for purchase of equipment, fertilizers and high-yield seed. Subsidies for livestock development (acquisition of pure or cross-bred cows and construction of cattlesheds) are more evenly distributed, but are probably unnecessary in some cases to encourage farmers to introduce better-quality livestock. Moroccan farmers are aware of the benefits of improved livestock; subsidies are only effective when they induce small farmers to invest in purebred livestock when such investments would not be viable without the subsidy. If these subsidies are retained, they may usefully be redirected toward encouraging the establishment of cooperatives. The indirect subsidies accorded to irrigation water result in a sizable transfer of Government resources, which seems unwarranted as it benefits the richest farmers -- those in the irrigated zones. Evaluation of irrigation projets also shows that the incomes of beneficiaries increase dramatically, so that it would, therefore, be feasible to reduce sharply the subsidies on irrigation water. 4+.41 Recommendations. It is recommended that the Government consider the adoption of the following measures: (a) Progressively reducing agricultural input subsidies and directing them to small farmers grouped into cooperatives who would otherwise not use modern inputs. In addition, priority needs to be given to the rainfed zone in the allocation of input subsidies. Input subsidies should not be provided to a farmer for more than a limited period of time. (b) Combining the reduction in input subsidies with an increase in agricultural prices in order to avoid penalizing farmers. Otherwise, a decline in agricultural production may occur. An increase in agricultural prices might be obtained by taxing imported food products and by progressively reducing price subsidies for retail prices of food. Producer prices fixed by the Government should be examined before each planting season and based on a study of farm budgets. (c) Increasing irrigation charges and the land betterment levy to at least cover operation and maintenance costs, and if possible part of the investment cost as well. Indexing water charges to agricultural prices. - 169 - (d) To the extent that utilization of high-yield seed is more a supply problem than a demand problem, ensuring that prices paid to seed producers are adequate. (e) Promoting the signing of contracts between producers and processing or marketing enterprises specifying floor prices and guarantee of purchase, as well as the number of hectares to be cultivated by farmers (for vegetable, oilseeds, fruits, and industrial crops). 4.42 In general, adoption of such measures should lead to an increase in production and to a reduction of food imports, thereby increasing agricultural self-sufficiency and reducing the drain on public resources caused by subsidies. There is considerable support for these reforms by the Ministry of Agriculture, and the Development Plan recommends that the Government allow producer prices to rise. 1/ Land Tenure 4.43 The Land Tenure Problem. Roughly 75% of Morocco's farmers have farms of 5 ha or less, and together they own 25% of the agricultural land. Holdings are excessively fragmented, with 1.9 million farms divided into 11.6 million parcels. The average size of a parcel is 0.64 ha, generally too small for efficient farming. In addition, absentee landlords often hold land for speculative purposes, and do not cultivate it. If cultivated, it is often worked by tenant farmers who have no security of tenure and as a result have no incentive to invest in or improve the land. Collectively owned land, generally held by tribal groups, is overgrazed, and the collective owners lack an inducement to undertake soil conservation and improvement. There are too many collective rights-holders to permit distribution of the land, since each would obtain an inadequate parcel. These land tenure problems have constrained expansion of agricultural credit use, and are at the base of the unequal distribution of agricultural credit. Farmers without productive potential do not apply for credit, and large farms obtain proportionally more credit than small farms. CNCA does not provide credit for the exploitation of collective land since repayment guarantees cannot be obtained. 4.44 Possible Solutions Proposed by the Government. The 1978-80 Economic and Social Development Plan proposed several land reform measures which would alleviate the above problems. These measures included limita- tions on the partition of land, increased inducements to cultivate arable land, consolidation of fragmented parcels, creation of viable privately owned holdings on collectively owned land, extension of the length of tenure by tenant farmers, and increased recovery of Government investment costs through land betterment levies and higher user charges for irrigation water. An assessment of these proposals indicates that they are 1/ The Ministry's proposal is found on page 254 of the "Plan de Developpement Economique et Social, 1978-80", Secteur Agricole, September 1978. - 170 - constructive, and technically feasible. Land consolidation operations on 300,000 ha has already been undertaken in the modern irrigation zones, and others could be undertaken in rainfed farming areas where the Government has development programs. With respect to land redistribution, Morocco's Agrarian Reform program has had a positive impact on farm families receiving land. About 21,000 beneficiary families (1% of the total number of households in Morocco) have been given 324,000 ha of land (3% of the cultivable land) under this program. These farmers have been organized into 607 cooperatives. More land could be distributed, as recommended by the Ministry of Agriculture, including the 7.5% of cultivated land belonging to the State, to religious groups (Habous), and other groups which had received State land (Guich). An additional reform which may be considered is the imposition of a ceiling on farm size in irrigated areas. The implementation of many of these reforms requires the completion of the cadastral survey, which is making slow progress. Livestock Production, Erosion and Desertification 4.45 Meat production grew at 3.7% p.a. during the 1973-77 Plan period, while milk production grew at 5.6% p.a. Meat and milk yields from cattle raising have increased due to farm cultivation of forage and of crops such as sugar beet with residues which can be fed to livestock. For goats and sheep, milk and meat yields have declined due to increasingly inadequate animal nutrition, poor health care and poor handling of animals. Most animal feed comes from pasture land and forest areas (about 9,400 million feed units out of the 14,000 million feed units presently consumed by animals in Morocco). 1/ An increase in the number of sheep and goats has caused over-grazing of pasture land and forest areas, resulting in destruction of the plant cover and soil erosion. 2/ As food supply from pastureland and forest areas declines, herders must choose between reducing herd size or accepting reduced milk and meat yields per animal. Moroccan sheep and goat herders have maintained herd size, accepting a decline in yields. 4.46 Government Strategy. The Government's strategy is to concentrate on intensive livestock production (both cattle and sheep). This is to be achieved through: (a) herd development on farms able to grow adequate forage; (b) continued introduction of higher-yielding breeds (the local breed of cow has a yield of about 450 liters of milk per year, compared to 3,000 liters for an imported purebred, and 900 liters for a crossbred cow); 3/ (c) improved technical and health services provided by the 1/ Ministry of Agriculture: "Productions animales", August 1978. 2/ op. cit., as well as "Analyse des structures du cheptel", July 1976 by the Ministry of Agriculture; and FAO/IBRD Cooperative programme: "Report of the Livestock Reconnaissance Mission to Morocco", March 1974. 3/ Data provided by Morocco's Direction de l'Elevage for 1979. A Government study undertaken in 1975 stated that imported purebred cows had an average yield of about 2,000 liters of milk per year, compared with 600 liters for a crossbred cow. - 171 - Government; (d) provision of technical assistance in constructing proper animal shelters; (e) increased incentives to market milk and meat by creating livestock cooperatives, milk collection centers, milk processing plants, slaughterhouses, and animal-feed factories; and (f) production of crops with feed complement (such as sugar beet pulp used for livestock feed). In addition, the Government is successfully promoting the production of poultry by providing credit and extension assistance. Agricultural credit and irrigation projects are contributing to the implentation of these program. 4.47 Likely Effectiveness of Government Strategy. Despite the progress which the above strategy represents, it will not resolve the problem in its entirety since the poorest farmers and transhumant herdsmen are essentially ignored. The average farm, comprising about 3 ha, is used for subsistence farming. Forage crops for livestock are not grown. Transhumant herders usually own no cultivable land and therefore do not qualify for the agri- cultural credit needed to purchase high-yield animal breeds. The Govern- ment's agricultural services do not reach the herder in the mountains and in the arid areas, and have little impact on the small farmer. What is required are projects directed at the rational use of pastureland so that vegetal cover can regenerate, and to increase forage production on pastureland through seeding, fertilization, and introduction of new grass species (subterranean clover particularly). These projects should also include complementary investment in storage and distribution facilities for forage which would be used to compensate reduction in use of pastureland. Forage from irrigated areas could be sold to herders in the dry season. In addition, the Government might promote the creation of privately owned industrial slaughterhouses which would contract with herders for a specific number and guality of animals to be supplied at an agreed price, and provide them with inputs (animal feed, medicine) at specified prices. Herders would be required to nourish animals according to norms set by the enterprise, and to deliver on the date specified in the contract. The slaughterhouses would invest in refrigeration and transport equipment and provide technical assistance. This formula is used effectively at present for sugar beet, industrial tomatoes, and milk. The above methods have been shown to be technically and financially feasible, but their application requires financial aid and managerial assistance. They would also go far in assisting small-scale herders. Problems with Agricultural Extension and Research 4.48 Agricultural development will be based in part on the results of agricultural research undertaken in Morocco. Interesting results obtained to date include: (a) development of new cereal varieties; (b) production of improved varieties of seeds for cereals, forage crops, oilseeds and cotton; - 172 - (c) adaptation of biological and chemical (fungicide, herbicide and acaricide) treatment against certain plant diseases and pests; (d) selection and adaptation of several locally bred varieties of livestock (D'mane sheep, Oulmes cattle) which are currently being promoted among Moroccan farmers. These programs are undertaken in laboratories and central and regional research stations located throughout Morocco (25 central stations, 43 regional stations, and 20 laboratories). Through its field activities, the Agricultural Research Service disseminates research findings to farmers. However, the work of this service is inadequate in a number of areas, particularly applied research and adaptive research. This is attributable to staff and equipment shortages, the complexity of the problem, and an overly theoretical focus. However, progress has been made, as is shown by an applied agricultural project in a semi-arid zone. 4.49 The extension services charged with spreading research findings to farmers have an important role to play in stepping up agricultural output. Since the start of the seventies, with the structuring and initial estab- lishment of the extension services largely completed, the focus of their activities has shifted away from marketing of inputs toward dissemination of information. 1/ To this end, FERTIMA was set up to distribute fertilizer and SONACOS to distribute seed. However, the extension services operating in non-irrigated areas are not very effective, since the extension agents do not have practical experience of farming, are ill-organized, lack resources and equipment, and are inadequately trained in extension techniques. Their efforts are scattered and lack continuity. The extension services operating in the modern irrigation zones (ORMVA) are generally more effective due to larger budgets, and have more and better staff. The introduction of water and new cropping patterns also facilitates the extension agents' task since farmers more easily accept advice when their environment changes dramatically. The 1978-80 Plan included a major reform of the extension service, based in large part on the system introduced in the Karia-Tissa Project. In the system extension agents have been relieved of most administrative tasks, and concentrate on creating service cooperatives to which the agents provide advice on agricultural matters and aid in obtaining credit and inputs. Agricultural input "packages" have been identified for farms grouped by technical level, and the extension agents introduce these packages. Improved training of extension agents will be undertaken through a three-year training program, including one year of farming under the guidance of instructors. A similar program has been developed for the Meknes Agriculture Project. Mechanization 4.50 Morocco's use of tractors and combine harvesters is limited, totaling only 23,000 tractors at the end of 1978 (330 cultivated ha per 1/ This has been true of both the Centres de Travaux (CT) and the Centres de Mise en Valeur (CMV). - 173 - tractor) and 2,100 combines (3,685 cultivated ha per combine). Loans for the purchase of tractors and combines are available to large farmers, Agrarian Reform Cooperatives, and small farmers grouped into associations. The loan criteria applied by CNCA require a minimum of 40 ha of land in rainfed areas and 10 ha in irrigated areas, thus limiting mechanization credit to farming units of a large enough size for which animal or human cultivation and harvesting would generally be uneconomic. Mechanization facilitates timely preparation of the soil and crop treatment, thus allowing better use to be made of all inputs and of the yearly rainfall. Use of tractors rather than draft animals also reduces the amount of land which must be used to produce feed for draft animals, and lessens the drudgery of agricultural labor (one ha of land preparation by animal power requires the farmer to walk 60 kilometers). Analysis of past CNCA tractor loans shows good economic and financial returns. Analysis of investments in combine harvesters also shows acceptable financial and economic rates of return. Financial and economic benefits of combines result from labor savings and from a reduction in crop losses at harvest compared to those incurred when harvesting is done by hand. CNCA's relatively strict evaluation criteria, in combination with a 30% tariff levied on imported combines, which increases their price, also serve to ensure that combines are acquired only by farms able to use them economically. Agro-Industrial Development Issues 4.51 Morocco presently has excess capacity in some agro-industrial subsectors, in most cases because anticipated agricultural growth has not been achieved, or because of a tendency to invest in large-scale industry having greater capacity than required. Excess capacity exists in the pro- cessing of oilseeds and olives, sugar beet processing, milk pasteurization, animal-feed production, canning, and cotton ginning. Refineries for vege- table oil and sugar are working close to full capacity, as are artisanal flour mills, slaughterhouses, and most small-scale agro-industrial enter- prises. Cold storage is used to full capacity. Growth of agro-industry has been and will continue to be more rapid than population growth due to rapid urbanization (the urban population consumes a greater amount of processed food per capita) and income growth (higher-income people consume more processed food than do low-income people). Rapid growth of production for sugar, milk, meat, olives, and vegetables should quickly reduce excess processing capacity, and additional capacity will be required in the early 1980s. Finance for large-scale agro-industry is available from foreign investors, wealthy Moroccan citizens, foreign suppliers, the Banque Nationale de Developpement Economigue (BNDE), and the Moroccan Government. Small and medium-scale agro-industry has, however, received inadequate attention. Expansion of small-scale agro-industry is constrained by: (a) lack of finance; (b) lack of information, technical know-how, and experience in dealing with financial institutions and the Government; and (c) lack of skilled labor. CNCA is now becoming interested in the small and medium agro-industry sector, and plans to focus on those enterprises with inade- quate capacity by first removing obstacles to their development. - 174 - Conclusion. 4.52 It would be desirable for Morocco's agricultural development strategy to attach greater importance to agricultural projects that seek to deal with the needs of well defined population groups, rather than to emphasize, as much as in the past, large irrigation schemes. This strategy ought to strengthen agricultural credit which, in Morocco, is responsible for financing a large share of the directly productive investments at the farm level. CNCA is one of those rare agricultural credit institutions that have succeeded in reaching a significant number of relatively low-income small farmers. This strategy would favour the export-oriented projects whose promotion constitutes one of the principal recommendations made in this report (see Chapter III). Small- scale irrigation and agro-industrial projects need to be developed in parallel with rainfed agriculture. The recovery of the capital and operating costs of irrigation systems need to be stepped up and the mechanisms for this recovery made more effective. Integrated rural development projects modeled on the one tested in the Fes-Karia-Tissa region may well be multiplied as quickly as possible; such projects emphasize extension services, vocational training, erosion control, supply of modern inputs, and provision of rural infrastructure, and are designed to directly assist the disadvantaged segments of the rural population to raise their productivity and incomes. In that respect, it would be useful to vigorously promote credit distribution to the small farmers at the same time that the integrated projects are implemented. Fisheries 4.53 The production potential of the fisheries off the Moroccan coast is estimated at 3 million tons, of which 2 million tons is in the areas to the south of Tarfaya. Nevertheless, the fisheries sector remains underdeveloped despite its importance for the improvement of food diet and for exports. Domestic needs for fisheries products are almost wholly met from local production, but the market is still far from being saturated. Per capita fish consumption (3.57 kg per year in 1971) is low in both the rural (1.79 kg) and the urban areas (7.14 kg). The income elasticity of demand for fish is relatively low. Canned fish is a major export product and Morocco is a leading world supplier of canned sardines. However, the position of Moroccan canned-fish exports in the world market has been deteriorating continuously since 1969. In the case of sardines, Moroccan canneries and those of Spain are sharing an increasing proportion of the world market for this product (nearly 30% each), but the share of canned sardines in relation to other seafood products and to total exports is declining rather rapidly. Thus, in 1977 the current value of canned-fish exports amounted to only 3.6% of the total value of exports compared with 5.1% in 1967. The fisheries sector accounts for 0.2% of total Moroccan production and employs 22,000 or 2% of the labor force in the secondary sector. 4.54 The potential of the fisheries sector was recognized in both the 1968-72 and 1973-77 Plans which included the broad lines of the required strategy to accelerate its development. This strategy called for a series of complex measures in response to the need for action at all stages: - 175 - survey and delimitation of fishing areas; modernization of the traditional fleet; formation of a deep-sea fisheries fleet; training of manpower; improvement of fishing ports and storage facilities; restructuring of canneries and processing plants; promotion of local and export sales. To implement this strategy, action was taken along two main lines; the establishment of public promotional agencies and the adoption of a system of investment incentives. 4.55 Under the supervision of the Fisheries Directorate, at present attached to the Ministry of Industry, a series of promotional measures were entrusted to an autonomous public agency -- the Office National des Peches (ONP) -- set up in 1969. These measures involved the formation of fisheries enterprises with the participation of local fishermen and foreign companies, the management of fish markets, and undertaking general sector studies. To assist ONP, the Scientific Institute for Sea Fisheries was provided with laboratory equipment and, with UNDP support, a survey and analysis of fishing areas and technologies were actively pursued. The Moroccan fishing waters were extended to 70 nautical miles during the 1973-77 Plan. Finally, a public marketing corporation (ASMAK) was formed to promote domestic sales. A generous Investment Code -- similar to the one for sea transport -- was promulgated in 1973: this Code provides for a minimum equipment subsidy of 15% that can be increased to 30% in the case of some vessels, an interest rebate of 4% (6% in the case of BNDE loans), accelerated depreciation, and guaranteed transfers of funds abroad for non-Moroccan investors. In addition, actions were taken to simplify the terms and the procedures for granting credit. 4.56 This promotional policy was subject to certain delays and it was not until 1976 that the impact of the measures adopted first began to be felt. As far as the fishing fleet is concerned, its development has been spectacular. The investments approved, which were negligible in 1973, rose to DH 397 million and DH 310 million respectively in 1976 and 1977. Of the DH 800 million approved, some DH 280 million were actually invested in the course of the 1973-77 Plan. The deep-sea fishing fleet, non-existent in 1972, comprised 38 vessels in 1977; taking into account investments already approved or in course of approval, by 1980 this number could well rise to 100 vessels, of which 80% will be trawlers. The investments have been made by both private and public, foreign and Moroccan promoters. ONP, in particular, in addition to its general responsibilities for promoting and supervising the sector (especially at the level of the cooperatives), participates in nine companies, four of which in partnership with foreign interests. The degree of control it exercises has ranged from the purchase of the entire capital stock (in the case of three companies) to a minimal participation of 10%. Its subsidiaries have acquired some 50 vessels. ASMAK has, on the other hand, opened around 50 sales outlets. 4.57 The performance of the fisheries sector in the same period was mediocre, as Table 7.15 in the Statistical Annex shows. During the last ten years production has fluctuated between 250,000 and 300,000 tons. If the - 176 - figure of 392,000 tons for 1973, which was exceptional, is excluded, the average has been only 247,000 tons. Production levels (in thousands of tons) are shown below: 1967 1972 1977 Total landings: 250 243 255 of which: Sardines 208 185 130 Port of Agadir 85 140 132 Sold as fresh fish - 60 83 Exports (see Table 7.15 in the Statistical Annex) have not exceeded DH 350 million owing to the low growth rate of canned sardines and other products (fresh fish, crustaceans, fish meal and oil). These results are partic- ularly discouraging in view of the substantial promotional measures that were taken. Undoubtedly there were some delays in the effective implementation of these measures; according to the 1978-80 Plan their full impact should now be felt and catches should reach some 400,000 tons of fish in 1980. This target, initially set for 1977 under the 1973-77 Plan, would represent an annual growth rate of more than 16% over the 1977 production level of 250,000 tons. On the other hand, an analysis of the mediocre past performance and of the factors behind it shows that any rapid expansion of this sector continues to present the same complex problems at all levels as it did ten years ago, at the beginning of the 1968-72 Plan, and that these problems have not been adequately solved by the action program so far undertaken. 4.58 The achievement of the targets set for the fisheries sector has encountered numerous obstacles. Incentives for the purchase of vessels appear to have been overgenerous and it is clear that their use has been ineffectively controlled. Effective links between the fishing fleet, harbor facilities, processing plants and marketing (both domestic and external) have not been ensured, and skills and management in the sector have been insufficient. As far as the fishing fleet is concerned, no study has been made of the impact of the incentives provided on the economic return of the investment made and on the utilization of factors of production (particularly the artisanal fishermen). It is difficult to monitor fishing vessels on the high seas and it has been established that an uncertain but significant proportion of the catches of the Moroccan-funded fleet has been diverted to foreign ports in violation of both foreign trade and foreign exchange controls. Tighter controls, however, would probably not be sufficient to remedy this situation as the available port infrastructure would not be able to properly cope with any significant increase in landings (lack of cold storage facilities). Infrastructure also seems to constitute a bottleneck for the industrial processing plants, which are largely underutilized (the utilization rate for canneries and byproducts is 25%). 4.59 The 1978-80 Plan included a number of priority actions that were expected to have a more positive impact on exports and local - 177 - consumption than in the past. The 1978-80 Plan also foresaw a certain number of actions under agreements made with Spain and the USSR which, througb the activity of joint companies, should promote technology transfers and improve fish exports. With regard to infrastructure and despite the budgetary austerity, investment appropriations for secondary fishing ports almost doubled between the 1973-77 and 1978-80 Plans, and four cold chains with a capacity of 9,000 tons are planned. To enable ONP and ASMAK to bring their operations under control, a pause was planned in their investment activity. In the meanwhile OCE was given the task of promoting and diversifying sales of canned fish abroad. In view of the difficulties facing the sector, the strategy and particularly the measures included in the 1978-80 Plan would seem to lack breadth and vigor. They do not form part of a long-term sector program designed to coordinate all aspects of sector activity and define in operational terms the role and the expected contribution of the public sector. The Plan does not explicitly special measures for the processing industry and, in particular, for vocational and technical training, although the latter is vital, particularly for skippers of fishing vessels. Lastly, an economic analysis of the investment incentives system in the fisheries sector needs to be made in order to identify those areas in which reforms are required. C. THE INDUSTRIAL SECTOR 1/ The Role of Industry in the Economy 4.60 Industry plays an important role in the Moroccan economy through its contribution to production and its impact on foreign trade. From 1967 to 1977 the share of the secondary sector (modern industry, small-scale and artisanal industry 2/) in GDP remained at between 16% and 17% according to the National Accounts at 1969 prices. The industrial sector experienced -- as did the economy as a whole -- a marked acceleration in growth under the 1973-77 Plan; at 1969 prices its value added expanded by 5.4% p.a. in 1968-72 and by 7.0% p.a. in the 1973-1977 plan period. This acceleration was almost entirely due to modern industry, whose annual real growth rate between 1969 and 1975 has been estimated at some 8% on the basis of industrial surveys made in those two years. Few statistics are available on either small-scale or artisanal industry; their value added appears to have increased very slowly (1-3% p.a.). The expansion of modern 1/ This section is largely based on the report prepared for the State Secretariat for Planning by Dar Al-Handasah entitled Etude d'Identification et d'Evaluation des Possibilities d'Investissements Industriels (Identification and evaluation of industrial investment prospects), Volumes I and II, Rabat, 1978. 2/ Modern industry is defined as establishments with ten or more employees, unless otherwise indicated; all other establishments are classified as artisanal and small-scale industry. Industry includes mining, energy, manufacturing and construction. - 178 - industry was accompanied by a very substantial increase in capital investment; the total cost of industrial projects approved under the Investment code increased, at current prices, from DH 1.2 billion in 1968-72 to more than DH 8.6 billion in 1973-77. This expansion also led to an equally substantial increase in imports of raw materials, intermediate products and capital goods used in industry. In the same period industrial sector exports increased at a much slower pace -- reaching DH 2.2 billion in 1977 against DH 0.8 billion in 1969 -- and they have continued to account for about one-third of all Moroccan goods exports. As a result industry has been bearing heavily on the balance of payments and needed external financing for its investments. 4.61 Because of the relatively high labor productivity of industrial activity, industry still provides only a small share of total employment in Morocco. The 1975 industry survey estimated the number of jobs in modern industry at some 173,000 and in small-scale and artisanal industry (establishments with fewer than 10 employees) at around 150,000. When compared with the total number of jobs in Morocco in 1975 the share of modern industry was thus 4.4% and that of small-scale and artisanal industry 3.5%, i.e. 8% for the sector altogether. The estimated increase in employment in modern industry between 1969 and 1975 averaged 6% per year, while the corresponding figure for small-scale and artisanal industry appears to have been much lower. At this rate the employment creation in modern industry has amounted to a little more than 10,000 new jobs per year, i.e. 0.5% of all employment in agriculture and 1% of all employment in services. At the present stage, industry cannot therefore be regarded as a major factor in employment creation in the Moroccan economy considering the relatively small number of jobs it furnishes in relation to total employment. 4.62 Industrial development in Morocco is generally carried out by the private sector through the interplay of market forces. Government inverventions are nevertheless multifaceted and far-reaching and include tariff and quota protection, investment and exports incentives, the setting of many prices and profit margins, credit control, responsibility for physical infrastructure and for training and direct public participations in industrial projects. State participation in industrial projects reached a considerable scale between 1974 and 1977. Through such action the State rather than the market is therefore directing industrial development. Practically the only source of long-term financing for industrial projects is the National Economic Development Bank (BNDE), in which the Government and certain public agencies hold 49% of the capital stock and play a dominant role. Short and medium-term financing for industry is provided by the Moroccan commercial banks, medium-term credit rediscountable at the Central Bank is a further important source of financing for industrial investments, for wbich BNDE provides appraisal and follow-up. Until recently small-scale industry had only limited access to bank credit and State services. - 179 - Structure and Problems of Modern Industry 4.63 Knowledge of the Sector. Knowledge of the modern sector is still incomplete. Two industrial surveys have been made, one in 1969 and one in 1975, but their findings are not strictly comparable and some data are deficient (the estimates of capital utilization, for instance). Except for these two years complete data are unavailable on the real growth of the sector, the utilization of production factors and the regional distribution of industrial development. Customs and balance of payment statistics do not lend themselves readily, as they now stand, to an analysis of the contribution of modern industry to Morocco's foreign trade. Recent studies (1977-78) on industrial exports cannot be effectively combined with other data on industry. For some years now an annual questionaire has been sent to enterprises but data processing has fallen behind. An empirical evaluation of the economic impact of the principal Government interventions (protection, incentives and direct participations) is severly needed. Moreover, Morocco still has no effective unit for the study and planning of modern industry with the personnel and resources needed to evaluate its performance and guide government decisions. This deficiency is in itself a problem and has been recognized as such by the Government which, in 1976-77, commissioned a study by Dar Al-Handasah. The 1978-80 Plan allotted DH 3.9 million to general studies on industry. A study of the system of industrial incentives is planned in 1978-80. 4.64 Breakdown by Subsector. Little change occurred between 1969 and 1975 in the breakdown by subsector of the modern industry sector. The increase in the value added by each of these five major subsectors is shown in the following Table (value added expressed in thousands of dirhams at current market prices; breakdown and growth rates as percentages): Value Added Breakdown Annual Growth Rate 1969 1975 1969 1975 at current prices (%) Subsector Oil refining 197 497 11 10 17 Agro-food products 685 1,711 36 35 17 Intermediate products 407 1,265 22 26 21 Capital goods 251 711 13 14 19 Consumer goods 337 752 18 15 14 TOTAL 1,877 4,936 100 100 18 Source: Dar Al-Handasah study. Bearing in mind that the above figures are at current market prices and that the 1969 figures relate to establishments with ten or more employees and those for 1975 to establishments with five or more, one should not attach any significance to the minor structural variations they indicate. In fact - 180 - the Dar Al-Handasab study, which uses a breakdown into 27 subsectors, shows even less significant variations at this level: the most marked variations between 1969 and 1975 amount to only 2-3% for the share of textiles and for the beverages and tobacco subsectors. The stability of the subsector breakdown of the modern industry sector is all the more remarkable in the light of the relatively high growtb rate -- some 8% p.a. in real terms -- it has displayed between these two years. Its structure reveals the predominance of consumer industries -- food and nonfood -- and of industries making intermediate goods used in the manufacture of consumer products. 4.65 Orientation towards Domestic Consumption. The stablility of the sub-sectoral structure of modern industry is paralleled by a similar stability in the categories of final demand satisfied by it. This is indicated by the following figures for value added of final demand (value added in DH millions at current market prices; breakdown and growth rates as percentages). Value added Breakdown Annual Growth Rate 1969 1975 1969 1975 at current prices (%) Final demand Consumption 1,334 3,383 71 69 17 Investment 348 1,098 19 22 21 Exports 194 455 10 9 15 TOTAL 1,876 4,936 100 100 18 Source: Dar Al-Handasah Study. In the light of the reservations expressed in the preceding paragraph the structural changes shown above should be regarded with caution. Neverthe- less it is clear that modern industry in Morocco has continued to be largely oriented (to the extent of some 70%) toward the production of goods for domestic comsumption and of intermediate products used in their manufacture. The table indicates a minor shift towards investment, more especially at the expense of exports, which increased at a slower pace between 1969 and 1975. Of the 27 subsectors of modern industry, 13 are oriented -- to an extent exceeding 50% of their value added -- toward domestic consumption: these are chiefly industries making mass-consumption goods and all intermediate goods, except those resulting from the processing of minerals. Such an orientation is not surprising at the present stage of Moroccan industrial development. But it suggests that the greater part of the sector is linked to a not very dynamic pattern of demand and has as its corollary low production capacities for export and investment. These problems are a matter of concern to the Government. - 181 - 4.66 The capital goods industries are mainly those that produce for construction and public works (building materials, including cement) and for transportation (assembly of commercial vehicles and railroad cars). Production of machinery goods capable of manufacturing capital equipment remain very limited. The promotion of industrial development by the State has rarely encouraged capital goods industries. For instance, the tariff protection of these industries has remained very low, except in the case of the assembly of transportation equipment; government procurements orders have been frequently tied to foreign financing and have therefore offered few sale opportunities for local firms. The 1978-80 Plan recommended the preparation of a more active policy to promote capital goods industries. 4.67 In 1975, seven of the 27 subsectors in the modern industry sector had an exported value added exceeding DH 20 million and ten exported over 10% of their total value added. No subsector, however, exported more than 40% of its total value added although, within some subsectors, there were production lines entirely oriented to exports, mainly as a result of special customs regimes (for example, certain textile and leather products). In all, 12 subsectors exported a value added in excess of DH 20 million or more than 10% of their value added in 1975. Among these 12 the share of value-added exported had increased between 1969 and 1975 in five cases and decreased in seven. The five subsectors that became more export-oriented did so primarily on the basis of the preferences accorded in the European Common Market and of the temporary admission procedure. The other seven neglected exports in favor of domestic consumption, mainly because of the protective measures which ensure high profits, even when efficiency is low and production costs are high. The following figures indicate the total value added (in millions of current dirhams) by these twelve subsectors, together with the corresponding shares of exported value added (as a percentage): - 182 - Percentage of value Subsector Exported value added added exported 1969 1975 1969 1975 Increasing share Textiles 29 95 12 21 Clothing 4 31 16 37 Basic metals 4 11 18 20 Office equipment 0 3 0 30 Other industries 1 3 11 30 Decreasing share Other food products 74 120 35 23 Beverages and tobacco 23 22 8 3 Leather and footwear 12 26 36 30 Wood 8 13 22 12 Paper and cardboard 10 28 12 11 Chemicals and semi- chemicals 20 56 15 12 Unspecified industries 9 47 - Total for the 12 subsectors 194 455 10 9 Source: Dar Al-Handasah study. 4.68 The 1973-77 Plan selected export promotion as the main objective for the country's industrial development: the chapter on industry stated that "the main emphasis in the 1973-77 Plan for industry is on the promotion of exports of manufactured goods" and a wide range of measures were included in support of this. However, achievement of this objective proved to be more difficult than had been foreseen, not only due to some external factors such as the obstacles encountered in opening up foreign markets but also and principally for internal reasons. Among these the most important were the general bias in the system of industrial incentives, which had the effect of discouraging exports, together with the revision of the Plan in 1975 which emphasized import substitution. After these policy changes, the 1978-80 Plan again established exports as the priority target for the future. 4.69 Import substitution. Import substitution has continued to be a major feature of the development of the modern industrial sector in Morocco. Its importance and its evolution are indicated by the following figures for industrial production and imports: - 183 - Millions of DH Percentages Annual Growth Rate 1969 1975 1969 1975 in nominal terms (%) Domestic production 6,144 15,733 72 67 21 Imports 2,382 7,894 28 33 27 Supply = Demand 8,526 23,267 100 100 23 Source: Dar Al-Handasah study. In real terms, the fall in Moroccan industry's share in the total supply of (demand for) manufactured goods has undoubtedly been less marked than the above figures would suggest. These figures are at current prices and they therefore reflect price and tax increases (particularly for oil products) that were higher for imports than for domestic production. Nevertheless, it is clear that import substitution has not reduced the country's dependence on imports. On the contrary, the substituted imports of consumer goods have been replaced by imports of intermediate and capital goods for industries manufacturing the substituted consumer goods: this pattern has been observed in a large number of developing countries, especially in Latin America. 4.70 The share of imports for each subsector reflects very closely the extent of the protection given to different industries. In 1975 domestic production satisfied more than three-quarters (often 90%) of local demand for consumer goods and refined oil products, both highly protected. For intermediate and capital goods, which are, with only a few exceptions, less well protected, the share of domestic production in total demand fell below 50% and to as low as 20% for basic metals and machinery. An analysis of past import substitution policies shows that import substitution occurred chiefly in industries close to the end-user, in which the technology is uncomplicated or readily imported. The assembly of vehicles and packaging of pharmaceutical products are typical examples, as are mass consumption goods. Substitution has lost ground or made little headway in industries with complex technology that needs substantial adaptation to local conditions (for instance, complicated machinery and equipment). Upstream integration has still made little progress in those sectors in which it could be economically feasible, as protection levels vary little except upward. With the exception of those industries that utilize local resources the value added by import substitution remains low. The technologically simple substitution of end-products so far practiced appears to have gone as far as it can in the sectors affected, since the rate of increase in local demand for these products is relatively slow. In addition, increases in such demand are often hampered by the high sale prices of substituted products made possible by protection. For the future development of the modern industrial sector the options are therefore either for the sectors engaged in substitution to increase exports or to extend the process of substitution to intermediate products and capital goods. Exporting presupposes that existing industries engaged in substitution can become competitive on world markets by reducing their costs. The extension of the process of substitution calls for a highly selective choice of - 184 - production lines in order to avoid manufacturing on a small and relatively unprofitable scale an excessive number of products: from this standpoint export may often be a necessity. In either case it is clear that Morocco must modify the somewhat unselective substitution policy that it has so far followed. The choice of industrial specializations best adapted to the country's comparative advantages is, however, a difficult one and has yet to be solved. 4.71 Utilization of capital and labor. A comparison of the real growth rates of value added (8% per year) and of employment (6% per year) in the modern industrial sector between 1969 and 1975 indicates that the produc- tivity of labor has been increasing at approximately 2% per year. This increase can perhaps be attributed, on the one hand, to an increase in the capital labor ratio and, on the other, to an improvement in the skills of the labor force, although the data in the 1969 and 1975 surveys are too scanty to bear out such a hypothesis. The limited data available on capital formation does, however, support the conclusion that a rise in the capital labor ratio has occurred in Moroccan industry, especially since 1972. An analysis of industrial projects that have been granted investment incentives from the State shows the following average investment expenditure per job in these projects (thousands of DH): 1972 1973 1974 1975 1976 1977 Current prices 57 76 78 89 144 87 1969 prices 44 53 51 55 83 47 Source: Dar Al-Handasah study for the capital labor ratio in current prices and estimates at 1969 prices based on the investment deflator in the National Accounts (Table 2.3, Statistical Annex). The above figures show an increase in the average investment expenditure per job, although the drop in this ratio in 1977 should be noted, together with the fact that not all projects that have been granted State incentives have been executed. A better estimate of the true situation can be obtained from an analysis of projects approved by BNDE. Such an analysis shows that, between July 1973 and December 1976, the average investment expenditure per job in BNDE-approved projects was DH 259,000. 1/ Among those projects that received state incentives and were approved by BNDE, it appears that it is the major state projects launched in 1974-77 (for oil refining and for the 1/ This figure clearly exceeds the estimates based on projects that have been granted State incentives. The difference is explained by the fact that a large number of small projects that qualified for incentives are not presented to BNDE for financing. In the absence of any project monitoring it is not known whether or not these small projects have been executed. - 185 - production of phosphoric acid, PVC, cement and sugar) that were primarily responsible for the increase in the average capital labor ratio. The 1978-80 Plan has adopted a more selective attitude with respect to projects that are heavily capital-intensive but do not create many jobs, retaining only those whose economic rate of return is high (see below). 4.72 Utilization of production capacity in the modern industry sector has significantly improved and, in the case of establishments with 50 or more employees, it rose from 59% in 1969 to 67% in 1975. Capacity utiliza- tion rates have, however, remained low in some subsectors, such as other food products (53%), beverages and tobacco (56%), wood (59%), machinery and plant (64%) and miscellaneous industries (52%). The use of several workers shifts has been limited to the large highly capital-intensive enterprises. It is therefore likely that the productive capacity of modern industry is more extensively utilized than these percentages indicate. Market conditions were given as the main reason for underproduction in most subsectors: this can be regarded as an indication of poor adaptation of investment outlays to market sizes as a result of excessive protection. Other factors mentioned were difficulties in obtaining supplies of raw materials -- especially in the agro-food industries -- and the scarcity of skilled labor. 4.73 According to the limited data available the shortage of skilled labor appears to have become more serious since the 1975 survey. This shortage hampers the development of exports and of industries employing more complex technology (especially machinery and equipment). It reflects an imbalance between industry's demand for appropriately qualified labor and the supply of workers as well as deficiencies in training. In the absence of data it is almost impossible to quantify the extent of this shortfall. It can be noted however that in 1975, in establishments with 50 or more employees, some 45% of the supervisory staff and 18% of the foremen and technicians were still foreigners. In 1969 these percentages were 54% and 35% respectively for establishments employing ten or more persons. The reduction between 1969 and 1975 can probably be attributed to the training efforts made during these years. A further indication of the scarcity of skilled labor is the heavy pressure on salary levels for skilled work, reflected in the very wide gaps that exist between the earnings of skilled and unskilled Moroccans, on the one hand, and between those of Moroccans and foreigners on the other. Average wages recorded in the 1975 survey in establishements with 50 or more employees were as follows (in thousands of DH per job per year; index = 1.0 for unskilled Moroccan workers in parenthesis): Moroccans Foreigners Unskilled workers 5.5 (1.0) 12.9 (2.3) Specialized workers 8.2 (1.5) 29.9 (5.4) Skilled workers 12.4 (2.3) 30.4 (5.5) Clerical workers 16.3 (3.0) 32.5 (5.9) Foremen 24.5 (4.5) 55.3 (10.1) Technicians 28.8 (5.2) 61.5 (11.2) Supervisors 57.7 (10.5) 108.3 (19.7) - 186 - 4.74 Location of industries. Over half of Morocco's industrial estab- lishments and jobs are located in the central region (Casablanca), which has one-fourth of the country's population; a further 20% or so are located in the adjoining northwestern region (Rabat-Kenitra) facing the Atlantic. How- ever, an analysis of recent trends in industrial investments shows that less than half of these and of the additional jobs created were located in the central region. This trend was mainly due to the large public industrial projects launched in 1974-77 and it has permitted a slight increase in the percentage of industrial establishments and jobs located outside the country's central region. The following figures describe this pattern and its trend (in percentages): Establishments/i Jobs Population Region 1969 1975 1969 1975 1971 Central (Casablanca) 58 55 56 53 26 Northwest (Rabat-Kenitra) 18 19 18 19 20 Tensift 8 9 13 16 16 Others (4 regions) 16 17 13 12 38 Total (7 regions) 100 100 100 100 100 /1 Establishments with 10 or more employees. Source: Dar Al-Handasah study The sectoral analysis of the regional distribution of industries makes it clear that the concentration of industry in the central region is highest in the case of the industries that are most advanced technologically and need the extensive services available in Casablanca and in the case of those oriented to mass consumption (ready-made clothing, leather and footwear). The industries least heavily concentrated in the central region are those based on local raw materials that are expensive to transport, such as the food, wood and building materials industries. Investments and the System of Industrial Incentives 4.75 Investments. No annual record of gross fixed capital formation in industry is available. On the other hand, an analysis of imports of industrial capital goods and of industrial projects that received State incentives indicates a remarkable upsurge in industrial investment under the 1973-77 Plan, especially after its revision in 1975-77, as indicated in the following figures (DH millions): - 187 - Imported capital goods Costs of projects at Prices 1969 Prices current prices that Current Constant received State incentives Annual Total 1967 506 404 383 1972 670 427 325 1977 4,797 2,890 2,236 Annual Averages 1968-72 669 543 241 1973-77 2,528 1,435 1,731 1975-77 3,502 1,947 2,486 Source: Tables 3.4 and 3.4A; Dar Al-Handasah study. 4.76 An analysis of industrial investments that received State incentives shows two major new changes in 1974-77. In the first place, the public sector accounted for the largest share of investments with State incentives, largely as a result of the launching of a dozen major projects, of which two (pulp for paper and Maroc Phosphore) were export-oriented, the others being aimed at import substitution (cement, sugar, oil refining, textiles, PVC). Secondly, throughout these four years, some 46% of investments with State incentives went to sectors that in 1975 provided only 13% of the jobs in the modern industrial sector; i.e. they were channelled into highly capital-intensive subsectors. These new directions are not bad by themselves if the economic rates of return of those projects are high enough. 4.77 The analysis of investments with State incentives also indicates the very limited scale of direct foreign investment, despite the fact that the transfer of dividends and the repatriation of foreign investments are guaranteed, in addition to the general benefits of the Investment Code. Direct foreign investment accounted for only 7% of investments with State incentives in 1974, 11% in 1975, 10% in 1976 and 13% in 1977. The balance of payments (Table 3.1, Statistical Annex) and external debt figures confirm the very limited role played by direct private foreign investments as compared with external financing in the form of direct or guaranteed public borrowing. The reasons for this are not yet very clear. Foreign investors say they are discouraged by the difficulties created by the many administrative formalities to be complied with at various stages in the preparation and execution of projects -- difficulties which bear more heavily on them than on Moroccan investors -- - 188 - as well as by the Moroccanization policy adopted in 1973 requiring equal partnership with Moroccans in respect of capital and management in a number of sector specified by law (exports are excluded). Whatever the reasons for the low level of direct foreign investment, the result is that Moroccan industry makes little use of one of the more effective means for transfer of technology and modern management methods as well as for penetrating foreign markets. If the Government desires to correct this situation it would seem essential to provide foreign investors with a more effective assistance and guidance and, in particular, to lessen the ambiguities and arbitrariness that such investors claim persist in the application of regulations affecting them. The proposed study of industrial investment incentives (see below) should help to quantify the benefits that direct foreign investment may offer for Morocco. 4.78 The system of industrial incentives. To a large extent, the capital outlays and structure of industry in Morocco reflect the impact of the system of industrial incentives that the Government has introduced and developed in past years. The main purpose here is to clarify how far this system can help to achieve the following targets set for Moroccan industrial development: (1) increases in efficiency, employment and exports; and (2) the promotion of private enterprise and of a more equitable regional balance. 4.79 The Moroccan system of industrial incentives resembles that of many other countries at a similar stage of development. It has three main ele- ments: protection and some measure of subsidization of exports; incentives for industrial investments; and price control policy. Protection takes the form of import taxes and duties and of quotas for certain imports. It is applied on a case-by-case basis but its degree, which differs widely from subsector to subsector and category to category, is seldom changed, and then only in an upward direction. Export subsidies seek to offset (in part) the negative impact of protection on production costs: they take the form of preferential access to bank credit at reduced interest rates, special Customs procedures for imported inputs used in exports and tax exemptions for profits obtained from exports. Incentives for industrial investment are of two kinds: those given automatically to projects costing less than DH 30 million and those given on a case-by-case basis to projects whose cost exceeds DH 30 million. The incentives given automatically take the form of exemptions from Customs duties on capital goods imported for projects receiving State incentive, a 2% rebate on the interest rates charged by BNDE, and reductions in direct taxes on profits whose amounts and conditions vary from region to region. Incentives given on a case-by-case basis to large-scale projects (agreements system) are normally identical with those given automatically and may also be combined with the provision of financing on favorable terms by the State. Finally, as there is frequently a risk that protection will provide a source of economic rent for protected enterprises, the Government controls the selling prices or (more often) the profit margins of these enterprises on the basis of case-by-case calculations of their financial profitability that do not necessarily attach due weight to adequate economic return and increased efficiency. The procedure for modifying these controlled prices and margins at the request - 189 - of firms is quite flexible but it is not unusual for its application to give rise to protracted delays that are prejudicial to the financial health and savings capacity of firms, especially in a period of rapid increases of production costs. 4.80 The incentive system as a whole (protection, incentives and price control) has become complex and needs to be analyzed. Unfortunately, insufficient factual data are available on its impact at the enterprise level to provide any definite indication of how far it has contributed to the achievement of the targets set. Available estimates of shadow prices (see para. 3.133) provide some idea of the price distortions that occur in the Moroccan market. These distortions create significant discrepancies between financial profitability at market prices as it is seen by individual investors and entrepreneurs, and the economic or social return from the national standpoint. As a result of these discrepancies the allocation of resources tends to be at variance with the allocation that would be desirable to achieve the national goals. Estimates of shadow prices show the discriminatory impact of protection on export activities and the arbitrary differences in the levels of protection given to the various import- substituting industries. They also make it clear that investment incentives induce enterprises to use manufacturing techniques that are intensive in capital and skilled labor (the production factors that are scarce in Morocco) and discourage the employment of unskilled labor (the abundant factor). In general, the conclusions that can be drawn from the estimated shadow prices confirm those that were reached earlier when the structural characteristics of the modern industrial sector were analysed. A reform of the system of industrial incentives appears essential in order to better orient the development of the sector toward the national goals of efficiency, employment, exports, private initiatives and regional balance. The components of such a reform cannot be identified without a better empirical knowledge of the situation at the enterprise level. 4.81 The Government has decided to initiate a study of the industrial incentive system to be completed towards the end of 1981. This study is to include the following: (1) An estimation of the incentive indicators (nominal protection, effective protection and effective subsidy) that are needed to implement a rational system of import protection and export subsidies; (2) An estimation of economic cost-benefit indicators (economic rate of return and domestic resource costs) on the basis of which the comparative advantages of Moroccan industries can be quantitatively determined and a (partial) basis for subsector specialization decisions be available; (3) An analysis of the relationship between incentive and cost-benefit indicators, on the one hand, and the particular characteristics of enterprises, on the otber, including more especially the - 190 - utilization of factors of production (capital, skilled labor, unskilled labor), employment creation, the nature of the enterprise (public, private, foreign), the degree of export orientation and regional location; (4) Possibly brief sector studies including economic appraisals of new projects; and (5) An analysis -- on the basis of the preceding elements -- of options for the reform of various aspects of the industrial incentive system. This study should provide the Government witb the empirical basis essential to the formulation of a new industrial policy better adapted to the national goals it has so far pursued. The study is being carried out with external technical assistance that will at the same time seek to develop Moroccan capacity for the continuing analysis and empirical evaluation of the industrial incentive system. The 1978-80 Plan 4.82 Main Guidelines. During the 1978-80 Plan period large-scale State investment expenditures were to proceed at a slower pace due to the financial constraints that the Government was facing during this period. This pause would allow the completion of projects that have been under way since 1976 and would provide an opportunity for the formulation and adoption of an industrial policy better adapted to the country's objectives and situation. The main guidelines of industrial policy in the three years of the 1978-80 Plan were therefore the following: (1) Continuation of long-term investment programs whose economic and social justification are firmly established. These are the sugar, cement and phosphate plans based on the development of local resources either for export (phosphates, phosphoric acid, fertil- izers) or for the local market (sugar and cement); (2) Study and adoption of a selective development policy for the production of intermediate and capital goods; (3) Strengthening of the industrial exports policy; (4) Strengthening of the industrial decentralization policy, especially through the establishment of physical facilities and infrastructure for industry outside the Casablanca region; (5) Study and introduction of an improved system of industrial incentives (investment incentives; exports; protection; promotion of priority subsectors; decentralization; employment; technology; administrative procedures); and - 191 - (6) Promotion of small and medium scale enterprises for the twofold purpose of creating jobs at low capital cost and deepening the industrial structure. 4.83 This approach was associated with a public investment program having the following major components (figures in DH millions): Amount of Investment Total 1978-80 Period Sugar Plan (two expansions and one new sugarmill) 392 392 Phosphates Plan (phosphoric acid) 3,536 2,464 Projects of the Office de Developpement Industriel 446 233 Studies and miscellaneous 8 8 Total 4,382 3,097 Source: 1978-80 Plan, Volume III. In addition, the Plan estimated that private investments would reach DH 2,350 million in 1978-80, including three cement plants (DH 800 million) and a sugar mill (DH 197 million). As can be seen, three programs -- sugar, cement and phosphates -- accounted for the largest share (71%) of projected investment in 1978-80; the phosphoric acid plants program alone accounted for 45% of the total projected investment over these three years. 4.84 Both the general guidelines of the 1978-80 Plan and its investment program appear sound. The primary emphasis was on exports, as the planned expansion of production capacity for phosphoric acid and the private export-oriented projects in the food, textiles, leather, and automobile subcontracting subsectors indicate. Both public and private import-substitution projects were subject to strict project appraisal criteria. The Plan, however, assumed that financial constraints would delay the initiation of some public projects and it may well be that, for this reason and as a result of the general economic slowdown, the planned volume of private investments will not be entirely realized. 4.85 The study of the system of industrial incentives should, as previously indicated, provide the data basis, that is now missing, for a reform of this system. Moreover, supplemented by the detailed studies at the subsector level that are currently under way, this study would make it possible to establish the sectoral priorities that would govern the development of Moroccan industry in 1981-90. It is, however, important to note that the reform of the system of industrial incentives will necessarily be a complex and protracted task. This reform will probably be centered around the following main thrusts: - 192 - (1) Rationalization of tariff and quota protection and of export subsidies with a view to achieving national goals, particularly efficiency and exports; (2) Improvement of investment incentives, taking into account especially the relative availability of factors of production and considerations of regional development; (3) Introduction of strict evaluation criteria for State decisions on prices and on its participation in investments; and (4) Establishment of a permanent capability for the evaluation and monitoring of the incentive system. The various aspects of reform are closely linked and their preparation and execution will require considerable time in each case. In particular, it is to be expected that the rationalization of protection and of export subsidies will have far reaching repercussions on enterprises and on employment because of the variations in relative prices which it will create in the Moroccan economy. For this reason it is probable that the reform will have to be implemented progressively over a sufficiently long period to allow enterprises to make the necessary adjustments. The experience of countries which have successfully undertaken this kind of rationalization shows that it is a long and difficult undertaking but one in which both the objectives and timetable should be firmly defined and unambiguous. 4.86 Small and medium size industry 1/. Development of small and medium size industry represents a new priority established in the 1978-80 Plan. Until recently, Moroccan industrial policy has favored the development of large-scale industry and handicrafts (enterprises in which investment per job is less than DH 5,000). Small and medium size industry has not benefitted from special incentives until a recent period, although this is a sector of considerable importance, particularly from the standpoint of employment, exports and the integration of the industrial structure. According to the (unpublished) findings of the annual survey of industry in 1976, some 3,200 small and medium size enterprises (5 to 50 employees) accounted for 23% of the employment and 21% of the value added in industry (5 and more employees). The majority of these enterprises were in the food, textiles, leather and metal structures subsectors. If these figures are compared with the surveys for 1969 and 1975 it appears that annual growth rates in this sector have been 2.5% for value added, 2.1% for employment and 0.4% for the value added per job. These figures underestimate the sector growth rate to the extent that they do not take any account of enterprises which, as a result of their vigorous growth rate between 1969 and 1975, have exceeded the size of 50 employees. They are nevertheless indicative of the relatively slow pace of growth of small and medium size enterprises compared 1/ These paragraphs on small-scale industry are based on the IBRD report Integrated Project for Small-Scale Industry Development, No. 2365-MOR, March 26, 1979. - 193 - with large-scale industry, since the growth rates for enterprises as a whole have been 8% p.a. for value added and 6% for employment. They thus point to the need to revitalize this important sector of Moroccan industry. From this standpoint a survey made in 1977 for BNDE provided a more complete evaluation of the present situation and of the growth potential of small and medium size enterprises. The survey covered 122 firms. It showed that these enterprises generally suffered from low productivity associated with outdated equipment, poor production programming and serious difficulties in recruiting skilled labor. Notwithstanding this, some of them have successfully established themselves in Moroccan and foreign markets. The firms covered by the survey exported 30% of their production, whereas in 1975 the average for the modern industry sector was only 9%. Some 60% of them had favorable expansion prospects provided they could be given effective assistance in the areas of technology, management and financing. The remaining 40% appeared destined for stagnation, largely because of the ineffectiveness and passivity of their management. 4.87 Whilst handicrafts received substantial Government aid in the form of generous financial incentives, free training of apprentices and assistance with marketing, small and medium size enterprises have not benefited from any specific legislation designed to provide them with incentives, and their access to long-term financing has been limited. 4.88 In 1978-79 the Government introduced a program to assist small and medium size businesses. The aim of this program is to stimulate potential entrepreneurs (especially amongst former emigrant workers returning to the country), stimulate the integration of small and medium businesses with larger enterprises, and promote industrial development in the less developed regions of the country. The program is aimed at enterprises whose net assets are less than DH 5 million (1978 prices)and in which the investment per job is below DH 40,000 (1978 prices). Its main features are: (1) A study unit in the Ministry of Industry to analyze the needs of small and medium size enterprises and make recommendations for their development; (2) A technical assistance unit in the Office de Developpement Industriel (ODI), with a team to work with enterprises and help them to solve their technical problems and improve their management; and (3) A State-guaranteed financial assistance fund amounting to some DH 170 million over the first two years of the program. This fund would be used to make loans to selected businesses through Moroccan commercial banks on terms comparable with those granted by BNDE to large-scale enterprises. - 194 - The program is expected to have an impact on more than 200 enterprises and allow the creation of some 5,000 jobs. The average investment cost per job is estimated at DH 32,000, whereas it was DH 259,000 for the projects financed by BNDE between July 1973 and December 1976. This program should also help to strengthen the Moroccan industrial structure and develop competition between small and large enterprises that will promote a general reduction in costs. In the long term the main interest of the program is that it will provide the kind of institutional support structure for small and medium enterprises that was needed. 4.89 Conclusions. In summary, the 1978-80 period probably marks the beginning of a turning point in the Goverment's industrial policy and this is a promising factor for the future, although there is undoubtedly still much to be done in the course of 1981-90 to consolidate the new orientations adopted in 1978-80, mainly: (1) The preponderant role assigned to export projects in investments planned for 1978-80 and the new concern to ensure an economic return in import-substitution projects; (2) Preparation through studies for a more specific orientation of industry toward production of certain capital and intermediate goods; (3) The development of a new system of industrial incentives better adapted to national goals; and (4) The introduction of a program of assistance for small and medium scale industry that meets the need to increase the number of industrial jobs and strengthen the fabric of industry throughout the entire country. D. ENERGY AND WATER 4.90 The energy and water sector is made up almost entirely of a network of national and local public enterprises. Exploration, production and distribution activities concerning water and energy (including electricity) accounted for 2.4% of GDP at current prices in 1977, as compared with 3.9% in 1967, and 7.4% and 13.7% of value added of the secondary sector in those two years. At current prices these percentages fell during the 1968-77 decade, but it should be noted that changes in the relative prices of energy and water were largely responsible for this fall, the sector having received substantial and increasing subsidies up to 1977. The sector's chief characteristics are its high degree of dependence on imported oil, which accounted for 11.5% of the current cost of imported goods in 1977 (4.8% in 1967), and the highly capital-intensive nature of its activities. The number of jobs created by the sector is small, amounting to some 30,000 wage earners (i.e. 5% of all jobs in the secondary sector), although the sector received some 17% of the total volume of investment under the 1973-77 Plan. - 195 - Energy 4.91 Table 8.5 illustrates the structure of primary energy consumption and sbows that the upward trend in energy consumption noted from 1967 onwards eased in the years following 1975, doubtless owing to price increases, although the effect of the latter was delayed in relation to international price movements due to price subsidies. Notwithstanding this, imported energy (oil) requirements have increased, accounting for 78% of total consumption in 1977 as against 68% in 1972. In relation to the overall growth of the economy, energy requirements have grown with an elasticity well in excess of unity. 4.92 The long-term program for the expansion of the energy sector in Morocco is based on an assumed increase in requirements of 10% p.a. during 1980-90. This rate reflects the prospective acceleration in demand from industry and extension of electricity service to new consumers. Nevertheless, assuming a nonsubsidized price-setting and an adequate rate-structure policy in the energy sector, the growth rate of the energy sector could certainly be held at between 8% and 9% since the projected growth rate of the economy varies between 4 and 6% per year, and especially if some effort at conservation is made. Such an effort is all the more desirable since imports of energy are very sensitive to the global growth rate. For example, a lowering of the estimated growth rate of energy consumption from 10% to 8% p.a. between 1977 and 1985 would result in a reduction of some 30% in oil imports by 1985, as the following figures sbow (in millions of thermal tons equivalent): 1985 Requirements at an 1977 Annual Growth Rate of Requirements 10% 8% Total energy requirements 5,930 12,690 10,140 Coal 640 900 900 Gas 120 140 140 Hydropower 550 720 720 Oil imports 4,620 10,930 8,380 To meet future energy requirements Morocco would (as in the past) have to rely largely on oil imports as it has no new domestic sources of energy that could be rapidly exploited. At present commercial quantities of petroleum and natural gas are found only in very small amounts in Morocco, although indications of potential reserves are sufficient to justify continuing exploration work on a modest scale. The present and prospective status of the various domestic energy sources are described in the following paragraphs. - 196 - 4.93 Morocco has anthracite coal with a high calorific value mined by Charbonnages Nord-Africains (CNA), a public enterprise. CNA's annual production capacity is expected to increase from 700,000 t/a to one million in 1980 and to 1.2 million t/a in 1984 and then, in view of the exploitable reserves, to stabilize at about that level. Whereas local oil production steadily decreased (450 barrels/day in 1978), existing reserves of natural gas should be sufficient to meet industrial needs for at least 30 years. During the 1973-77 Plan intensive efforts were made by BRPM, in association with foreign companies, to step up exploration work on land and offshore. So far, however, the results indicate no more than the possibility of small deposits. The rapid increase in the consumption of oil products, over 10% p.a. in recent years, has saturated the existing refining capacity. Recent expansions should extend SAMIR'sl/ capacity from 2.25 to 5.75 million tons p.a. and that of SCP from 0.8 to 1.0 million tons in 1980. 4.94 Additional hydroelectric resources can be exploited in the Moulouya, Sebou and Oum R'bia basins. At the end of 1978 total generating capacity had reached 396 MW but high variations in river flows have resulted in levels of production fluctuating widely around 1,500 GWh per year. In addition, Morocco had a thermal capacity of 667 MW, i.e. 63% of total capacity available. To the existing hydroelectric potential it should be possible, over the next ten years, to add a further generating capacity of 1,400 GWh p.a. There is, however, no guarantee that these reserves can be used to satisfy electric power needs as other uses, particularly irrigation, may have a priority claim. Moreover, the regime of these rivers and the influence of rainfall will continue to add to the uncertainties that exist as to the potential regular flows that can be used for electricity generation. In an effort to deal with this problem more effectively a master plan for the waters of the Oum R'bia has been completed and similar plans for those of the Sebou and Moulouya are in course of preparation. For the present it appears that annual hydroelectric generating capacity is likely to reach a ceiling of the order of 1,800 GWh by 1981. 4.95 Morocco has potentially significant resources in the form of oil shale, uranium and solar energy. Officially reported reserves of oil shale amount to 2 million tons with 10% of oil content, 20 million tons with 7% and large quantities with 5%. Oil shales could be burnt to produce energy, or synthetic oil could be extracted from them. The technology is, however, still at the experimental stage so that the starting date for production is still uncertain, as are the production costs. Cooperation agreements have been signed with American, Romanian and German firms for studies of industrial plants for these two utilizations. At this stage the only known source of nuclear energy would be by extracting the uranium content from phosphoric acid (150 to 200 g/t). However, it has yet to be established whether uranium extraction is commercially profitable and if so, whether building a nuclear power station would be of interest to Morocco. Among 1/ Societd anonyme marocaine de l'industrie du raffinage. - 197 - other forms of energy the most potentially promising appears to be solar energy and experiments are being undertaken in the south of the country, where a research and development institute has recently been established at Marrakech. 4.96 The aim of Morocco's energy strategy is to achieve maximum coverage of its needs from local production (at internationally competitive costs), provide assured supplies of imported energy (oil) and show down the growth of requirements. This strategy faces problems of supply management and of pricing. The energy sector is coordinated at government level by the Prime Minister, who makes decisions on the price structure and investment planning, by the Ministry of Finance, which exercises financial supervision over public enterprises, by the Ministry of Energy and Mines, which is responsible for research and for the direct supervision of production units, and by the Ministry of the Interior, which supervises the largest part of the urban electric power and gas distribution system. An Inter-Ministerial Committee on Rural Electrification has also been formed to coordinate distribution. The fragmentation of responsibilities in its organization persists, creating a situation that does little to promote the effective coordination of development programs and policies in the sector. The Government is aware of this and has decided to adopt a step by step approach in its efforts to improve the organization of the sector. 4.97 The public sector covers all fields of activity. BRPM undertakes exploration for oil in association with foreign private companies, and for energy-producing minerals (coal, uranium) in association with international agencies (UN) and the USSR. The refining of petroleum products is under- taken by two companies--SAMIR, 98% of whose capital stock is held by the Government and 2% by SNI, and SCP, 50% of whose capital is Moroccan, held by BRPM, and the balance foreign. As far as coal is concerned, CNA, wholly publicly owned, mines anthracite. In the case of electricity, 91% is generated by ONE, the balance being produced by industrial enterprises (8%) and by isolated municipal plants (1%). The distribution of petroleum products is carried out by various marketing companies, in which a public holding company (SNPP) is associated on a fifty-fifty basis with the foreign companies that were established in Morocco prior to 1974. Forty percent of electricity distribution is handled by ONE (medium towns and large industrial consumers) and 60% by 13 municipal authorities (regies) in the major urban agglomerations. The operations of these authorities are financially autonomous; under the 1973-77 Plan the majority of mains connections were financed either by the user or by the Fonds d'Eguipement des Communes (FEC), which is managed by CDG. 4.98 Prospects for increasing domestic supplies of primary energy hinge on an active policy of exploration and experimentation with no assurance of positive results, together with a long-term development plan that cannot easily be finalized as the investment programming must take into account the possible emergence of more efficient technologies than those at present available. With some DH 3.2 billion invested (excluding the main connec- tion costs of the urban systems), the energy sector was allotted 7% of total - 198 - investment during the period of the 1973-77 Plan (see Table 8.7). The major effort (54%) was made in energy production, both primary (extension of the Mohammedia refinery), and electric power (completion of Mansour Eddahbi and Moulay Youssef hydroelectric power stations, together with five thermal stations). With some DH 1.22 billion to be made available under the 1978-80 Plan, the relative share of the energy sector would be reduced to 3% of all planned investment and the annual volume of expenditure at constant prices divided by 2.5. The larger part of this reduced sum is to be allocated to energy production for completing the Idriss I and Oued El Makhazine hydroelectric power stations, together with three thermal stations (including 600 MW at Mohammedia). Beyond the period of the 1978-80 Plan the programming of projects will make it necessary for the Government to improve the distribution of responsibilities among ONE, the municipal authorities and other agencies in the sector. It will also be necessary to expand the training effort already successfuly undertaken at ONE and to maintain close coordination with capital expenditures in other sectors and with the development programs of the regions and the urban and rural communities. 4.99 In parallel, the Government needs to adopt a firm policy of upward adjustment of domestic prices of various energy products in line with rises in corresponding international prices in order to slow down the growth of domestic demand. Recent increases in the domestic prices of energy products already appear to have reduced the elasticity of demand for energy with respect to the growth rate of the economy, especially in the case of petroleum products. Nevertheless, there were distortions in the price structure prevailing for petroleum products, with gasoline users subsidizing in fact the users of other products; the justification for this is not clearly established and the practice needs to be further examined. Regarding electricity, the rate of return on investments remains low in the case of ONE and may also be low in the case of the municipal distribution authorities, while access to electric power for low-income families or remote areas is penalized under the present rate structure. The rates currently charged at the distribution stage provide a concealed subsidy for some users of the system since connection costs are not included in the sector's autonomous financing system. Water 4.100 Exploitable rainfall water resources were estimated at 16 billion m3 in 1975, representing two-thirds of the total supply of water available in the country. At that time half of these resources, i.e. 8 billion m3, had already been tapped. Water is therefore relatively scarce, despite the existence of an extensive central mountain chain, where the rainfall exceeds one meter per year. Rainfall, is moreover, very unevenly distributed over the country; whereas it ranges between 300 and 800 mm in the coastal region, the southern part of the country receives only 100 mm. Of the 8 billion m3 mobilized, 2.5 billion m3 is in the form of groundwater, whose poten- tial supply is not believed to exceed 4 billion m3. The impounding of water by large dams has been one of the priorities in the Government's in- vestment programs since independence. While in 1955 Morocco had only a number of small hydroelectric dams, the system completed and under construction in 1978 represents an impressive achievement. - 199 - 4.101 The study and exploitation of water resources are the responsibi- lity of the Water Resources Directorate of the Ministry of Infrastructure. This directorate controls the allotment of water resources to different users through a Special Commission under the Prime Minister. It is respon- sible for the operation, maintenance and supervision of most of the dams in service. Production and distribution are in the bands of public agencies under the supervision of four ministries: Energy and Mines (hydropower), Infrastructure (drinking water), Interior (municipal authorities) and Agriculture (irrigation water and scattered rural centers). As with energy, the Prime Minister controls prices and capital investment through the State Secretariat for Planning and the Ministry of Finance monitors the financial status of public enterprises. Under the supervision of the Ministry of Agriculture, the development, supervision and promotion of water use in agriculture are undertaken by nine regional development offices (ORMVAs) for major irrigation zones and by the Direction de l'Equipement Rural for the small irrigation zones. As far as industrial and potable water are concerned, the pattern is similar to that in the hydroelectric sector: water for urban centers is produced and supplied by the Office National de l'Eau Potable (ONEP), which is also responsible for distribution in certain rural and semi urban centers. Some 67% of the urban population of major centers is supplied by the 13 municipal regies. The Direction de l'Amenagement et de l'Eguipement Rural of the Ministry of Agriculture is responsible for scattered rural centers (50% of the population); the management of the system is increasingly ensured by the municipalities. 4.102 In 20 years (1955-75) the volume of water put to use has increased from 3 to 8 billion m3, at an average annual growth rate of 5%. Of this 8 billion m3 some 500 million m3 is for consumption, the rest being used in the generation of hydroelectric power and for irrigation. In the case of hydroelectric power, the installed capacity is of the order of 400 MW, i.e. some 37% of ONE's total capacity; this proportion is declining, having been 70% in 1955 and 1965 and 60% in 1970. Depending on the rainfall, generation over the past three years has varied between 1400 and 1600 GWh, accounting for some 50% of the country's electric power consumption. The total irrigated area of large irrigation zones amounts to 500,000 ha against 150,000 ha in 1955. The corresponding figure for areas with small and medium-scale irrigation facilities is 200,000 ha (15,000 ha in 1955). In the case of industrial and potable water the total consumption is of the order of 500 billion m3, of which 120 million m3 is sold by ONEP; some 66% of these sales is for large agglomerations, 23% for semiurban centers and around 11% for scattered rural centers. The daily water supply in rural centers barely amounts to 10 liters per capita per day whereas it exceeds 100 liters per capita per day in other localities. The system for the disposal of wastewater and sewage is very inadequate and, in addition, the carrying of water from standpipes to the consumers is still a frequent practice, multiplying the risks of pollution of the water. 4.103 Although an exhaustive statement of the volume of investment needed to effectively develop and manage water resources is not readily available, the sums appropriated for different uses give an indication of the amounts - 200 - invested under recent plans (Table 8.4, Statistical Annex). Estimated investments for water supply under the 1973-77 Plan represented 10% of the total invested as compared with 15% under the 1968-72 Plan. The building of dams and of the major irrigation systems accounted for 70% of the investment appropriations made for the exploitation of water resources. As for the remaining 30%, increasing priority was given to potable water and small and medium irrigation facilities. As a result the relative share of investments in hydroelectric plants has gradually fallen. The 1978-80 Plan maintained the previous pattern. In global terms, investments in the water sector would amount to about 9% of the total planned investment. Irrigation development would suffer most from the reductions planned for 1978-80. Since, however, most of these investments are financed by the Government budget (save for those self-financed by ONE), appropriations received by the water sector would represent a high proportion of the budgetary funds allocated to investment net of defense expenditure. This proportion may well exceed 50% in 1978-80 compared with 25% under the 1973-77 Plan. 4.104 The outlook in the long term remains serious. If the average annual 5% growth rate in the use of rainfall water recorded between 1955 and 1975 continues up to 1990, water requirements would double between 1975 and 1990. On this assumption, the volume supplied in 1990 would be 16 billion m3, representing the maximum volume of rainfall currently identified as exploitable. Water supply may therefore become an increasingly complex problem and the allocation of water resources amongst various users will call for an increasingly difficult process of arbitration between the needs of the different regions. Hydroelectric power is likely to be given a lower priority and annual generation is expected to reach a ceiling at around 1800 GWh by 1981. The objective is to irrigate some 1,150,000 ha between 1990 and 2000, of which 850,000 ha would be large irrigation zones and 300,000 ha in small and medium irrigation facilities; to this should be added 300,000 ha to be provided with temporary and winter irrigation. The following is an analysis of the situation as it pertains to the different ORMVAs: - 201 - ORMVA Principal Area in hectares Dams Potential Equipped for irriga- Irrigated tion (or currently in _____ _________ _________ being equipped) 1975 1/ Moulouya Mohamed V 61,000 61,000 38,300 Loukkos El Makhazine 36,000 3/ 36,000 4,400 Gharb Idriss and M'Jara 230,000 230,000 65,200 Haouz Moulay Youssef Ait Chaourit Sidi Idriss 140,000 75,000 2/ 54,000 Tadla El Ouidane 117,000 87,000 2/ 90,000 1/ Doukkala Im'Fout Sidi Cheho 90,000 90,000 25,900 Ouarzazate Mansour Eddabbi 28,000 25,000 24,400 Tafilalet Hassan Eddakhil 41,000 24,000 33,300 1/ Souss-Mass Youssef Ben Tachfine, Tamzaourt 102,000 29,000 66,800 1/ Total 845,000 657,000 402,300 1/ Including pumping. 2/ Estimate. 3/ Of which 6,000 ha from the Idriss I dam. Source: Ministry of Agriculture, July 1976. It sbould be noted that the potable and industrial water supplies of urban and rural centers may in some areas be in competition with local irrigation needs. Sporadic instances of this have already occured in the Marrakech region. In 1981-90 Morocco will tberefore have to progressively introduce more efficient techniques in the use of irrigation water. This shift would be facilitated by a price policy for irrigation water designed to recover an increasing share of investment and operating costs of irrigation facilities. Such a policy would encourage farmers to use irrigation water more efficiently. 4.105 Still relatively low up to 1970, the consumption of industrial and potable water is expected to grow fast. Industry's requirements will rise rapidly if the growth rate of this sector is as high as envisaged for 1981-90. Water will be particularly important to certain ore-processing plants. Industrial water requirements should be considered as a whole and linked to the development of the industrial zones envisaged in the 1978-80 Plan. Potable water needs will increase as a result of the growth in population and per capita income, particularly in the rural sector. The consumption of industrial and potable water has increased rapidly in past years, as the following figures show: - 202 - Consumption Annual growth rate (in millions of m3) (as a percentage) 1955 1965 1974 1956/65 1966/74 Large cities 51 116 230 12.5 7.9 Medium cities 12 37 83 11.8 9.4 Scattered rural centers 17 20 40 1.7 8.0 TOTAL 80 173 353 8.0 8.3 Source: Ministry of Public Works. It is the major urban agglomerations that have shown the lowest growth rate; with 27% of the total population, they consume 66% of the total supplied. In the years ahead the present system, based mainly on supplies drawn from the groundwater table, will have to be extended to include surface water. At the same time the sanitary standards governing the catchment and supply of potable water need to be raised. The financial implications of this, and especially its consequences on access to water supply for disadvantaged housebolds, will have to be thoroughly examined. 4.106 With the prospect of conflict between the various water uses a national water plan needs to be quickly prepared. The agencies involved have started developing plans for the major catchment basins. The design of water supply systems will have to take increasingly into consideration the possibility of shortfalls in adjacent regions, and compensation systems will have to be introduced to avoid penalizing particular areas. As in the case of energy and irrigation water, the adjustment of supply to demand will be made easier by the adoption of a realistic price policy. The policy so far followed in this respect has resulted in heavy subsidies for consumers, so that ONEP has continued to operate at a deficit. Since 1977, however, the aim of price policy bas been to reestablish a basis of self-financing acceptable to ONEP (and to the municipal supply authorities), although this policy is still encountering strong objections on social grounds. Furthermore, a process of internal compensation from the affluent to the poor consumers and from urban to rural areas needs to be introduced and progressively extended. - 203 - E. TRANSPORT AND COMMUNICATIONS _/ General Aspects of the Sector 4.107 The transport and communications sector includes the road, rail, sea and air transport infrastructure and services, together with the postal and telecommunications services. The system is well designed to meet the needs of the country, although many rural districts (even adjoining large urban centers) are not yet served. The primary system links the main centers of consumption and production. The secondary and tertiary systems connect a number of rural communities to this primary system and are impor- tant because the rural population still accounted (in 1977) for 60% of the country's total population. The relative location of urban centers and economic activities has led to the channeling of traffic along a main corridor linking Casablanca and Rabat and along lateral corridors using the valleys of the Atlas. The main corridor is tending to extend in the direc- tion of Tangier to carry the increasing traffic with Europe. The transportation system comprises some 1,770 km of railways, 27,500 km of highways, 28,900 km of local roads, eight major ports, about ten secondary ports, eight international airports and ten regional airports. 4.108 The sector is supervised by the responsible ministries through a number of public establishments with various degree of autonomy, which are responsible for both the physical infrastructure and vehicles or which are directly involved in various forms of transport themselves. At the center of the system are the Prime Minister, responsible for pricing policy and investment programming through the Secretariat of State for Planning, the Ministry of Finance, with responsibility for financial control, and the technical ministries (Infrastructure, Transport and the Postal Service). Regional and local development funds respectively managed by the Secretariat of State for Planning and the Ministry of Interior contribute to the realization of certain local infrastructures. There are a number of Offices whose capital is held by the State (or the municipalities) but whose management, commercial in character, may be more autonomous: these are the Office National des Chemins de Fer (ONCF), the Office National des Transports (ONT), and the Regie d'Acconage du Port de Casablanca (RAPC), plus eight municipal authorities (r6gies) responsible for urban transport. A number of public enterprises, in which the State holds interests, are active in the sector, such as Royal Air Maroc (68%), Compagnie Marocaine de 1/ The statistics in the present section were estimated by the mission on the basis of documents supplied by the Ministries of Public Works, Transport and Planning, as no consolidated statistics, more especially in relation to the budget, are available for the transport and communications sector. - 204 - Navigation (66%) and Compagnie des Transports Marocains - Lignes Nationales (47%). Directly or indirectly the State holds 85% of the capital stock of these public enterprises. Private firms play an important role only in road haulage. Road Infrastructure and Transport 4.109 In early 1977, the Moroccan system of highways and roads was as follows (lengths in kilometers): Paved Unpaved Tracks Total Highways 7,830 20 270 8,120 Secondary highways 5,650 150 850 6,650 Tertiary roads 10,020 2,730 24,150 36,900 Saharan system 1,190 - 3,600 4,790 24,690 2,900 28,870 56,460 The road system is extensive and well laid out but still insufficient in two respects: the system of secondary highways and tertiary roads needs to be extended to provide access to many rural areas with promising production potentials, and secondly, some main highways follow outdated routes and improvements to these are worthwhile. In addition, the policy of budgetary austerity followed since 1978 has led to a cut in the resources allocated to major maintenance, which has become very inadequate; if this is put off too long, the impact on the quality of the existing system could be serious. The programming, inspection and maintenance of the system are the responsibility of the Ministry of Infrastructure through the Highways Directorate. Its current objectives are to raise the quality of personnel, improve maintenance, increase program efficiency and expand training, particularly for foremen and technicians. 4.110 In 1977 automobiles in service numbered some 380,000, of which 270,000 were either private cars or commercial vehicles. The motor vehicle ratio of 20.7 per thousand inhabitants (14.4 for private cars) is high in relation to the corresponding figures (between 7 and 10 vehicles) in similar countries. Some 11% of the light vehicles and 43% of the commercial ve- hicles registered in 1977 were imported, the remainder having been produced locally. Local production is undertaken by four manufacturers of light vehicles and ten manufacturers of commercial vehicles and takes the form of the assembly of imported CKD vehicles. The passenger capacity of the public transport system has increased by 64% over five years, bringing the total number of seats available in 1977 up to 130,000. The number of passenger transport enterprises has increased by 10% and the type of bus in use has been modified, raising the average passenger capacity per vehicle from 35 to 45 in 1977. The modernization effort has been concentrated mainly on motor coaches used in tourism. As far as freight haulage is concerned, the number of licenses issued increased by 130% in 1973-77; of the 9,200 vehicles licensed over 7,000 had a capacity exceeding 5 tons. The majority of these new vehicles are used by firms to meet their own haulage needs. On the other hand the volume of traffic carried by haulage firms, which is under - 205 - the control of ONT, has increased only slightly, the numbers of these firms and of their vehicles having changed little under the 1973-77 Plan. For the sector as a whole, the number of ton-kilometers rose by 86% between 1973 and 1977, while the unit load hardly changed at all over the period. 4.111 Under the 1973-77 Plan, the following highway and road construction work was undertaken: Roadbeds Paved roadways Structures (km) (km) (units) Main highways New works 387 475 36 Maintenance 466 1,218 10 Secondary highways New works 294 347 7 Maintenance 182 311 3 Tertiary roads New works (including 1,298 1,335 10 Regional Fund) 336 326 1 Maintenance 468 375 2 Source: State Secretariat for Planning; 1978-80 Plan. The two largest projects undertaken under the 1973-77 Plan were the Casa- blanca-Rabat highway and the urban expressway of Casablanca: other roads built or improved were sections linking the existing system to major urban centers. Of the total investment made in 1973-77 some 34% was allocated to new works, 22% to major maintenance, and 44% to road improvements associated with mining, agricultural and tourism development projects or with development areas(Jorf-Lasfar, Nador). The program adopted in the 1978-80 Plan appears to follow a similar distribution, but implicit in it is the fact that the total level of appropriations for investment and major maintenance is expected to fall from DH 229 million under the 1973-77 Plan to DH 134 million under the 1978-80 Plan, i.e. a cut in real terms of 41%. Only the level of appropriations for tertiary roads would be maintained. 4.112 Passenger transport is shared, in the case of in-city traffic, between the municipal bus services and the private cab companies controlled by the municipalities and, in the case of inter-city traffic, between the approved operating companies (one of which - CTM-LN - is a public enterprise that owns some 10% of the licensed fleet) and "first class" taxis with special ministerial permits to operate outside a radius of 20 km from city - 206 - centers. The Transport Directorate has control over the allocation of bus lines and rate-setting. Although fares are regularly adjusted and include a profit margin, their current levels appear to leave transport enterprises with very little profit. According to the 1978-80 Plan, CTM-LN would acquire a further 107 buses, representing a 43% increase in its present fleet. As regards the private sector, with 860 buses as projected by the 1978-80 Plan, its investment level would be higher than during the 1973-77 Plan. The transport companies regard this number as insufficient to meet current demand and consider that the quality of locally assembled buses does not meet the needs of foreign tourists. 4.113 Freight hauling is controlled by the Office National des Transports (ONT) under a complex system of regulation of rates and permits. The regu- lated part of the sector is made up of the following categories: (1) Truckers with one vehicle of less than 5.5 t and who have no haulage permit to operate outside urban areas. Their capacity has been estimated at 130,000 t; (2) Firms with their own haulage services (or private haulers) which have merely to obtain an operating permit from the Ministry of Transport but cannot sell their haulage services. Their capacity appears to be between 70,000 and 80,000 t; (3) Commercial haulers who sell their services and over whom ONT exercises control. Their capacity is 25,000 t. ONT has 50 or so regional and secondary agencies linked to local committees on which the carriers of each area are represented. In Casablanca, because of the volume of traffic and the wider experience of the entrepreneurs, the ONT center is only involved in some 50% of the traffic. In the case of large loads, ONT's central operating service is responsible for organizing the shipment. ONT acts as intermediary between customer and carrier and imposes a ceiling pricel/ that is set by the Government on its recommen- dation. ONT's involvement makes it possible for some carriers not to sign contracts under which they would have to work at a loss and to avoid dead- heading; in addition, ONT guarantees payment to the carrier and thus pro- vides a form of insurance against bad debts through the centralized handling of the accounts of all clients and carriers. ONT manages a relatively small part of the haulage fleet and is involved in 31% of the total volume of freight traffic. It has facilitated the effective management of the regu- lated haulage resources despite the rigidities inherent in any system of 1/ The ceiling price is set for a theoretical vehicle of 12 t covering 50,000 km a year, amortized over 7 years; at the present time this price is barely profitable, particularly for small carriers. - 207 - centralized control. With the fees it earns for the services it renders, ONT has financed the building of truck depots in many Moroccan towns in order to improve the control and handling of freight traffic. Although not directly concerned with passengers, ONT is also involved in the establishment of passenger depots. In the future, ONT intends to use its influence to promote the grouping of haulers and the development of addi- tional truck depots, some in partnership with the haulers. It also plans to expand international trucking routes with Europe. Finally, it is seeking to further improve coordination with ONCF (railways) with a view to introducing combined transportation services. On competitive routes, ONT insists on the principle of equal charges for road and rail services, the choice of service being left to the client. Railway Infrastructure and Transport 4.114 The railway system comprises 1,770 km, of which 161 km is double track and 708 km electrified. This situation has not changed since 1971. Formed in 1963, the Office National des Chemins de Fer (ONCF) has a monopoly of rail transport. It also owns a chain of hotels. Passenger traffic rose from 590 million passenger-kilometers in 1972 to 835 million passenger- kilometers in 1977, an average annual growth rate of 7.2%, attributable in part to the low fare levels maintained by the Government. The volume of freight traffic has been much less favorable, as the following figures show: 1972 1975 1977 Tonnage loaded 20.3 19.0 23.0 (millions of tons) Freight cars loaded 525.0 498.0 573.0 (thousands) Ton-kilometers 3.1 2.9 3.5 (billions) Source: Table 8.8, Statistical Annex. The annual growth rate in ton-kilometers carried by rail was 2.8% during the period of the 1973-77 Plan, whereas the corresponding rate for road traffic under the control of ONT was 11.2%. This result was in part due to phosphates (almost 70% of all freight traffic in 1977) which showed an annual growth rate of 5%, but is principally attributable to a growing dis- affection with rail transport on the part of other forms of freight, the volume of which rose by only 1.5% per year between 1972 and 1977. Never- theless, with almost 3.5 billion ton-kilometers in 1977, ONCF carried 3.5 times more than the network under ONT control. However, if private hauliers are included, the volume of road traffic would be close to 3 bil- lion ton-kilometers and might overtake ONCF by 1980. - 208 - 4.115 The railway construction program in the 1978-80 Plan amounted to DH 1.1 billion (Table 8.10, Statistical Annex), with the larger share allocated to the transport of phosphates to the ports and processing plants (70% of the total). Other capital expenditures were reduced in half compared to actual investments for 1973-77. The proposed Marrakech-Laayoune railway was the subject of a study financed by the Fonds de Development des Provinces Sahariennes. 4.116 The relatively large volume of phosphates carried by the railways imposes significant constraints on ONCF which frequently call for Government intervention, especially in rate-setting. ONCF is strictly controlled by the Government and has only limited management autonomy despite its status as a public industrial and commercial establishment. 1/ Its operations were largely in deficit during the period of the 1973-77 Plan; this deficit seems to be mainly the result of the rate policy adopted. A study of ONCF's management procedures and financing methods is essential. Ports and Ocean Transport 4.117 The port infrastructure comprises eight main ports of which two (Nador and Jorf-Lasfar) are under construction, plus eleven secondary ports of which two (Tantan and Tarfaya) are under construction and one (Boujdour) is in the planning stage. Some of these ports have a primary function, e.g. Tangier for passenger traffic, Agadir for fisheries, Safi and soon Jorf-Lasfar for phosphates and their derivatives. For general cargoes and phosphates Casablanca is in a dominant position, handling more than two- thirds of the total volume. Generally speaking, the existing ship-repair facilities are outdated and the fisheries installations inadequate. Table 8.11 in the Statistical Annex shows the structure of the sector. Construc- tion, maintenance and management of the port infrastructure are handled by two directorates of the Ministry of Transport: the Directorate of the Ports of Casablanca and Mohammedia and the Directorate of Secondary Ports for all other ports. The Regie d'Acconage du Port de Casablanca (RAPC), under the supervision of the Ministry of Transport, is responsible for handling cargo on the dock and warehousing. However, in certain other ports formerly managed by concession companies, RAPC handles the infrastructure-related tasks that are normally within the province of the technical ministries. The two port directorates operate on budgets annexed to the National Budget, with funds of their own and they can receive Treasury grants. RAPC, a State-owned company, enjoys financial autonomy and greater management flexibility. Despite the caliber of the technical and management staff, operation of the port facilities is subject to many shortcomings and bottlenecks: the lack of a single management unit, financial constraints on the directorates, which weaken the latter's 1/ Rates and conditions in all traffic categories are regulated. All financial decisions are submitted to prior authorization and ex-post control. A decision of a technical nature must be submitted to the Ministry of Transport for approval. - 209 - position vis-a-vis RAPC, an outmoded and heterogeneous system of rate-setting, delays in handling resulting from poor coordination between ship-board lighterage operations and handling on the dock, and inefficient dredging services. Despite many studies and recommendations, reforms have not yet been implemented. 4.118 After a period of stable passenger traffic with around one million passengers embarked and disembarked, the total fell to 850,000 in 1976 and 800,000 in 1977 (excluding cruise passengers totaling about 100,000). These figures show a trend away from sea transport, which the tourism authorities hope to reverse through the use of car-ferries in the straits of Gibraltar. Freight traffic is dominated by bulk phosphate exports. Freight traffic movements are illustrated in the following table (figures in millions of tons): 1972 1974 1975 1977 Total handled: 21.3 28.0 22.7 26.6 Phosphates 13.6 18.7 13.1 15.8 Miscellaneous outward 2.8 2.7 2.3 2.6 Miscellaneous inward 4.9 6.6 7.3 8.2 The fall in exports of agricultural products and fertilizers has had a marked impact on volumes shipped out. 4.119 Master plans have been prepared for the main ports. The program originally envisaged for the 1973-77 Plan, involving expenditures of DH 195 million, was raised in 1975 to DH 860 million, of which 89% was realized. Priority was given to the improvement of the port of Casablanca, which was swamped,by the increased volume of traffic, and to the building of two new ports at Nador and Jorf-Lasfar. These construction projects accounted for 44% of the total investment and should take up the larger part (54%) of the 1978-80 program. The latter program puts more emphasis on secondary ports in response to the urgent need to develop the fishing ports. In recent years the substantial efforts made--very costly in terms of public funds--have succeeded in increasing the size of the fishing fleet of Moroccan registry, although there has been little increase in the tonnage of catches brought into Moroccan ports. 4.120 Investment in sea transport approved under the Government incen- tive system increased at a very high growth rate over 1973-77. This upsurge was due in part to the generous nature of the incentives provided for this sector which, togetber with fisheries, is the only one to receive non repayable investment grants. The main incentives include a minimum grant of 15%, whicb can be increased to 30% in the case of certain types of vessels, a 4% interest rebate (6% if the funds are borrowed through BNDE), accelerated depreciation and the guaranteed transfer of profits in the case of non-Moroccan investors. The total volume of investment approved under the investment code increased from DH 16 million in 1973 to DH 603 million - 210 - in 1977. and amounted to over DH 1.5 billion during the 1973-77 Plan. As a result, the Moroccan merchant fleet, which consisted of 20 vessels totaling 64,000 tons in 1973, had increased to 53 vessels totaling 510,000 tons by 1977. 4.121 The substantial investment effort has been reflected in an increase in the percentage of the country's foreign trade carried by the Moroccan fleet (15% in 1977 against 2% in 1973); this percentage is as high as 50% for citrus fruit exports. As a result of the world shipping crisis, some of these investments have not proved to be very profitable but the Government appears to have resisted the temptation to require that traffic of Moroccan origin use Moroccan vessels and the rates charged generally appear to be competitive with those of foreign merchant fleets. The Plan also provided for consolidation of vocational training institutions, a more effective integration of carriers with producers and higher efficiency of the port installations. Finally, it recommended that investment incentives in sea transport be more selective than in the past. Airports and Air Transport 4.122 Morocco has eight international airports, five of which have runways of 3,000 meters or longer and appropriate safety equipment for receiving medium and long-haul aircraft. It also has ten regional airports. A Flight Control Center covers an area of 400 km radius and is supplemented by a Regional Control Center and a Central Communications Bureau. Passenger traffic is expanding rapidly; between 1973 and 1977 it increased at an annual rate exceeding 12%, to reach a total of 2.5 million passengers by 1977. At the same time, air freight grew at 9% p.a., reaching 22,000 tons by 1977; this rate of increase would have been even more rapid if exports of early vegetables had not fallen. The Directorate of Aviation manages the budgetary funds allotted to the airways infrastructure. The infrastructure is satisfactory and the primary goal is to ensure the safety and comfort of passengers and provide standardized weather forecasting for the country as a whole. Increasing efforts will be needed to train ground and air technicians in the light of the rapid pace of infrastructure modernization. Total investment under the 1978-80 Plan (DH 210 million) would be slightly less than under the 1973-77 Plan, where the emphasis was on airports in the south of the country. In 1978-80 the main project would be the construction of the new terminal at Casablanca airport. 4.123 The rapid development of air traffic, especially passenger traffic, is in part due to the role played by Royal Air Maroc (RAM), a public corporation that gives the impression of being a vigorous enterprise, anxious to play an increasing part in air tourism through the opening of new line services to a large number of countries. Its passenger traffic, which grew at 17% annually between 1973 and 1977, now accounts for 38% of all external air traffic with Morocco. Its recent investments have, however, increased at an extremely rapid pace, indicating a need for a tightening of management controls. Royal Air Inter handles domestic traffic; its financial situation continues to be unbalanced and proposals for its reorganization with RAM assistance are under study. - 211 - Postal and Telecommunications Service 4.124 The Postal and Telecommunications Service (P&T) is a public commercial service whose operations and investments are financed from a budget annexed to the National Budget. It has even less management and financial autonomy than ONCF. Strictly limited in manpower and equipment, P&T is not in a position to meet either commercial or private demands for telecommunications services; the telex service is very inadequate, but 86% of the communities are connected to the telephone system. In an effort to deal with this situation, whicb presents a serious obstacle to the progress of the economy, the 1978-80 Plan emphasized the expansion of telecommunications. Average annual investments were to increase from DH 130 million in 1973- 77 to DH 200 million in 1978-80. By this action the Plan expected to be able to remove the main bottlenecks in the telecommunications system and to be in a better position to meet the needs of rural areas. To speed up the training of skilled personnel the P&T Institute would be completed in the course of the 1978-80 Plan. Conclusions 4.125 Under the 1973-77 Plan, Morocco made a determined effort to modernize its transport and communications sector to meet the demands of economic growth. The sector, which had enjoyed sound management for some considerable time, was strenghtened during this period of high investment. It does not therefore present any major problem as far as the operation of the economy is concerned. Nevertheless some difficulties still persist: (1) In comparison with other areas, telecommuni- cations have been relatively neglected in past efforts. The telephone and telex services represent an obstacle to the efficient conduct of both domestic and foreign business. The priority accorded to them under the 1978-80 Plan was therefore timely. This will have to be continued beyond 1980. (2) The financial austerity practiced since 1978 resulted in very large cuts in operating and maintenance appropriations. These cuts were inevitable in face of the country's general financial situation and were perfectly acceptable on a temporary basis. They should not, however, be allowed to continue for too long if they are not to compromise the viability of the sector and lead to heavy expenditure on replacements. It is therefore important to take the first opportunity of easing the financial constraints that now weigh heavily on the operation and maintenance of the sector, particularly as regards highways and telecommunications. - 212 - (3) Although relatively well developed, the communi- cations system as a whole still fails to effec- tively promote the objectives of rural and regional development. Notwithstanding the efforts made in 1973-77 through the Special Regional Development Fund, the road system still does not fully serve the rural areas and this is a serious obstacle to the expansion of market- oriented agricultural production and of secondary and tertiary rural activities. This is particularly true in the case of certain regions remote from major urban centers. Both the tele- phone and electric power are only minimally available outside urban centers. In the future, the opening up of rural areas and remote regions by means of roads and the provision of telephone service (and electricity) needs to receive a sub- stantially higher priority than the development of the primary network, while still observing the criterion of a sound economic return. (4) So far as rate structures are concerned each sub- sector of the transport and communications sector has its own special problems although, in general, it can be said that the adjustment by the Government of the rates it sets in the light of actual production costs is still too slow and too infrequent. The effect of this is to make such adjustments socially difficult. In addition, it tends to constantly impair the ability of enterprises to save and to finance tbemselves. This is particularly true in the case of the railway corporation, and it also applies to a lesser extent to the road haulage companies. As far as sea and air transport are concerned, the rates have to be competitive internationally. In the case of telecommunications, the problem is reversed: rates are set at extremely high levels in order to produce surpluses as a source of funds for the National Budget. (5) For enterprises in the transportation and com- munications sector the problems of rate structure are compounded by those of financial and manage- ment autonomy. The management of the railway corporation and of the telecommunications service appears to suffer the most from the tight day-to- day supervision imposed by the Government. In addition, the public enterprises of the sector have little capacity for self-financing of their - 213 - capital expenditure and only very limited autonomy (or none at all) in seeking long-term financing on domestic and foreign markets for their replacement and expansion programs. These problems are being examined by the new minister responsible for public enterprises, and it is to be expected that appropriate solutions will be found in the years ahead. F. TOURISM 4.126 Despite the attraction that Morocco and its climate have for foreign tourists and the important contribution that tourism can make to improving earnings in the poorest regions and strengthening the balance of payments, Morocco still ranks with Tunisia and Portugal and far behind Spain, Italy, France, Yugoslavia and Greece in terms of Mediterranean tourism . It receives only about 2% of the Mediterranean tourist traffic and its relative position has not improved over the past decade. 4.127 The organization of the sector--even the public and semi-public part--is not well known, although special incentives for investments in tourism exist, and there is a central source of medium and long-term financing (Credit Immobilier et Hotelier (CIH). At the central level the Ministry of Tourism, assisted by the Office National Marocain du Tourisme (ONMT), is responsible for promotional activities, application of the Investment Code, vocational training, coordination and infrastructure development in areas with tourism potential. ONMT also promotes and manages hotels. This dual function is a source of confusion in the allocation of its responsibilities and in its relations with government agencies in other parts of the tourism sector. The involvement of public establishments in the hotel subsector has taken the form of a complex network of integrated development companies, recreation areas, hotels and tour and travel agencies. A partial listing of these would show more than 30 mixed enterprises, in which one-third of the capital stock is held by public establishments, with the Government itself the shareholder in three of them. A very rough estimate of the structure of this portfolio indicates that the largest shareholder among other public shareholders is the Caisse de Dep6t et Gestion (CDG), which holds 23% of the capital stock of all public enterprises engaged in tourism. 4.128 During the period 1968-72, the number of tourist arrivals in Morocco rose by 23% per year. In the world situation of 1974-76, which did not favor the development of international tourism, tourist activity in Morocco fell from 1,341,000 arrivals in 1973 to 1,107,000 in 1976. The numbers now appear to have picked up again, with 1.5 million arrivals in 1979, and tourist activity can be expected to move rapidly ahead with increases of 6%-9% per year. According to a study made in 1979 by the World Tourism Organization, the rate of growth of tourist arrivals could - 214 - reach 9% if a major effort is made to promote Moroccan tourism abroad with a view to attracting a potential clientele that has so far been neglected--families with children--and to developing low-cost tourism and organized vacation packages. 4.129 Over the period 1973-77, tourism receipts accounted for approxi- mately 15% of exports of goods and services, and in 1977 they rose to DH 1.5 billion (18% of exports). According to recent surveys, only 17% of tourism expenditures went to actual lodging, the remainder going to local handicrafts (19%) and to other sectors (restaurants, day trips, etc.). The impact on the balance of payments also appears to be extremely positive, since only about 10% of the tourists' expenditures seems to go on purchases of imported goods (1975 survey on the composition of tourists' expenditures). In relation to the number of arrivals in the country classified as tourist, i.e. 1.5 million in 1977, gross annual receipts per tourist averaged DH 1,370. If this is compared with the figures for 1972 (DH 800) and 1967 (DH 800) and adjusted to take account of the domestic inflation rate, it is clear that the tripling of the number of tourists between 1967-77 has been accompanied by a marked reduction at constant prices in the annual level of receipts per tourist, presumably due to the larger proportion of less affluent tourists (group travel and Moroccan workers living abroad). 4.130 The number of direct jobs provided by hotel activities reached 18,000 in 1977. To this should also be added jobs in the handicrafts sector (24,000) and in other sectors (15,000) which are dependent on the expenditures made by the customers of the classified hotels and vacation villages so that the tourism sector employed approximately 1.3% of the labor force in 1977. 4.131 Tourism falls into three categories: cruise tourism, which has been declining steadily for ten years and fell from some 100,000 arrivals in 1970 to 80,000 in 1977; tourism by Moroccans living abroad, the volume of which is markedly increasing and reached 300,000 arrivals in 1977; and international tourism, which remained stable at around I million arrivals in 1973-77 after growing substantially prior to 1973. In 1977 foreign tourists spent an average of 5.7 nights in Moroccan hotels, the rate of use of hotel capacity being 40%. 4.132 Total visitor capacity, in terms of beds available in 1977, amounted to 47,670 beds in classified hotels, 9,317 beds in vacation villages, and 11,084 serviced camping sites. 1/ This capacity more than doubled between 1967 and 1977, the increase (see Table 8.11, Statistical Annex) amounting to some 19,000 beds during the 1968-72 Plan and 1/ To this total should also be added the capacity of non-classified hotels, i.e. approximately 12,000 beds in 1979. - 215 - 11,150 beds during the 1973-74 Plan. 1/ The proportion of luxury hotels (four stars or more) rose from 33% in 1967 to 41% in 1977. The hotel capacity managed by public enterprises still appears to be low, no more than 9-10% of the 47,500 beds available in 1977, with OMNT controlling 18 botels offering some 3,500 beds. The increase in capacity expected under the 1978-80 Plan is 19,000 beds. This target exceeds previous achievements but it may be attained as most of the projects have already been approved. However, the experience of recent years has shown that the forecasts made in development plans have always been highly optimistic. The semipublic sector, currently well behind its targets, should play a more effective role once its organizational structures are established and functioning; some 25% of the total sum to be invested has been allocated to it under the 1978-80 Plan. 4.133 In 1978, the total number of bed-nights recorded in Morocco was 6.8 million, distributed relatively evenly throughout the country. The regional percentages were as follows: north and northwestern region 23%; Agadir region 26.5%; central region (Casablanca and Rabat) 21.5%; Fez and Marrakech region 24.4%; rest of the country 4.6%. The distribution of hotel capacity largely reflected the structure of demand, the northern region representing 31% of existing capacity, the Agadir region 25%, the central region 17%, and the cities of Fez and Marrakech 20%. Projects currently being prepared would add another 18,700 beds by 1983 and alter the regional distribution of hotel capacity. In effect, the percentage of hotel capacity accounted for by Marrakech would increase from 11% to 20% of the total, and the relative importance of the Tangier region would decline in response to trends in tourist demand. 4.134 To encourage the building of hotels, new incentives for investment were introduced in August 1973 along lines similar to those used in the promotion of fisheries and shipping. They include Treasury loans representing 15% of the total investment cost less land (five-star hotels are excluded); these interest-free loans are repayable over 10 years including five years of grace. In addition, 10 to 20 year loans at 12-14% interest, possibly with a 2% interest rebate are available from Credit Immobilier et Hotelier (CIH). There are also total or partial exemptions from taxes on imported products, a 10-year exemption 1/ There are many contradictions in the statistics for the tourism sector. In the 1978-80 draft Plan it was stated that the total capacity at the end of the 1973-77 Plan was 47,470 beds, of which 11,150 beds were added during that Plan. Initial visitor capacity on this basis (36,320 beds) differs from that (38,430) given for 1972 in the 1973-77 Plan documents. On the other hand, the Ministry of Tourism stated in 1974 that the total available capacity for tourists, excluding vacation villages, was 40,730 beds. - 216 - from profits tax and exemptions from various indirect taxes: their appli- cation depends on geographic location. Under the 1968-72 Plan, investments in the tourism sector amounting to DH 465 million created an additional capacity of some 19,700 beds, while some DH 60 million was also allotted by the State to associated infrastructure and training. Under the 1973-77 Plan, capital expenditure amounted only to some DH 550 million, enabling hotel capacity to be increased by 11,150 beds. To this should be added expenditure on development and infrastructure in areas with tourism potential (especially Agadir and Tangier), the building of two hotel schools and the expansion of three others and on studies and promotional activities. The 1978-80 Plan aimed at adding a further 20,000 beds at a cost of DH 730 million. This amount appears to be underestimated; to judge by the cost per bed in 1973-77, it is likely to be closer to DH 1 billion. To that amount one should also add the cost of associated investment to strengthen the governmental administration capability, studies (DH 6.5 million), promotion and publicity (DH 25 million), regional development studies (DH 21 million), development of recreation areas (DH 43 million), the establishment of an institute and the strengthening of hotel schools and training centers (DH 50 million). 4.135 Tourism will be called on to play an important role in the 1978-85 period, throughout which the balance of payments situation will remain difficult. Nevertheless the present recommendations of the Government appear too limited in scope to enable tourism to realize its full growth potential. The absence of a sound statistical basis has so far severely limited the formulation of the measures that should be taken to deal with the sector's cyclical and structural needs. A program of studies has been undertaken by the Government. The gathering of statistical data on tourism has been improved, regional development plans for tourism infrastructure have been formulated, and a cost-benefit study of tourism is under way. The studies should provide a basis for a more accurate decision on the optimum allocation of capital expenditure by region and hotel category. 4.136 The functions of the public sector were shared among the various sectoral holding companies (ONMT, CDG and ONCF) and its activities are still poorly coordinated with those of private promoters. In the case of the latter, difficulties in finding staff, especially hotel managers, the rapid increase in building costs and the uncertainties of Government tourism policy go far to explain the sector's lack of appeal, notwithstanding the official incentives provided for tourism in Morocco. The 1978-80 Plan presented a fairly thorough analysis of these difficulties, together with a list of the measures that should be taken. These sought to provide a better understanding of the sector and to strengthen coordination of action by the various sectors engaged in the promotion of tourism. Nevertheless, a more highly structured strategy still needs to be formulated, so that the large number of possible promotional activities can be ranked in order of priority. These include, in particular: - 217 - - infrastructure; - more effective handling of land problems; - organization of tourism as a profession and of vocational training; - coordination of transport and associated services; - reception of tourists and provision of facilities in the areas concerned; - promotion and publicity; and - adjustments in investment incentives and hotel rates. - 218 - CHAPTER V: SOCIAL DEVELOPMENT STRATEGY 5.01 Until the end of the 1960s too little attention was paid to the impact of Moroccan development policy on the distribution of the fruits of growth among different social groups. As in most developing countries at that time, attention was primarily focused on accelerating the rate of growth of the economy. In the early 1970s the social aspects of development received special attention. The Third Development Plan (1973-77) noted the significant increase in disparities of income between rural and urban dwellers and between rich and poor. The strategy adopted at the time put the emphasis on general economic policy measures such as taxation, job creation and the pursuit of more ambitious social policies, while recognizing that the special situation of certain social groups called for more specific measures such as land redistribution or the development of rainfed agriculture. 5.02 Although it is difficult to imagine a country improving the distribution of income without economic development, experience in a number of countries should serve as a warning against undue optimism that achievement of growth leads directly to improvement in income distribution. The link between economic growth and a rising standard of living for the poorest households is now seen as much more fragile than was believed earlier. The share of the different social groups in the development process if so unequal that one cannot reject out of hand the view that growth does not automatically lead to an improvement in the standard of living of the poorest families. 5.03 Apart from humanitarian considerations, improvement in the living standards of the disadvantaged social groups is an essential element in the overall development goal. Among the factors of growth, accumulation of physical and human capital and the improvement of the quality of the labor force play equally important roles since both contribute to higher labor productivity. In this connection, the contribution that can be made by social policies cannot be overemphasized. Between 1956 and 1977, life expectancy at birth in Morocco rose from 45 to 55 years. This improvement has meant a very substantial increase in the period during which an individual is in the labor force and has been an important factor in speeding the growth rate of the economy. This example highlights the productive aspect of social policies, which is not very often taken into account. When a substantial part of the population remains outside the main current of growth, for reasons connected with sickness or malnutrition, a significant proportion of human resources is not being employed to best advantage and economic growth is correspondingly reduced. 5.04 It is clear that the role of Government social policy should be expanded. Since the beginning of the 1970s, the amount of budget appropriations for implementing the various social policies has increased - 219 - substantially, so that Morocco was able to devote to the social sectors a percentage of budget expenditure which compares favorably with that of other countries. The results, however, have not always been commensurate with the outlays made so far, and a comparative analysis of the efficiency of various measures of social policy seems required. A. Evolution of Household Living Standards 5.05 The evolution of the living standards of the lowest income groups forms the first part of such a study. Once the main characteristics of social development in urban and rural areas have been identified, the Goverment's social policies can be analyzed to bring out their possible contribution to improving the living standards of disadvantaged households. 5.06. Analysis of changes in household incomes is, however, made difficult by the lack of precise and comparable data that would make it possible to trace income changes during the last decade. At present, the 1970-71 and the 1959-60 household consumption surveys constitute the only sources of detailed information. The general indication given by these two surveys, is that average standards of living increased in rural areas as well as in urban areas, but that inequalities in household expenditure distribution were not reduced between 1960 and 1971. In that respect, Morocco seems to have experienced a pattern quite similar to that of several other developing countries where economic growth and improved standards of living were accompanied by a worsening of income distribution until a certain level of development was reached. 5.07 For rural areas, the average household standard of living improved from 1960 to 1971 since it rose by 2.5% per year in constant prices. To a large extent, this result was probably due to the substantial increase in agricultural value added per worker which rose by 3.0% per year in real terms from 1960 to 1971. On account of that increase, average annual household expenditures by economic and social categories rose noticeably in rural areas as indicated below (in 1959-60 dirhams): (See Table on next page) - 220 - 1959-60 1970-71 Average annual Expenditures 1/ Expenditures 2/ increase in real terms per per per per per per household person household person household person Agricultural workers 1,500 329 2,018 381 2.7 1.3 Farmers 2,450 400 3,105 478 2.2 1.6 Artisans 1,710 372 1,924 381 1.1 0.2 Salesmen 2,340 401 3,022 465 2.4 1.4 Average expenditure 2,160 392 2,846 474 2.5 1.7 Sources: 1/ 1959-60 household consumption survey, p. 130 2/ Mission estimates obtained by calculating food expenditures for rural areas on the basis of food consumption in pbysical terms and average rural prices (1970-71 Household Consumption Survey, Vol IV) and adding to them non food expenditures. The assumed food price increase is 31.5%. Consumption of family-produced goods with the exception of food is excluded from expenditures. These data show a definite increase in expenditures by agricultural workers quite close to the average for rural areas during the 1960-71 period, and that agricultural workers, who had a relatively low standard of living in 1959-60 have as a group, benefitted from economic development. 5.08 In urban areas, the overall evolution of standards of living was very favorable, since the whole urban population was able to benefit from urban growth. Average expenditure per household rose in fact by approximately 4.7% per year in real terms from 1960 to 1971, and standards of living for every economic and social category, including the poorest, increased substantially as indicated below (in 1959-60s dirhams): (See Table on next page) - 221 - 1959-60 1970-71 Average annual Categories Expenditures Expenditures increase in real terms Per Per Per Per Per Per house- per- house- per- house- per- hold son hold son hold son Office employees 3,870 669 9,864 1,692 8.9 8.8 Salesmen 3,680 606 6,317 971 5.0 4.4 Workers in ) industry and ) mining ) 2,850 545 6,436 1,023 Workers in trans-) ports and ) services ) 5,175 864 Artisans 2,320 445 3,511 676 3.8 3.9 Average 3,350 613 5,545 948 4.7 4.0 Source: 1959-60 household consumption survey and estimate for 1970-71 on the basis of data from the 1970-71 household consumption survey. 5.09 The evolution of household expenditures by economic and social categories is an important indicator of income changes. In order to analyze the different aspects of past changes affecting household incomes, it seems useful to compare in greater detail the 1959-60 and the 1970-71 household consumption surveys. The 1959-60 survey is mainly an analysis of expenditures by Moroccan households and it doesn't take into account expenditures by foreign households. As a result, household expenditures covered by the 1959-60 survey represented approximately only 75% of total household expenditures. The 1970-71 household consumption survey was much more ambitious, and aimed at analyzing in detail expenditures by foreign as well as Moroccan households. In order to compare these two surveys, it was, therefore, necessary to eliminate expenditures by foreign households from total household expenditures in urban areas in the 1970-71 survey. 5.10 The second difference between the 1959-60 and the 1970-71 survey concerns the treatment of goods and services produced and consumed in the household. Food consumption from own production was taken into account in both surveys, but nonfood consumption was assessed by a different method. A notional rent was imputed in the case of owner-occupied housing in urban areas in both surveys. However, for rural areas, only the 1970-71 survey calculated an imputed rent, estimated on the basis of the value of the dwelling. In order to facilitate the comparison of expenditures in rural areas, the imputed value of rent was, therefore, subtracted from rural household expenditures in the 1970-71 survey. - 222 - 5.11 The sampling of households in the 1970-71 survey was done on the basis of the 1960 population census and the 1959-60 survey rested on earlier data. To a large extent, it is probable that the difference in sampling methods between the 1959-60 and the 1970-71 surveys introduced a risk of error, which it was not possible to remove. For these various reasons, the comparison between those two surveys should be considered with caution, and the information it yields can only offer one indicator among others of changes in standards of living. Finally, it is also important to note that results indicated in the following paragraphs rest on the comparison of two years separated by a period of eleven years, and one cannot exclude the hypothesis that a more complete analysis on the basis of periodic consumption surveys may indicate a different evolution for household expenditure distribution. In 1959-60 and in 1970-71 this distribution was as follows: Percentage of expenditures Household categories 1959-60 1970-71 5% highest income group 18.0 20.0 20% highest income group 43.4 49.0 40% lowest income group 18.0 12.0 20% lowest income group 7.0 4.0 Source: Mission estimates on the basis of the 1959-60 and the 1970-71 household consumption surveys. These figures indicate that the share in total expenditures of the least favored households was lower in 1970-71 compared to 1959-60. 5.12 It is important, however, to note that the expenditure distribution was not too different from that observed in other developing countries in the same geographic region or at a comparable level of development, as indicated by the following table: Percentage of Revenues Average for Average for comparable Household group Morocco 1/ Tunisia 2/ the region 3/ countries 4/ 5% highest income group 20.0 17.0 21.4 15.2 20% highest income group 49.0 42.0 48.6 48.2 40% lowest income group 12.0 15.0 15.0 16.3 20% lowest income group 4.0 6.0 5.3 6.3 1/ For the year 1970-71, percentage of expenditures. 2/ For the period 1974-77. 3/ North Africa and Middle East. _/ Countries with per capita income between US$281 and US$550 in 1978. Source: World Bank, Social indicators, 1979. - 223 - The share in total household expenditures of the 20% highest income group in Morocco thus differs very little from the regional average for North African and Middle Eastern countries. On the other hand, household in the 40% lowest income group accounted for only 12% of total expenditures, whereas the percentage is around 16% for countries with a per capita income similar to that of Morocco. 5.13 A deterioration in expenditure distribution is a commonly observed phenomenon during economic development. S. Kuznets was one of the first to note that during the initial development phase, income distribution tended to worsen, and that only at a later stage was an improvement observed. This pattern is said to be due to migration from the rural areas to the towns, where the income distribution is more uneven. In the case of Morocco, the phenomenon of rural migration seems to have played only a relatively small part. Evolution of expenditures distribution in urban and in rural areas is indicated in the table below: Percentage of expenditures Urban areas Rurals areas Household group 1959-60 1970-71 1959-60 1970-71 20% highest income group 42.7 50.4 41.0 47.9 40% lowest income group 18.8 12.5 20.5 13.8 20% lowest income group 7.1 4.1 7.9 4.4 Source: Mission estimates from the 1959-60 and the 1970-71 household consumption survey; these data are not directly comparable with those in the previous table. 5.14 Contrary to what one might expect, not only was expenditure distribution in rural areas very similar to that in urban areas in 1959-60 but the increase in inequality of expenditure distribution was as marked in rural as in urban areas. This finding is important since it indicates that the worsening of the overall expenditure distribution was probably attributable to the process of growth of both urban and rural areas rather than to any increase in the proportion of urban population. 5.15 The evolution of household living standards is certainly a more satisfactory indicator than inequality of expenditure distribution. The consumer surveys do not lend themselves, however, to this type of analysis, since they cannot be used to follow the pattern of expenditures of a given household over a period of time. At best, the average expenditure for a group of households can be estimated. To obtain a more complete picture of social changes over the 1960-71 period, an attempt was made to identify first of all the groups of households that experienced an improvement in their standard of living. The distribution of households by expenditure class according to the 1970-71 consumer survey was therefore adjusted in two ways: the expenditure classes were expressed in 1959-60 dirhams and the - 224 - class intervals were chosen to correspond with those of the 1959-60 survey. Once these calculations had been made, it was possible to discover whether the relative number of households in a given expenditure class had increased or not between 1960 and 1971, and to deduce therefrom the overall changes in their living standard. Standard of Living of Rural Households 1/ 5.16 Using this method, the distribution of households by three expenditure classes in 1970-71 was compared with that in 1959-60 for the same expenditure classes. The relative number of households in the first class, under DH 900 p.a. (at 1959-60 prices), increased from 9% in 1959-60 to 17.4% in 1970-71. By contrast, for all expenditure classes within the DH 900-3,000 p.a. bracket, the relative number of households fell from 72.3% to 48.4% over the same period. The percentage of households in the third class (over DH 3,000 p.a.) rose from 18.7% in 1959-60 to 34.2% in 1970-71. These trends in relative numbers of households per expenditure class in rural areas are illustrated below: Relative number of rural households Expenditure class 1959-60 1970-71 (1959-60 dirhams p.a.) % % Under 900 9.0 17.4 900-3,000 72.3 48.4 Over 3,000 18.7 34.2 Total 100.0 100.0 Source: Mission estimates. 5.17 The picture of rural society thus revealed is a complex one, characterized by an increase in the number of disadvantaged households and also by an increase in wealth for a large number of households, both poor and rich. The relative number of seriously disadvantaged households indeed rose very sharply, nearly doubling over the period 1960-71. This phenomenon suggests that the standard of living of a large number of rural families declined from 1960 to 1971. On the other hand, the percentage of households in the next expediture class (DH 900-3,000 p.a.) showed a sharp drop, indicating that economic growth did in fact permit an increase in income for a not inconsiderable number of rural households, poor as well as rich. 1/ This subject is also discussed in the section on nutrition, para. 5.74. - 225 - 5.18 During 1960-71, growth in agriculture was relatively satisfactory, since agricultural value added rose at an annual rate of 3.7% at constant prices. Despite that result, the benefits of growth did not extend to the most disadvantaged social groups. It was only above a relatively high level of expenditure (DH 900 p.a. per household at 1959-60 prices) that economic growth was reflected in a higher standard of living for rural households. Since the minium agricultural wage (SMAG) in 1959 was about DH 9251/, it was probably only the better-paid agricultural workers (mainly those in the irrigated zones) and the less disadvantaged among the farmers who were able to benefit from the growth in agriculture. 5.19 During the 1971-78 period, it seems that income of farmers increased in irrigated areas; those areas also offered an additional source of revenue to farm workers employed on a seasonal or permanent basis. The unfavorable weather conditions that affected Moroccan agriculture had, however, important consequences on agricultural production in rainfed areas where the larger share of the rural population lives. In order to reduce its social consequences and to make it possible for the standards of living of farmers to continue to increase at a satisfactory rate, the Government raised the producer prices of the main agricultural crops from nonirrigated areas as well as those of industrial crops. On the whole, the increase in agricultural prices was faster than that of the cost of living and led to an improvement in the terms of trade between agriculture and industry. Standard of Living of Urban Households, 1960-71 5.20 In urban areas, the general pattern of change in households' living standards was much more satisfactory, since the whole of the urban population received some benefit from economic growth. This finding would suggest that growth in urban areas was successful in improving the standards of living of the poorest by contrast with what happened in rural areas. As in rural areas, three broad classes of expenditure can be distinguished from comparison of the 1970-71 consumer survey with that of 1959-60. It is worth noting that for both the rural and urban population the division into these classes is not arbitrary. The first class groups together the expenditure categories in the lowest income group in which the proportion of households increased between 1960 and 1971. The second includes those expenditure classes for which a drop in the proportion of households was observed. Finally, the third class comprises households in the higher income group whose proportion increased. The changes in relative numbers of households composing each of these three main expenditure classes are shown below: - 226 - Expenditure classes Percentage of households in urban area (1959-60 dirhams p.a.) 1959-60 1970-71 Under 600 0.5 2.9 600 - 4,200 78.3 49.2 4,200 and over 21.2 47.9 Total 100.0 100.0 Source: Mission estimates. 5.21 It is interesting to note the considerable drop in the proportion of urban households spending less than DH 4,200 p.a. The decline in the percentage of these households is very revealing, since it indicates that even the most disadvantaged social classes were able to benefit appreciably from economic growth in the urban areas. 5.22 As the preceding data show, the percentage of the poorest households (those spending less than DH 600 p.a.) nevertheless increased, from 0.5% to 2.9% between 1960 and 1971. This trend should be looked at in conjunction with the migration of about 90,000 persons each year from the country to the towns over the same period. Their arrival in the towns certainly helped to increase the relative number of the poorest households. This hypothesis is confirmed by the fact that an expenditure of DH 600 is close to the lowest wages paid in rural areas. If this hypothesis is accepted, the increase in the percentage of the poorest households would simply reflect the arrival of more rural workers on the urban labor markets. 5.23 It should perhaps be emphasized here that, contrary to a widely held belief, rural-urban migration did not seem to result in an increase in the rate of unemployment in the urban areas. The 1976 survey of urban employmentl/ contains some indications that contradict the current belief that migration from rural areas results in substantial additional social burdens in the towns. In 1976, the unemployment rate for urban dwellers born in the countryside was only 5.9%, i.e. a comparable rate to that noted in rural areas, but very much lower than the unemployment rate for urban dwellers born in the towns, which was 13%. The length of time that the migrants spent looking for a job in urban areas was also much less than in the case of those born in urban areas, which suggests that it is probably incorrect to attribute the fact that unemployment rates are higher in the towns than in the country to the volume of migrant population entering the urban areas. This conclusion is important because it suggests that migration from the countryside helps to reduce the rate of underemployment there without a corresponding increase in the urban unemployment rate. Economic growth in the towns may thus serve not only to improve the living standard of urban households, but also that of substantial numbers of rural households through migration. 1/ State Secretariat for Planning and Regional Development, findings obtained from the Urban Employment Survey, 1976. - 227 - 5.24 During the 1971-78 period, the growth rate of industrial production increased considerably, and it is probable that income of urban households rose at a faster rate than during the previous period. Also, according to the 1976 urban employment survey, employment rose at the very fast rate of 12.5% per year in urban areas, whereas urban population grew by only about 5% per year during the 1971-76 period. The rapid increase in school enrollments pursued by the Government had also certainly an important impact on the standard of living of those who were able to benefit from it. 5.25 These data, although incomplete, show that household income in urban areas continued to grow at a relatively satisfactory rate, and that, as a result of the urban growth process, rural migrants were able to find jobs and the urban unemployment rate decreased. Morocco is thus in a very different position from that of many developing countries where the existence of a modern sector, isolated from the rest of the economy and offering very high wages, results in maintaining a high level of unemployment. As will be discussed in the section on employment, the main reason for this situation is that the labor market operates along relatively flexible lines in Morocco, and that wages quickly adjust to labor supply and demand conditions. 5.26 However, the foregoing is only one aspect of the overall picture. Monetary income is only one component of living standards and well-being. Just as important are the changes in the mortality rate, in life expectancy and in other social indicators, not reflected in income levels. it is, therefore, important to examine the extent to which the Government social policy has helped to improve the living standards of the most disadvantaged social groups. B. Goals and Thrust of Social Policy 5.27 The financial outlays by the Government for social policies increased very substantially over 1973-77. Total budget expenditures devoted to education, training and health rose from DH 1.3 billion in 1973 to DH 3.3 billion in 1978. To this total should be added consumer subsidies included in the budget and investment appropriations, in order to measure the full extent of the financial effort made by the Government. Over the period 1973-77 about 32% of actual budget expenditure was devoted to the implementation of social policies, as shown below; - 228 - Government Expenditure in the Social Sectors, 1973-77 1/ Current costs Investment Total Education, training and culture 8,298 1,364 9,662 Housing and urban development 214 532 746 Public health 1,647 365 2,012 Regional Development Fund - 692 692 Compensation Fund and ONICI 2/ 4,962 - 4,962 Total 15,121 2,953 18,074 Percentage of budget3/ 54.5 11.2 32.4 1/ Millions of Dirhams. 2/ Budgetary costs. 3/ Not including debt service. Source: Ministry of Finance. 5.28 In spite of this substantial outlay and the significant progress already made, the weight of the past quite often plays a considerable role. Education provides perhaps the best example of this. In 1960, the adult literacy rate was extremely low, only 14%. Between 1971 and 1977 it rose from 21% to 28%, and the percentage of budget expenditure earmarked for education in Morocco was distinctly above the average for countries at a comparable level of development. In 1970, such countries devoted about 13.5% of their budgets to education!', whereas Morocco at that time was already allocating 21.5%. In comparison with these countries, the financial outlay for education was certainly substantial. Since it is necessary to sustain a high level of expenditures on education before a gradual increase in literacy becomes evident, the actual level of school attendance indicators was, therefore, the result of historical factors rather than of inadequate budget expenditure. 5.29 In other cases, however, the effects of this legacy of the past seem to have been compounded by an insufficiently dynamic policy. During 1973-77, public health expenditure represented only 3.6% of the Government budget2/. In view of the demographic situation in Morocco, marked by a very rapid rate of population growth, much greater efforts should probably have been made to step up expenditure on health in order to provide better coverage of social risks. The need for such efforts appears to be recognized, since in 1978, which was a year of budgetary austerity, the budget of the Ministry of Health was given priority and the appropriations for that ministry were increased. In most cases, however, in spite of the 1/ World Bank, Education Sector Working Paper, December 1974. 2/ This percentage has declined recently because of the volume of government military expenditure. By comparison, for the years 1970-74, the percentage was 8.4% in Egypt, 9.5% in Jordan, 5.3% in Algeria, and 2.6% in Syria (World Bank, Health Sector Working Paper, March 1975). - 229 - considerable financial outlay, the social impact has been very limited. The reason for this is of crucial importance; indeed, it constitutes one of the major shortcomings of current social policies, namely, the lack of clearly defined, realistic and consistent social objectives. Definition of Social Objectives 5.30 An essential step in the formulation of a social strategy is the definition of social objectives. Although the 1978-80 Plan makes numerous references to the goal of improving the living standards of low income households, nowhere is the concept of a basic needs threshold (BNT) defined.l/ The consequence of this omission is that each ministry seems to have a different idea of what constitutes the BNT, which seriously limits the overall impact of government action. Obviously, so long as this concept remains undefined, it is difficult to specify the beneficiaries addressed by the various social policies; all too often it is the relatively well-off social groups that inadvertently are the main beneficiaries, and no reference point exists to evaluate the effectiveness of these policies. 5.31 While it is difficult to compare the social effectiveness of different policies, it would seem that in this field the trade-offs between the various courses of action have not been determined as rigorously as desired. During 1973-77, consumer subsidies in the budget amounted to DH 5 billion, i.e. two and a half times as much as the total recurrent and capital investment expenditures of the Ministry of Health (para. 5.27). This fact is somewhat surprising since nutrition is one of the few areas where Morocco makes a better showing than other countries with comparable per capita incomes. The average level of calorie intake in Morocco is equal to 105% of requirements whereas other comparable countries can satisfy only 95% of their calorie requirements2/. With regard to the major health indicators, Morocco's position is distinctly less favorable. Both the infant mortality rate and the crude mortality rate seem relatively high compared to the average for comparable countries. Comparison of the health and nutrition indicators, therefore, leads us to conclude that the trade-off between food subsidies and public health expenditures needs to be reconsidered, with a view to reducing the amount of consumer subsidies3/ in favor of higher expenditure on health. Such reordering of priorities would make for a better match between the means and the goals of social policy. 1/ The basic needs threshold is defined as the level of income required in order for a household or a person to meet its or his basic needs. The definition of that threshold also entails estimation of physical norms (for food, education, health, etc.) below which it is considered that basic needs are not met. 2/ IBRD social indicators. 3/ This question is discussed in more detail later. - 230 - 5.32 The setting of realistic goals is one of the keys to the success of any social policy. It is important to keep objectives within modest bounds, rather than to be over-ambitious, since the achievement of ambitious goals is likely to be far beyond the budget of the poorer households. The establishment of a short list of basic needs is particularly valuable. Such a list can include, for example, the supply of a minimum number of liters of water per person by expanding the existing system of street standpipes actually used in urban areas, waste disposal and the construction of a sewerage system, provision of a minimal level of education, etc. When drawing up such a list it is particularly important to bear in mind the income levels of the various social groups, in order to formulate a realistic plan of action. Nutrition can serve as an example. The 1970-71 consumer survey had revealed certain nutritional deficiencies, which could be eliminated by increasing the consumption of certain foods. The Ministry of Agriculture, therefore, worked out a nutritionally balanced food budget as a guide for future action in the nutrition field!7. However well-meaning and indeed necessary this endeavor may have been, it did not take into account the cost of this food budget, which appears to puxt it beyond the financial reach of the most disadvantaged groups. Consequently, it seems all too probable that any program aimed at implementing this goal could only have an extremely limited effect. 5.33 This example highlights the crucial importance of establishing realistic social goals. In this respect, the efforts of the Ministry of Urban Development cannot be too highly praised, since it is one of the few ministries to have drawn up a coherent plan of action. Using the data supplied in the 1970-71 consumer survey, the Ministry has calculated the housing needs of the different income categories and has formulated an action program tailored to families' resources. The Main Components of a Social Strategy 5.34 The purpose of the above brief review of social policy was not to suggest that Government spending has been largely useless. On the contrary, as we shall see later, significant progress has been made in recent years. The purpose is simply to emphasize that the effectiveness of Government intervention could be substantially improved witbout any considerable increase in budget expenditures. Since the various aspects of social policy are examined in more detail later, only the broad lines of a social strategy will be discussed here. 5.35 First of all, the need for better statistical data cannot be emphasized too strongly . The information available comes from ambitious statistical surveys, which are so complex that they take several years to complete so that their usefulness is seriously limited. It would therefore 1/ Ministry of Agriculture and Agrarian Reform, Projection de la demande des produits alimentaires, 1982-2000, February 1977, p. 38. - 231 - be very useful to direct future effort in the statistical field to carrying out simple surveys based on sampling, to be repeated at regular intervals, and which would improve in particular the understanding of the income and employment situation of the most disadvantaged urban and rural population.l/ 5.36 In rural areas, 65% of the population is engaged in agriculture, and the great majority of low income households are at present either small farmers or seasonal agricultural workers. By the year 2000, however, the percentage of the rural labor force engaged in agriculture will be only 37% and the total number of agricultural jobs will probably be fewer than in 1977.2/ These projections suggest that an improvement in the incomes of the poorest households will depend on the combined implementation of two sets of measures, one designed to improve the labor productivity of the small farmers and the other to create more part-time and full-time jobs in the secondary and tertiary sectors in rural areas. 5.37 An important fact brought out by the analysis of the agriculture sector is that the use of modern production factors, such as selected seeds, fertilizer or machinery, is rather low on small farms. The extremely small size of these farms and the low rainfall certainly constitute serious obstacles to their use, but perhaps not so overriding as might be tbought. Evaluation of agricultural investment financed in part by the Caisse Nationale de Credit Agricole (CNCA) has shown that the rate of economic return on such inputs is very high, whatever the size of farm, thus emphasizing the possibilities of raising agricultural productivity that can be brought about by reinforcing Government assistance programs. 5.38 The 1978-80 Plan for the first time notes the need to reorient Government effort toward benefiting the rainfed areas, while recognizing that in the short run it is equally urgent to complete current investment project in irrigated areas. Such a change of emphasis is eminently desirable, not only because the great majority of poor households are dependent on rainfed farming for their subsistence, but also because the rainfed farming investment projects would have the effect of increasing the income of a greater number of poor farmers than comparable projects in irrigated zones. Government intervention could, therefore, be directed particularly toward improvement of pasture land and stockfarming (the main source of income of small farmers), and emphasize erosion control as well as the development of agroindustry. 5.39 An important aspect of agricultural policy has been the payment of subsidies for purchase of agricultural inputs. Although no information is available that would allow us to assess their economic impact, the fact that most, and indeed in some cases all, of these subsidies went to the 1/ In spite of the substantial statistical work done in recent years the artisanal and small-scale industrial sector (employing fewer than 5 wage-earners) is still very little known. 2/ Ministry of Agriculture and Agrarian Reform, L'Emploi dans le milieu rural, Table 4, October 1977. - 232 - wealthier farmers tends to raise doubts about their possible contribution to improving conditions of production for small farmers. Since many of CNCA's clients are small farmers, it would seem desirable to expand agricultural credit activities and at the same time reduce (or even eliminate) these subsidies, which are of little economic value and regressive from the social viewpoint. 5.40 An increase in small-farm productivity would not in itself be sufficient in rural areas. Large numbers of the rural population own no land and, therefore, cannot benefit directly from increased agricultural productivity. Moreover, the income produced by small farms is so small that no increase in productivity could have a sufficiently large impact on their income. Apart from land redistribution, which also would have only a limited effect (since the amount of land available for redistribution is limited), any improvement in the living standards of the poorest rural households must depend on the creation of additional jobs in agriculture-associated activities such as stockraising or agroindustry or in the secondary and tertiary sectors. In this connection, it is encouraging to note that during the years 1960-71 employment in the industrial sector increased more rapidly in rural than in urban areas. A policy to promote small enterprises and craft industry could thus have a beneficial effect, provided greater efforts are made to provide assistance in the areas of credit, technical training of local labor and dissemination of technology. 5.41 In urban areas, as far as low income households are concerned, the general trend has been more favorable than in the rural context, so that the necessary strategy should be aimed not so much toward far-reaching changes in the growth process, as toward improving the access of the urban population to social services and distributing the fruits of economic growth more equitably. 5.42. Emphasis on growth and on the expansion of highly labor-intensive activities are an essential part of such a program. Another crucial point is that the low level of resources of poor households is due not so much to the level of the daily wage (which often is quite high) as to the small number of hours worked for wages. An improvement in the productivity of this labor force through extended vocational training at "grassroots"level, for which there is a strong demand (Entr'aide Nationale), would make it easier to integrate this marginal population into a higher productivity sector. 5.43 Between 1979 and the year 2000, the urban population will increase from 8 million to about 20 million. Growth on this scale poses a major challenge, calling as it does for a considerable expansion of the social services and an improvement in the conditions governing their use, so that they will be accessible to an increasing proportion of the population. Greater emphasis must be placed on expanding the social services specifically intended for the poorest social groups, at as low a unit cost as possible. - 233 - 5.44 In spite of any budgetary economies that might be achieved by reducing unit costs in the field of education or health, the necessary outlays will still be substantial. It is of the greatest importance, therefore, that the contribution of the various social groups to the cost of such a program be carefully examined, to ensure that any direct or indirect subsidies are truly justified. In particular, the present policy of food subsidies should be thoroughly reviewed. Only about 18% of the total amount of these subsidies actually goes to the poorest households; their social impact is therefore so slight that it would seem desirable to limit their scope to recipients who are genuinely in need and to reallocate the budget funds thus freed to improving the health care coverage or to providing basic public services. 5.45 However, before embarking on a substantial expansion of social services, the present relationship between economic growth and social expenditures needs to be examined, to see whether increases in such expenditures might not in the end threaten the rate of economic growth itself. Increased Social Expenditures and Economic Growth 5.46 Insofar as an increase in expenditure for social purposes results in an increased tax burden, not only Government savings but also those of individual households tend to be reduced. It is often argued, therefore, that increased social expenditures would have the result of limiting the amount of productive investment in the short term, and thereby reducing the long-term growth rate. A short-term improvement in family living conditions would thus be achieved at the expense of per capita income, which would fall below the level that could have been achieved over the long run with a less ambitious social policy. This hypothesis calls for critical examination. 5.47 Although the argument outlined above may appear logical, it is based on a certain number of errors that it is important to pinpoint. First, we should note that although the productive aspect of social expenditure is difficult to measure, it is nonetheless significant. In the field of health, for example, the policy followed by the Ministry of Health has already succeed in eliminating smallpox and bringing malaria under control. Although no data are available for Morocco, the example of a number of other countries indicates that such improvements in health are reflected in an increase in agricultural production.!1 In India, for example, a positive correlation has been noted between a reduction in the mortality rate and the growth rate of agricultural production in the various states;2/ this suggests that agricultural production could increase by 15% if the mortality rate were reduced by 50%. 1/ See the various studies referred to in the World Bank Sector Working Paper on Health, 1976, pp. 25-26. 2/ See the important article by R. Ram and T.W. Schultz which questions the cause and effect link usually assumed between population and economic growth rate (Rati Ram and Theodore W. Schultz "Life Span, Health, Savings and Productivity", Economic Development and Cultural Change, Vol. 27, No. 2 January 1972); and also World Development Report III, World Bank 1980. - 234 - 5.48 As regards education and vocational training, it has been estimated that their internal economic rate of return, measured on the basis of a survey of industrial wages in 1970, was 9.5% for Morocco.l/ In urban areas, the marked increase in the schooling rate seems also to have enabled young households to achieve an income level very near the average, whereas in rural areas, where the literacy campaign was much less well-organized, in 1959-60 similar households had a much lower standard of living.2/ In spite of the fragmentary nature of each of these observations, the findings taken together suggest that an improvement in environmental health conditions, a reduction in morbidity and mortality rates and an increase in school enrollment have made-it possible for the Moroccan people to attain a higher per capita standard of living. 5.49 One of the major achievements of social policy has been a lengthening of life expectancy in Morocco, from 46 years in 1960 to 55 years in 1977. Although the decline in infant mortality was an important factor, the reduction in adult mortality was also reflected in a lengthening of their life expectancy. An addition of nine years to the expected life span means a substantial increase in the period during which an individual will be part of the labor force, with the immediate result of increasing the share of the population which is economically active 3/, and thus permitting a higher rate of g-rowth of the economy, which in turn can contribute to raising per capita income. 5.50 The consequences of this extended life expectancy for investment are equally far-reaching. Once a person can expect to enjoy the benefits of an investment over a longer life span, it is obvious that the basis of the decision to invest is fundamentally changed. Not only is the expected return on formal education or vocational training increased but it also becomes profitable to devote a higher percentage of expenditure to medical care (the effect of which will be felt over a longer subsequent period) or to invest in consumer durables such as cement-block housing (instead of mud brick). 5.51 Inasmuch as a substantial proportion (or even all) of the expenditures devoted to the social sectors have a productive aspect, the conclusion is inescapable that a large part of the expenditure currently regarded as expenditure for consumption in fact represents a productive investment. Contrary to the view mentioned in paragraph 5.46, therefore, 1/ See the article by G. Psacharapoulous: "Earnings determinants in a mixed labour market" quoted in Will Van Rijckeghem "Employment Problems and Policies in Developing Countries," Rotterdam University Press, 1976. 2/ See the 1959-60 household consumer survey. 3/ For purposes of comparison, we may note that the economically active population increased by about 52% between 1960 and 1977. Assuming that the total working life of an individual increased from 31 to 40 years over the same period, this increase would be equivalent to a 30% expansion of the active population. - 235 - augmented social expenditures probably have the effect of increasing the incentive for individuals to save or to invest, thereby increasing the proportion of the national income saved for future consumption. 5.52 Such a conclusion is of great importance since it shows that the effect of a sufficiently ambitious social policy can only be to reinforce economic growth, provided, of course, that the policy is well conceived. Obviously, excessive increases in social expenditures can bring about a decline at the margin of their long-term economic return; however, this risk also exists for so-called productive investment in industry or agriculture. Although the available sources of information are few, it seems highly unlikely that Morocco has reached the stage at which social expenditures are so high that their rate of return has started to diminish. 5.53 The foregoing paragraphs set forth the goals and the desirable orientation of social policy. The various aspects of this policy are analyzed below as they relate to population, health, nutrition, employment taxation and public expenditure, education and infrastructure. C. Population Policy 5.54 Morocco's population in 1979 was 19.5 million, making it the country with the largest population in the Maghreb. For the next 20 years Morocco will face the consequences of the past high fertility rate. Substantial investment will be necessary to meet the basic needs of the additional population and to create sufficient jobs for those already born. In view of the time lapse between the start of a decline in fertility and its effects, the Moroccan Government, if it wishes to improve long-term demographic prospects, would have to introduce an effective population strategy immediately and give high priority to the family planning program. 5.55 According to the 1971 census, Morocco at that time had 15.4 million people, i.e. 32% more than the population recorded in 1960. This overall increase, at an annual rate of 2.6%, was characterized by the even more rapid growth of the urban population, at 4.3% over the same period, and by large-scale migration of country dwellers to the towns, at a rate of about 90,000 per year. 5.56 Like other developing countries, Morocco has experienced a considerable reduction in the mortality rate. Life expectancy now stands at 55 years, compared with 43 for 1950-55. The crude mortality rate is now about 13 per thousand, compared with 26 per thousand for the earlier period. Infant mortality, estimated at 130 deaths per thousand live births, is still very high and is even estimated at 170 in rural regions. Deaths of children under one year old accounted for about 40% of the total number of deaths; it is vital that the Government give priority to improving the chances of survival of this age group. The poor coverage of birth registration and the shortcomings of census reporting make it difficult to estimate fertility trends. In 1977, the crude birth rate was estimated at - 236 - about 45 births per thousand population and the total fertility rate at about 6.5 children per woman. The fertility rate is higher in rural areas than in the towns. A slight downward trend in fertility can be attributed to a rise in the age at marriage (from 17.3 years in 1960 to 19.1 in 1971). 5.57 During 1971-78 the rate of population growth accelerated, reaching 3% compared with 2.6% during the preceding 10 years. The prospects of a continuing high rate of demographic increase resulting from the decline in mortality and the persistence of a high fertility rate is a matter for concern; it is, therefore, considered useful to examine the main demographic forecasts. Demographic Forecasts 5.58 Four sets of projections were made to determine the probable trends in demographic growth and indicate the results of a more rigorous family planning policy than in the past. According to the first hypothesis, the population would reach a maximum of 43.3 million by the year 2002. If, on the other hand, the fertility rate were to fall very fast, the population by that date would be only 32.6 million. These two extremes are unlikely to materialize. The second projection, which puts the population by 2002 at 39 million, seems the most probable, although if the Government were to pursue an energetic family planning policy the total population might be only about 35 million. But for this it would be necessary for 33% of all couples in the reproductive period of life to practice contraception, whereas the percentage was only 8% in 1976-77. 5.59 There will be little significant change in the size of the labor force before the end of the century, regardless of the rate at which fertility falls during the next few years. Assuming participation rates constant at the 1971 level, the work force will grow from about 4 million in 1971 to between 10.5 and 10.9 million by 2002, representing an annual growth rate of about 3.2% over the intervening years. 5.60 A rapid rate of demographic growth will increase the difficulty of improving the welfare of the population. If the population were to reach 32.6 million rather than 49 million by the end of the century, the per capita income in 2002 would be 33% higher, all other things being equal. Rapid population growth will make the task of providing education costlier. Achievement of the goal of 100% enrollment by 1997 would entail recurrent costs of primary education 101% or 147% higher than at present depending on whether the population reach 32.6 million or 49 million. As for secondary education, merely to maintain the present enrollment of 17%, 350,000-415,000 additional places would be needed by 1997. To increase enrollment to 42% by that date, between 1.6 and 1.8 million additional places would have to be created by the end of the century. - 237 - Demographic Policy 5.61 A continuing high rate of demographic growth will increase the cost of programs to improve the quality of public services; it may even be difficult to make these improvements, given the already high cost of simply maintaining the present ratios and standard of services. If demographic growth is to be slowed, the Government would have to adopt a broad population strategy, involving political choices aimed at reducing family size and the introduction of an active family planning program. 5.62 It should be pointed out that family planning has a justification other than simply to reduce fertility. The primary need in Morocco is to concentrate on reducing the infant mortality rate and improving the level of education for women. Action in these two areas, apart from their very close correlation with a decline in fertility, would have the advantage of promoting the general welfare of the population. High infant mortality rates affect fertility, biologically, by shortening the breast-feeding time and hence the period of post-partum amenorrhea, leaving the woman exposed all the sooner to the risk of pregnancy. On the behavioral level, a high infant mortality rate encourages parents to have births in excess of their ideal family size in order to be sure of having the desired number of surviving children. Several studies have reported an inverse relationship between female education and fertility, but it is still far from clear what it is in the education process that has the effect of reducing fertility. Nevertheless, in view of the low rates of female literacy (in 1971 only 13% of Moroccan females aged 10 and over were literate and in 1975 only about 42% of those under 15 were enrolled in primary school), programs to improve the level of education among women should clearly be pursued for their socio-economic effects as well as for their possible demographic impact. 5.63 Although there has been a family planning program in Morocco since 1966, organizational problems and other causes of a political nature have inhibited its implementation. The 1968-72 Development Plan set a target of 500,000 females; less than 20% of this goal was achieved. The goal of the 1973-77 Plan was revised downward to 391,400; by June 1977, about 75% of this relatively modest target, involving 2.2% of women aged 15 to 49 years, had been reached. By comparison, the target in Tunisia was 4.4% of women of childbearing age in 1974, and the achievement rate 124%. The effectiveness of family planning could no doubt be increased if both initiation to family planning and contraceptive services were provided outside the public dispensary system, and much more extensive information and education campaigns were conducted. Until recently, decisions to practive family planning required the opinion of a physician. Since such a small proportion of the population was covered by the health service, the family planning program was unable to achieve its targets. Since 1979, family planning decisions have, in principle, become the responsibility of nurses and paramedics, a move that will help improve the efficiency of the family planning program. Morocco can no longer afford to have a program of limited scope if a serious attempt is to be made to reduce demographic growth, since - 238 - it is highly unlikely that socioeconomic development alone will suffice to bring down the fertility rate. Morocco may well follow the example of other Moslem countries such as Egypt, Tunisia, Pakistan and Indonesia, which have initiated active family planning programs. D. Health Policy 5.64 Since independence, Morocco has made considerable progress in improving health conditions and in building up a network for the delivery of preventive and curative health care. Morocco's morbidity problems are similar to those in most developing countries, but smallpox has been eliminated, malaria has been brought under control and the Ministry of Health has undertaken a vigorous campaign to diagnose and treat tuberculosis. However, bilharzia (schistosomiasis) is on the rise, with the more widespread use of irrigation. The Government has recently launched a bilharzia control program which, in view of the special characteristics of this disease in Morocco, should result in its eradication. 5.65 Environmental sanitation, nutrition and the proportion of the population effectively covered by medical services are key factors determining a country's health status. In Morocco, inadequate systems of waste disposal, limited access to safe water (especially in rural areas), improper nutrition and a rapid rate of population growth have slowed progress in health improvement. The apparent inability of the health delivery system to reach certain key groups effectively (infants, young children, the rural population and the urban poor) is the main reason for the very low level of social indicators in Morocco compared with those in countries in the same income range. Infant mortality is a case in point. Per capita income in Morocco is substantially higher than in Thailand or the Philippines, yet these countries, with infant death rates of 68 and 65 per 1,000 respectively, have a distinctly better record than Morocco, with its toll of 130 deaths per 1,000. Medical and Paramedical Resources 5.66 Morocco has made steady progress in developing medical and paramedical resources. It has a highly trained cadre of health workers. The health care infrastructure, which operates on a system of referral of patients to treatment centers, includes a hospital and a network of outpatient services. Although outpatient facilities have expanded rapidly since 1956, the 884 dispensaries and 234 health centers operating as of the end of 1977 still fell far short of the national target of one dispensary per 15,000 inhabitants and one health center per 45,000. At present there are approximately 23,000 hospital beds. The average occupancy rate in 1976 was 72%; an appropriate norm is considered to be 80-85%. 5.67 The high quality of Morocco's health personnel and infrastructure means that they are expensive. Given the country's limited financial and manpower resources, the coverage of the health care system has remained below the national targets. Health manpower and facilities are concentrated - 239 - in urban areas, and it is the urban services that are better utilized. In rural areas, the coverage is much more limited and the facilities are significantly under-utilized, suggesting that the fixed dispensary system may not be the most appropriate for meeting the.health needs of the rural population. 5.68 The budget of the Ministry of Health as a proportion of GNP has remained relatively stable at about 1.2% since 1967, but declined as a proportion of the national budget from 7.8% in 1965 to 2.9% in 1977, rising to 3.7% in 1978. The per capita expenditure for health in real terms decreased from DH 15 in 1967 to DH 12.3 in 1977. About 75% of the allocations of the 1973-77 capital budget were earmarked for curative care in hospitals; only 25% went for preventive health care and for training nurses. Under the present system of budgeting, expenditures are recorded under two broad headings, personnel and material, ratber than as expenditure items for particular programs. The resulting inability to isolate program costs makes effective evaluations impossible. The disaggregation of expenditures according to program costs would facilitate more efficient planning, since it would permit monitoring of programs and evaluation of their cost effectiveness. With this in mind, the Ministry of Health recently decided to set up a Health Planning Unit (Cellule de Planification Sanitaire), endowed with the necessary support to establish a planning system based on the identification of goals and their required medical services. 5.69 The Government's public health strategy takes a comprehensive view of the health problem, placing greater emphasis on improving environmental sanitation, on broadening access to social services and on providing low-cost care delivery systems designed to meet the basic needs of the population rather than on sophisticated and extremely costly interventions. More specifically, this strategy aims at the following main priority objectives: (a) reduction of infant mortality nationwide and in particular in the rural areas, by means of a broad-based vaccination program and a program to combat gastroenteritis and diarrhea in infants; (b) reduction of the morbidity of certain diseases, in particular measles, childhood diseases, etc. 5.70 In order to achieve these objectives, the Ministry of Health intends to stress the following actions: (1) Strengthening of the efforts of the Ministry of Health in terms of hygiene and basic sanitation, by improving controls of potable water and liquid waste disposal, possibly through the construction of wel.ls and the construction of individual latrines and small collective systems in the rural areas. - 240 - (2) Improvement of the health service by reviewing the delivery system, and training of medical and paramedical personnel, to enable them to achieve the goals assigned to them. In particular, it is intended to increase the mobility of the mobile medical teams and of the supervisory staff, so that they can meet the needs of the scattered rural population. (3) Improvement of the family planning program by making family planning activities part of the basic health services offered both by the mobile teams and at the dispensaries and clinics. (4) Intensification of the infant malnutrition control program, chiefly in the rural areas, by strengthening health education and making powdered milk and weaning formula available. (5) In support of these actions, the Ministry plans to intensify health education activities, chiefly by including suitable programs in the primary-school curriculum and by intensifying such programs at secondary-school level. 5.71 In view of the constraints on budgetary resources, the method of financing the health services needs also to be reviewed, with the general aim of getting those who can afford it to carry the cost of these services. At present, only holders of a "carte d'indigence" are entitled to claim free hospital care, but the services provided by the mobile teams are free to everybody. E. Nutrition 5.72 While malnutrition is one of the major consequences of low income levels, it is also instrumental in keeping those levels low, since it prevents people from working long hours. Malnutrition weakens the defense mechanisms of the human body, such as the immunizing action of lymphocytes, thereby aggravating the severity of any disease. For this reason a balanced diet is one of the chief variables that determine an individual's general state of health.!/ 1/ Calorie intake is one of the principal variables determining life expectancy, on a par with income, literacy and urbanization. These variables account for 90% of the variation in life expectancy between countries. This finding is based on a cross section covering 39 countries (World Bank, Nutrition, Basic Needs and Growth, unpublished paper, January 1979). - 241 - 5.73 The nutrition status of the Moroccan population has significantly improved on the average since 1960. The average per capita calorie intake in 1960 satisfied only 90% of standard requirements, whereas in 1978 the average food budget provided more calories than the recommended amount, i.e. 105% of these requirements. A similar improvement can be seen for proteins, average per capita intake having risen from 43 grams per day in 1960 to 67 grams in 1978, well above the recommended level of 60 grams. 5.74 This general improvement is confirmed by the trends in food consumption, although in rural areas the increase in food expenditures (at constant prices) was slower than in urban areas, as shown in the following table: Annual Per Capita Food Expenditures, 1969-71 (in 1959-60 dirhams) Rural areas 1959-601/ 1970-712/ Farm laborers 269 270 Artisans 283 276 Merchants 291 302 Farmers 301 330 Average for rural areas 298 320 Urban areas Artisans 265 340 Merchants 353 459 Laborers 347 486 Average for urban areas 366 468 1/ 1959-60 consumer survey. 2/ Estimated on the basis of the 1970-71 consumer survey It is particularly important to note that the lowest income groups in rural areas, with the exception of artisans, were able to maintain or even improve their food consumption, which would imply that their living standards were not on the decline. It is possible, however, that households in a given socio-economic category were affected differently than the average by the changes in the general economic picture. - 242 - 5.75 The 1970-71 consumer survey measured the progress achieved since 1960, but it also revealed nutritional deficiencies among certain population groups, accompanied by insufficient consumption of certain vitamins. The findings highlighted the importance of income and the role of food prices. The average diet was better balanced in urban than in rural areas, not only because the average income was higher but also because the relative prices of different foods encouraged households to consume more fruit, vegetables and meat than was the case in the countryside. Extent of Malnutrition 5.76 In order to assess more exactly the extent of malnutrition, as revealed in the 1970-71 consumer survey, two indicators were developed, namely, the percentage of the population with inadequate caloric intake and the overall nutritional deficiency. In 1971, about 46% of the population had a caloric intake below the recommended level of 2,307 calories. Even more important is the fact that 27% of the population consumed less than 1,800 calories per day. To eliminate malnutrition completely, an additional quantity of calories equal to 14.4% of the total calorie consumption would have had to be available, equivalent to about 5 million quintals of cereals. A more specific survey conducted at the same time underscored the prevalence of malnutrition among young children. The results of that survey must be considered with caution, but they indicate that approximately 5% of children under 4 years of age were found to be suffering from serious malnutrition. At birth, the health status of Moroccan infants is on a par with or even above international standards, but this initial advantage is quickly lost. Between the ages of 10 and 33 months the effects of weaning, undernutrition and poor sanitary conditions combine to put the health of the young child at risk and render him more vulnerable to disease. Diseases caused by nutritional deficiencies, such as rickets, used to be very prevalent, but campaigns undertaken since the time of the survey have managed to reduce the incidence of such diseases. 5.77 The underlying causes of malnutrition are complex. The most important include: low income levels; large family size; the high cost of food, and families' dietary preferences. The 1970-71 consumer survey, however, offered good grounds for considering that the variable with the greatest significance was per capita expenditure; nearly 98% of the variation in per capita calorie consumption was attributable to the variation in per capita expenditure between households. This conclusion is important, since it points to an increase in the incomes of the poorest households as the most effective method of increasing their calorie consumption. Inadequate caloric intake is both an indicator and a factor of malnutrition. Lack of balance in the composition of the food eaten also plays an important part. Nevertheless, whereas up to 1970 an adequate intake of protein was regarded as crucial, since that date opinion has shifted more and more to the view that caloric intake is the decisive factor because it determines not only the quantity of energy made available to the human body, but also the way in which protein is used. For this reason, the greatest attention needs to be paid to the consumption of calories. - 243 - Prospects 5.78 Although malnutrition is only one of the dimensions of basic needs, the correlation between the satisfaction of basic needs and malnutrition is significant enough to allow the extent of basic needs satisfaction to be deduced from the changing percentage of the population that is malnourished. It seems worthwhile, therefore, to attempt an evaluation of the nutrition situation, using various assumptions. The key factor in developing this method is the relationahip between per capita caloric intake and per capita expenditure. Since the elasticity of caloric demand in relation to income tends to decline as income increases, a semi-logarithmic function was used. 1/ 5.79 During the period 1960-71, the average living standard per person improved by between 2.6% and 3.2% at constant prices, depending on whether an estimate based on the National Accounts or that calculated from the consumer surveys was used. To allow for different assumptions, future per capita caloric consumption was calculated using three variants (2%, 3% and 4%) for the increase in per capita expenditure during the period 1971-2000. It was also assumed that population distribution by classes of expenditure would not change over that period. On the basis of these different assumptions, the changes in the percentage of the malnourished population from 1971 to 2000 can be estimated from the percentage growth rate of the per capita expenditure of households with an inadequate caloric intake at the present times. The data given below show these changes: Rate of growth of Percentage of population that is malnourishedi/ per capita expenditure 1971 1990 2000 2% 46 27 19 3% 46 19 12 4% 46 14 7 1/ Daily consumption of calories less than 2,307. 1/ C being per capita consumption of calories and E per capita expenditure, the following regression was obtained using the data of the 1970-71 consumer survey, Vol. IV: C= -6,634 + 1,400 lnE (R2 = 98%, number of observations: 14). Using the function indicated earlier, caloric consumption at t, i.e. Ct is given by: Ct= -6,634 + 1,400 ln Eo (1 + g)t -6,634 + 1,400 ln Eo + 1,400 ln (1 + g)t -CO + 1,400 ln (1 + g)t CO being initial consumption, g the rate of increase in per capita expenditure and Eo initial per capita expenditure. - 244 - 5.80 Assuming that per capita expenditure will increase by 2% per year up to the year 2000 (which would correspond to a rate of growth of the economy of about 5%), the percentage of the population with inadequate caloric intake would decline but would still be 19% in the year 2000. Only if there were a very marked rise in households' living standards (reflecting a rate of growth of the economy of about 7%) could one bope to see malnutrition practically disappear by the year 2000. This conclusion may seem pessimistic, but it should be remembered that it still represents an accelerated reduction in the percentage of low income households. This projection rests on two fundamental assumptions, namely, that the incomes of the people who are at present malnourished will actually increase at the rate indicated and that food prices will remain constant. Should these assumptions prove to be optimistic, the time required to eliminate malnutrition would be much longer. Consumer Subsidies 5.81 During the 1960s, Morocco imported few food products, apart from sugar (and soft wheat in bad years). From the beginning of the 1970s, agricultural production fluctuated widely from year to year, owing to unfavorable weather, without achieving any long-term growth, so that an increase in agricultural imports became necessary. To prevent the rising prices of food products on the international market from having an "excessive" impact on the domestic market, the Government considered it necessary to limit price increases by paying import subsidies for the major foodstuffs such as sugar, flour, wheat and edible oils. 5.82 The cost to the Government over the period 1973-78 was substantial, the subsidies financed from the State budget totaling nearly DH 5 billion.l/ Although these subsidies declined after 1975, they still represented nearly 2% of total consumption by households in 1977. Analysis of these subsidies by expenditure classes shows that in 1977 the increases in per capita expenditures made possible by these subsidies were as follows: Expenditure Classes I II III IV Combined Total expenditure per capital/ 499 1,393 2,788 6,760 1,906 Subsidies per capital/ 20.1 35.9 52.5 71.9 37.3 Subsidies as percentage of expenditure 4.0 2.6 1.9 1.1 1.9 Distribution of households (%) 33.6 38.3 17.5 10.6 100.0 1/ In 1977 dirhams. The expenditure classes are as follows: Class I; less than DH 2,400 p.a.; Class II; DH 2,400-6,000; Class III; 6,000-10,800; Class IV; over DH 10,800 Source: Mission estimates from the 1970-71 consumer survey 1/ This total is less that the amount of the subsidies paid by the Caisse de Compensation since part of the subsidies is offset by indirect taxes on the same products. - 245 - 5.83 The policy of consumer subsidies led to a rise in the standard of living of the lowest income groups, since the subsidies represented 4% of expenditures in the case of the 30% poorest households. Since the effect of these subsidies was to reduce the cost of the foodstuffs forming the basic diet of such households, the most serious nutritional deficiencies were certainly reduced, although in the case of refined sugar some doubts may be felt. It should be noted, however, that the present incidence of the subsidies does very little to ameliorate expenditure distribution, as the following table reveals: Expenditure Classes I II III IV Combined Total subsidiesl/ 124.5 253.6 169.6 140.7 688.4 Distribution of subsidies (%) 18.1 36.8 24.6 20.5 100.0 Distribution of household expenditures (%) 8.8 28.0 25.6 37.6 100.0 1/ Millions of 1977 dirhams. Source: Mission estimates from the 1970-71 consumer survey. 5.84 The lowest income group, comprising about 34% of the total number, received only 18% of total subsidies in 1977, according to the above figures.l/ If the principal objective of the policy of consumer subsidies is considered to raise the income of the lowest income groups, then it must be admitted that this objective was achieved only in part (para. 5.82). Moreover, since payment of the subsidies was not restricted to the group of poorest households, the total budget cost was necessarily four or five times higher than the amount of the subsidies received by the social groups that really needed them. 5.85 Although for political reasons, it may be difficult to eliminate these subsidies entirely in the short term, one should perhaps look carefully at the nutritional value, often very low, of certain products that are currently subsidized (such as sugar) and take into consideration the fact that increasing consumption of food products is only one aspect of a nutrition policy. As mentioned earlier, agricultural production did not grow during 1971-78, particularly in the rainfed areas where the majority of poor households live. Since the elasticity of caloric demand in relation to 1/ It should be noted that this finding is based on the assumption that all households benefited from the subsidies program. Since the benefits derived by rural households from food subsidies are correspondingly less to the extent that they consume their own production, it is quite probable that the 34% poorest households actually received less than 18% of the total subsidies. - 246 - expenditures is very high in the case of the poorest rural households (it was, in fact, equal to or above 1.2 for the 27% poorest households!!), any increase in income is reflected in a more or less proportional increase in their consumption of calories. 5.86 These findings suggest that any improvement of the nutrition situation in Morocco will depend primarily on increasing the income of poor households and on proper attention to the nutritional aspect of agricultural production in the formulation of Government agricultural policy. Particular emphasis should be placed on production of foods that are mainly consumed by poor households, such as cereal-based products in rainfed areas; this will call for emphasis on applied agricultural research and on improving the productivity of small farms in these areas. Only by increasing agricultural production can one hope to raise the standard of living of the poorest farmers and thus to eliminate the most serious nutritional deficiencies. It was noted earlier that further measures would be necessary to create jobs in the secondary and tertiary sectors in rural areas for the poorest landless rural dwellers. F. Employment 5.87 Hitherto, the problem of employment in Morocco has been perceived, as it has in most of the developing countries, essentially in terms of the unemployment rate. The accelerating rate of demographic growth during 1971-78 was seen as condemning the Moroccan economy to an increasing imbalance between manpower supply, estimated on the basis of the percentage of population in the labor force, and manpower demand projections, based on various assumptions regarding trends in value added per job. Since it is the nature of such an approach to leave out of account the mechanisms of adjustment between manpower supply and demand through wage changes and length of the work period, any excess of manpower supply over demand inevitably assumes a more and more dramatic aspect as viewed over the whole future period. 1/ In rural areas the relationship between per capita consumption of calories (C) and expenditure (E) was as follows in 1970-71: C = -8,181 + 1,668 Log E R2 = 0.96 The elasticity in relationship to expenditure is equal to 1,668. For the 27% poorest households, caloric intake was C less than or equal to 1,352, so that the elasticity was equal to or higher than 1.2. - 247 - Operation of the Labor Market 5.88 Morocco's major urban areas are linked by a highly developed transport system, which facilitates population movements.l/ Althougb Casablanca is the largest city and the center of industrial activity, Morocco, unlike many developing countries, also possesses a fairly dense network of intermediate-scale towns, so that the urban areas are never completely isolated from the rural districts. 5.89 Labor force mobility is also facilitated by a relatively fluid labor market. As the 1976 urban employment survey shows, it is a relatively easy and quick process to find a job in the urban areas; indeed nearly 70% of migrants found jobs in less than three months. Most of the barriers that commonly restrict urban employment opportunities were also practically nonexistent. The modern sector, which in many developing countries forms an important enclave, isolated from general conditions of the labor market offering above-average wages, represents in Morocco only a very small part of the economy, with only a minor impact on the level of unemployment. The relatively low legal minimum wage did not prevent workers whose productivity was below that level from obtaining jobs, or impede the growth of highly labor intensive activities. Trade union activity was also very slight, with a potentially significant role only in the largest firms (especially in the public sector). All these factors indicate the existence of a relatively flexible labor market, free of the various institutional constraints normally found in countries where the urban unemployment rate is very high. 5.90 It is worth reviewing briefly at this point the general characteristics of Moroccan unemployment, beginning with the general trend in unemployment rates, as shown below: (% of labor force) 19601/ 19711 1976 Urban areas 18.3 15.3 10.0 2/ Rural areas 5.5 5.1 Combined 9.4 8.6 1/ Population census, 1960 and 1971. 2/ State Secretariat for Planning and Regional Development, Findings of the 1976 Urban Employment Survey. It is interesting to note that the unemployment rate (particularly in urban areas) shows a distinct drop since 1960, thus contradicting one of the basic assumptions on which the usual employment projection models are based, namely, the absence of an adjustment mechanism between job supply and demand, reflected in a chronic excess of supply over demand. 1/ In 1977 the cost of a 150-km round-trip rail ticket was the same as the minimum hourly wage (SMIG), i.e. DH 11.20, which indicates that travel was very cheap and was certainly not an obstacle to labor mobility. - 248 - 5.91 The great majority of the unemployed in 1971 were men, which is to be expected since this reflected the structure of the active population. Of the total, over 50% were between the ages of 15 and 24 and for this group the unemployment rate was over 14%. By contrast, the unemployment rate for the other age groups was between 4% and 6%, i.e. at the normal level of so-called "frictional" unemployment. For urban areas, the general pattern was about the same. In 1976, 70% of the total unemployed active population were in the age group 15 to 24 years. In the case of this group, the unemployment level reflected the search for a first job. Among the population over 24 years of age the unemployment rate was low, only 4.1%. It is disturbing, however, to note that the period of unemployment was often very long (over a year), particularly for workers who had already been employed and were over 45 years old. Taken overall, the unemployment rate nationally and in urban areas is still relatively low, and only in the case of two social categories, young first-time job seekers and older workers, is the incidence of unemployment serious. Wage Levels 5.92 Contrary to widely-held opinion, wage levels in Moroccan urban areas are not particularly low compared with other labor surplus countries. Thus, it was not infrequent in 1978 for employers to be unable to hire temporary labor in Casablanca at a daily wage of DH 13-15, i.e. a pay rate above the minimum wage (DH 11.2).!/ On the other hand, the monthly incomes actually received were very often below DH 300.Z/ This contrast between a relatively high daily wage for temporary workers and a low monthly income in the case of the most disadvantaged social classes is not well understood. 5.93 Various data sources suggest that the chief reason for this situation is that the poorest workers work only a few days per month. Although the level of urban underemployment is not insignificant, the causes of this underemployment have not been studied so far. The surveys at present available suffer from a major defect, in that they do not indicate whether these underemployed workers in fact would want to work more time at the same wage.3/ Any answer to this question would probably be incomplete but it does not seem that this underemployment is involuntary. Not only are there numerous casual employment opportunities in the informal sector, but the general wage structure is sufficiently flexible to absorb any disequilibrium between job supply and demand without forcing a considerable proportion of the labor force to remain underemployed. The high morbidity rates in Morocco suggest, however, that the number of work days lost through 1/ In the artisanal sector, daily wages were obviously lower. 2/ i.e. roughly the monthly income of a worker employed full-time and paid at the legal minimum wage rate (SMIG). 3/ The 1976 urban employment survey shows the distribution of the labor force according to number of hours worked per week but does not give any indication as to why 10% of the male labor force employed in urban areas works only 8 hours or less per week. - 249 - illness must be large. If a statistical survey were to confirm this supposition, an improvement in health care coverage could increase the income of such households. From a more general viewpoint, it would certainly seem desirable to identify the present causes limiting the maximum quantity of work that can be done by a considerable part of the population. Employment Policy 5.94 The major problem of employment in Morocco is, therefore, not unemployment or underemployment, as traditionally understood. It is the substantial differences encountered at present in wages and productivity that are disquieting, since they indicate that a large part of human resources is not being used to best advantage and that employment policy has not been playing its proper role. 5.95 Although the job market appears to operate satisfactorily, certain social groups have difficulty in finding employment, particularly the young, the first-time job seekers, and older unemployed workers. Very little is known about the difficulties experienced by those who are disabled, sick, etc., although they must certainly be considerable. The large number of workers with only an irregular source of income is also a serious problem. 5.96 Within the modern industrial sector, there are very wide variations in average wages per branch of activity and according to firm size, since the maximum average wage recorded in 1976 was more than six times the average minimum per subsector. Such wide variations suggest that access to industrial knowhow and skills is very unequal, and probably difficult for small enterprises. 5.97 The available data concerning education and vocational training indicate that expansion in these areas would be very well worthwhile. The same is true of the training programs provided by "Entr'aide Nationale" or by private firms. There is a great demand for admission and a substantial proportion of the population is unable to benefit from the programs because too few places are available. 5.98 The present Employment Exchanges in Morocco are supposed to assist in matching job offers and demand. Improvement and expansion of the services provided by these exchanges should be a priority goal. The aim should not be to expand the present registration procedure (which is only minimally efficient) but to transform the whole function of the exchanges by improving their level of service to job seekers and employers. If this is to be done, the collection of data regarding the job market and the quality of the services offered must be improved. 5.99 Currently, the information needed for formulation of an employment policy is largely lacking. Very little is known about the structure of income in agriculture and in the artisanal sector, and it is only quite recently that wage surveys have been undertaken in the modern industrial sector. It cannot be too strongly emphasized, therefore, that there is a - 250 - need to centralize the present piecemeal approach to wage and employment surveys and to ensure that such surveys, once undertaken, are utilized without delay. A sound statistical basis is essential to any improvement in the planning of employment policy, which must take account of wage changes over time, since otherwise the interpretation of manpower projections is bound to be extremely one-sided. In the case of vocational training, for example, the projections of skilled manpower needs should be set alongside the trend in wages for this category of labor, so as to judge whether in fact, and to what extent, additional training of skilled workers is needed.l/ 5.100 A central employment office needs to be established, to be responsible for analyzing the major trends in the job market, gathering existing information and providing all necessary assistance to both job seekers and employers. One of the main causes of unemployment among young workers is lack of information about job opportunities. Rural workers migrating to urban areas at the present time may not even use the services of the employment exchanges,2/ nor does this organization have specific responsibility for monitoring job vacancies. 5.101 Efforts to improve the operation of the labor market should be accompanied by more general measures directed toward raising the productivity of labor. Expansion of education and vocational training (including programs for illiterate workers) will be an important factor. Improved management skills and easier access to technical information and credit could also play a crucial role in the case of artisanal occupations. The low productivity of the artisanal sector is responsible for its high production costs, which limit the demand for products or services from that sector. From a more general viewpoint, the possibilities of investment to improve the productive capacity of the lowest income groups could be expanded, as envisaged in the current project for development of small and medium industry. 5.102 The whole process of job creation could be made considerably more flexible by encouraging, for example, assisted self-help housing, decentralized infrastructure projects to be built by local authorities (who could then hire local labor instead of public works enterprises in Casablanca), or the creation of temporary jobs in the public or semipublic sector by simplifying the procedure for recruiting workers of this type. Lastly, a goal of employment policy should be to eliminate the very wide differences in productivity since these differences are evidence of underutilization of a substantial part of the human resources potential in Morocco. 1/ It is also necessary to know the wage levels for skilled workers in order to judge what proportion of the cost of training should be borne by the Government, the enterprise and the wage-earners. 2/ Residence in an urban area is a condition. Nevertheless, according to the 1976 survey, rural workers migrating to urban areas are the ones who find jobs most rapidly, through their own efforts. - 251 - G. Education 5.103 On achieving independence in 1956 Morocco inherited an education system ill-adapted to the realities of Moroccan society and to the policy of modernizing the economy. Toward the end of the 1960s, when population growth accelerated, the accumulated backlog had to be made good and schooling provided for an increased number of students. Over the last ten years, Morocco has made an exceptional effort in the area of national education, devoting to it 7% of GDP in 1976. Among the developing countries only three have allocated a higher percentage of national expenditure to public education than Morocco in 1976-1/ 5.104 Thanks to this considerable budgetary effort, the number of students enrolled in primary education increased by 6% per annum and of those in secondary education by 10% per annum, while university enrollment more than tripled during 1971-77. The goals of the 1973-77 Plan were thus exceeded. However, students in secondary education were not directed toward the scientific and technical fields to the extent envisaged in the Plan. The numbers enrolled in teacher-training colleges also increased more rapidly than planned but it now appears that the need for teachers was underestimated and that the number of primary school teachers will have to be further increased. The priority given to education brought about a marked improvement in the schooling rate, calculated by dividing the number of students by the population in a given age group. In 1960, the rates were 47% and 5% for primary and secondary education respectively, rising in 1977ll, to 65% and 17%. Although still below the rates observed in countries at a comparable level of development, they can be regarded as now relatively satisfactory. 5.105 Vocational training was also the subject of a series of measures aimed at bringing it more in line with the needs of the economy. In 1974 the Office de la Formation Professionelle et de la Promotion du Travail (OFPPT) was established with the aim of improving the vocational skills of manpower in industry and commerce. Its financial resources come from budget funds and a 1% tax on wages. Vocational training is also provided by various ministries, in particular the Ministry of Social Affairs and Craft Industries, the Ministry of Agriculture and Agrarian Reform and the Ministry of Health. With the creation in 1977 of a Ministry of Education and Training and a Permanent Commission on Vocational Training it should be possible to coordinate all the training programs which hitberto have been run separately by the different ministries. The need to improve the existing statistical base and to identify the needs of skilled workers through surveys of enterprises must again be emphasized. 1/ Of a total of 82 countries for which data are available. The varying importance of the role of private education according to country should obviously be taken into account. Private education still plays a very limited role in Morocco. - 252 - The Government's Goals 5.106 The ambitious goals of the 1973-77 Plan have generally been exceeded. The 1978-80 Plan largely reaffirms the long-term goals of the previous Plan. These include: (1) Universal primary education by 1995; (2) Easier access to the first cycle of secondary education, with the aim of providing a minimum of eight years' general education (four years at the primary level and four years at the secondary level), this minimum education being supplemented either by another four years of advanced secondary education or by various types of vocational training. (3) Moroccanization of the teaching body. In the primary schools, Moroccanization was completed in 1979, and is expected to be achieved by 1980 in the first cycle of secondary education; full Moroccanization of secondary education should be reached within the next ten years; (4) Greater emphasis on the teaching of scientific and technical subjects; (5) Vocational training of about 63,000 workers by 1980, i.e. double the number trained during the 1973-77 Plan. Cost of Education 5.107 During 1973-77 the number of students in the national education system increased by about 8% per year. It is hardly surprising, therefore, that the percentage of GDP devoted to education and vocational training rose from 4.3% in 1972 to 7% in 1976. As mentioned earlier, Morocco is one of the developing countries spending the highest percentage of GDP on education. It does not seem advisable, therefore, to increase the relative outlay on education in the next few years.l/ 5.108 There is no marked disproportion in the distribution of expenditures by the Ministry of Education and training for the different levels of education. About 39% of recurrent expenditure goes to primary, 48% to secondary and 13% to higher education. These percentages are comparable with those noted in other countries. It is possible, however, that simultaneous efforts to increase the enrollment in higher university education and to expand the scope of vocational training might result in too 1/ In the event of a budgetary surplus, it would be preferable to increase the share of expenditures devoted to other sectors, such as public health, for example, rather than to increase the already considerable share allocated to education. - 253 - heavy a financial burden. If priority continues to be given to education, Government expenditure (recurrent and capital costs) would be equivalent to 7% or 8% of GDP in 1990, depending on whether the growth rate of the economy is 6% or 5%. These projections do not take into account the need to increase expenditure on vocational training. In view of the high cost of full-time vocational training per trainee, an increased financial contribution by the beneficiaries to the cost of training should be envisaged rather than any cutback of training activities. 5.109 Another urgent need is to reduce the unit costs of schooling. The aim here is not so much to reduce expenditure as to improve the efficiency of the education system by reducing the repeater rate. At present nearly 31% of students in primary school are repeaters, and only 33% pass the entrance examination to the secondary schools. These rates are distinctly below those noted in other developing countries. In Tunisia, for example, 81% of students in primary school complete the primary cycle. It is clear that the high repeater rates are a contributory factor to increasing the schooling cost per student. Changes in the teaching curricula, arabization of the courses and improvements in the textbooks and in teacher training should help to reduce the failure and repeater rates. However, the impact of these reforms will only be felt gradually, so that in the short term it would seem difficult to limit expenditures. Problems of Education and Vocational Training 5.110 The Government's-objectives are on the whole well-conceived and responsive to the long-term needs of the economy. Their implementation is bound, however, to raise certain problems of which the Moroccan Government is well aware. In spite of the considerable effort made since 1960, the schooling rate is still extremely uneven between the different provinces and regions. In 1971, 66.4% of the urban population between 7 and 13 years was enrolled in modern schools, against 17.6% in rural areas.l1 The percentage of the literate population showed similar variations. In 1971, only 20.7% of the rural population between 10 and 14 years could read and write, whereas in urban areas the corresponding percentage was 73.6%. It would seem, therefore, that the goal of universal primary education by 1995 is attainable in urban areas but will require a very considerable effort in the rural districts. 5.111 Although the 1973-77 Plan provided for the creation of a National Adult Literacy Bureau, this has still not been established. This failure is to be regretted in view of the very high percentage of illiterates. In 1976, according to the urban employment survey, 50% of the urban population over ten years old could read and write2/, but for Morocco as a whole the literacy rate was only 28%. The lack of an adult literacy program leaves a 1/ State Secretariat for Planning, Findings of the 1971 General Population and Housing Census, Series E, August 1971, pp. 186-87. These percentages do not include students enrolled in the Koranic schools. 2/ State Secretariat for Planning. Employment survey, op. cit. - 254 - serious gap, since almost all the vocational training programs already existing or planned are geared to candidates with a minimum level of schooling, so that the illiterate population as a whole (adults and those unable to attend primary school) cannot benefit. The only exceptions are certain centers managed by Entr'aide Nationale, for which no minimum level of education is required. If a literacy program would be too expensive, some extension of the Entr'aide Nationale programs would seem highly desirable, since this could contribute directly to raising the incomes of the most disadvantaged social categories. 5.112 As in many other developing countries, the teaching of scientific and technical subjects has not been as widespread as desired by the Government and necessary to meet the needs of the economy. In 1977, for example, 77% of university students were enrolled in the schools of liberal arts and law, and in recent years 61% of university graduates have come from these two scnools. Although the 1978-80 Plan states that the teaching of scientific subjects is to be expanded at the secondary and university levels, there has been no provision for limiting the number of students admitted to the liberal arts and law schools; in 1980 such students will number 45,000. It is unlikely that the Moroccan economy will be able to offer these students jobs matching their expectations. Unemployment among young graduates, already noted in the 1971 population survey, is therefore likely to worsen.l/ The situation is all the more paradoxical in that Morocco suffers from a lack of qualified manpower at practically all levels. 5.113 The mismatch between the supply and demand of qualified manpower is emphasized repeatedly in the 1978-80 Plan. However, the measures envisaged seem unlikely to bring about any significant improvement. The high economic rate of return on education in Morocco has already been mentioned. Since the cost of schooling borne by the student represents only a small fraction of the total costs of State-financed education, it is clear that an additional year of education is distinctly more profitable from the viewpoint of the individual than from that of the State. It is not surprising, therefore, that the numbers of university students have miltiplied 3.5 times since 1971, while wage-earning employment in the modern industrial sector is growing by only 5% or 6% per annum. If the present trend continues it will no doubt be reflected in a still longer period of unemployment for more university graduates. 5.114 In order to halt this trend, it would seem a matter of urgency either to limit strictly the number of students admitted to the university (especially in the "non-scientific" disciplines), or to transfer to the student the education costs currently borne by the State and to limit the grant of scholarships to cases where it is justified by financial need. 1/ In 1971 more than 50% of the unemployed were between the ages of 15 and 24; this would suggest that for many former students of the national education system, leaving school was followed by quite a long period of unemployment. - 255 - Since within the next few years the recurrent expenditure of higher education will be equivalent to 50% of current expenditure on primary education, the gradual limitation of free higher education would enable the goal of universal primary education to be achieved more rapidly than now seems likely in rural areas, thus making the existing education system more equitable. The extent of unemployment among young graduates also suggests that the level of remuneration for this category of personnel has not declined sufficiently to close the considerable gap between their pay and that of unskilled labor. Since Government and the public sector are the major employers of qualified manpower, it is important that the pay structure for government employees should reflect developments in the labor market. 5.115 Vocational training makes it possible to offer further technical training to those unable to continue their studies within the national education system. It should be kept in mind, however, that this approach is likely to be relatively costly if the shift toward technical vocational training is made at a late stage in secondary education. It would also be a mistake to assume that expansion of vocational training in its present form will allow the existing mismatch between the supply and demand of skilled employment to be eliminated. The purpose of most of the courses currently organized by OFPPT is to train the wage-earners likely to be needed in industry or commerce. Although the numbers of qualified personnel needed are certainly substantial, it should also be remembered that only 41% of the active population in employment in 1971 was composed of wage-earners. The present structure of employment is such that the majority of those who do not complete formal education will be unable to find a regular paid job and will have to look for employment as artisans in the informal sector or else set up in business for themselves. 5.116 It is particularly important, therefore, that the present vocational training program supervised by the Ministry of Labor or the Ministry of Social Affairs and Crafts should emphasize not only the teaching of trades but the general principles of business management such as accounting, the use of bank loans, etc., necessary for the small entrepreneur. At the present time, the artisan training program has only 4,000 trainees and it would be worthwhile giving it the extended scope that the current importance of the artisanal sector in Morocco would seem to justify. In rural areas, agricultural training is the responsibility of the Ministry of Agriculture and Agrarian Reform. This program also needs to be expanded. Only 1,000 trainees graduate each year. Lastly, it has already been mentioned in the public health context that health care coverage should be improved by expanding preventive health care programs in rural areas. Special attention needs, therefore, to be paid to training primary health workers. - 256 - H. Infrastructurel/ 5.117 The provision of public services such as electricity, water or waste disposal is a government responsibility, although the private sector also plays a considerable role. The increase in population and the need to improve the very low rate of use of these services are likely to make it very costly to expand their coverage to reach a larger percentage of the population. Garbage disposal, a comprehensive sewerage system and extension of the water supply system should, however, have priority, since the level of utilization of these services is a key factor in the general health of the people, as is the bealth care delivery system. Although little detailed information is available, there seems to be a substantial latent demand on the part of the poorest households, who would be prepared to pay for the extension of services such as garbage disposal. A study needs to be made of the tariff structure of various services to determine whether a minimum service should be supplied against a charge. Electricity 5.118 Planning in the energy sector is currently the responsibilty of the Ministry of Energy and Mines. About 91% of the electricity consumed in Morocco is produced by the Office National de l'Energie (ONE). Distribution in the major urban areas is handled by the regies, which are autonomous public enterprises under the Ministry of the Interior, and in other urban centers by ONE under the administrative supervision of the Ministry of Energy and Mines. In rural areas, so many ministries are involved in rural electrification that it has been necessary to set up an Interministerial Rural Electrification Commission, with the task of preparing the long-term government rural electrification program, implementation of which is entrusted to ONE. 5.119 The pattern of electricity use by households between 1960 and 1977 is difficult to establish. Between 1960 and 1971, as revealed by a comparison of the 1960 and 1971 population censuses, the percentage of urban households with electricity service probably declined slightly 2/, 1/ The role that local authorities play or could play in the context of the decentralization policy pursued by the Government is discussed in Chapter VI, Section B. Se also Chapter IV, Section D. 2/ The 1960 census relates to dwellings and that of 1971 to households. They are not comparable, therefore, except for cement-block dwellings where the number of households per dwelling is close to unity. Of the urban households living in cement-block dwellings, 87.1% in 1960 and 81.5% in 1971 had electricity. See State Secretariat for Planning, 1971 General Population and Housing Census, April 1974. - 257 - and in 1971 it was only 68.4%. This decline seems to have continued since that date. Between 1971 and 1977, the number of subscribers serviced by the regiesII and by ONE increased by 4.5% and 5.1% respectively, so that the percentage of the urban population with electricity would seem to have been only about 66% in 19772/. It is possible, however, that the number of users has grown more rapidly than the number of subscribers (if, for example, the same electricity meter were used by an increasing number of households), in which case the slight decline in the percentage of households with electricity noted during 1960-71 may not have continued in more recent years. 5.120 The use of electricity in rural areas is still very limited; only about 6% of the population has electricity. Until now, electrification of rural regions has been hindered by the scattered location of villages and the high cost of distribution. The rural electrification program recently adopted by the Government is expected to increase the number of rural dwellers with access to electricity by about 50% by 1983. 5.121 The present electricity tariff structure does not seem to encourage growth in the number of low-income users. Since electricity charges taper down as consumption increases, consumption by small users is charged at a relatively high average price. Consideration should perhaps be given to reduced tariffs for small consumers. Hitherto electricity supply to large-scale industrial users has been charged at a rate below ONE's average generation cost. A reform of the present tariff system is currently under study and these subsidies are to be eliminated in the near future. 5.122 In the next few years, the faster rate of growth of the urban population will put a considerable strain on the capacity of the regies to finance extensions of the distribution networks. it seems unlikely that the sources of financing such as the Fonds d'Equipement Communal3/ and connection charges will be adequate to meet the needs, so that a substantial revision of the tariff structure is all the more necessary to increase the self-financing capability of the regies. If this revision is not made, the percentage of the population served with electricity may continue to decline. 1/ The total number of subscribers served by the regies in Casablanca, Rabat, Kenitra, Meknes, Fes, Marrakech, Tangier, Tetouan, Safi and El-Jadida rose from 484,500 to 604,200 between 1971 and 1977. 2/ According to the 1971 population census, out of 1,113,686 urban households 761,400 had electricity. Assuming that the number of households increased at the same rate as the urban population, we can estimate that 1,475,073 households were living in urban areas in 1977. We know that ONE subscribers numbered 276,900 in 1971, and on the basis of the growth rate of 5.1% we can estimate their number at 373,198 in 1977. The total number of subscribers thus rose from 761,400 to 977,398 between 1971 and 1977, representing in terms of percentage of urban households a decline from 68.4% to 66.2% 3/ The main source of borrowing for the regies. - 258 - Potable Water 5.123 Water resources planning comes under the Ministry of Infrastructure. The Office National de l'Eau Potable (ONEP) is responsible for water production and delivery to urban centers. Water distribution in the major urban areas (22 at the present time), is handled by 10 regies. In the other urban centers, water is distributed either by ONEP or by the municipal authorities. In rural areas, water distribution is handled by ONEP under the supervision of the Ministry of Infrastructure, and also by the Ministry of Agriculture. 5.124 In contrast to electricity, the percentage of households with running water increased over the period 1960-71. In 1971, according to the population census, 64% of urban households had water available in their homes, either piped (52%) or from a well or spring (11%). At the present time, thanks to the system of street standpipes, the urban population in general has access to potable water. In the bidonvilles (shantytowns), however, the number of these standpipes is still very small, with often more than 2,000 users per standpipe. In rural areas, 5% of the population has access to running piped water and 10% to standpipes; 10% use community wells. The remaining 75% of the rural population is dependent on traditional water sources, which are often responsible for spreading disease. 5.125 The main sources of potable water are at a distance from the major urban areas, so that it has been necessary to build costly storage and transmission systems. The Government has decided, therefore, to meet first of all the water supply needs of the urban centers, where the concentration of the population permits a lower average water distribution cost per user. In pursuing this goal, however, a number of existing institutional constraints must be taken into account. The majority of the poorest urban households live in bidonvilles that have grown up spontaneously. Although certain bidonvilles are long-established, most of the dwellings are still in fact illegal, which is a strong disincentive to improving the standard of housing. The distribution network for potable water cannot, therefore, be extended to these areas by connecting individual dwellings to the main system. However, it would seem highly desirable to increase the number of street standpipes serving the bidonvilles, in order to reduce the distance and waiting time for users. For the rest of the urban population, some arrangement should perhaps be considered to permit payment of the various connection charges in several monthly installments to make it easier for households to defray the cost of connection. 1/ Of the households living in cement-block dwellings in urban areas, 58.7% in 1960 and 64.8% in 1971 had running water. (By running water should be understood water for which payment is made to the regies or to a private company.) See Population Census. - 259 - Sanitation 5.126 An improved garbage disposal system and the treatment of waste are matters that should be given priority. Household garbage is the responsibility of the municipal authorities but all too often, particularly in the bidonvilles, household garbage is collected only rarely. The lack of suitable systems for the removal and treatment of household wastes is one of the major factors contributing to the high rate of infectious and parasitic diseases. Special efforts, therefore, seem to be required in this area. I. Taxation and Government Expenditures 5.127 The preceding sections analyzed the contribution that a strengthening of socially-oriented policies could make to improving the welfare of the Moroccan people. In this context, employment and education policies should play an essential role, by enabling each individual to make full use of his productive capacity. But a strategy of this kind cannot be fully effective if government fiscal policy is not geared to encourage achievement of the general goals of social development. The tax revenue structure, as well as that of government expenditure, can promote social equity and make it possible to satisfy certain basic needs that can only be met through the provision of public services. This section approaches the question of taxation strictly from the point of view of equity; it is in this spirit that the observations herein should be read. Social Equity and Taxation. 5.128 A primary goal of all tax collection systems is improvement of the yield from taxation. However, the aspect of income redistribution, which is an important dimension of taxation, should not be neglected, although over-optimism as to what can be accomplished in this respect by taxation must also be avoided. In fact, any system of direct or indirect taxation cannot increase the incomes of the lowest income groups; at best, it can avoid making their situation worse by taxing them too heavily. A tax system designed specifically to improve income distribution would, therefore, exempt poor households from all dues or taxes and would impose progressively heavier taxes as incomes rise. Although such a system represents an ideal that few countries can claim to approach, it provides a basis of comparison against which the Moroccan taxation system can be evaluated. With this in mind, it may be useful to start by outlining the main features of the present system of taxes on consumption and income. 5.129 As in many developing countries, indirect taxes, and more particularly taxes on foreign trade, play a predominant role in the Moroccan system. In 1977, nearly 41% of tax revenue came from import and export taxes. Although the revenue from taxes on domestic consumption and on goods and services has declined considerably in the last few years, these taxes still accounted for about 27% of tax revenue in 1977.1/ Overall, taxation 1/ This decline is due to the fact that taxes on domestic consumption are specific and not ad valorem and do not keep pace with price increases. - 260 - of consumption thus produced nearly 68% of budget income. However, only in the case of a small part of these taxes would it be possible and desirable to modify the incidence of the tax burden to take account of social objectives. 5.130 Protection of domestic industry is achieved in fact through customs tariffs, which are set at levels considered sufficient to ensure the necessary protection. As for the sales tax, which is levied on both the production of goods and the provision of services, its role is essentially a budgetary one, in other words, to provide a steady flow of revenue. In the final analysis, it is thus only through domestic taxes on consumption, which accounted for 14% of total receipts in 1977, that equity could be improved. The aim of protecting domestic industry and the need for tax revenue severely limit the Government's scope for maneuver in its aim of spreading the tax burden more fairly. 5.131 The overall incidence of taxes on income depends not only on the proportion of income that is consumed but also on the structure of consumption. Since the poorest social categories consume proportionately fewer imported goods than the well-to-do categories, heavier taxation of imported than of locally produced goods gives the system of indirect taxation in Morocco a progressive character, which could, however, be accentuated if the present import quotas were replaced by equivalent customs tariffs. The effect of the quotas is to transfer consumer buying power to the benefit of the importers, whereas the imposition of import taxes means that Government benefits from this transfer and can use its yield for social purposes. 5.132 The progressivity of the Moroccan indirect taxation system is reduced, however, by the structure of taxes rates on the sale of goods and services. Currently, services are taxed as a general rule at a rate of 7.5%, which is very much lower than the average rate of 15% on production of goods. Certain services, such as transportation, hotels and restaurant facilities, or those provided by small enterprises, are taxed at even lower rates of 4.17% and 4% respectively, whereas the rate of tax on the sale of food products such as rice, butter and coffee is 12%. As revealed by the 1970-71 consumer survey, services represent a larger share of household expenditures for the well-to-do social groups than for the disadvantaged. The present system, whereby services are taxed at a lower rate than the sale of goods, has the effect, therefore, of imposing a relatively heavier tax burden on disadvantaged households than on the well-to-do. 5.133 It should be noted, however, that consumption by the poorest households is largely exempt from the tax on sales or on products. In rural areas, not only is consumption of home-produced foodstuffs (considerable in the case of the poorest households) free from any kind of tax, but most of the goods and services produced by the agriculture sector are exempt from sales tax. In urban areas, taxes on sales of food products have been very largely offset by the payment of subsidies for the foodstuffs making up the major part of the diet of the poorest households. Those measures have thus certainly lightened or perhaps even eliminated the regressive impact of sales tax on the poorest group of households. - 261 - 5.134 Although it is not possible here to make any detailed estimates of the overall incidence of the indirect tax system, the level of tax on expenditures by the poorest Moroccan households is probably very low. Generally speaking, taxation of household consumption in most developing countries is progressive for the lowest income groups, but higher up the scale it levels off for middle-income households and becomes regressive for the richest. The tax paid is always higher for urban than for rural households. In the case of Morocco, the overall impact of indirect taxation may well be similar. 5.135 The system of income tax in Morocco is characterized by extreme diversity.l/ Both the method of calculating the tax base and the actual tax rates vary according to the source of income. In the case of the urban property tax, for example, actual or notional rent (in the case of an owner-occupied dwelling) is taxed at rates varying between 10% and 30%. Farm incomes are subject to agricultural tax at a rate varying from 8% to 20% but based on "fiscal income," which can be considerably different from actual income. Individual entrepreneurs do not pay the tax on salaries and wages, but their incomes are taxed under a fixed-rate system (usually calculated on turnover), but only in the case of a very small number of firms is the tax basis equivalent to actual profit. Only the salaried group is taxed on the basis of salaries actually received, which in most cases is probably very close to their total real income. The system could obviously be considerably improved by grossing overall personal income and taxing the same level of gross income at the same rate, whatever the source, which would be a way of increasing the effectiveness of progressive income tax as a means of redistributing income. 5.136 At present, the major direct tax is the tax on business profits. In 1977 it accounted for 16% of total tax receipts. It is difficult to determine the incidence of this tax, since it depends on a set of parameters that cannot easily be estimated for Morocco. If this tax is passed on in sales prices, it is distinctly regressive. It is also possible, however, that the tax falls entirely or in part on incomes of investors, and in that case it would be regressive (provided of course that such households have high incomes). 5.137 In the case of agriculture, the structure of taxes on agricultrual income needs to be revised in order to increase the present tax contribution from this sector. Although agriculture's share in GDP in 1977 was 16%, receipts from the tax on farm income represented only 0.5% of total tax revenue. Since agricultural products exported or marketed inside Morocco are exempt from the tax on goods, and there is no land tax on farm land, it would seem that taxation of rural household incomes could be increased. 1/ Currently direct taxes include the urban property tax, agricultural tax, the witheld tax on salaries and wages, tax on dividends, tax on business profits, tax on real estate profits and surtax on personal income. - 262 - 5.138 Property taxes, particularly in urban areas, could also help to improve the distribution pattern of income and wealth. In Morocco, these taxes play only a minor role, consisting as they do only of inheritance tax (at a low rate), motor vehicle property tax and the tax on real estate transactions. The urban property tax is payable on the real or estimated rental value of buildings in urban areas. As a matter of equity, it would seem desirable to make actual rent income subject to general income tax and to replace the urban property tax by a general tax on real estate in urban areas; this would also solve the thorny problem of determining the notional rent in the case of owner-occupied dwellings. 5.139 To conclude, only little is known about the equity of the tax system in Morocco and an empirical study of the question would seem necessary. Subject to this reservation, direct taxation of income does not appear to have had much influence so far on income redistribution. The only direct tax of a progressive character is the wage and salary tax, but its contribution has been limited because it applied only to the wealthier social groups and because the present system of scheduled taxes has not yet been replaced by a system of taxation of total income. Indirect taxes are perhaps somewhat progressive in their effect on the poorest social groups, if consumer subsidies, in particular, are taken into account. Overall, however, the incidence of sale taxes needs to be reviewed, with the aim of making them more progressive while at the same time making the rate structure of the taxes on goods and services more consistent. Lastly, the urban property tax does not seem to have played its proper role; its replacement by a real estate tax might be envisaged to make the system more equitable. 5.140 There are few studies available from which to estimate the impact in different countries of taxation on the income of poor households, defined here as the poorest 40%. The limited data available indicates that the income (or consumption) of these households appears to be taxed at rates ranging from 7.5% to 11.5% in urban areas and from 4% to 8% in rural areas, according to the country.l/ These findings suggest that a reduction in taxation would not contribute very much to raising the standard of living of the lowest income groups. Although no comparable studies are available, the same is probably true for Morocco. In other words, any improvement in the income level of poor households depends much more on government expenditure than on taxation policy. Government Expenditures and Income Distribution 5.141 The impact of government expenditure on the standard of living of the poorest households is certainly important, but it should be noted that a large part of this expenditure is devoted to the production of collective 1/ See World Bank Staff Working Paper No. 222, Taxation and the Urban Poor in Developing Countries, December 1975. The data are for the years 1960-71 and cover Colombia, Pakistan, India, Brazil and Lebanon. - 263 - goods, from which the whole community benefits. In the case of such goods, the distribution of their consumption between the various social categories depends on factors over which the Government can have very little influence. In the case of general expenditures on justice, internal or external security, etc., no accurate assessment can be made of the distribution of consumption according to household income levels; at best, the hypothesis can be advanced that the various economic units benefit from these expenditures proportionately to their income levels. The same is probably true of public works spending, e.g. for road construction, insofar as the cost is not covered by charges. It is only for a relatively limited category of government activities that the consumption of a given social group can be influenced by increasing its share of government expenditure. Among such sectors are: (i) agriculture; (ii) education and vocational training; (iii) health; (iv) the provision of certain services such as water, electricity, trash removal, transportation; and (v) housing. This list is not exhaustive, but spendint for all these sectors probably does not exceed 40% of the Government budget_/. As mentioned earlier, the present utilization of services provided by the Government is extremely uneven. The very marked wage variations between sectors already indicate that the opportunities to benefit from industrial know-how, bank credit, or vocational training must also be very unevenly distributed. Expansion of the public services and their improvement in rural areas would also benefit the poorest social groups. J. Conclusions Improvement in Living Standards 5.142 The success of any social policy rests on the expansion of highly labor-intensive activities in order to increase the incomes of the poorest households. The efforts already started in rainfed agriculture and small and medium industry need to be supplemented by a series of measures to improve the operation of the labor market. The effect of subsidized interest rates and of the Investment Code has so far tended to reduce the cost of capital in relation to the cost of labor, thus encouraging large-scale enterprises to use highly capital-intensive technology. Nor should the possible effect of a policy of export promotion on employment be neglected since very often activities of this type employ more labor than do import-substitution industries. Expansion of the industrial sector will depend very largely on the success of the current efforts to encourage the growth of small industry. 5.143 In parallel with these efforts to step up the use of labor in urban areas, particular attention should be accorded to the rural areas, since it is in those areas that low income levels constitute a serious problem. It seems that agricultural income increased in irrigated areas, in high rainfall zones, and for households with access to agricultural credit. On the other hand, certain rainfed areas benefitted less than others from public investment and agricultural credit, the result being a deterioration in living conditions. The inhabitants of these areas, who generally live in mountainous, forested or arid regions, earn their living from stockraising and primitive farming. Landless peasants and those with a holding of 1/ See the 1973-77 finance laws. - 264 - less than 5 ha. own 63% of the cattle herd and 46% of the sheep. In order to raise the living standards of the poor rural households, the current efforts in range management and livestock development should be strengthened, since livestock is the principal resource of the poorest farmers. This goal could be achieved by means of projects combining afforestation, erosion control, and improvement of farming methods in the mountainous and forested regions. Lastly, the development of small agro-industrial enterprises and the imp_ovement of rural infrastructure (water supply, roads, health, etc.) should be encouraged. 5.144 The coordination of the respective activities of the instutions responsible for execution of such projects is a difficult task. The forestry services have to work in close collaboration with the livestock services, the extension agents, CNCA (for the grant of loans), the Ministry of Public Works (for road construction) and the suppliers of inputs. The Government might consider setting up units responsible for preparing integrated poverty oriented rainfed projects. Those responsible for execution of such projects should be capable of managing development operations affecting a number of sectors (agriculture, housing, road, water supply, etc.). In addition, it would be necessary to prepare a methodology and a specific legislation for the development of the most disadvantaged regions. The provisions of the Agricultural Investment Code requiring that farmers make a financial contribution to the investment are difficult to enforce in the rainfed parts of those regions, since in many cases the income of the beneficiaries is still very low even after such investments have been made. The demonstrations carried out by the Government have not always made the hoped-for impact, and have in fact often been received with indifference by the target groups. On the other hand, it seems that a new methodology whereby the farmers contribute labor to the investments involving them, instead of making a cash contribution, as specified in the Investment Code, would be well received by the people and would ensure the success of projects in the rainfed areas. 5.145 The second essential component of social policy is increased investment, which can directly improve the productive capacity and living conditions of the disadvantaged social groups. In spite of the scope of the industrial investment program, the goal should be to increase the share allocated to the priority sectors, which comprise: - Small and medium-scale rainfed agriculture, where more projects need to be undertaken to break down the obstacles to higher productivity; - Housing and urban services, where the development institutions and policies need to be improved and where still greater emphasis needs to be placed on upgrading the bidonvilles, on creating jobs and on social services addressed particularly to the poorest groups; - The social services proper (education, health and family planning), which need to be improved and made available to the largest number of people; - 265 - - Regional development, where emphasis needs to be placed on the preparation of soundly based projects and the identification of a larger number of integrated development projects for specific areas. Complementarity of Social Policies 5.146 In formulating a social development strategy it is important to take account of the links between the different sectoral aspects of social policy, since they highlight the degree of complementarity of available means which make it possible to reduce the expenditure needed to achieve a particular goal. It has already been noted that nutrition is one of the main variables influencing the general health status of the population. Improved nutrition is thus one means of bettering health, but the same goal can also be pursued by expanding preventive health care or by improving environmental conditions. 5.147 Although no precise data are available to support this view, it seems highly likely that the health of the population could be improved at lower cost if the complementarity of variables such as health care infrastructure, nutrition and environmental conditions were taken into account in formulating social policy. For example, in countries where the infant mortality rate is low, it has been observed that the fertility rate is also low, so that the amount to be spent on family planning can also be reduced. 5.148 Analysis of the relative efficiency of the various means available to achieve a given goal could also lead to certain trade-offs. Defining a basic needs threshold makes it possible to estimate how far the beneficiaries of a government expenditure program actually belong to the group of poor households, and to compare the social effectiveness of various programs. Application of this method to the program of consumer subsidies for food products showed that the efficiency of this program in relation to the goals set was low, since it did not reach many of the poorest households (especially farmers and farm laborers, who grow or raise themselves a large part of the foods consumed in their households) and since 72% of the subsidies in fact benefitted households with expenditures above DH 2,400 per year in 1970-71 prices (i.e. 64% of all households in 1970-71). These figures should be compared with the efficiency of investments in rainfed regions. For the integrated agricultural project in the Fes-Karia-Tissa region, the total cost (about DH 700 million) was distinctly lower than the amount of the consumer subsidiesl/, and about 92% of the households affected by the project had extremely low incomes (less than DH 2,400 per year in 1970-71 prices). Of equal importance is the fact that the payment of consumer subsidies only served to increase the income of poor households by 4% at the most, whereas the Fes-Karia-Tissa project will raise their incomes by 33% to 160%. 5.149 In other cases, the interdependence of the various aspects of social policy has the effect not so much of reducing costs as of increasing the effectiveness of the programs. We mentioned earlier that the numbers 1/ Payments by the Price Stabilization Fund (Caisse de Compensation) exceeded DH 1.1 million during 1974-77. - 266 - enrolled in higher education were increasing more or less independently, without any real relation to the needs of the economy. More accurate projections of needs, based on surveys of businesses, ought to improve the cost effectiveness of expenditure on education. Improving the level of education and vocational training is certainly one of the principal means open to Government for raising the productive capacity of the labor force. Action in this area is likely, however, to be largely ineffective unless backed by measures to improve the functioning of the job market, so as to enable the different types of economic agents to take advantage of their own potential for increased productivity. Reduction in the Cost of Public Services 5.150 Increasing the purchasing power of the most disadvantaged social categories and expanding Government services in the areas of health, education, physical infrastructure and housing will have little real effect, however, unless a thorough review is undertaken of the system of delivery of such public services, with the aim of emphasizing low-cost production of services tailored to the needs of the poor population. Capital investments have often been extremely costly because they used technologies that were certainly of high quality but beyond the budget of poor households. As an example, we can point to the cost of conventional water-supply systems, which cost almost three times more per user than street standpipes,or waste disposal by means of sewers, which cost from five to eight times as much as putting in latrines or simplified septic tanks. 5.151 Housing policy has been all too often limited to the construction of expensive dwellings in insufficient numbers to meet the needs. A more appropriate strategy would be to remove the present obstacles to expansion of the supply of land and housing by the private sector and to concentrate on the type of services that the private sector cannot provide, such as water or a sanitation system. At the same time, the present policy of upgrading the bidonvilles rather than demolishing them should be pursued. Experience in other countries shows that poor households living in the bidonvilles are prepared to improve their dwellings through their own efforts, if their right of ownership is recognized. 5.152 A reorientation of the health infrastructure towards the development of basic health care services is also necessary. Basic training of paramedical workers, possibly making use of the already existing conventional medical system and of the mobile health auxiliaries, would make it possible to provide a minimum level of health care in rurals areas. Family planning and expanded nutrition education are also areas where priority action is needed. 5.153 Part of the necessary expansion of public services could be financed by cutting back expenditure in certain other areas. In general, however, implementation of these programs will call for a higher financial outlay and special attention should be given to the structure of both direct and indirect taxation to avoid disproportionately increasing the tax burden for certain groups. As a general rule, the system of changes for public services should as far as possible be designed to raise the contribution of high income households to the capital and operating costs of these services. - 267 - CHAPTER VI: REGIONAL AND URBAN DEVELOPMENT A. INTRODUCTION 6.01 Chapter 1 highlighted briefly the extent to which the diversity of natural conditions had influenced human settlement and economic activity throughout Morocco. The marked differences in development that have set the various regions apart from one another are still readily apparent today in the major regional disparities in income levels (and social structure) despite the policy of regional balance pursued by the Government. The poorest regions are characterized by scant development of modern forms of production in all economic sectors and by the predominance of living standards that are very low because they are based on traditional activities that are not greatly productive. Their rudimentary technological level means that demographic growth places a constant strain on these regions' meager resources. Migration to more developed areas has helped somewhat to relieve this pressure on the poorer regions. However, since the generation of modern productive employment in the country as a whole has been insufficient, many migrants have simply wound up swelling the pockets of poverty on the fringes of the cities and the rich farming areas, where they resort to poorly paid occasional work until they can find permanent employment in the modern sector. The problems of the disparities in income and access to modern public and private services examined in Chapter V thus assume a regional dimension and an urban dimension which are addressed in sections C and D of this Chapter. Because insufficient statistical data were available for a quantified analysis of the disparities observed and of the factors responsible, the approach adopted centers mainly on institutions. First, however, Morocco's system of local government must be considered, since it is the key instrument and basic framework for the policies aimed at correcting regional and urban development disparities. B. LOCAL GOVERNMENT AND DEVELOPMENT 6.02 Centralization and defense of local autonomies are both age-old traditions rooted in Moroccan history. In parallel with the gradual creation of a centralized administration, characterized by the strengthening of the central government's resources and of its local and regional offices, the need for administrative decentralization based on the modern concept of local autonomy became increasingly felt. As a result, the communes, provinces and regions were established, followed by the promulgation of a Charte Communale (Local Authorities Charter) in 1976. These institutions now form the basic elements of local participation in economic and social development. However, a significant broadening of this participation is essential if the development effort is to succeed. - 268 - 6.03 This section will examine in turn Morocco's present local government structure, the problems encountered and some suggested ways of improving the effectiveness of its contribution to achievement of the goals of national development policies. Morocco's Local Government Structure 6.04 Morocco's local government structure is still highly centralized although some significant elements of local autonomy have recently been introduced at the commune level. Administrative decentralization!' is greatest at the level of the commune and least at the level of the region, with provinces at an intermediary level. 6.05 Economic Regions. The establishment of seven regions in 1971 was prompted primarily by economic considerations 2/. A region, which comprises several provinces, is more a physical planning and regional development unit than a decentralized administrative entity. Regional administration consists of a Consultative Assembly, the Provincial Governors and regional representatives of central administration departments. The Assembly is made up of the chairmen of the region's provicial assemblies, representatives of the chambers of agriculture, crafts, commerce and industry and five members elected by each assembly from among its members. Its main function is to prepare the investment proposals of the region for the national Plan. Selection among those proposals is done at the central level. The Assembly is chaired on a rotation basis by each of the chairmen of the provincial assemblies and its sessions are held at the seat of the home assembly of the current chairman. Responsibility for regional affairs and liaison between the regional, central and provincial authorities is also rotated, one year at a time, among the provincial Governors. Each of the latter is assisted, as a rule, by a secretariat which, unlike the Governor, is permanent but is not based in a specific location. 6.06 Some of the central ministries and agencies are represented at the regional level, including the State Secretariat for Planning through its regional delegates. The role of these delegates consists of helping with the preparation of regional proposals for the Plan and also collecting and 1/ In Moroccan terminology, which largely echoes that of French law, decentralization presumes the existence of an elected council with its own area of authority. "Deconcentration", on the other hand, refers to the delegation of rather broad responsibilities to the lower echelons of a structure which remains in its entirety governed by the principle of a hierarchic authority and the right of the higher authority to reassume at any time the responsibilities thus delegated. 2/ The seven regions are as follows: South, Tensift, Center, Northwest, Center-North, East, Center-South. The dahir (law) of June 16, 1971 establishing the regions describes a region as "a framework for economic action". - 269 - compiling regional statistics; in no way can they be considered the embryonic form of a regional administration. Thus the regions are principally formal territorial frameworks for planning and economic coordination rather than an essential level in the new administrative structure that is now being set up. The use of a rotation system for the chairing of the Assembly and also for the executive in the person of the Governor is a further indication of this situation. 6.07 Provinces. The establishment of provinces, following the disappearance of the administrative authorities instituted by the Protectorate, was prompted above all by the need to provide the country with an administrative structure. This concern was also behind the more recent decisions to establish some new provinces, the number of which grew from 18 in 1959 (16 provinces plus the two prefectures of Rabat and Casablanca, which are identical to provinces in their structure) to 36 in 1978, but there is a growing tendency to create new provinces in order to develop regions that are less developed. Often the physical presence of a Governor will automatically lead to the channeling of financial resources to the new province, and will also result in strengthening of the external services of the ministries at the provincial level. The creation of provinces is therefore reflected in the strengthening of the human and material resources of the most deprived regions. Should the multiplication of provinces become excessive, this could, however, jeopardize the present policy of fleshing out the provincial services of the ministries, since it would result in spreading the qualified and experienced staff, already too few in number, over too large a number of provinces. 6.08 The role of the provinces was substantially changed by the introduction (dahir of September 12, 1963) of elected provincial assemblies with their own powers and responsibilities. The provinces thus became decentralized local authorities and currently constitute the key echelon in Moroccan local government. A Provincial Assembly is composed of two types of members: representatives of professional organizations (one representative for each chamber of commerce and industry, crafts and agriculture in the province), and members elected by the commune councils in the province. The assemblies elect their officers each year and meet twice a year for about two weeks. They form three committees: one for the budget, one for economic affairs and planning and one for social and cultural affairs. The Governor, and also provincial officials and civil servants of the Government agencies in the provinces, if authorized to do so, may be called upon to participate in the work of the committees. The responsibilities of the assemblies are quite extensive, covering as they do ''all matters of an administrative or economic nature". The most important of these responsibilities is approval of the budget, which is prepared by the Governor in each case. The budget is financed entirely by subsidies from the central government. Revenue could also be obtained from the taxes and charges that the provinces are legally authorized to levy, but no legislation has yet specified the taxes that may be introduced by provincial assemblies. If an assembly refuses to approve the budget the Minister of the Interior is empowered to draw up a budget covering all essential expenditures (operating expenses and maintenance of highways and property). - 270 - 6.09 Governors are the Government's representatives in the provinces. Appointed by the King, three-fifths of them are selected from among the senior administrators of the Ministry of the Interior. Their main function is to maintain law and order. They are also responsible for keeping their respective assemblies informed, preparing the assemblies' meetings and implementing their resolutions. The Governors' role has been progressively expanded until they now have authority for supervising, prompting and coordinating the action of Government agencies established in the provinces (the dahir of February 15, 1977 strengthened these powers). The Governor chairs a technical committee which meets at least once a month and is made up of the heads of the Central Government agencies in the province and the directors of public establishments. Governors are responsible to the Minister of the Interior, who delegates to them some of his authority, including supervision of the communes in their respective provinces. They also have important powers delegated to them for the execution of expenditures financed by the Special Regional Development Fund. Following the Government's decision to deconcentrate at the provincial level some of the credits allocated to some ministries for the realisation of local projects, the Governor was placed in charge of management of those funds. This transfer of command from the central to the provincial level should strengthen the Governor's function as coordinator. Each Governor is assisted by the Secretary General of the province, the provincial administration and the various officials who represent the Ministry of the Interior right down to the district level. The provincial administration has gradually been expanded and besides the departments that have direct political responsibility and the public safety services, other divisions specializing in economic and social affairs, local authority finances and personnel management have been set up under the authority of the Secretary General. The Ministry of the Interior provides the provinces with the personnel needed to man these departments. 6.10 The importance of the Governor's role, the extent of his supervisory authority and the limited resources of the provinces themselves, all used to be indicative of the very limited nature of provincial autonomy. The province is still more a unit of administrative deconcentration than a truly decentralized local government, but many important elements for local autonomy do already exist and could be strengthened. Up to now, the orientation of the provincial government has been dominated purely and simply by administrative concerns, and it is only recently that services have been set up to handle economic matters. To expedite this move, the Government is planning to extend the economic responsibilities of the provinces with the participation of the commune councils and with additional resources. As part of the three-year Plan for 1978-80, the Government has thus made a grant of DH 1.1 billion available to the local authorities. 6.11 Communes. The establishment of communes as the basic local government units was the first major reform undertaken immediately after independence. The method of voting for individuals ("uninominal" system) which favored representatives closely linked to the local populations of the - 271 - fractions and douars,l/ was selected in preference to voting for several members from a list, the method wanted by the Istiqlal (Independence) party. The question was whether the new communes should follow the boundaries of the tribal territories or be viewed instead as the framework for new economic and social boundaries and be organized around farming centers, souks or schools. Both alternatives were seriously considered but in the end the tribal framework, along with its subdivisions, prevailed, despite the fact that the tribe no longer constituted a unit for the organization of economic tasks. The steering of the communes in the direction of modernization and rural development, as specifically envisaged during the preparation of the reform, did not ultimately play a decisive role in the formulation of the new system introduced by the dahir of June 23, 1960. This situation was certainly responsible in some measure for the difficulties encountered by a number of rural modernization projects which, after being planned and managed by experts acting in their official capacity as Government representatives, were unable to mobilize the necessary local participation (Op6ration Labours, the Economic Development Program for the Eastern Rif Region, Relance Communale). However, the publication on September 30, 1976 of two laws concerning commune structure (Charte Communale) and the organization of the finances of local authorities and their associations was a major stride toward the establishment of genuine local governments. This legislation brings about a new situation in that it gives communes very broad powers, even in the economic sphere. 6.12 At present there are 762 rural communes, 40 autonomous centers and 45 municipalities governed by the new Charte Communale. These 847 communes comprise some 34,d000settlements. The difference in names does not signify any real distinction in terms of legal structure although, in practice, the situation of the rural communes is significantly more fragile than that of urban communes. The distinction simply serves to indicate the evolutionary nature of the structure. As a village develops, it become increasingly distinguished from the commune in which it is located until it is eventually recognized as a full-fledged commune in its own right. Thus the number of communes could well be considerably larger by the next local election, scheduled for 1982. New communes are created by the statutory authority normally exercised by the Prime Minister. 6.13 A commune's administrative structure consists of a commune council, its chairman and the local executive offical. Commune council members are elected for six-year terms by uninominal voting requiring an absolute majority. The council meets at least four times a year, with the local executive official present. It prepares its own agenda but the executive official may add any matters he wishes to raise. The council's powers are extremely general since it "regulates by its resolutions the affairs of the commune". Among other things it approves the budget, "formulates the economic and social development plan of the commune in accordance with the guidelines and objectives of the National Plan", "decides on the 1/ These are the traditional political and economic units constituting a tribe. - 272 - establishment and organization of the commune's public services and their management either under its direct supervision or by an autonomous agency or under contract", "decides on the financial participation of the commune in semipublic enterprises of interest to the particular commune or groups of communes", and finally it "is informed of any project that has to be carried out by the Government or any other group or public agency on commune land". However, all decisions that the council may take in these areas must first be approved by the "higher administrative authority", namely the Governor or the Minister of the Interior. The Minister of the Interior has three months to approve or reject the resolutions of the council, which are passsed on to him by the administrative authority (this time limit is reduced to 45 days when the Governor is acting for the Minister). Even decisions on matters of lesser significance than those just mentioned have to be submitted to the local executive official and do not become effective until 20 days thereafter, provided the Governor has no objections. 6.14 The Council Chairman is the executive officer of the commune council and also has specific individual functions and powers: he is the civil registrar, exercises law enforcement authority (maintenance of public law and order), and is further the head of all the commune personnel.II He exercises these powers "under the supervision of the higher authority", which has to endorse all his decisions before they can be implemented and which may, if necessary, replace him if he fails to take certain measures for which he is responsible (in the area of public law and order, for example). 6.15 The central government is represented at commune level by the local executive offical: the Caid in rural communes, and the Pasha in the urban communes. A Super-Caid, a senior official responsible for a cercle (district), has three or four Caids or Pashas under his supervision. The latter are assisted by one or more deputies, known as Khalifas. At the level of the fraction and douar (commune subdivisions) the executive official is represented by the Shaykhs and the Mugaddams, respectively. The local executive official is responsible for criminal investigation, for maintaining law and order and for public safety. These responsibilities are to be interpreted in the broadest sense since they include the settlement of social disputes, price control (insofar as this is in local hands), elections, rights of association and the organization of commune jurisdictions. However, the executive official's full role is even more important and wide-ranging than might be suggested by the listing of his powers and responsibilities. His influence is strengthened by the fact that he can draw on the services of all the local and regional agencies of the State, and that he serves as a kind of obligatory intermediary between the communes and the Government. This role is obviously more important in I/ The Moroccan civil service comprises eleven grades. Commune personnel do not go higher than grade 7, which is that of a primary teacher or technical assistant in Public Works. - 273 - the rural communes than in their urban counterparts. It seems that the 1976 commune elections marked a significant improvement in the education level of the local elected officials; half the commune council office-holders now have some secondary schooling, according to information provided at the Casablanca conference on local government in November 1978. 6.16 There is thus a dual system of authority in effect at the commune level: that of the elected officials and that deriving from the central Government. There is no clear division of responsibilities between them. In theory, the council and its chairman are responsible for financial administration and the local executive official for the maintenance of law and order. In practice, however, these two areas of responsibility frequently overlap and the ensuing confusion is a source of conflict. The activities of the council and the chairman are also subject to supervision which, although eased somewhat in 1976, is nevertheless still quite tight. However, this situation is now changing radically as a result of recent Government measures designed to increase the autonomy and initiative of the local communities. Local Government and Development Management 6.17 Ministerial structure. The hierarchic structure of the central government and the civil service, which is a legacy from French Protectorate days, has had the effect of reinforcing the traditional social and functional hierarchies that are still very much a part of Moroccan society today. Even at the central government level, decision-making authority partly rests with the Secretary General, who is responsibile for ensuring the continuity of administrative action. The tendency to concentrate responsibility at this level is reinforced by the fact that most ministries are required to plan their activities on a medium-term basis and implement policies that are more than just the continuation of their traditional activities. However, the slowness with which project preparation units and planning units and other support services for decision-making are being set up means that it is not always possible for the powers concentrated at the top of the administrative hierarchy to be exercised with a view to promoting economic and social development. The resistance of technical departments to any changes that might reduce some of their responsibilities is aggravated by the scarcity of qualified staff to assume these new tasks, and the evaluation, programming and planning units are often little more than names on organization charts. 6.18 Furthermore, the central government departments monopolize the vast majority of qualified and experienced civil servants. There are no detailed statistics on the subject but there are some converging indications. Out of a total of about 230,000 civil servants, 51,000 are assigned to the province of Rabat-Sale where the bulk of the central government departments are located and 37,000 to the province of Casablanca. The other provinces (84% of the population) share the remaining 61% of the staff. From information gathered at the Marrakech conference on local government in December 1977, it appears that approximately 70% of the Ingenieurs d'Etat and 50% of the - 274 - Ingenieurs d'Application (interministerial corps of top-ranking engineers) are employed in the three major Atlantic coast cities, i.e. Rabat, Casablance and Kenitra. It is apparently difficult to attract qualified senior personnel into the regional branches of the central administration. The steps taken so far (across-the-board entitlement of staff serving in the provinces to the various benefits previously restricted to central government employees, introduction of housing allowances of up to 35% of the base salary in distant provinces and as high as 100% in the new Saharan provinces) have not proved sufficient to counter the appeal of the Rabat-Casablanca area and to offset the difficulties in terms of housing and education in the regions of the interior. The institution in 1973 of a two-year civilian service period for university graduates, who are required to exercise their professions in the regional offices of the Ministries of Education, Interior and Public Health, in particular, has produced only limited results. 6.19 The effects of ministerial concentration have been mostly negative. Assignment of qualified staff to the provinces has become more difficult, as has the coordination of the regional and provincial offices of the different ministries, because the extremely hierarchic structure of the ministries reinforces their nature as strictly partitioned entities. The Governor has not always been able to coordinate the activities of the local offices of the different ministries, despite the fact that his authority was recently strengthened in this area (dahir of February 15, 1977). There are numerous examples of bottlenecks that have resulted from conflicts of this kind in the spheres of both rural and urban development. Moreover, the concentration of decision-making has often resulted in higher costs than would have been the case had decisions been made at the local level. Primary school construction, for example, used to be handled by Rabat and all the contracts were awarded there. In most cases these contracts went to firms based in the capital which charge high transportation costs and did not always complete jobs they felt were too far away. 6.20 The Moroccan Government is aware of these disadvantages, hence its decision in 1979 to speed up the process of administrative deconcentration, which until then had been marked by delays and resistance, although it was a prerequisite for regional development policy. Until now, the local government structure was still highly centralized; executives elected at the local level were allowed little initiative, and the decision-making powers within the central.government were concentrated at top ministerial level. Only the Ministry of Agriculture and the Ministry of Public Works have introduced some significant degrees of deconcentration at the provincial directorate level (management of staff and operating funds, procurement below a certain ceiling, coordination of the various local offices of the ministry by the provincial director). In 1979, the Government decided that appropriations under the three-year Plan to certain ministerial departments for the execution of projects of a provincial or local nature sbould be delegated to the Governors, who would then act as the ministry's agents in - 275 - taking over the management of the funds involved, although each ministerial department would remain responsible for project programming and study. This decision, which at the end of 1979 involved DH 433 million for the years 1979-81, should thus lead to greater administrative deconcentration. 6.21 Role of the Ministry of the Interior in regional development. Among the entities responsible for promoting regional development, the Ministry of the Interior holds a special position. First of all, it is the only ministry that has a complete network of representatives coverning the entire country right down to the city ward and the rural douar level, viz. the Governors, the 123 chefs de cercle, the 374 Caids and pashas and the Khalifas. These officials all have the special status of Ministry of the Interior administrators. They are appointed by dahir, i.e. by the King, on the basis of proposals from the Minister of the Interior, and it is the "appointing authority" that exercises disciplinary authority vis-a-vis these administrators (dahir of March 1, 1963, supplemented on February 16, 1977). Even the Shaykhs and the Mugaddams, who were the traditional representatives of the people and obtained their remuneration directly from them for services rendered, are now on the government payroll. The Governors, in particular, have responsibility for the supervision and coordination of the local offices of all the other ministries, as already mentioned; these responsibilities were broadened in 1977. The Ministry of the Interior is also represented in almost all national and local institutions involved in regional development: Offices Regionaux de Mise en Valeur Agricole -- ORMVAs (Regional Agricultural Development Offices), Centres de Travaux Agricoles (Agricultural Works Centers), Conseils Provinciaux de la Promotion Nationale (Provincial Councils for "Promotion Nationale"), boards of directors of autonomous commune or intercommune regies, and commune associations. Lastly, the ministry manages the Fonds de D4veloppement des Collectivites Locales et de leurs Groupements (Local Authority Development Fund), established in 1976 to channel development subsidies to the communes. The ministry is also in the process of augmenting its supervisory and action capacity in this area by developing its Programming and Infrastructure Division, which monitors all matters relating to works carried out by the communes and their management and operation. 6.22 The Ministry of the Interior has a twofold role to play: that of maintaining public order and that of supervising the local authorities. A State Secretariat was specially formed to help the Minister in this area. Law enforcement and public safety are specific responsibilities of governing authorities. Moreover, as concerns the supervision of local governments, emphasis is placed on the traditional themes of sound accounting and budgetary control; reduced to essentials, the aim is to prevent local authorities from getting into debt or making hasty moves in economic and social affairs. Less importance is placed on the organizing and managing of the financial resources needed to meet local needs, which are the main concern of the elected councils. It should also be noted that resources assigned to economic planning and project preparation in the provinces are still very meager. The establishment of a provincial technical committee composed of the heads of the local officer of the central ministries under - 276 - the authority of the Governor, and the formation of economic and social units within the provincial administrations are undoubtedly encouraging signs of the Ministry's desire to mobilize local capabilities and energies, to extend decentralization, and to strengthen the elected local executives, although isolated pockets of resistance to this process are still to be found. 6.23 Weaknesses of the local authority structure. The local authorities depend largly for their financial resources on transfers from the government budget. The provinces do not have any resources of their own at all and those of the communes are entirely controlled by the supervisory authority, which authorizes the establishment of local taxes and sets their rates. The most important of these is the municipal tax (taxe d'edilite) levied in the urban centers, which gives the municipalities and the autonomous centers a slender financial base but one that is distinctly more solid than that of the rural communes. Since 1976 (dahir of September 20, 1976) "revenues from forestry resources within the boundaries of a commune shall be credited to the budget of that commune". Forested communes will thus receive some DH 60 million, 80% of which they may use for their own projects. To cover their operating expenses, the bulk of which are obligatory (personnel, etc.), the communes receive a balancing grant from the Ministry of the Interior. Their capital budgets are financed by grants from the Fonds de Developement des Collectivites locales et de leurs Groupements (the Local Collectivities Development Fund) which is managed by the Ministry of the Interior (DH 100 million in 1977) and grants from the Special Regional Development Fund, administered by the State Secretariat for Planning (DH 450 million in 1977) and by loans from the Fonds d'Equipment Communal (Commune Infrastructure Fund), run by the Caisse de Depots et de Gestion under the supervision of the Ministries of Finance and of the Interior and the Bank of Morocco (DH 89 million in 1977). The first two financing sources are discretionary, the third is reserved because of the chosen creditworthiness criteria for the wealthiest urban communes. According to the Ministry of the Interior, the communes' own resources finance only 10% of commune infrastructure on the average, since the volume of savings in the communes is small. When in 1978 consideration was given to transferring responsibility for the construction and management of primary schools to the communes, with a view to lightening the capital expenditures of the Ministry of Education, it rapidly became apparent that this would have been beyond the means of the communes. 6.24 The communes, including the large cities such as Rabat and Fes, as yet lack the necessary qualified technical and administrative personnel, and in case of need they can rely on technical assistance from the central government. The statistics available show that the local authorities employ 37,000 staff, 25,000 of whom are Ministry of the Interior officials but paid out of the local authorities' funds, while 12,000 come under the special category of commune personnel. The multiplicity of junior positions contrasts with the shortage of technicians. The latter is overcome to some extent by recourse to foreign aid personnel and staff from the central government's local offices. But the same reasons which explain the low appeal of these local units also apply in the case of employment with the - 277 - communes, and are aggravated by the absence of career prospects or special advantages. For all grades above Step 7 in the salary scale (the technical assistant grade), the staff employed by local authorities are recruited and managed by the Ministry of the Interior. - 6.25 For the construction or operation of major infrastructure, local authorities may constitute intercommune or interprovincial associations (syndicats). These associations, the formation of which requires the authorization of the Ministry of the Interior, are administered by a committee whose members are elected by the councils of the local authorities involved. They have legal status and financial autonomy. They are also eligible to receive grants from the Government budget and loans from the Commune Infrastructure Fund. So far no interprovincial associations have been formed, but intercommune associations are already playing a major role in the management of public services such as water supply, sanitation, electrification and passenger transport. The association, or even a single authority, manages these services through an autonomous regie.l/ These regies have legal status and are administered by a management board composed of eight representatives of the commune council or association committee and four representatives of the Government (two from the Ministry of the Interior, one from the Ministry of Finance and one from the Ministry of Public Works). They must also be financially autonomous and cover their expenditures out of their receipts. However, Government control over their activities is very strict. Their selling prices, which are set by the Directorate of Prices in the Directorate for Economic Affairs, are kept very low, which amounts to a form of consumer subsidies. Role of the Communes in Economic and Social Development 6.26 The reform of the commune system carried out -in September 1976 represented a clearcut step forward in the decentralization process then under way, since it gave the communes the right to plan their projects, to propose projects to the Government and to hand down an opinion on any project involving their territory. Prior to 1973, development plans had always suffered from a lack of synchronization between the municipal and Government infrastructure budgets, to the extent that municipal infrastructure works were often carried out in complete ignorance of the launching of a State project. Because of the radical changes that had come about in the organization of local governments, and because of the existence of a local administrative structure that had proven its worth, the need became evident to have the local authorities participate in the preparation of national plans. When the 1978-82 Plan was drafted, a Planning Commission was set up especially for the local authorities. For the first time, a 1/ The role of regies is also analyzed in Chapter IV, Section D and in Chapter V, Section H. In 1979, there were 23 autonomous regies and associations. - 278 - statement of the needs of the local authorities was drawn up, which led to the preparation of investment programs, and under the 1978-80 Plan local governments were assigned a grant of DH 1.1 billion (DH 100 million in 1978, Dh 400 million in 1979, and DH 600 million in 1980). 6.27 The chief guiding principles employed in the distribution of this grant were: (1) To distribute loans according to the population of each province; (2) To provide funds to rural as well as urban areas; and (3) To ensure the selection of projects by a provincial commission composed of elected officials and civil servants. Application of tnese principles resulted in the allocation to the rural areas of an increasing share of investment appropriations over the period 1978-80, reflecting the Government's current concern to make up for lost time in the case of the rural communes. However, to avoid excessive fragmentation of the appropriations among the approximately 34,000 urban and rural municipalities, it was decided to favor the creation of chief towns of rural communes. This approach aims to concentrate efforts on centers capable of real development, which should serve as development poles in the rural areas. 6.28 Strengthening of the commune level. Participation by the commune in national planning is only one of the aspects of commune planning. The other aspect is that of commune investment programming. In this field, the communes could certainly play an important part, not only in terms of construction of local infrastructures, but also, and more especially, with respect to the social infrastructures which are covered by their present attributions, such as sanitation, water supply, electrification, transportation and roads. The commune (or, in more general terms, the local authority) offers a framework particularly suited to identification of priority social needs, and could thus help eliminate any backward conditions in the social field. 6.29 At present, the local authorities are attempting to solve their problems by a combination of various empirical formulas that go back to a time when the communes had no technical resources of their own. Thus, for example, the construction and management of water, electricity and sanitation networks in certain cases (and especially in the rural areas and small urban agglomerations) depend on direct action by the State or State-owned enterprises. In other cases, management is carried out by the technical services of the communes with municipal financing, and it is only for the major cities that technical dossiers on investment projects are drawn up by the local officials. - 279 - 6.30 The building up of economic management capacity in the communes is a long-term goal which should be tackled from several angles simultaneously: manpower, financial resources and technical assistance. In all three respects, the position of the rural communes is unquestionably more precarious than that of the urban communes, while among the latter the differences between the autonomous centers and the municipalities are also considerable. Although their legal status is identical, a uniform approach would not be appropriate. Instead, it would be better to classify these communes according to their level of development in order to determine the nature of extent of the support they could use from the central authorities (Ministry of the Interior, technical ministries and financial institutions). This classification, which should be kept simple, should define two or three categories of communes based on population charac- teristics, geographic location, level of existing infrastructure and financial resources available. It would then be possible to decide, depending on the type of local authorities concerned, on the division of responsibilities between the commune and the Government, taking care to see that the necessary compatibility is maintained between area of authority, financial resources (their own or from central agencies) and manpower (local or provided under a technical assistance program). The amount of outright financial grants (as opposed to loans) and of technical assistance from ministries (as opposed to the establishment of municipal services) should of course be greater in the poorer communes. The establishment of such a classification would appear to be an absolute prerequisite for the preparation of graduated assistance programs and of instructions to officials employed at the local level to provide them with some guidance in seeking to stimulate and support development efforts. These instructions, the degree of complexity of which would have to be tailored to each type of commune, would concern the priorities established in the national Plan for the region in question, project identification and preparation methods, financial management (simplified accounting and budget guidelines), financial and manpower assistance programs run by central institutions and available to the local authorities, and the relations to be established with the offices of the ministries and agencies represented at the local level. 6.31 Strengthening of staff resources of the communes. One of the essential elements of the present decentralization process is the strengthening of the local administrative structures, and especially of the commune services. To this end, a commune civil service was created in 1977, and a major effort was made to assist the local authorities, as indicated by the increase in the number of their personnel which rose from 34,500 in 1977 to 41,000 in 1978, during a period of budgetary austerity. To ensure that the local authorities assume more responsibiltiy for their affairs, a corps of commune administrator-managers with the benefit of a formal career path should be formed.l/ This should facilitate the local recruitment and 1/ At present supervisory and management functions are not open to commune personnel, these positions being held by government administrators on detached duty with the communes and paid out of the commune budgets. This proposal would broaden the role of commune personnel to more than simply carrying out instructions. - 280 - this staff could be expected to show more interest in the problems of their own communities than outsiders posted there by a central authority. It would also make for greater staff stability in these positions. Implementation of this proposal would require the active support of the Ministry of the Interior in the following two ways: (1) Permitting the establishment of these new posts in the communes and proportionately increasing the grants given to balance commune operating budgets (DH 220 million in 1978); (2) Undertaking a major training drive among commune personnel (newly hired personnel for administrator-manager posts or personnel promoted to these positions from the staff already employed at the commune level).l/ It is essential that such a training program not be limited to courses in planning, accounting, local finance, economic appraisal of projects, but contain a high proportion of practical on-the-job training. This will necessitate the formation of a central team of training officers within the Ministry of the Interior to tour the communes included in the program and to provide the instructions, corrections and case studies needed. 6.32 Providing the local authorities with the technical personnel they require is an even greater problem becuase of the widespread shortage of professional personnel (architects, veterinarians, civil engineers, etc.). When the draft for the 1978-80 Plan was prepared, the Ministry of the Interior put forward some very ambitious projects designed to increase the staff of its central (Programming and Infrastructure Division) and provincial units, establish technical offices at the district level and 1/ The Ministry of the Interior currently has eight training centers for middle-echelon local government staff (accountants, registry office staff, etc.). It also plans to organize a refresher program for municipal supervisory personnel starting in 1979, to be held at the National School of Public Administration. To give an order of magnitude, the local authority requirements forecast by the Ministry of the Interior for the period 1978-82 are put at a total of 4,000 administrators. - 281 - provide municipalities and autonomous centers with engineers.!' In fact, it is expected that a large number of these posts will continue to be held by foreign aid personnel or be filled under contract by private technicians. It is hard, as things now stand, to envisage the communes being able to recruit such personnel directly and offer them career prospects. The most reasonable solution would be to decide on a single level of deconcentration, which would be reinforced on a priority basis, while organizing cooperation between the field offices of the technical ministries and the local councils and facilitating recourse by local authorities to consulting firms. 6.33 Means of action available to the communes. Up until recently, the local community authorities have played a relatively minor role!/ in the national development effort. This initial period has in fact served for the gradual setting up of administrative structures, which have now proved their worth, and it therefore seems possible to entrust the local authorities with the operation, and in certain cases possibly the construction, of certain locally-oriented infrastructures. Extension of the role of the local authorities does require, however, that the respective spheres of competence of the local authorities, of the Government and of the existing public enterprises be redefined while taking into account the uneven rates of development of local authorities. 6.34 At present, the legal framework for action by the communes comprises the intercommune association (syndicat intercommunal), which handles matters beyond the commune framework, the commune regies, which are specialized institutions to which the management of a specific activity can be entrusted, socidtes a participation, and direct action by the commune through the municipal technical services. Particularly as regards the urban authorities, the system of commune or intercommune regies seems to offer a suitable means of making up for existing backlogs, particularly in the fields of sanitation, potable water and electrification, recognized by the Government as priority sectors. The commune regie could also become the essential tool for commune action in the industrial and commercial field: slaughterhouses, cold storage depots, urban transportation, etc. To this end, the Government proposes to set up a specialized agency to improve the organization and structure of the regies, and to remodel the system of autonomous rdgies so as to better define their relationship with the communes. l/ The Ministry has two training centers for middle-echelon technical personnel (technical assistants and works foremen) in Casablanca and Immouzzer-du-Kandar which can accommodate about 100 trainees between them. The draft version of the 1978-80 Plan put the requirements at 200 engineers and 1,600 technical assistants. 2/ During the period 1973-77 the total expenditures of the local communities amounted to approximately DH 2.3 billion, i.e. about 11% of the Government expenditure on infrastructure. - 282 - 6.35 With respect to the other sectors and the rural communities, the responsibility for the design and execution of infrastructure works rests with the technical departments of the Ministry of Education, the Ministry of Youth and Sport, the Ministry of Public Works, etc. Although it is conceivable that the responsibility of the local authorities would be increased in this field, the direct execution of investment projects is, however, limited by the scant financial resources available to the local authorities. Nevertheless, the Government has undertaken a major training program for commune personnel which, combined with the project for local tax reform and an increase in the resources available to the communes, should enable the local authorities to participate actively in the national development effort. 6.36 Local public services policy. Expansion of the role of the local authorities in Morocco's economic life cannot be envisaged without a policy pertaining to the local public services. The problems posed by the definition of a social strategy have already been mentioned in Chapter V; however, these problems have a local dimension which it is important to stress. One of the most important elements in the new government policy is the priority assigned by the Government to the role of the local authorities in the construction and management of local infrastructure in urban areas, in particular as regards transportation, water and electricity distribution, and sanitation. 6.37 In the 1973-77 and 1978-80 Plans, urban mass transportation was not regarded as a priority sector. Organized in the form of autonomous commune regies in Morocco's principal citiesl/, the urban transport enterprises received hardly any aid from the Government or the communes, and their rates were not set high enough to cover their operating and amortization costs. Recent studies made by the Moroccan Government have revealed, however, that urban mass transportation sbowed a high economic rate of return and justified an increase in the bus fleet beyond the present rate of one bus per 5,000 inhabitants. To enable the regies to improve and increase their infrastructure, it was decided to raise the price of the bus ticket (by 10 centimes in 1980 and 1982) and to diversify the rates. In parallel, it is planned to increase the contribution from the Government and local communities to improve the urban road system to benefit urban transportation, and to institute a transportation tax on employers and a taxe de desserte (service tax) on subdividers. 6.38 Water and electricity distribution is a field in which the communes (particularly the urban ones) could play an intensified role. In 1978, water distribution in the urban agglomerations was handled by ten regies and electricity distribution by 13 commune or intercommune regies (in case of 1/ Viz. Casablanca, Rabat-Sale, Meknes, Fes, Marrakech, Tangier, Agadir and Safi. - 283 - the latter, several communes were served)l/. The legal system of the rdgie has proven to be a flexible means of action for the communes and the Government intends to increase their number in the urban centers. Improved access to water and electricity by low-income households, which is one of the goals of the Government's social strategy, can only be achieved, however, at the cost of a change in rate structure and level. With the present rate structure small consumers have to pay more than large-scale users, and to the extent that rates are kept very low, the result is regressive subsidization of the users. Financing for the infrastructure is then obtained through the connection and initial establishment charges, which are often beyond the means of low-income households with no access to credit. To remedy the disadvantages of the present system, the Government has therefore decided, within the framework of the commune structure, to revise the rate-setting system to favor low-income households and to launch a scheme to provide low-cost connections for drinking water, including the possibility of credit for households. 6.39 In the rural areas, and in certain urban centers, water distribution is handled by the Office National de l'Eau Potable (ONEP), which manages 76 networks either indirectly, for the cities that are corporate bodies in their own right, or directly, for the small rural centers. In 1978, a reallocation of responsibilities was decided upon, and water distribution was recognized to fall under the authority of each commune. Consequently, a draft management agreement was drawn up between ONEP and the local authorities. With respect to electricity, most of the small rural centers can only be served by generator sets, of which there are approximately 400, managed in a more or less adequate fashion by the commune staff. To remedy this situation, a model agreement has been drawn up under which management of the autonomous networks could be entrusted to regies. In the other cases (rural areas or small urban centers), electricity distribution is handled by the Office National de l'Electricite (ONE). As with water supply, it is proposed to clarify the terms on which ONE operates and to draw up a network management agreement between ONE and the communes. 6.40 Sanitation also represents a sector in which commune action could be stepped up. Up to now, infrastructure construction and operation have been handled by various ministerial services (Ministry of Public works and National Promotion, Ministry of Agriculture and Agrarian Reform) and the municipal technical services. With regard to sewerage, a possible solution might be to entrust the regies responsible for water and electricity distribution with operation of networks and possibly the construction of sewerage facilities. A solution of this kind would, however, require that the communes have access to the necessary resources, wbich could be obtained by means of a tax on water consumption and changes in the existing taxes. 1/ The organization of the water and electricity sector is analyzed in greater detail in Chapter IV, Section D. In 1977, 52% of all electricity distribution was handled by the regies. - 284 - 6.41 Whatever the legal solution adopted, expansion of the role of the local authorities cannot come about unless more funds are made available to them, and this depends on the success of policies in respect of four key elements: (a) A tariff policy for public services; (b) Subsidization policy by the State; (c) Changes in the system of local taxation; (d) A loan policy. 6.42 Strengthening of the financial resources of the local authorities. Up to 1968, the budgets of the local authorities were basically financed out of the proceeds of the taxe sur les produits et services, or TPS, (tax on goods and services). Since then the TPS revenue has gone to the Government budget, and to replace this the local authorities have received subsidies for their operating and infrastructure expenditures. These subsidies are fixed by the finance laws, and account for over 65% of the expenditures of the local authorities. They are paid out by the Minister of the Interior. The operating subsidies are paid automatically to bridge the gap between operating receipts and expenditures, and they vary according to the amount of expenditures authorized by the controlling authority. In 1979, they amounted to DH 270 million. Infrastructure subsidies, on the other hand, are not automatic. Several ministries (Agriculture, Public Works, Youth and Sport) also provide infrastructure subsidies, but the total amount of these is very small. These various measures are not coordinated and are not subject to any general rulings that could form a planning base for local government finances. With the aim of harmonizing infrastructure subsidies to the local authorities, the Fonds de Developpement des Collectivites Locales et de leurs Groupements (FDCLG), managed by the Ministry of the Interior, was set up in 1976, but to date the only subsidies received by this Fund have been those routinely distributed by the Ministry of the Interior. In 1979, however, it was granted an appropriation of DH 1.1 billion to finance part of the infrastructure of the local authorities. 6.43 In 1978, investment subsidies amounted to 72% of the infrastructure budgets of the local authorities. The large proportion of subsidies in the local budgets and the absence of nonspecific subsidies are substantial constraints on the autonomy of the local authorities. To increase the volume of their own resources, the Government proposes to change the system of local taxation, and a reform proposal is being discussed. Although the creation of new taxes or the improvement of the proceeds of the existing local taxes might increase the resources of the wealthiest local governments, such a measure will not solve the problem of the poorest ones, whose tax base is not important. In order to ensure the economic development of the poorest communes, it seems that an equalization fund ought to be set up to redistribute part of the proceeds of the State taxes to local authorities, on the basis of criteria yet to be established. - 285 - 6.44 When the Plan was in the preparation stage, the needs of the local authorities were estimated for 1978-82 at approximately DH 8 billion. Since this figure was so high, it seemed essential to increase the volume of loans available to the local authorities. The communes are presently able to draw on three sources of financing: - the Fonds Special de Developpement Regional (FSDR); - The Fonds d'Equipment Communal (FEC), a public establishment managed by the Caisse de Dep6ts et de Consignations; - the FDCLG. The role of the FSDR is analyzed in greater detail in section C (para. 6.82- 6.86). It should be pointed out, however, that FSDR credit, which accounts for the bulk of the credit furnished for regional development, remains sizable (more than 10% of the Government investment budget). This is because of the volume of credit carried forward (DH 1.6 billion) out of a total of DH 2.3 billion. This also means that, unless it is replenished by the Government, the FDSR will decline in significance as its initial capital is exhausted, since it provides grant-type financing. 6.45 Within the framework of the government decentralization policy, characterized by: (a) Improvement of local government through the training of middle level commune staff; (b) Development of local public services; (c) Participation of elected officials and communes in national development; (d) Increased resources for the local authorities, It was decided to change the role of the FEC. Since its creation in 1959, the FEC has chiefly financed sanitation, construction, water supply and electrification operations, but it is mainly the wealthiest regions and in particular the major cities that have benefited from its loans. Cumulative FEC lending through the end of 1978 can be broken down as follows: - 286 - DH million Percentage I. By Region 1. South 7.4 1.2 2. Tensift 33.0 5.3 3. Central 320.8 51.5 4. Northwest 152.1 24.5 5. North-Central 36.5 5.9 6. East 20.8 3.3 7. South-Central 43.4 7.0 8. Unspecified 2.3 1.3 Total 622.3 100.0 II. By Purpose 1. Drainage/sewerage 76.4 12.3 2. Construction 163.7 26.3 3. Water supply 82.1 13.2 4. Electrification 116.7 18.7 5. Vehicles 64.2 10.3 6. Land reserves 18.4 3.0 7. Roads 62.5 10.0 8. Miscellaneous 38.3 6.2 Total 622.3 100.0 Source: FEC. 6.46 A number of measures have been taken to make both financial and technical assistance from the FEC available to the local authorities, especially those that have so far not availed themselves of its services. These measures aim to strengthen the role of the FEC as bank for the local authorities, and to intensify the technical assistance available to the most disadvantaged of those authorities in the fields of selection, design and evaluation of infrastructure projects. A technical unit in charge of project evaluation and monitoring has therefore been created, and a mobile commission has been formed to survey those local authorities that have not yet received FEC assistance and to identify projects eligible for FEC financing. This effort has already produced substantial results since the lending volume rose from DH 35 million in 1977 to DH 100 million in 1978, and should reach DH 200 million in 1980. To enable it to handle the increase in its lending, which should total DH 800 million in 1985, the FEC has been authorized to use external financing sources and to raise the interest on its loans from 6% to 8.5%. It has also been decided that the Treasury will grant interest rebates of up to 2.5% to the most disadvantaged local authorities. This substantial increase in the volume of lending is to be accompanied by an increase in the share of rural communes in total lending. Sanitation, potable water supply and electrification will be the chief priority sectors to benefit from FEC assistance. - 287 - Strengthening of Local Government for Economic Development 6.47 The success of the proposed nationwide development strategy will largely depend on the support it receives from the rural population and on the local initatives that it fosters. Very appreciable progress has already been made in this direction, thanks particularly to the promulgation of the Charte Communale in 1976. At the Government level, the main problem is how to reorient the administrative machinery to make it an effective instrument in support of regional development and local participation, and to strengthen those departments of the Ministry of the Interior that are responsible for the local authorities. This strategy will entail a reassessment of the departments responsible for local authorities and a change in their methods. With respect to the former, it may be desirable to place all the agencies involved (Direction des Collectivitgs Locales, Division des Terres Collectives) under a Directorate General for Local Authorities, which would rank equally with the other main directorates of the Ministry of the Interior. The regional development sector would thus be kept guite distinct from political affairs and public safety; it would also be under the direct responsibility of the Minister of the Interior. Regarding the second point, the supervisory function should deliberately include encouragement of local initiatives so that the new administrative unit would provide a full range of support services for the economic development of local communities. 6.48 Training of administrators. The next problem is that of the personnel responsible for implementing such a policy. Although the main areas of responsibility of local administrators are still the conveying of information on policy and the maintaining of law and order, the level of training and qualification of this personnel in the area of economic and social management has much improved since the early years of independence. Since the middle sixties new subjects such as political economy, sociology, public accounting, agricultural infrastructure and rural development have been added to the curricula of the Kenitra School of Management. Nevertheless, the Ministry of the Interior administrators still need more specialized support staff on the economic side. The Government has, therefore, decided to set up seven training institutes to remedy this situation. 6.49 Deconcentration of the central administration. Between the central level and the basic unit of local government, viz. the commune, there are three levels of central government administration: regional, provincial and district (cercle) administration. These should perform two functions: assist the local authorities with the operation of essential public services and prepare the regional input for the national plan. With respect to both functions a single level of administrative deconcentration would be sufficient, particularly as the communes and the provinces can form associations to carry out or manage joint projects. Moreover, in view of the shortage of qualified personnel outside of the central offices it is essential that those available be concentrated into units that are sufficiently well-staffed to be effective. The district does not play any - 288 - role in economic development and no technical ministry has units at the district level. The choice is therefore between the region and the province. The province is at present the better-structured level of local administration, even though all the provinces, and particularly those most recently created, are still not well established. Most of the ministries have deconcentrated their departments at this level and provincial governors are the highest-ranking officials to be found outside of Rabat. On the other hand, the provinces seem to provide a rather narrow framework for regional planning purposes, especially as their number has been growing steadily. This was the rationale for making the regions the "framework for economic action". However, this decision was not followed by the formation of a proper regional administration. A choice in favor of the region would entail either the transfer of administrative services from the provincial level to the regional level or else the transfer of quite a large number of personnel from the central level to set up a regional apparatus. It is highly unlikely that either of these steps will be taken. The fact is that without a solid administrative structure the region has no chance of ever asserting itself, as is apparent from its evolution since 1971. 6.50 The province would therefore appear to be a more logical choice. But this choice would have to be accompanied by certain other measures. First, the creation of new provinces would have to be made subject to strict criteria in order to minimize the cost of setting up and operating new public services and the drain they would constitute on the limited number of qualified personnel available. 6.51 Secondly, the deconcentration of central administration to the provincial level should be continued. The measures already adopted within the Ministries of Agriculture and Public Works have had good results. These experiments should be taken further and extended to the social ministries in particular, such as the Ministries of Education and Health, which have heavy work programs and large personnel establishments to manage. Any attempt in the direction of deconcentration (and decentralization also) is generally viewed with suspicion by ministries because they fear that it will result in bad management and waste by incompetent administrators. However, apart from the fact that these tendencies are not restricted to the deconcentrated or decentralized levels of administration alone, the advantages of flexibility, quicker action and more specific allocation of responsibilities would appear to easily outweigh the risks associated with the deconcentration of decision making. Deconcentration also facilitates the adaptation of government policies and resource allocation to the specific conditions affecting their implementation. 6.52 The proposed deconcentration should be applied in the following areas: (a) Personnel, by transferring a greater number of upper-echelon operations staff to the provincial level; (b) Personnel management, which below a certain level of responsibility should be in the hands of the director of the provincial units of the ministry in question; - 289 - (c) Procurement, by establishing a ceiling below which the director of the provincial units of a ministry would have authority to conclude contracts; (d) Budgetary appropriations, which should be "provincialized" whenever they concern projects of local interest. The Governor could be designated as the person with secondary responsibility for handling these appropriations and be authorized to transfer them from one item of expenditure to another, within certain limits. 6.53 Finally, the Governor's coordinating authority should be increased, not by assigning further responsibilities to him but by establishing genuine provincial planning units based on the existing Economic and Social Affairs Divisions. These units would be strengthened in order to assist the communes to prepare and execute their projects, organize the collaboration of the local State agencies with the local councils and commune personnel and monitor the execution of projects carried out by central agencies in the provinces. C. REGIONAL DEVELOPMENT 6.54 In terms of spatial distribution, growth in Morocco has been concentrated mainly in a zone located in the Center-North and Northwest of the country. Natural constraints, and rainfall in particular, as well as historical and economic factors have resulted in most of the country's industry and modern agriculture being located in this region. The development of the other regions has moved at a much slower pace. This has resulted in ever-increasing disparities which regional development policies have for several years now specifically sought to correct. Any evaluation of the progress made in the area of regional development must therefore be made in the light of the initial situation which was characterized by a pronounced concentration of economic activities coupled with a very high degree of administrative centralization. 6.55 Evaluation of the effectiveness of the strategies adopted is in some instances a delicate undertaking because certain measures can only be expected to show results in the medium or long term. This task was made all the more difficult in this case by the lack of recent data and good trend indicators. Analysis of the situation and development trends was thus based on the data available. The next step was to evaluate the results achieved in terms of regional development during the 1973-77 Five-Year Plan. Lastly, an inventory of key questions was prepared together with the solutions provided by the 1978-80 Three-Year Plan. 1. REGIONAL DISPARITIES: BASIS FOR A REGIONAL DEVELOPMENT STRATEGY 6.56 The increasing concentration of economic activities has had the effect of accentuating the regional disparities that already existed in Morocco. The result has been unequal development in both the economic and the social spheres. These imbalances in economic development are accompanied by disparities in income distribution and in access to public - 290 - services. The provinces that are least well endowed from the economic angle are commonly those where the population is the poorest. Raising of the incomes and productivity of the poorest segments of the population will therefore imply as a prerequisite a more balanced regional development and a vigorous regional development policy. Such a policy appear all the more necessary since factors such as population growth and urbanization may aggravate regional disparities to an excessive extent. Level of Geographic Concentration and Extent of Regional Disparities 6.57 Concentration of economic activity. A study of the geographic concentration of economic activity in Morocco based on a detailed breakdown of national accounts for 19601/ reveals the high degree of concentration of economic activity in the urban regions and in the center and nortbwest of the country in particular. According to this study, the urban regions accounted for about 80% of the growth in GDP between 1960 and 1971. The Casablanca and Sebou regions alone account for about two-thirds of the total value added, while having only one-third of the population. In 1960 the North region generated three-quarters of the value added in industry and more than half the value added in services. The Northwest region, with 34% of GDP, produced one-fifth of the industrial value added and approximately 40% of the value added in services. The three other regions (Soutb, Southwest and East) together produced only 14% of the total GDP and less than 20% in each of the production sectors (with the exception of mining). In 1975, 42% of all industrial establishments with more than five employees were concentrated in Casablanca, 10% in Fes and 6% in Rabat. 6.58 Concentration of the urban population. Because of its natural resources and the concentration of activities, the Northwest of the country (i.e. the Central and Northwestern regions) is the most densely populated. At the time of the last census (1971), 45% of the total population was concentrated in these two regions, which together represent about 15% of the country's area. The urban population, which is currently 40% of the total population, is concentrated more heavily still along an axis from Casablanca to Rabat, Meknes and Fes. In 1971 almost two-thirds of the urban population lived in the Central and Northwest2/ regions. The following figures illustrate the level of concentration of total population and of urban population in 1971, the year of the most recent census: 1/ H. Beguin, L'Organisation de l'Espace au Maroc (Brussels, ARSOM, 1974). 2/ The present regional division of the country also tends to accentuate the differences between certain regions. - 291 - Region Total Population Urban Thousands % Population, % 1. South 1,715 11.2 3.9 2. Tensift 2,456 16.0 .10.9 3. Centrall/ 3,973 25.8 37.9 4. Northwest 2,999 19.5 24.3 5. Center-North 1,897 12.3 8.9 6. East 1,114 7.2 6.6 7. South-Central 1,225 8.0 7.6 Total 15,379 100.0 100.0 1/ Including the province of Casablanca, whicb had 1,719,000 inhabitants, i.e. 11.2% of the total. Source: State Secretariat for Planning, 1971 Population Census. 6.59 Concentration of wealth. When viewed in relation to population the regional disparities do not seem quite so wide, but they are still considerable. Per capita GDP in Casablanca was almost 60% higher than the national average in 1960. It was at about the national average in the Sebou area but much lower in other regions: 74% of the national average in the East, 55% in the South and only 50% in the Soutbwest. Per capita GDP in the urban areas was almost twice the national average and 3.4 times that of the rural areas. The detailed survey of consumption conducted in 1970-71 by the State Secretariat for Planning showed that annual expenditures varied regionally from a base index of 100 for the poorest region to 172 for the richest region as regards clothing, from 100 to 185 as regards housing and from 100 to 283 as regards hygiene and medical care. Calorie and protein intake seemed particularly low in the South. The rural areas were unquestionably still the poorest. The means for identifying the zones of greatest poverty in the rural and urban areas are inadequate, however. 6.60 Unequal access to public services. As regards education, two regions, i.e. the South and Tensift, are particularly poorly served. They remain well below the national average in terms of primary school attendance and are even furtber behind in terms of secondary school attendance. The enrollment rate in primary schools was half as high in Tensift (21.4%) as in the Central region (42.5%) and five times lower for secondary schools in the South. There are also marked regional disparities in the area of health. Doctors and hospitals are most numerous in the Central and Western regions. There are fewer than 10,000 inhabitants per doctor in these two regions but moe than 20,000 in other regions, with the exception of the South-Central region where the situation is somewhat in-between. The distribution of hospital beds would appear to be more balanced. However, in 1976 inhabitants per hospital bed in the least well-served region (East) was twice the figure for the best-served (Central). The following indicators illustrate the disparities recently observed in the areas of education and health by region: - 292 - School Enrollment Vocational Number of Inhabitants per Primary Secondary Training Doctor Hospital bed Region 1972/73!! 1970/71_/ 19741/ 1975 1976 1. South 24.6 3.1 658 23,809 1,003 2. Tensift 21.4 7.3 1,268 21,277 1,058 3. Central 42.5 16.3 4,780 9,620 664 4. Northwest 35.7 12.3 5,844 9,009 674 5. Center-North 27.5 11.3 2,948 20,000 968 6. East 40.0 11.1 645 20,000 1,306 7. South-Central 41.4 12.3 2,002 16,950 696 National Average 33.8 11.3 18,145 13,200 802 1/ Number of students as % of the number of children 7-14 years of age. 2/ Number of students as % of the total population 12-19 years of age. 3/ Theoretical capacity of vocational training centers. Source: Ministry of Health for the health indicators and the 1973-77 Plan for the education and training indicators. 6.61 In 1972 the Central and Northwest regions also had the highest share of the communications infrastructure in terms of highways and telephone infrastructure. The density of the highway network (in km per 1,000 km2) was 112.8 on average for the country as a whole but 238.6 km in the Central region, 254 km in the Northwest region and only 43 km in the South. Moreover, 80% of the telephone infrastructure (by number of lines) was concentrated in the Central and Northwest regions where 96 inhabitants out of every 10,000 had a line (as compared with 9 in the South, 14 in Tensift and 54 on average for the country as a whole). With the exception of the Central and Northwest regions, electricity sales in relation to the number of inhabitants were below the national average by a factor of 1 to 2.3. It would also have been of interest to ascertain by region and per inhabitant the lengths of paved and unpaved roads and the number of dwellings with drinking water and sewerage services. The following are the indicators available on the communications infrastructure by region: Length in km of Number of tele- highway network phone lines per ONE electricity per 1,000 km2 10,000 inhabi- sales in kWh/in- Region in 1972 tants in 1972 habitant in 1975 1. South 43.0 9 76.3 2. Tensift 162.6 14 79.4 3. Central 238.6 98 275.2 4. Northwest 254.0 94 182.8 5. Center-North 165.5 30 70.0 6. East 78.4 24 156.7 7. South-Central 57.4 25 133.2 National average 112.8 54 159.1 Source: State Secretariat for Planning. - 293 - 6.62 The conclusions derived from the foregoing indicators by classifying the regions by rank and by position above or below the average, confirm that it is the Central and Northwest region that are best served and that rank first on all counts. The South and Tensift regions rank last and are the least well served. The other three regions come somewhere in-between in each case but often fall below the national average. The indicators are combined in the following table which sbows the ranking of each region (1-7) and its position (+ or -) in relation to the national average: Communications Region Health Education Infrastructure Electricity (a) (b) (c) (d) (e) (f) (g) (h) 1. South 7- 5- 6- 7- 6 7- 7- 6- 2. Tensift 6- 6- 7- 6- 5 4+ 6- 5- 3. Central 2+ 1+ 1+ 1+ 2 2+ 1+ 1+ 4. Northwest 1+ 2+ 4+ 2+ 1 1+ 2+ 2+ 5. Center-North 4- 4- 5- 4+ 3 3+ 3- 7- 6. East 4- 7- 3- 5- 7 5- 5- 3- 7. South-Central 3- 3+ 2+ 3+ 4 6- 4- 4- (a) Number of inhabitants per doctor in 1975. (b) Nubmer of inhabitants per hospital bed in 1976. (c) Primary school attendance in 1973. (d) Secondary school attendance in 1971. (e) Capacity of vocational training centers. (f) Length of highway network. (g) Telephone lines. (h) Electricity sales. 6.63 Some interesting statistics published in 1975 give the distribution of civil servants by region and by ministry: 59% of the total number are concentrated in the Central (25%) and Northwest regions (34%), while Tensift and the South have no more than 15.7% to serve 27.2% of the population. Moreover, the Northwest region, which admittedly includes the nation's capital, has to itself alone, 45% of the government employees in agriculture, 42% of those in PTT, 35.5% of those in infrastructure and 29.4% of those in health, serving less than one-fifth of the total population. The distribution of civil servants by region and by ministry in 1975 was a follows (percentages): Educa- Agri- Tele- Infra- Popu- Region tion Health culture phone structure Total lation 1. South 6.0 8.6 5.6 5.0 7.3 6.2 11.2 2. Tensift 10.4 11.6 8.7 6.4 9.8 9.5 16.0 3. Central 28.8 23.9 15.8 27.6 26.1 25.0 25.8 4. Northwest 25.8 29.4 44.7 42.0 35.5 34.0 19.5 5. Center-North 11.8 10.5 8.7 7.3 8.4 10.2 12.3 6. East 7.6 5.9 6.5 5.1 6.0 6.7 7.2 7. South-Central 9.0 10.0 10.3 6.6 6.6 8.2 8.0 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total (thousands) 76.5 18.2 9.1 8.9 9.5 152.2 - Source: Service de l'Ordonnancement Mecanographique, 1975. - 294 - Are Regional Disparities Increasing or Diminishing? 6.64 Recent trends are bard to assess and measure for want of sufficient statistical data. The most recent census dates back to 1971 and the most recent consumer survey to about the same time. The next census is scheduled for 1981. During the current intercensus period essential data wbich would facilitate measurement of the direction and extent of the trends in progress are therefore lacking. It is accordingly important to emphasize, since there is still time to act, that the next census should be designed in such a way that the changes that have taken place over the last ten years can be validly measured. Because of changes in its formulation and in the geographic subdivisions adopted, the 1971 census simply provided the basis for a statistical description of the country instead of facilitating a dynamic analysis. Important factors such as migratory trends and regional income levels need to be determined more precisely and systematically in the future. It is impossible to conduct a sufficiently clear and vigorous regional development policy without the necessary instruments for measuring the very regional disparities that are to be corrected. 6.65 Some indicators of increasing disparities. As far as regional income distribution is concerned it is virtually impossible to compare the findings of the 1971 consumer survey with those of earlier surveys made in 1959-60 because the breakdown by regions is not the same. However, it appears that the average standard of living in rural areas increased less rapidly than in urban areas. Regarding infrastructure distribution, in 1977 and 1978 the Central and Northwest regions absorbed more than four-fifths of the funds provided by the Fonds d'Equipment Commual (FEC), and in 1976 these same regions received 58.9% of the grants given to local autborities. Casablanca and Rabat were also the recipients of two-thirds of the bousing loans provided by the Cr6dit Immobilier et Hotelier (CIH) during the 1973-77 Plan, and Casablanca itself absorbed DH 375.6 million or almost 50% of all bousing loans. With regard to employment distribution, however, comparison of the 1975 industrial survey to the one carried out in 1959 indicates that the share of the Central region in total industrial employment and number of firms somewhat decreased during that period (see para. 4.74). 6.66 Factors responsible for increasing disparities. Over and above the factors involved in the concentration of economic activity, factors relating to the geographic distribution of the population often tend to aggravate existing imbalances. Urbanization is one of the key factors in determining the shape of the future. The urban population is expected to double over the next 15 years. It is increasing at a mucb faster rate (4.3%-5%) than the total population (about 3%). The urban population (3.4 million in 1960) rose to 5.4 million in 1971 and can now be estimated at 7.2 million. It may reach 14 million around 1990 and would then account for 50% of the total population. The question is what pattern will this urban growth take in spatial terms? How strong will the attraction of the Casablanca/Rabat region be in relation to that of medium and small cities? - 295 - 6.67 Between 1960 and 1971, cities with more than 100,000 inhabitants grew rapidly, though at a rate somewhat slower than the overall urban growth rate which was estimated at 4.3%. Half of the 24 medium cities (20,000-100,000 inhabitants) experienced a higher growth rate than that of average urban growth. This dynamic development of medium cities must be pointed out, but the phenomenon is not general enough to warrant drawing the premature conclusion that is sometimes reached, namely that medium cities are growing more rapidly than large cities. Cities with over 100,000 inhabitants accounted for more than two-tbirds of the total urban population in 1971, as shown by the following figures: Thousands % - Population of Casablanca 1,506,000 27.8 - Population of other cities with over 100,000 inhabitants in 1971 2,200,000 40.7 - Population of cities with between 20,000 and 100,000 inhabitants in 1971 914,000 16.9 - Population of other cities 790,000 14.6 - Total urban population 5,410,000 100.0 6.68 The cities of Casablanca, Rabat, Sale, Kenitra and Mohammedia together totaled 2,238,000 inhabitants, and Casablanca, 1,506,000. Between 1960 and 1971 the growth in Casablanca's urban population was equivalent to more than 50% of the 1971 population of medium-size cities. On the assumption that the 4.1% growth rate experienced in Casablanca between 1960 and 1971 will remain constant, the population would only double between 1971 and 1990. But this would mean that to accomodate the rest of the urban population all the other cities would experience 2.75-fold multiplication of their population, giving an annual growth rate of 5.5%. 6.69 Urbanization tends to follow patterns that do not always appear to be directly linked to the distribution of economic activities. In Morocco urbanization is initially the result of sharp growth in urban population, and then the consequence of rural migration. 6.70 The migration flows to the cities, made up mostly of rural dwellers, cannot tberefore be attributed solely to a process of immediate and automatic spatial adjustment of the population and employment, particularly considering the dual nature of Morocco's economy. Between 1960 and 1971 approximately 90,000 people left the countryside for the towns each year. More than 60% settled immediately in cities with populations of 100,000 or more. One out of every four migrants headed for Casablanca. In 1971 some 32% of the urban population had been born in rural areas. Quite sizeable migrations have also occurred from one rural area to another, primarily into irrigated areas. Because of the method used to estimate interprovincial migration between 1960 and 1971 (which method ought to be - 296 - revised before the next censusl/), it is difficult to arrive at any precise conclusions. Temporary migration to cities is more directly attributable to employment availability and is often the first step towads permanent settlement. 6.71 Migration to other countries was for some time an outlet for surplus labor in certain poor provinces and also a source of external income that was largely redistributed in the migrants' regions of origin. Between 1973 and 1977, 23,000 Moroccans left the country each year!/ and half of the total remittances sent back to Morocco, which in 1975 and 1976 exceeded $0.5 billion3/, consisted of money they sent to their families. The slowing of this worker migration is bound to aggravate the regional imbalances. 6.72 Agricultural policy4/ has placed very heavy emphasis on irrigated areas and has therefore not paid much attention to improving yields in rainfed areas, with the result that little has been done to maintain and develop agriculture in much of the country. This, too, has helped to widen regional disparities. While rainfed lands account for the bulk of the total agricultural area, and include most of the rural population, the policy decision to develop irrigated areas has had the effect of increasing the concentration of agricultural activity in the Central and Northwest regions, since three-quarters of the country's potentially irrigable land is to be found in these regions (44% of it in the Rharb), and 56% of all irrigated land was in these two regions in 1972. 2. EVALUATION OF THE RESULTS OF THE REGIONAL DEVELOPMENT STRATEGY OF THE 1973-77 FIVE-YEAR PLAN 6.73 Morocco has had a regional development policy since the early sixties but it was not until the 1973-77 Plan that any decisive action was taken and a more systematic policy began to be applied. During the 1960-64 Plan two regional development projects (Derro and Secou) did emerge, however, and a Fonds d'Equipement Communal (FEC) was established. Attempts to regionalize subsequent plans remained modest, but the establishment of the Comite Interminist6riel d'Amenagement du Territoire (Interministerial Committee for Regional Development) in 1968 was a step forward. Just prior to the 1973-77 Plan and in connection with its preparation, certain more decisive measures were adopted: seven economic regions were created as well 1/ Net migration by province is obtained from the difference between the growth rate of a province and the national growth rate, which is presumed to be uniform in the method employed. 2/ See Table 1.2, Statistical Annex. 3/ As compared to $2 billion in respect of the total value of exports of goods and nonfactor services. 4/ The role of agricultural policy, and in particular the development of rainfed areas, which plays an important part in regional policy, is discussed in Chapter IV. - 297 - as a Direction du Developpement Regional (Directorate of Regional Development) attached to the State Secretariat for Planning, a Commission Nationale du Developpement Regional (National Commission for Regional Development) and an Assemblee Regionale Consultative (Regional Consultative Assembly) in each region. The 1973-77 Plan was thus the first to involve regional institutions in the preliminary phase of planning process. 6.74 The 1973-77 Plan marks the real beginnings of a regional development policy. Thanks to a particularly favorable investment climate some important progress was made during this period. In retrospect and in rather broad terms, the regional development strategy seems to have been essentially characterized by - The existence of a stronger political committment; - The absence of any real strategic plan for regional development; - Inadequate procedures for regionalizing the plan; - Recourse to special financing measures; - Failure of the industrial decentralization measures. A Stronger Political Commitment to Regional Development 6.75 Political commitment to promote regional development and also to accelerate administrative decentralization by strengthening the role of local authorities was affirmed at the highest level in three major speeches given by the King, in Erfoud in 1974 and in Marrakech in 1976 and 1979. The fresh impetus thus given to regional development policy in 1974 was highly significant. In a climate that was admitttedly favorable to investment a distinctly larger volume of capital was made available. For instance, the Special Regional Development Fund that was originally responsible for executing programs specially designed for the less well-endowed provinces, had its initial appropriation raised from DH 300 million to DH 2.3 billion. Absence of Any Real Strategic Plan for Regional Development 6.76 One of the basic weaknesses of the 1973-77 Plan was the absence of any real strategic plan for regional development. It was based primarily on the express intention of reducing regional disparities and counterbalancing the Casablance-Rabat axis, with the promotion of development poles as its key instrument. 6.77 The over-general objectives put forward in the Plan, while consistent, were nevertheless formulated in terms sounding more like a statement of regional development goals than a specific plan. These were as follows: - To foster general economic development by more judicious location of people, activities and infrastructure; - To further social development by reducing regional disparities; - To allow natural resources to grow and be shared and to improve the quality of the environment; - 298 - To involve the people themselves in the development process from the initial formulation and preparation of the plan and on through its execution. Basically the aim of any regional development strategy is to reconcile the objective of growth through more effective regional distribution of investments, with that of redistribution, which consists of reducing regional inequalities by means of improving the social infrastructure. Unfortu- nately, in this particular case there is no clear link-up between these principles and the practical strategy of the Plan. The recognition of regional disparities and the commitment to reduce them justify but do not in themselves constitute a strategy. First, a diagnosis should be made at both national and regional level, after which specific objectives can be set for each region. The investment program can then be linked to specific objectives and not just to abstract national goals of "equitable distribution". 6.78 The establishment of development poles in certain regions was intended to counterbalance the appeal of the Casablanca-Kenitra corridor. Five cities were proposed in the Plan as future economic development poles: Oujda, Agadir, Marrakech, Fes and Tangier. While these poles have been provided with a certain amount of infrastructure (tourism, universities) investments have also been concentrated in new poles such as Safi, Jorf-lasfar and Nador. While clear in principle the development pole policy actually implemented has been less precise in practice and has been characterized by ad-hoc actions. The commitment to counterbalance the appeal of Casablanca-Rabat-Kenitra, which lies at the basis of the regional development policy but at the same time constitutes solely its negative angle, should not result in a dispersion of investments and infrastructure. The promotion of development poles would under normal conditions make it possible to concentrate investments in a certain number of locations and thus maximize the results. But to be fully effective such promotion should form an integral part of a medium and long-term regional development strategy for the country as a whole. 6.79 The absence of any definite strategy or regional development plan that could serve as a guide for capital projects was felt particularly when it was decided to increase investments in the most disadvantaged provinces and when the Special Regional Development Fund was allocated substantial resources for regional development. To help remedy these deficiencies two regional project identification studies covering 16 provinces were launched by the State Secretariat for Planning and Regional Development. The first covered the eleven underdeveloped provinces of Tetouan, Taza, Chaouen, Al Hoceima, Khemisset, Figuig, Khenifra, Errachidia, Ouarzazate, Tan Tan and Tiznit and was intended to determine the economic potential of each province, identify projects and prepare the technical studies for feasible projects. The second study covered the provinces of Marrakech, Safi, Essaouira, El Kelaa des Sraghna and Azilal, and in addition to the aims set for the eleven-province study it was also intended to propose a development strategy for the entire Tensift region. These two studies have in fact been - 299 - carried out and produced a detailed analysis of development potential and situation diagnoses for the different regions, along with the identification and feasibility studies of a number of integrated projects. Unfortunately the studies were started too late and their findings have not been utilized despite their value for the preparation of the 1978-80 Plan. Because of changes in the economic situation the projects identified have not been pursued further. It cannot be denied that for want of a comprehensive framework, these studies undertaken on an ad-hoc basis in response to the needs of the moment have proved of limited effectiveness. The same could also be said of the rural infrastructure schemes (schemas d'armature rurale) which have, on the contrary, been devoid of any consideration of short-term operational needs. The preparation of a national plan for physical planning incorporating a medium-term regional development strategy would therefore appear to be crucial for the future. Inadequacy of Regionalization Procedures 6.80 Regionalization has been carried out through a new institutional framework which has facilitated the closer involvement of the regions and the population in the preparation of the Plan and its updating in 1974. Sectoral commissions were set up at the provincial, regional and national levels. The Regional Consultative Assemblies were the key component of this framework, supported by the regional offices of the State Secretariat for Planning. All proposals of the Regional Assemblies are passed on to the national level for consideration by the National Regional Development Commission. Indisputable progress has been made toward closer involvement of the regions themselves in regional planning. 6.81 The difficulties encountered have in fact stemmed from the methods and mechanisms used to achieve regionalization. Information is not always regionalized, the possible locations for projects are not always specified. Project briefs, which should provide the basis for a master file and facilitate decisions on projects, have often been extremely sketchy to the extent of being unusable and hence left unused. The Plan was originally 75% regionalized but this subsequently proved hard to achieve because the Secretariat for Planning found it increasingly difficult to regionalize the investments of the different ministries. Regionalization of the budget ran into the same difficulties. It is not therefore surprising that a parallel route was about to be selected when it was decided to dramatically increase the investments devoted to regional development. Recourse to Special Measures; the Special Regional Development Fund (FSDR) 6.82 Established in 1973 the Special Regional Development Fund (FSDR) was originally intended to finance special programs in the most disadvantaged provinces. Its initial appropriation of DH 300 million was raised to DH 2.3 billion following the Erfoud speech. These funds were to make it possible to finance the new projects identified and proposed by the regional assemblies during the review of the Five-Year Plan. - 300 - 6.83 The use of FSDR funds is characterized by a special procedure as simple as it is quick. FSDR loans are exempted from prior approval of expenditure commitments and control by the Procurement Committee. A large part of these loans are delegated to the Governors, who then assume secondary responsibility for them. The only form of control retained at the central level is done by the State Secretariat for Planning and Regional Development (FSDR Committee) and consists of checking to see that the project is technically ready and does not duplicate any other project. The general eligibility criterion for FSDR loans has been based on a policy of favoring the poorest provinces, but in practice the "'ready for execution" criterion has predominated. Experience indicates moreover that it is at this level that the bottleneck did develop. 6.84 Statistics published in the 1978-80 Plan indicated that the poor provinces and those of the South have benefited most from FSDR credit. The Central and Northwest regions have nevertheless received one-quarter of the total. The following is the breakdown (in %) of FSDR credit to the different regions: 1. South 20.9 2. Tensift 9.5 3. Central 13.4 4. Northwest 11.5 5. North-Central 6.9 6. East 10.2 7. South-Central 9.0 8. Recovered Saharan provinces 14.7 9. Nonspecific 3.9 Total 100.0 6.85 The Three-Year Plan for 1978-80 noted that comparison of the share of investment expenditure included in the regular budget for the period 1973-77 for the ten most disadvantaged provinces (10.5%) with that for the Casablance-Rabat-Kenitra area (30.8%), showed that the national plan did not take the poor provinces sufficiently into account. On the other hand, out of the total FSDR credit of approximately DH 2 billion to the different provinces, the share of the same ten provinces was 30.1% as against 8.8% for the Casablance-Kenitra region, which helped to correct the distortions that existed at the outset. In terms of sectoral distribution, FSDR gave priority to small-scale infrastructure, with more than 50% of investments going to education, health, rural electrification, tertiary roads, drinking water supply and sewerage. It is apparent, however, that priorities assigned at the local level have often tended, for example, toward street lighting instead of sewerage. In addition, fragmentation of investments among too large a number of projects was not avoided. - 301 - Failure of Industrial Decentralization Measures 6.86 Industrial decentralization is one of the key components of any regional development policy. However, at the present early and fragile state in the country's industrial development, it is of course important to avoid discouraging private investment in industry by any excessive location constraints, and the decentralization policy must therefore be differentiated according to the location constraints of enterprises. A regional development policy is essential nonetheless in order to counter the tendency towards excessive concentration of industries along the Casablanca-Rabat-Kenitra axis and to encourage better distribution of economic activities. With this in mind, the 1973 Investment Code offered ten-year tax holidays for enterprises establishing themselves outside Casablanca. The exemption allowed is 100% for the provinces of Tetouan, Tangiers, Al Hoceinna, Taza, Nadar, Oujda, Ksar el Souk, Ourzazate, Tarfaya and the district of Essaouira. These incentives seem to have had hardly any effect. 3. KEY ACTIONS AND PROPOSALS FOR THE 1978-80 THREE-YEAR PLAN 6.87 Unquestionable strides were made in terms of regional development during the 1973-77 Plan, which proved a decisive period. Some major structural changes were made. It is of course too early to assess the real impact of the measures taken. The foregoing analysis pointed up the progress made but also revealed a certain number of gaps, inadequacies and obstacles. In order to move on to further progress in regional development, it is essential that the deficiencies brought to light during the execution of the 1973-77 Plan be remedied. 6.88 A certain number of key actions are crucial for the future, viz.: - Integrating the regional development strategy in a comprehensive physical planning policy at the national level; - Strengthening of the regionalization procedures of the Plan and the budget; - Strengthening of the decentralization measures. The proposals contained in the 1978-80 Plan and analyzed below do not always seem to offer satisfactory solutions. This seemed to be due partly to the conditions and circumstances in which the Plan was prepared, but the root cause seems to be that certain basic decisions were not taken. This hesitation was reflected in the Plan as regards the relative importance to be given to decentralization and deconcentration, i.e. the actual role to be played by the local authorities, and as to the advantages of retaining special procedures as against strengthening the ordinary legal procedures relating to regionalization and the financing of expenditures associated with regional development. - 302 - The Need to Make the Regional Development Strategy an Integral Part of a National Physical Planning Policy 6.89 The Three-Year Plan did not indicate any change in general orientation from the preceding Plan. The objectives remained strictly identical and were expressed in terms that were equally broad. In the context of general policy guidelines, the 1978-80 Plan did, however, indicate the major elements of intended Government actions as follows: - Strengtbening the role of the local authorities and their human and financial resources; - Continuing efforts to promote participation by the population in development; - Reduction of social and regional imbalances by using a fresh approach based on selecting the infrastructure for the most disadvantaged segments of society, according to the size of the centers; - Strengthening of development poles; - Development of new mechanisms for implementing physical planning policy: national plan for physical planning backed by a physical planning charter which would serve as the reference frame for regional infrastructure plans and strategy. In this respect the Three-Year Plan added little that was new, aside from confirming the shift in emphasis towards the segments of the population that are the least privileged in terms of social infrastructure, and recognizing the need for physical planning. 6.90 Drawing the lessons from the previous Plan, the 1978-80 Plan recognized quite clearly the drawbacks of the lack of a comprehensive physical planning policy and the inadequacy of short-term and ad-hoc regional policies. It therefore proposed the formulation of a national plan for physical planning to serve as a frame of reference for the localization and the programming of development projects. This plan should at the same time establish a policy for the growth and physical planning of cities (urban infrastructure plan) and a strategy for controlling urbanization. The Three-Year Plan also proposed the adoption of a physical planning charter, the content of which has yet to be determined. Preparation of the national plan for physical planning would of course be the responsibility of the Ministry of Housing and Physical Planning and its newly formed Direction de l'Amenagement du Territoire (DAT -- Directorate for Physical Planning) which should, at least on a temporary basis, be provided with additional resources to enable it to prepare this basic document. DAT would subsequently be responsible for monitoring and updating the plan and ensuring that it remained consistent with other physical planning documents. - 303 - 6.91 Preparation of this national plan for physical planning will encounter the same difficulties as those previously mentioned concerning the lack of data. It does not appear advisable, bowever, to await the results of the upcoming census before moving-ahead with it. A preliminary version based on the numerous studies already made and an analysis of the regional potential and long-term prospects, could establish broad options at the national level. Later on by incorporating, if possible, the findings of the census, proposals would be refined on an overall basis and by region. The preparation of a national plan for physical planning might also offer the opportunity to reactivate the Interministerial Committee on Regional Develoment, whose chairman would be drawn from the highest level of Government, and to give a fresh impetus to regional development and physical planning policy. Strengthening of Regionalization Procedures of the Plan and the Budget 6.92 The Secretariat for Planning and Regional Development is the central agency normally responsible for coordinating the sectoral investment programs of the various ministries. Experience has shown that these programs have not always been regionalized, with the result that it has often not been possible to check that they are consistent in regional terms. This is undoubtedly the reason why it has been necessary in the past to resort to special measures, as in the case of the Special Regional Development Fund. These efforts have had limited effects, however, and greater effectiveness will only be possible through strengthening of the regionalization methods used for all investment projects. This will also call for strenghtening the attributions of the Secretariat for Planning and Regional Development in this area. It further presumes a change in the policies followed by certain ministries and the introduction of more precise regionalization procedures. In this respect the Plan made two positive proposals. The first was to institute a regionalized budgeting system, since the present nomenclature used in the finance laws does not permit the regionalization of a large part of the operations programmed. The changes made each year in the investment programs of the ministries therefore inevitably entail changes with respect to the regionalization of public investments initially included in the Plan. The second consisted of the regionalization of data, which would involve, in particular, standardizing the methods used to collect and process the data used by the different ministries, and, specifically, adoption of a uniform system of geographic subdivisions. Reinforcement of Industrial Decentralization Measures 6.93 Since the tax incentives aimed at fostering regionalization of industrial investments produced few results during the 1973-77 Plan, the Three-year Plan proposed to reexamine the measures included in the investment code and to explore new ones that are more directly linked with employment generation, such as: - Employment premiums calculated on the basis of the number of jobs generated; - 304 - - Assistance with personnel training for enterprises interested in establishing themselves in the poor provinces; - Reduction in operating costs (reduction of social security taxes); - Reduction in industrial fuel costs: the present price scales which are fixed according to location are disincentives to regional development. 6.94 Aside from any incentives given in the form of premiums or tax relief, the following measures adopted by many developed and developing countries for diverting industry from metropolitan areas could be considered: - Levies calculated per m2 or per job created in areas where there is excessive concentration of industry. The rates should be differentiated according to type of areas, which should in turn be defined according to geographic priorities as regards employment generation. The proceeds from these levies could be used to offset the cost of premiums granted in other areas; - Approval, i.e. prior authorization for the establishment of any enterprise in the Casablanca and Rabat region above a certain specified size. This system would be the surest way of preventing further concentration of the current economic activities and promoting better distribution of industry. A special authority, whose composition would be decided on later, would be responsible for issuing such authorizations; - Control over the establishment of industrial parks in conjunction with that over the establishment of enterprises, exercised at an appropriate level and by an authority responsible for industrial decentralization. 6.95 However, should the Moroccan Government decide to strengthen the industrial decentralization measures already underway, this decision would have to be based on a thorough cost-benefit analysis. It is important to remember that the urbanization process embodies certain economic and social advantages. The per capita costs of water supply, sanitation, electri- fication or construction of a health infrastructure are lower in urban areas than in rural areas, simply because of the higher density of the population. It is therefore possible for basic needs to be satisfied in the cities at a lower cost to the community, at least in cities of up to a certain size. The presence of a diversified infrastructure and of skilled labor in the urban areas is also a factor that reduces the production costs of businesses in the cities. In fact, it is only in particular cases that location in rural areas (for example, near the sources of raw materials) can offer any definite economic advantages. - 305 - 6.96 Moreover, industrial concentration and excessive size of urban agglomerations are often confused. Thus it is often assumed both that the growth of cities should be limited and that industrial decentralization should make it possible to attain this objective. For purposes of clarity, the factors responsible for urbanization should be separated from the factors responsible for industrial concentration. In Morocco's case, as in that of many other countries, the excessive growth of the urban areas if due mainly to the rapid increase in the population and in the resultant migratory flows. This being the case, a reduction in overall population growth should make it possible to limit the urban population increase. 6.97 In the case of Morocco, the effects of rapid population growth have been heightened by the rate-setting policy for public services and the investment policy hitherto pursued. As mentioned earlier, infrastructure distribution is extremely uneven. The large agglomerations used to be considerably better off in terms of basic infrastructure than small towns or rural areas. In the urban areas, most of the prices of public services (water, transportation, electricity, etc.) and those of the principal food products were subsidized. In the rural areas, however, these subsidies benefited only few households with access to existing public services. To the extent that past policy has resulted mainly in improving living standards for urban households, in particular in the major agglomerations, it is hardly surprising to note that migratory flows have gravitated toward the cities. Although no precise data is available, it is also likely that the subsidies made it possible to limit the increase in urban wages, thereby adding to the attractiveness of large cities for businesses and severely limiting the incentives of the tax benefits provided for in the Investment Code in order to favor industrial decentralization. 6.98 Lastly, it should be noted that the urban growth process in Morocco, as opposed to certain other developing countries, is characterized by the development not only of a major agglomeration (Casablanca) but also by the expansion of a well-integrated network of urban centers. In this sense, the urbanization process does not so far seem to have resulted in an excessively unbalanced urban structure. On the other hand, the rapid growth of the population, the uneven distribution of public services, and the rate-setting policy so far pursued are all factors aggravating the spatial distribution of the population, and should receive particular attention. In this context, the policy of industrial decentralization should, as in the past, proceed with caution, and the Government should determine which businesses or industries can be decentralized, rather than opting for nonselective limitation on the growth of industrial areas. 6.99 As part of the development of regional development poles, the creation of industrial parks could be considered, and they could accomodate industries that would be out of place in the Casablanca area. In this connection ODI has initiated a study on the establishment of industrial parks throughout the country. The cost of developed sites could also provide useful leverage for decentralization. The current market situation should be analyzed and proposal of a differentiated rate structure and equalization scheme might prove helpful. The advantages of establishing a land agency or a specialized public corporation could also be explored. - 306 - Conclusion 6.100 The 1978-80 Plan was primarily an austerity plan characterized essentially by a reduction in the growth rate of investment. On a certain number of points it drew the appropriate lessons from the deficiencies of the previous Plan and proposed consideration of some positive measures. It actually amounted to a transition stage which the authorities hoped to use to prepare for a resumption of economic growth; any assessment of the regional development proposals contained in the Plan must be made in this light. After examination of the factors that are likely to affect progress in regional development and of the proposals contained in the Three-Year Plan, it is apparent that much indecision remains on certain very basic issues. These hesitations, concerning essentially the roles to be played by the local authorities and the State, on the one hand, and the vigorousness of regional planning methods on the other, need to be resolved so that there can be some chance of the present regional disparities being reduced in the years ahead. D. URBAN DEVELOPMENT 6.101 Morocco is already a highly urbanized country faced with very rapid urban growth and the serious problem of trying to improve the living conditions of the population currently living in the medinas (inner cities) and bidonvilles (shantytowns). The large urban settlements, which are receiving a high proportion of the new population, are under particularly heavy pressure, which is generating in turn a steadily mounting demand for employment, housing and urban services. In view of the increasing problems of the cities, the Moroccan Government at the beginning of the 1973-77 Plan introduced a new urban development strategy which seemed to offer an adequate answer. First the problems raised by urbanization in Morocco will be reviewed before proceeding to evaluate the results of the strategy implemented during the 1973-77 Plan. After having analysed the problems encountered, a certain number of key actions will be proposed which will be considered alongside the proposals of the 1978-80 Three-Year Plan. 1. URBAN DEVELOPMENT PROBLEMS IN MOROCCO IN A CONTEXT OF RAPID URBANIZATION 6.102 The rapidity of urban growth is the first source of problems. This is primarily the result of internal and external demographic pressures, i.e. in both the cities and in the rural areas, which converge in the urban areas and are all the stronger because Morocco does not yet have an effective population policy. The most serious problems Moroccan cities have to face are the shortage of jobs, of developed building sites, and of housing and urban services. The gap between supply and demand creates a situation where those who can pay are served first. This is reflected in the way in which urban development is taking place, with an increasing contrast between the areas with services and those without, the latter being where most of the poor live. - 307 - Rapid Rate of Urbanization 6.103 The rate of urban growth in Moroco is extremely rapid. As noted earlier, the urban population grew at.an annual rate of 4.3% between 1960 and 1971, which was much higher than the growth rate for the population as a whole (2.6%). In mid-1978 the urban population made up about 40% of the country's total population, as compared with 35% in 1971 and 29% in 1960. It is expected that over half the population will be living in urban areas by 1990, and the urban population, estimated at 7.2 million in 1978, will then have practically doubled. To put it more graphically, this means that each and every day the cities will currently have to receive another 1,000 people, or alternatively, the annual growth of the urban population is equivalent in size to the population of the city of Meknes. 6.104 As mentioned in Section C, the urban population is concentrated primarily in the largest cities. In 1971, the 11 cities with more than 100,000 inhabitants accounted for 70% of the total urban population. Urbanization problems are therefore the most accute in these cities. The population of Casablanca alone grew by about 500,000 between 1971 and 1978. High Proportion of Low-Income Households!! 6.105 Most of the poor live in bidonvilles. The surveys conducted in 1976 and 1977 in Rabat in the bidonvilles of Douar Doum, Maadid and HajjaZ2/ indicate that a large proportion of the households living there had very low incomes. The median monthly incomes per household found in Douar Doum, Maadid and Hajja were DH 275, DH 310 and DH 430, respectively. The median monthly expenditures on housing were Dh 36, Dh 70 and DH 100, respectively, or about 25% of total income. The 1971 consumer survey indicated that in urban areas 22.6% of expenditure went on housing and 44.7% on food; it further established that 50% of the population accounted for less than 20% of total consumption expenditures. 6.106 The rural origin of a large part of the urban population adds a further element to the problem of low incomes in that, at least to begin with, these are people who do not have jobs or who work only occasionally. Rural poverty thus simply becomes urban poverty. The proportion of young people in the population (46% under age 15 in 1978) and the large sizes of the households are two additional factors. They also explain the overcrowding of dwelling units and are factors that eventually aggravate the demand for housing. Contrasting Forms of Urbanization 6.107 The different forms of urbanization reflect the successes and the failures of the Government's efforts to plan and control urban development. Some areas are extremely well planned and laid out with all necessary services while other have sprung up in a spontaneous and clandestine fashion without any prior planning. The tenure status of the sites and the land 1/ See Chapter V. 2/ In connection with the preparation of the Rabat urban development project. - 308 - valuesl/ have often determined where new low-income as opposed to high-income housing will be located. There are major differences in housing density among districts. Several different types of district can be identifiedz (1) Medinas, the traditional central districts with narrow streets where the housing density is approximately 100 units per hectare while the population density often exceeds 600 persons per hectare and is occasionally as high as 1,500. The overcrowding of the medinas, which received much of the immigrant flow in the past, is responsible for many problems (infrastructure, deterioration of facilities, housing, etc.) that call for dedensification and rehabilitation measures. (2) Modern central districts which provided an important reserve of quality housing when the Europeans left. They were rapidly appropriated and are generally well maintained. (3) Residential districts. In addition to the residential areas that date back to colonial days some new residential developments have sprung up, which are highly space-consuming because of the size of the lots (1,000-2,000 mZ) and the low densities (10-20 houses per hectare). This type of urban development, which is very widespread, is proving extremely costly and has often taken up the bulk of the available resources. A reduction in lot size is essential as well as the construction of high rise buildings. (4) Traditional multifamily private housing is very widespread throughout the country, which would seem to indicate a strong demand. These dwellings, built in several stages, consist of a ground floor for commercial use and then one or two stories, plus a terrace roof, on lots approximately 100-150 m2 in size. Practically all the space is utilized. (5) Low-cost housing programs are extremely varied. Morocco has had long history of pilot experiments in the areas of low-cost housing, ranging from the new medinas in Casablanca (50-60 lots per ha with 50-80 m2 lots), to the "Grille Ecochard", named after its originator (30-60 lots per ha with 60 m2 lots) and the more recent core-unit housing programs. Some of these developments have densities that are higher than originally planned and this has caused some problems. The trames d'accueil (serviced lots) and the zones a equipement progressif (lots with phased provision of sites and services) included in the 1973-77 Five-Year Plan were dropped even though demand for them was heavy and increasing and despite the fact that no other solution was forthcoming to curb the development of bidonvilles. 1/ Bidonvilles generally develop on land whose ownership is legally uncertain. - 309 - (6) For want of any alternative, the bidonvilles are still the most common type of housing for the poorest segments of the population. No precise data are available as to their size and the numbers living in them. On the basis of the 1971 census and other surveys made around the same time it was estimated that the proportion of the urban population in unsatisfactory housing was 30%, with 10% of these living in medinas and clandestine douars and 20% in bidonvilles. It is estimated that 25% of the population now live in the latter but in spite of the numerous surveys that have been made no precise compreehensive data are available. It is imperative that the next census fill this gap. 6.108 In some of the very long-established bidonvilles (the first date back to 1918), some concrete construction has replaced the shacks. Some minimum public services (standpipes, electricity, garbage collection) have been provided by the municipalities. Sanitation is still a problem that is rarely solved and many bidonvilles do not have even minimum services. However difficult the solution to the problems might be, it is nevertheless imperative that one be found. Capacity for savings and the possibility of self-help construction have both been underestimated. Bidonville-dwellers do in fact pay a comparatively higher rent and higher charges for certain services than the rest of the population. 6.109 The longstanding policy followed in Morocco has been to try to do away with bidonvilles, which would obviously entails relocation of the inhabitants. This policy, which is costly in both social and economic terms, simply reduced the supply of housing and finally shifted the problem elsewhere without producing any convincing results and now seems to have been abandoned in favor of rehabilitation schemes. The bidonville problem is undoubtedly a key issue. Bidonvilles are in fact likely to grow in numbers and in size unless solutions are implemented to meet the growth in urban population. Because of their high densities they are localized and occupy only limited areas. Their importance should not, however, be viewed only in terms of space consumption. By contrast, low-density urban development has absorbed too high a proportion of resources in relation to the numbers of people housed. Land use standards will also have to be lowered. The Chief Problems 6.110 The main development problems faced by Morocco and brought on by the extremely rapid pace of urban growth are essentially the very same ones that are the most acute in the bidonvilles: under-employment, shortage of serviced sites and housing, lack of basic urban public services, absence of proper planning and control, inadequate administration and shortage of funds. The question of employment is considered elsewhere; this review will therefore be limited to the problems of infrastructure, housing, services and urban planning. - 310 - 6.111 Urban Development -- provision of services. The doubling of the population within the next 15 years will result in a disproportionately large expansion of urban centers. Although no precise data are available, the additional area required per year for housing is estimated at over 1,000 ha. The amount of space consumed will also depend on the standards adopted as regards density and infrastructure (for roads, for industrial activities). 6.112 In view of Morocco's particularly rapid urbanization, which makes control of urban development more difficult, two alternatives are possible in terms of urban policy. The first consists in providing new urban districts with all the required services and amenities. This would amount to channeling almost all available technical and financial resources to a few urban areas; it would permit only partial control of urban development and would allow the bidonvilles to go on growing. The second alternative, on the other hand, would involve stagewise provision of services but would lend itself to more complete control over the urbanization process, the resources available being concentrated solely on provision of basic infrastructure. 6.113 Demand for housing. The expansion of the bidonvilles and the overcrowding of the medinas result from the pressing demand of the poor and an insufficient housing supply. Demand from the middle classes is also very strong; total housing needs were estimated as follows just before the beginning of the Five-Year Plan, by income category: Number of Housing Units by Income Category (per household and per month) Year DH 0-175 175-350 350-1500 Total 1973 204,000 92,000 95,000 391,600 to 1977 234,800 142,600 223,100 600,500 to 1982 272,200 207,200 426,500 905,900 to 1987 303,000 273,200 694,500 1,270,000 Source: National Development Plan 1973-77, Volume II, p. 456. 6.114 The shortfall in housing which was put at 390,000 units in 1973 is thought to have risep to 800,000 by 1977, according to more recent estimates. In order to meet the demand of the additional population, 70,000 units would have to be built each year at least in order to avoid overcrowding of existing housing and deterioration of present living conditions. Demand is continuing to grow faster than supply, even though the latter doubled between 1973 and 1977. The inability of supply to keep pace with demand requires that an increasing number of housing units be produced as part of an investment program which, in terms of relative value, can be only slightly increased, so that expansion of supply will have to be sought through reduction of unit production costs and lowering of the standards adopted. - 311 - 6.115 Basic infrastructure. In 1971, 48% of the households did not have running water!7, 32% did not have electricity and 45% did not have sanitary facilities. Certain districts, the bidonvilles in particular, were almost totally devoid of basic urban services (water, electricity, sanitation, garbage collection). The cost of individual connections is also often excessive even when the systems are available. An area-specific inventory showing the level of infrastructure services in the various residential areas would make it easier to identify the main areas most lacking and to establish infrastructure priorities. No complete inventory of this type exists. Moreover, the policy of eliminating the bidonvilles had been in the past a major obstacle to any improvement in the infrastructure and services provided in them. 2. EVALUATION OF THE RESULTS OF THE URBAN DEVELOPMENT STRATEGY OF THE 1973-77 FIVE-YEAR PLAN 6.116 The 1973-77 Plan introduced a basic change in approach to urban development. The previous plan had placed the emphasis on rural development and housing in the hope of slowing migration to the cities. In the face of the scale and pace of urbanization, the increase in the bidonvilles and the densification of the m6dinas, the 1973-77 Plan had to adopt a more realistic strategy and devote more resources to the development of urban agglomerations. 6.117 The basic decisions and underlying principles of the program and the measures proposed in the 1973-77 Plan were as follows: - Increased State participation in the area of urban development and particularly in terms of providing infrastructure; - Phased provision of infrastructure and services (zones d'equipment progressif) and sites and services schemes (trames d'accueil); - Meeting the housing demand first of the income groups able to pay (within a five-year period), then of those with low income (over a 15-year period); - Limiting non-recoverable Government outlays. 6.118 A retrospective analysis shows that this strategy was quite consistent and contained many positive elements. It also reveals two fundamental shortcomings, however: (1) This strategy did not assign priority to meeting the needs of the poorest groups; and 1/ In urban areas. "Running water" is defined as the water supplied by the regies or by ONEP. - 312 - (2) It did not include any action or program for upgrading the medinas and bidonvilles. Elimination of the latter was in fact implicit in the program to reduce the number of "substandard" housing and in the "social program". A most important and highly positive turnaround in the strategy regarding the latter area came toward the end of the plan period with the preparation of the Rabat urban rehabilitation project and the decision to upgrade slum areas. 6.119 Analysis of the results of the Five-Year Plan points up major deviations from the entire strategy initially adopted by the Plan. They can be briefly summarized as follows: (1) As regards housing there was a shift in the programs toward meeting the needs of the middle-income and well-off groups of the population. The phased provision of infrastructure and services could not be implemented and the alternatives adopted were much smaller in scope than the actions initially planned. The loans for housing construction and purchase went to the better-off segments of society. In a move quite contrary to the strategy adopted, the Government took direct charge of housing construction; (2) With regard to site development, although an unprecendented effort was made to purchase and prepare land for housing, the placing of developed sites on the market proceeded very slowly; (3) Efforts to control urban development proved ineffective despite efforts to establish master plans and development plans for the major agglomerations, and squatter housing expanded alongside; (4) The institutional and regulatory structure was not strengthened as much as was planned to optimize the results sought, which also cost more and took longer than planned. The Slippage in the Housing Program 6.120 In 1971, just prior to the Five-Year Plan, urban housing consisted of 510,000 good-quality units, 153,000 mediocre units, 153,000 decrepit units and 204,000 units classified as substandard. Needs were calculated on the basis of the existing deficit, the rate of urban growth and housing renewal plans (over a 50-year period) and broken down by household income level based on the findings of the 1971 consumer survey. The Plan estimated that the needs of the income groups able to afford housing could be met within five years and those of the poor groups within fifteen years. The programs were tailored to these objectives and comprised, in particular, provision of "trames d'accueil" (site and services schemes) to cater for the inhabitants of certain bidonvilles, "zones a equipment progressif" (quarters with phased provision of infrastructure and services), scheduled for implementation over 5 or 15 years, and low cost housing programs with subsidized loans (Habitation a Bon Marche). Altogether these schemes were meant to make up almost two-thirds of the estimated deficit by 1977, as shown in the following table: - 313 - Household income!/ Distribution Government Programs (in thousands) (DH/month) (% of households) Projects planned Deficit for 1973-77 End '73 End '77 0 - 175 14 722/ 235 163 175 - 350 23 1203/ 143 23 350 - 1500 49 1954/ 223 28 0 - 1500 86 387 60 214 1/ At 1971 prices. 2/ 22,000 of which were "trames d'accueil" and 50,000 "zones a equipment progressif sur 15 ans" (ZEP 15). 3/ "Zones a equipment progressif sur 5 ans" (ZEP 5). 4/ 120,000 under the "Habitation a Bon Marche" (HBM) scheme and 75,000 in the form of private rentals. Source: Development Plan 1973-77, Volume II. 6.121 A prerequisite for the execution of this program was the immediate adoption of a certain number of measures. In the absence of these measures, whose implementation required that certain land, financial, legal and institutional problems be initially solved, the "trames d'accueil" and the ZEP 15 and ZEP 5 programs had to be quickly abandoned. These programs were instead converted into a social program designed to combat bidonvilles, with a target of only 16,000 housing units. The net result was a considerable slippage in the program to the benefit of the better-off groups. In fact, the following figures for the estimated number of units (in thousands) built during the 1973-77 Plan indicate that realizations consisted mainly in programs similar to the low cost bousing program (H.B.M), which benefit households with relatively high income. Household Income (DH/month, at 1977 prices) 1/ Category 300-600 600-1500 1500-3000 3000+ Total ERAC - - 6 10 16 Public agencies 48 11 66 - 124 Private - - 39 56 95 Built by owner - 40 - - 40 Total 48 51 111 66 275 Percentages 17 18 41 24 100 1/ Establishments Regionaux d'Amenagement et de Construction. Source: Ministry of Housing and Physical Planning (MHAT). - 314 - 6.122 As evidenced by the amount of investments in housing and the cement consumption figures,construction activity was sustained and increased sharply during the Five-Year Plan. However, because of the standards adopted the actual pace of construction was slower than it should have been. The number of housing units for which building permits were obtained more than doubled during the period. From less than 20,000 in 1973 it rose to over 40,000 in 1977. A total of 145,600 units was authorized during the Five-Year Plan. In order to estimate the number of units actually built, construction delays for authorized housing and the number of housing units built without permits (the latter being estimated at almost 30% by MHAT) must be taken into account. Allowing for this, the number of units built during the 1973-77 Plan can be roughly estimated at almost 275,000. 6.123 Compared with the Plan, apparently only half the envisaged number of unis were actually built. Allowing for those built without permits, it would appear that the present rate of construction is close to the minimum level necessary to prevent a deterioration in housing conditions. There is every indication that the overcrowding in the medinas and bidonvilles in particular has recently worsened.-/ Investments in housing have risen very sharply, however, and accounted for 14% of gross fixed capital for- mation over the period. The Plan had forecast investments in housing equi- valent to DH 5.7 billion, while the actual volume was DH 6.5 billion 2/ although only half the physical program was implemented. Increased construction costs are partly responsible for this, 3/ but the real cause was the fact that the units concerned were built to very high standards for the middle class and wealthier segments of society, (115 m2 on average per unit). The housing loan system fostered this trend by charging relatively low interest rates and by not imposing any rules as to building area. The average area of units financed by CIH was 150 m2, the average unit value DH 150,000 and the average loan granted DH 81,000 per unit, figures that are extremely high. Obstacles to Increased Production of Building Sites 6.124 As concerns the provision of sites and services, Government's efforts during the Five-Year Plan were insufficient in relation to demand. The Plan had planned a massive program to produce serviced building lots. For this purpose a land reserve of 3,000 ha had been formed in 1972 and subsequently expanded to 13,000 ha. About 4,000 ha were purchased and resold, 3,700 ha appraised and surveyed and 1,200 ha are currently in the process of acquisition. The Fonds National d'Achat et d'Equipement des Terrains (FNAET), a fund established in 1973 to purchase land and provide 1/ A survey made in Agadir in 1978 shows that the occupancy rate of housing had risen from 4.6 to 5.6 persons per unit and that 26% of the population lived in bidonvilles. 2/ Equivalent to DH 5.1 billion in 1972 dirhams. 3/ The cost of cement rose by 57% between 1976 and 1977, mainly because of short supply. Since 1975 local production has been insufficient to cover demand. - 315 - infrastructure for housing, has not had the impact desired because of the long drawn-out acquisition procedures. Moreover, down-payments by private individuals have been put into a special budget account (No. 4112), which has slowed operations considerably. The existence of several public lands on the outskirts of cities and the virtual monopoly of the public authorities over the provision of infrastructure offer substantial advantages, however, provided Government action is further decentralized and made more flexible and proceeds faster. The cost of acquiring public domain land ranges from DH 2 to DH 8 per m2, while the cost of private land was on the average DH 8.27 per m2 over 1974-78. Prices vary considerably from city to city. 6.125 Besides the foregoing obstacles to the production of serviced lots, it should also be noted that there is rarely any consistency between the urban development policy as set forth in the master plans and development plans on the one hand, and actual land purchasing by the State, on the other. Better coordination is essential for consistent urban development. Strengthening the Planning and Control of Urban Development: Advantages and Problems 6.126 According to MHAT figures, out of a total of 275,000 housing units built in 1973-77, 196,000 were done with building permits and 79,000, i.e. 29%, were built without authorization. The "nonpermit" construction can be broken down as follows: - 50% of the ERAC program 1/ 7,000 - Additional stories under the social program 32,500 - Self-help construction in concrete by individuals, put at 20% of the units built with authorization 40,000 6.127 Urban development control does extend to a large proportion of the housing, but in one way or another (ERAC) it is far from being complete or satisfactory. Some bidonvilles spring up spontaneously since the pressure is very strong and the people evade the control of the authorities to an extent that is difficult to pin down. In many cases formal control is not in fact possible, because the issue of a building permit implies the existence of a subdivision, a development plan or a zoning plan. When such plans are nonexistent or not applicable the local authorities simply close their eyes and yield to the pressure of the demand, making do with a form of informal control. The practice has serious drawbacks for them, since they cannot then collect initial installation charges (as they do when a building permit is issued) or local taxes, as the buildings concerned have no legal existence. 1/ Etablissements Regionaux d'Amenagement et de Construction (Regional Development and Construction Establishments). - 316 - 6.128 These arguments would therefore point to the need for more effective control, which in its turn is dependent on the existence of land subdivision plans that are in turn dependent on urban planning documents. Approval of a subdivision indeed requires observance of an enforceable development plan. Some 261 development plans have been approved but many are now outdated and no longer suitable for use as a basis for the issue of building permits. This is a potential obstacle that is all the more serious in the short term since MHAT, quite understandably, has preferred to place the emphasis on master plans, which are not enforceable but are intended to serve as a framework for development plans, and guidance for public investments. The Five-Year Plan did in fact stress the preparation of master plans. Provision was made for such plans in the 1971 bill, but they still have no legal existence. Two master plans have been completed so far (Rabat-Sale and Fes) and some others are under preparation (Beni Mallal, Meknes, Agadir and Marrakech). Those for Tangier, El Jadida, Oujda, Kenitra, Nador, Tetuan and Casablanca will be started in 1979. Progress is behind schedule somewhat, which appears to be due partly to technical difficulties, but probably also to the consultation required with the local authorities, which is proving most valuable but inevitably slows matters down. A Regulatory and Institutional Framework Strengthened but Still Not Strong Enough. 6.129 The 1973-77 Five-Year Plan envisaged major regulatory and institutional changes to help implement the planned urban development program. A bill was accordingly drafted for this purpose, comprising a consistent set of regulatory and institutional provisions concerning housing and land and urban development 6.130 The regulatory and fiscal measures were intended to facilitate land acquisition. The expropriation procedure (dahir of April 3, 1951) was to be amended and streamlined, a right of pre-emption by the Government or the public establishments in areas covered by development plans was to be introduced, and a land-purchase fund independent of the budget was to be set up to back-up the program of the land agencies. The Fonds National d'Achat des Terrains (National Purchase Fund) (FNAET) and the ERAC were created. The "zones a equipement progressif" (ZEP 5, ZEP 15, "trames d'acceuil") were set up and they were implemented under the social program with certain adjustments to make them feasible. The regulatory and fiscal measures were also intended to give greater control over urban development and the land market. The planned recasting of all legislation on urban development (master plans and land use plans) was not carried through. A certain number of master plans were nevertheless prepared. Similarly in connection with the reform of communes, the 1978 budget established a certain number of local taxes: a taxe urbaine, a real estate profits tax, a tax on urban land, which includes a once-and-for-all tax on all land in urban areas whether built-up or not and an annual tax on nonbuilt land based on the market value of the land and designed to combat speculation in such land. These taxes form a quite consistent system, but their effectiveness will largely depend on how they are applied. They have two objectives which could conflict: that of increasing local authority revenues, on the one hand, and that of - 317 - preventing the hoarding of land and encouraging construction, on the other. While the annual tax on nonbuilt land meets the latter aim, the tax urbaine has had the contrary effect, and the 1979 budget introduced some relief measures designed to revive the rental market. The proposed regulatory measures, finally, were intended to make it possible to provide low-income households with partly serviced lots, plus security of tenure. 6.131 The institutional framework has also remained weak. Land development (acquisition and provision of serviced lots) has essentially been carried out by the Government. Although the communes have had their roles and their resources strengthened, their actual powers have remained limited, not extending beyond day-to-day management. Their action has consisted essentially in making up certain backlogs in the laying-in of infrastructure (sanitation and roads). Some municipalities have, however, performed land subdivision work. MHAT has exercised a virtual monopoly, either directly or indirectly, as regards land purchase and development for building. MHAT's regional offices have played an important role locally in both the study and the preparation of land subdivision projects. 6.132 FNAET, created in 1973 for the purchase and readying of land for construction, is managed by MHAT (Land Affairs Division). The various tasks involved have absorbed the greater part of MHAT's resources and energy, at the expense of its national responsibilities in terms of providing the sector witb the required supervision as regards housing standards or credit policy for construction. 6.133 This lack of effective supervision has become particularly evident and disturbing in connection with the ERAC. These were set up in each of the seven economic regions for the HBM housing programs, but quickly ran into major financial difficulties that brought work on the sites to a halt. The advance payments made by individuals and financial institutions proved insufficient for completion of the programs, which were for that matter aimed at better-off segments of the population and therefore out of alignment with what should have been their real purpose. Inadequate management due to a shortage of qualified personnel and an over-hasty start was also a factor. The ERAC programs need to be overhauled and the management system strengthened if these agencies are to function as intended. The emphasis should moreoever again be more specifically on site development than on construction. 3. KEY ACTIONS AND PROPOSALS OF THE 1978-80 THREE-YEAR PLAN 6.134 Despite the very rapid increase in investments in urban infrastructure and housing during the Five-Year Plan only half the planned housing program was actually carried out. The shift of the housing program toward the better-off segments of the population was a particularly serious matter. A certain number of bottlenecks also became apparent. By the end of the 1973-77 Plan, specific corrective measures aimed particularly at the following were clearly needed: - 318 - - Revision of the urban development policy; - Redefinition of roles and strengthening of the supervision of the sector; - Speeding up of the production of sites for building; - Lowering of the standards adopted and of the unit costs of housing and infrastructure; and - Improving of the financing system for housing. 6.135 The 1978-80 Three-Year Plan essentially proposed to study some of these measures and to complete the operations under way. The necessary reorganization was therefore to take place in the context of a slow-down of production. Analysis of the economic situation, however, would appear to indicate that a stepping-up of building activity would be desirable. Revision of Urban Development Policy: the Strategy Defined by the 1978-80 Three-Year Plan 6.136 The shift of the housing program to the advantage of the less-than-needy called for a change in course and some vigorous steps. Otherwise the growing needs of the lower-income groups would have led to uncontrolled urbanization and an alarming proliferation of new bidonvilles. The aim of the Three-Year Plan was to remove certain specific land-related legal and financial bottlenecks. The State's program of action was very limited, consisting essentially of completing operations now underway and a few new ones of special urgency. In the context of austerity that characterized the Third Plan, greater recourse was to be made to the private sector to meet the needs of the population. The most innovative features of the Three-Year Plan's strategy was related to rehabilitation of the bidonvilles, which is now an official national goal. 6.137 The goals set down in the Plan were the following: - Completion of programs already underway, while seeking to modify their standards so as to make them more socially-oriented and less costly; - Assignments of a certain priority to rehabilitation of the medinas and bidonvilles; - Launching of a vast assisted self-help construction program; - Fostering the promotion of private and semipublic home building; - A return to construction plans and designs that are better suited to actual needs, and - Preparation of further master plans and provision of enforceable development plans for metropolitan areas. - 319 - 6.138 The program proposed is a clear indication of the modest scale of the Government's intervention. Government investment amounts in fact to DH 225 million for urban housing and urban development. Funds carried over account for one-fourth of the housing appropriations and 90% of those for urban development studies. No estimate has yet been made of the amount of private investments. The program was based on the implementation capacities observed in previous years. 6.139 The housing program is as follows: (1) Low-cost lots. Two formats are planned. First the basic low-cost lots (12,000), with minimum services, prefinanced through FNAET. Technical assistance will be provided but the actual construction will be left to the individual. Secondly, there will be assisted low-cost lots (300 units). Beneficiaries of this pilot program will also receive (repayable) assistance in the form of construction materials; (2) Complete HBM lots (87,000 units). With all services laid on and prefinanced by FNAET, these programs will form the bulk of MHAT's action. New features will be higher density and better integration, infrastructure provision being taken into account, while a broader spectrum of the population will have access to them (incomes ranging from DH 600 to DH 3,000 per month); (3) ERAC Programs. The programs already under way will be completed, i.e. 14,884 units, and a number of new programs will be launched, designed to provide medium cities with low-income housing (cost of each housing unit: DH 60,000-140,000); (4) Promotion of home building (54,000 units). These programs are the chief innovation and second key component of the housing policy advocated by the Plan. The activities of private and semipublic corporations (CGT, OLM, CIFM) will be coordinated with those of the Government. These corporations will be able to build on land purchased and developed by MHAT but will have to submit their programs for approval. These must not exceed a total real estate value (VIT) of DH 150,000 and must be intended for the DH 1,000 to DH 3,000 income groups. Above this VIT the private sector will have to use private land. Altogether these measures ought to produce nearly 170,000 units during the Three-Year Plan which estimated that this was the number of units that needed to be built each year. In actual fact the projects planned should make it possible to achieve the minimum number (70,000 units per year), needed to accomodate the new population. 6.140 Some doubts can be voiced, however, about the possibility of achieving the goals in the Three-Year Plan. Based primarily on the HBM and home-building promotion schemes, this program calls for the. number of HBM units to increase from 2,000 in 1978 to 50,000 in 1980 and the number - 320 - produced by the home-building scheme from 6,000 in 1978 to 30,000 in 1980. This seems to be an extremely fast increase. The following figures indicate the construction proposals of the Three-Year Plan by income group and by category: Household Income Group (DH/month) Category Less than 600 600 - 3,000 Over 3,000 Low-cost lots 15,000 1/ - HBM - 87,000 ERAC 15,000 - Home-building promotion - 31,000 23,000 Percentages in income group: - housing 7 1/ 78 15 - population 40 48 12 1/ Excluding projets affecting small and large bidonvilles. Source: MHAT. 6.141 The second line of action planned in the area of housing concerns the bidonvilles. This project affects 36 small bidonvilles where the principal services (electricity, water, sanitation) need to be provided. With respect to the large bidonvilles, following on from the Douar Doum Rehabilitation Project in Rabat, a second project is under preparation for Kenitra and Meknes. A third project will be undertaken in Casablanca. In all, 100,000 persons are expected to benefit in the small and medium bidonvilles, and over 150,000 in the large bidonvilles, one third of these by 1980. 6.142 The strategy proposed by the Three-Year Plan has some very positive aspects, such as those relating to the rehabilitation of the bidonvilles, lowering of standards and self-help construction, for example. It is still, however, no more than a "mark-time" strategy. The authorities are aware of the need to take advantage of these three years as a period of transition and reflection to allow the formulation of a more complex strategy and the preparation of a realistic and more ambitious program of action to be implemented from 1980 onwards. In the meantime there are some obstacles and difficulties that need to be eliminated. Redefinition of Roles and Strengthening of the Supervision of the Sector 6.143 Implementation of the 1973-77 Plan suffered from a lack of supervision in this sector, which was one of the reasons for the slippages that occured. MHAT devoted the greatest part of its energies to the preparation of subdivisions for housing, at the expense of its more important function of supervising execution of the Plan and overseeing the - 321 - sector. Without supervision, public and semipublic agencies, which often did not have sufficient human and technical resources either, tended to follow strategies of their own which conflicted increasingly with the objectives of the Five-Year Plan. The Moroccan Government is aware of the need to redistribute responsibilities and reorient the Ministry's action. This will entail redefinition of the respective roles of MHAT itself and of the local authorities, subdividers and builders. The execution of far-reaching construction programs has also pointed up the need for sustained enforcement of the technical standards and regulations applying to building operations, and it is proposed to make safety inspection mandatory for structures for public use and for buildings over a certain size. 6.144 At present, land acquisition is handled by MHAT, through FNAET. This function could be assigned to one or several autonomous (regional) agencies. The Ministry would then only be responsible for formulating policy with respect to land and its acquisition. It would no longer be responsible for site development. This role would normally be performed by, inter alia, the ERAC, which should be primarily development and construction agencies. A few regional development corporations have been established (SONABA) and others are envisaged. Their development function should as a matter of course lead them to develop sites, local authorities should also be given wider powers in terms of site development and the laying on of services. The Rabat rehabilitation project illustrates that MHAT still plays a dominant role and local authorities a minor one. In view of the large areas of land to be developed, it would seem necessary to decentralize development functions as much as possible. Freed from purely operational concerns, MHAT would then be better able to shape the policies to be followed in regard to land, housing credit and standards, etc., and to supervise their implementation. Speeding up Production of Building Sites 6.145 The inadequate production of building sites is a major obstacle to urban development. It is largely responsible for land speculation. The emphasis placed on self-help construction and the concentration of public resources on bringing in the necessary services is an excellent approach for rapidly increasing the supply of housing. However, this calls for a series of land purchase and related operations which have encountered numerous obstacles that must first be removed. 6.146 At the purchase stage to begin with, it must be realized that in the absence of any land policy set jointly by MHAT and the local authorities within the context of development plans and master plans, land purchase cannot be organized as part of an overall plan. The Three-Year Plan aimed at speeding up the preparation of enforceable master plans and development plans, as a results of which it should be possible to institute an appropriate land purchase policy. A sizable land reserve of 12,000 ha has nevertheless, and most fortunately, been formed. Moroccan cities also have the considerable advantage of having large areas of public or communal land immediately around them. The acquisition of private land is still often - 322 - necessary, however, and the procedures seem to be inappropriate and much too lengthly. The long-awaited reform of expropriation measures should be implemented and at the same time the right to pre-emption by the State and local authorities should be instituted in priority urban development areas as defined under the land policy and development plans. Speedy acquisition of land is also hampered by the fact that advance payments by individuals to FNAET are currently deposited in a Treasury account, which is both inappropriate and a major source of delays. A more flexible system, offering private individuals the necessary guarantees, should be sought. 6.147 Another major cause of delay is the present system of land registration. This system, a legacy from colonial days, is much more complicated than the cadastral system and is quite unsuited to the urban context. It is therefore overdue for reform. At the present time land titles are issued at a very slow rate, the formation of a highly detailed technical dossier being required. This slows down land subdivision and development operations. The granting of housing loans, for which the obtaining of a mortgage and hence a land title are requirements, is also held up. Finally, the difficulty of obtaining security of tenure unquestionably encourages the growth of clandestine and squatter settlements and hampers control of urban development. 6.148 With regard to the provision of services and resale of the lots, the institution of an equalization system would make it possible to undertake the necessary infrastructure works and to adjust the selling prices to the means of the different target groups. Lowering of Standards and Reducing of Unit Costs of Infrastructure and Housing 6.149 Urbanization has been taking place on the basis of standards that are resulting in excessive consumption of land and higher development costs for the State and private individuals alike. Because of this, home buying through the normal channels has been beyond the means of a large proportion of the population, which has inevitably fostered the development of illegal settlements. A lowering of standards for both infrastructure (roads, networks of various types) and actual construction is not only possible but essential. Road widths often used to be excessive. The superstructure specifications imposed by the ministries were often too high. Under the 1978-80 Plan, MHAT is rigorously orienting housing construction toward standards tailored to the incomes of potential buyers. 6.150 As regards housing, the large quantity of low-density developments has been a major cause of space consumption and cost increases. There is a need to return to intermediate housing formats that are closer to the Moroccan tradition and also, for that matter, more in line with what most Moroccan families want. The preparatory work for the Three-Year Plan included a most interesting study of residential densities, which was applied to the housing program. This study shows that reduction of the land area used has a significant effect on costs and that it would be possible to produce housing suited to all groups of the population. - 323 - Modification of the Financing System for Housing 6.151 The bulk of the financing available for housing comes from household savings. The credit institutions specializing in housing (Credit Immobilier et H6telier and Banque Centrale Populaire) helped finance the construction of approximately 19,000 housing units during the 1973-77 Plan, i.e. less than 10% of the units built during that period. However, one-quarter of these loans were granted in 1977, which indicates a certain speeding up in the rate of lending. In 1977, 2,427 HBM loans were granted by the Banques Populaires under the special scheme and 2,926 by CIH under general terms. Casablanca and Rabat-Sale absorbed three-quarters of these loans, with Government employees receiving 40% of the total number. Moreover, although the number of condominium apartments increased steadily, more than one-third of the loans were for single-family homes. 6.152 The 2,427 loans granted by the Banque Centrale Populaire in 1977 under the special HBM scheme, for a maximum term of 25 years, totaled DH 73.2 million, which gives an average of DH 30,175 per unit or a little over 50% of the total real estate value (ceiling set at DH 60,000). Half the loans were granted to wage earners making more than DH 2,000 per month (eligibility level DH 1,500 per month). The system is currently operating on a "no waiting" basis, because of the difficulties of land registration. 6.153 The 2,926 loans granted by CIH in 1977 under general terms went to finance 5,365 housing units at an average value of DH 125,200. The average amount of the loans was 50% of the total real estate value (VIT), i.e. DH 56,220. It should be pointed out, however, that 62% of the investments made were in excess of DH 300,000 and that 22% of the loans absorbed 62% of the loan funds. A DH 100,000 ceiling per unit would have made it possible to increase the number of loans by 70%. 6.154 These figures demonstrate the desirability of a policy aimed at easing the requirements for financing. Credit terms are currently set autonomously by the Credit Committee. They are applied without any supervision by MHAT. MHAT is presently studying, in conjunction with the Ministry of Finance and CIH, a reform which would have the effect of lengthening the term and increasing the amount of loans for small housing (VIT under DH 75,000). The interest rate would be adjusted on the basis of area as follows: Over 200 m2 12% no discount 120-200 m2 10% 2% discount 70-120 m2 8% 4% discount Under 70 m2 6% 6% discount There is no justification from an economic point of view for the continuation of interest discounts, and from the social angle it amounts to a concealed subsidy to high income families. - 324 - 6.155 The fundamental question of housing finance is not tackled by the Three-Year Plan except in connection with the Government budget. The strategy implicitly adopted is one of recourse to private financing. Household savings could undoubtedly be more actively mobilized under a housing savings system which could be handled through the Banques Populaires, which have an excellent network of provincial branches (138 offices). The study of the possibility of setting up such a system seems to have been postponed, as has that of establishing a Social Housing Fund. The most recent measures are those to encourage housing construction. The 1979 budget brought in some easing of the taxe urbaine 1/ and provides for a substantial reduction (from 17% to 5%) in registration fees for promoters organizing housing programs consisting of units with VITs below DH 80,000. These programs have to be approved by MHAT and should be implemented swiftly. MHAT would for its part make available to promoters land that is acquired through FNAET. These various incentives form the first elements of a real estate investment code currently in preparation, plus the beginning of a contractual policy between the Government and builders. Recourse to foreign investments is envisaged, subject to quite restrictive conditions, as a means of fostering rental construction. 6.156 These various measures have the potential, subject to the reservation regarding interest discounts, of freeing the upstream market and thus preventing the demand of the more affluent from encroaching on socially-oriented programs, and provided steps are taken in other areas. The fact remains that the largest demand is at the other end of the income scale and this is the most difficult segment of the market to satisfy, for which no new measures are envisaged in the immediate future. Self-help construction is certainly one way of cutting construction costs that should be encouraged, but it does not have to mean self-financing as well. The studies now underway on housing finance should be oriented preferentially and more specifically toward finding new formulas that will help resolve the housing problems of the low and very income groups, while observing the principle of subsidizing the family rather than the housing. Conclusion 6.157 As regards targets, measures and program, the 1973-77 Plan properly sized up Morocco's urban development problems. It was predictable that difficulties would arise. Unpon analysis, it appears that these were due more to a lack of resources than to the existence of certain seemingly insurmountable obstacles of various kinds. The lack of direction of the sector's activities was another factor. The Three-Year Plan offered a period of transition and reflection intended to prepare for the revival of housing production. It therefore contained little in the way of new measures. The measures adopted to reorganize the market and encourage real estate promotion will only serve to meet a part of the demand. The needs of the poorest groups of the population will remain very largely unsatisfied. 1/ Which appears to had had a negative effect on real estate investment. - 325 - 6.158 The rapid rate of urban growth in Morocco calls for more vigorous action to help the less-favored segments of the urban population. Quite significant progress would appear to be possible, provided the legal and administrative obstacles are removed and the number of urban development "promoters" is increased (communes in particular). In view of the rate of urban growth, any further delay will inevitably result in further expansion of the bidonvilles, which already house 25% of the population. In view of the importance of what is at stake, questions relating to urban development, which are moreover linked with those concerning regional development, must be given more definite priority from 1980 onward. In the immediate future, it is doubtful whether, without measures to revive it, the housing sector will be able to support the activity of the construction sector, although this would appear to be economically desirable in the present circumstances. S T A T I S T I C A L A N N E X STATISTICAL APPENDIX Table of Contents Page i Table Number Title 1.1 Total Population and Labor Force by Sex and Location, 1960 and 1971 l.la Population Projections, 1980-2000 1.2 Population, Employment and Unemployment by Age and Location, 1971 1.3 Labor Force by Professional Category, 1960 and 1971 1.4 Employment by Economic Sector and Status, 1960 and 1971 1.5 Unemployment by Age and Category, 1971 1.6 Active Population by Employment Duration and Main Economic Sector, 1971 1.7 Labor Force by Province, 1971 1.8 Registered EmiRration, 1967-77 2.1 Gross Domestic Product by Sector (Current Market Prices), 1967-78 2.la Gross Domestic Product by Sector (Deflators) 2.2 Gross Domestic Product by Sector (1969 Constant Prices), 1967-78 2.2a Gross Domestic Product by Sector, Annual Growth 1967-78 2.3 National Accounts, IBRD Estimates, (Current Market Prices), 1967-78 2.3a National Accounts, Government Estimates, (Current Market Prices), 1969-78 2.3b Deflators for Table 2.3, 1967-77 2.4 National Accounts (1969 Constant Prices), 1967-77 2.4a Growth Rates for Table 2.4, 1968-77 2.5 Exports, 1967-78 2.6 Imports, 1967-78 2.7 Gross Fixed Investment, 1963-76 2.8 Investment under Incentive Laws, 1968-77 2.9 Investment in Manufacturing under 1973 Incentive Law, , 1973-77 2.10 Investment Allocation by Sectors and Origin, 1968-72 Plan and 1973-77 Plan 2.11 Investment by Origin, 1968-77 2.12 Investment Forecast in Development Plans, 1968-72, 1973-77 and 1978-80 3.1 Balance of Payments, 1971-78 3.la Balance of Payments, 1967-70 3.2 Merchandise Exports, F.O.B., 1967-77 3.2a Merchandise Exports, F.O.B., (Constant 1969 Prices), 1967-78 3.3 Merchandise Exports, Quantities, 1967-78 3.4 Merchandise Imports, C.I.F., 1967-78 3.4a Merchandise Imports, C.I.F. (Constant 1969 Prices), 1967-78 3.5 Merchandise Imports, Quantities, 1967-78 3.6 Merchandise Imports by Customs Category, 1967-78 3.7 Geographic Distribution of Foreign Trade, 1970-78 3.7a Geographic Distribution of Foreign Trade (Percentages), 1970-78 3.8 External Grants, 1970-77 3.9 External Private Capital Inflows by Sector and Financing, 1970-78 3.10 External Public Loans, 1970-77 STATISTICAL APPENDIX Page ii Table Number 3.11 Average Import Tariff Rates, (lst Semester 1974) 3.12 External Reserves, 1969-78 4.1 External Public Debt Outstanding Including Undisbursed as of December 31, 1979 4.2 Service Payments, Commitments, Disbursements and Outstanding Amounts of External Public Debt--Projections Based on Debt Outstanding Including Undisbursed as of December 31, 1979 5.1 Treasury Accounts, 1970-79 5.2 Central Government Current Revenues, 1971-79 5.3 Central Government Current Expenditures, 1970-80 5.4 Central Government: Investment Appropriations by Ministry, 1968-80 5.5 Central Government Investment Expenditures, Actuals, 1971-78 5.6 Central Government: Investment Appropriations by Annexe Budgets, 1973-79 5.7 Treasury Domestic and External Borrowing, 1971-78 5.8 Local Government Accounts, 1967-75 5.9 Financial Operations of the Price Stabilization Fund, 1972-78 6.1 Monetary Survey, 1967-79 6.2 Net Claims on Government, 1970-79 6.3 Distribution of Credit to the Private Sector, 1967-78 6.4 Consolidated Assets and Liabilities of Specialized Financial Institutions, 1970-78 6.5 Caisse de Depo^ts et de Gestion: Deposits and use of Resources, 1970-77 6.6 Interest Rates as of June 30, 1978 7.1 Total and Agricultural Gross Domestic Product, 1960-77 7.2 Total and Agricultural Gross Domestic Product, 1969-77 7.3 Volume of Agricultural Production, 1971-78 7.4 Size of Flock and Volume of Animal Production, 1971-77 7.5 Marketing of.Main Cereals by ONICL, 1973-78 7.6 Agricultural support and Fixed Prices 1965-79 7.7 Agricultural.Exports, 1969-77 7.8 Agricultural Imports, 1969-77 7.9 Cultivated areas, Main Crops 1971-78 7.10 Government Agricultural Plans; Comparisons of 1973-77 with 1978-80 7.11 Allocation of Available Credits, 1973-77 and 1978-80 Plan 7.12 Demand Projections for Main Food Products, 1977-2000 7.13 Evolution of Irrigated Areas STATISTICAL APPENDIX Page iii Table Number 7.14 Value Added Per Worker, Agricultural Sector 7.15 Fishing Produce, 1967-78 7.16 Exports of Fish Products, 1972-1977 8.1 Mineral Production and Exports, 1967-78 8.2 Energy Production, 1967-78 8.3 Indices of Manufacturing Production, 1970-78 8.4 Investments in the Water Sector, 1968-80 8.5 Primary Energy Consumption, 1962-77 8.6 Investments in the Mining Sector, 1968-80 8.7 Investments in the Energy Sector, 1973-80 8.8 Road Transport, 1972-78 8.9 Investment in Road Infrastructure, 1973-80 8.10 Investment in Railways, 1968-80 8.11. Port Infrastructure 8.12 Investment in Air Transport, 1968-80 8.13 Investment in Post and Telephone, 1968-80 8.14 Tourist Arrivals, 1970-78 8.15 Hotel Capacity, 1970-78 8.16 Construction Permits, 1970-78 9.1 Casablanca Cost of Living Index, 1970-74 9.2 Casablanca Wholesale Price Index, 1970-77 9.3 Cost of Living Index, 1973-78 9.4 New Cost of Living Index by City, 1973-78 9.5 Minimum wage in agriculture (SMAG) and other sectors (SMIG), 1971-80 - 1 - Table 1.1: TOTAL POPULATION AND LABOR FORCE BY SEX AND LOCATION, 1960 AND 1971 (Thousands) Males Females Total Annual 2/ 1960 1971 1960 1971 1960 1971 Growth - Morocco, totals PoFulation 5,809 7,586 5,817 7,568 11,626 15,379k! 2.6 Labor force 2,909 3,375 346 605 3,254 3,981 1.8 - employed 2,611 3,099 339 532 2,950 3,632 1.9 - unemployed 297 276 7 73 305 349 1.2 Urban areas Population 1,692 2,621 1,719 2,736 3,412 5.41'/i 4.3 Labor force 825 1,106 153 297 978 1,403 3.3 - employed 652 947 147 241 800 1,188 3.7 - unemployed 173 159 6 56 179 216 1.7 Rural areas Population 4,116 4,965 4,098 4,832 8,215 9;9701- 1.8 Labor force 2,083 2,269 193 308 2,276 2,577 1.1 - employed 1,959 2,152 191 292 2,150 2,444 1.2 - unemployed 124 117 2 16 126 133 0.5 1/ The total count for 1971 by place of residence was 15,379,259. Details on population characteristics (age, sex, labor force status) were obtained from a 10% household sample survey. Thus breakdowns giving population characteristics sum to the inflated sample total of 15,153,806 rather than the all inclusive total count. 2/ Percent per annum; tentative official estimates are that more than 900,000 persons, including nearly 400,000 Moroccan nationals, emigrated between 1960 and 1971; most emigrants were male workers. Source: Secretariat d'Etat au Plan; 1960 population census and 1971 population census (based on 10% sample). Details may not add up to totals due to rounding. - 2- Table l.la: POPULATION PROJECTIONS 1/ 1980 - 2000 (Thousands) 1980 1985 1990 1995 2000 1. Slow decline in fertility 2/ Total population 20,091 23,508 27,467 31,956 36,910 Age distribution (percent) 0-4 years 17.0 17.5 17.1 16.6 15.8 5-14 years 28.4 26.7 26.2 26.5 26.2 15-64 years 51.9 53.0 53.8 53.9 54.8 65 and over 2.7 2.8 2.9 3.0 3.2 2. Fast decline in fertility 3- Total population 20,034 23,087 26,322_ 29,639 32,987 Age distribution (percent) 0-4 years 16.8 16.3 15.1 13.9 12.7 5-14 years 28.5 27.0 25.8 25.1 23.8 15-64 years 52.0 53.8 56.1 57.7 59.4 65 and over 2.7 2.9 3.0 3.3 3.6 _/ Projections as of midyear. Percent decline 1977-2000 equal to 26%. -/ Percent decline 1977-2000 equal to 50%. Source: Mission projections. -3- 1 / Table 1.2: POPULATION, EMPLOYMENT AND UNEMPLOYMENT BY AGE AND LOCATION, 1971 (Thousands) Morocco, totals Urban areas Rural areas Age group Popu- Em- Unem- Popu- Em- Unem- Popu- Em- Unem- lation ployed ployed lation ployed polyed lation ployed ployed Less than 15 6,997 263 - 2,381 46 - 4,616 217 - 15 - 19 1,450 438 118 576 101 74 874 337 43 20 - 24 1,045 421 77 399 140 50 646 281 27 25 - 29 904 406 32 314 142 19 590 263 13 30 - 34 879 399 25 318 140 14 562 259 10 35 - 39 809 401 23 312 152 13 493 249 10 40 - 44 737 367 21 274 141 12 464 226 8 45 - 49 495 270 15 198 108 9 297 162 6 50 - 54 508 271 17 176 94 10 332 177 7 55 - 59 253 148 9 96 53 6 157 95 3 60 - 64 370 119 6 114 35 4 256 84 2 65 and over 707 130 7 200 36 4 508 94 3 Total 15,154 3,632 349 5,357 1,188 216 9,797 2,444 133 1/ Results subject to the proviso that most Moroccans know their age only approximately. Projections as of midyear. Source: Secretariat d'Etat au Plan; 1971 population census (based on 10% sample) Details may not add up to totals due to rounding. - 4 - Table 1.3: LABOR FORCE BY PROFESSIONAL CATEGORY, 1960 AND 1971 (Thousands) Professional Morocco, totals Urban areas Rural areas Category 1/ 1960 1971 1960 1971 1960 1971 0-1 103 158 58 98 45 60 2 186 223 129 158 57 65 3 81 119 74 104 7 15 4 257 327 198 248 59 79 5-6 1,870 2,047 52 65 1,818 1,982 7-8-9 505 356 488 149 275 X 253 344 113 242- 141 102 Total 3,255 3 98l 980 1,403 2,276 2,578 I/ Categories are as follows: 0-1 scientific, technical, liberal and similar 2 commercial 3 managerial and administrative 4 specialized in services 5-6 farmers, fishermen, etc. 7-8-9 : unskilled and semi-skilled non-farm workers X : unclassified Source: Secretariat d'Etat au Plan; 1960 population census and 1971 population census (based on 10% sample). - 5 - Table 1.4: EMPLOYMENT BY ECONOMIC SECTOR AND STATUS, 1960 AND 1971 (Thousands) Sector/Status 1960 1971 Annual %growth 1/ Agriculture 1833.8 1988.0 0.7 Power and water 8.2 10.8 2.5 Petroleum and coal 6.4 9.8 4.0 Mining and quarrying 32.9 34.8 0.5 Metal and electrical industries 38.8 74.4 6.1 Construction and const, materials 65.8 171,5 9.1 Other manufacturing 216.6 292.1 2.8 Subtotal: Industry 368.7 593.4 4.4 Transport and communications 80.1 100.4 2.1 Trade 218,1 263.5 1.7 Tourism 8.6 25.3 10.3 Household service 68.9 127.4 5.8 Other private services 62.0 112.2 5.5 General government 203.3 266.4 2.5 Subtotal: Services 641.0 895.2 3.1 Unclassified 107.8 155.0 3.5 Total 2951.1 3631.6 1.9 of which: Employers 2O9.9 93.5 -7.5 Salaried workers 1128.6 1480.9 2.5 Independent workers 1103.5 1244.5 1.1 Family help h475,7 744.0 4.1 (Agriculture) (460.6)1' (672.4) (3.5) Unclassified 33.6 68.7 1/ Earlier published estimates were higher due to inclusion of housewives as family help. Source: Secretariat d'Etat aU Plan; 1950 population census and 1971 population census (based on 10% sample). Table 1.5: UNEMPLOYMENT BY AGE A,ND CATEGORY, 1971 (Thousands) Never Worked Age group 1! 1/ Total worked- before- 15 - 19 99.8 17.8 117.6 20 - 24 58.9 18.6 77.4 25 - 29 19.3 12.7 32.0 30 - 34 12.8 11.9 24.7 35 - 39 - 22.8 22.8 40 - 64 68.0 68.0 65 and over - 6.7 6.7 Total 190.7 158.2 348.9 of which: Males 145.1 131.0 276.0 Females 45.7 27.2 72.9 Household heads ... ... 56.4 1/ As of census date. Source: Secretariat d'Etat au Plan; 1960 population census and 1971 population census (based on 107. sample). - X - L/ Table 1.6: ACTIVE POPULATION BY EMPLOY=ENT DURATION AND MAIN ECONOMIC SECTOR, 1971 Months worked in vear prior to mid-JuL 191 Unem- Sector 0 - 4 5 to 8 9 to 12 Not Total Employed ployed reported Number (in thousands) Agriculture 240,6 365.0 1401.2 6.8 2013.8 1988.0 25.8 Industry 69.3 100.8 450.6 7.3 628.2 593.4 34.3 Services 58.2 60.0 792.8 12.9 924.1 894.9 29.1 Unclassified 36.5 23.3 82.6 80.8 223.7 155.3 68.5 Total 405.1 549.6 2727.2 107.8 3739.8 3631.6 158.2 of which: Rural 274.6 414.7 1757.0 63.0 2509.3 2443.9 65.4 Urban 130.5 134.9 970.2 44.9 1280.5 1187.7 92.8 Percent of sector totals Agriculture 11.9 18.1 69.6 0.3 100.0 98.7 1.3 Industry 11.1 16.0 71.7 0.1 100.0 94.5 5.5 Services 6.3 6.5 85.8 1.4 100.0 96.8 3.2 Unclassified 16.3 10.6 36.9 36.1 100.0 69.4 30.6 Total 10.7 14.5 72.0 2.8 100.0 95.8 4.2 of which: Rural 10.9 16.5 70.0 2.5 100.0 97.4 2.6 Urban 10.2 10.5 75.8 3.5 100.0 92.3 7.2 I/ Includes labor force employed and unemployed (having worked before census date and secured employment). Source: Secr6tariat d'Etat au PIan; 1971 po-ola._icn census (based on 10% sample). Details may not add up to totals due to rounding. -8- Table 1.7: LABOR FORCE BY PROVINCE, 1971 (Thousands) of which: Province Agri- In- Serv- Other-/ Total b Unem- Other- Toal Urban ployed culture dustry ices U n poe Agadir 203 33 53 i9 308 45 13 Al Hoceima 39 8 9 4 58 5 3 Beni Mellal 109 16 27 10 161 27 8 El Jadida 118 17 23 13 171 23 10 Fes 156 49 61 25 291 103 21 Kenitra 216 30 62 36 344 76 29 Khouribga 33 16 14 12 76 30 11 Ksr es Souk 66 22 15 9 112 10 9 Marrakech 263 57 78 34 432 107 27 Meknes 87 28 50 22 186 87 20 Nador 32 20 19 15 86 9 12 Ouarzazate 77 18 20 7 122 6 7 Oujda 45 27 31 19 122 64 19 Safi 173 35 38 15 261 53 13 Settat 114 11 22 16 163 26 12 Tanger 6 15 30 10 61 53 9 Tarfaya 3 1 3 - 7 3 - Taza 102 9 21 12 144 15 10 Tetouan 123 25 49 27 224 68 22 Casablanca 28 149 204 83 463 430 72 Rabat-Sale 22 42 95 28 187 161 22 Total 2,014 628 924 414 3,981 1,403 349 1/ Includes unclassified and unemployed who never worked before census date. Source: Secretariat d'Etat au Plan; 1971 population census (based on 10% sample) Details may not add up to totals due to rounding. TABLE 1.8. REGISTERED EMIGRATION 1967 - 77 1/ (NUMBER OF DEPARTURES) YEAR 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 GERMANY 23 27 1826 881 5837 3564 2328 , 20 20 34 BELGIUM 4 2 21 123 71 47 114 171 7 9 7 FRANCE 6443 7456 15551 24673 22806 23638 32321 30085 9709 2373 11660 LIBYA 2717 4683 3651 433 634 12 .. 1748 949 6922 NETHERLANDS 2 5 661 2608 1136 75 60 147 40 4 1 OTHERS 164 306 1809 2288 280 377 389 400 313 10341 1950 TOTAL 9353 12479 23519 31006 30764 27713 35212 30808 11837 13696 20574 1/ Figures in the able refer only to departures from Morocco since returns are not registered. Source: Ministere du Travail et des Affaires Sociales. '- TABLE 2.1: GROSS DOMESTIC PRODUCT BY SECTOR, 1967-78 (MILLIONS OF DIRHAMS;CURRENT MARKET PRICES) 19567 196'3 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 TNGRICULTURE 3351 3712 3545 3974 4757 4e95 5295 6872 6323 80S3 7619 9368 ENERGY, PUB. UTIL. 604 565 688 709 74P 847 894 959 930 1020 1165 1413 MINING S35 646 648 S64 736 761 876 4308 3300 2290 2478 2413 MANUFACTURTNG,HANDICRAFTS 2477 2667 2930 3090 3429 3755 4287 5246 6031 6764 7739 8815 CONSTRUCTION 633 674 742 848 994 963 960 1230 2381 3262 4175 407 1 INDUSTRY 4399 4652 5008 5311 5907 6326 7017 11742 12642 13336 15557 16712 0 TRANSPORTATION,SERVTCES 3164 3348 3542 3874 4045 4503 5005 5703 6579 7364 8511 9539 COMMERCE 2887 3066 .3383 3575 3827 3965 4308 5069 5617 6313 6979 7311 GOVERNMENT 1615 1777 1908 1996 2163 2363 2454 3056 3719 4489 5571 6109 SERVICES 7666 8191 8833 9445 10035 10831 11 77 13828 15015 18166 21061 2?959 IMPORT TAXES - 1/ - 1/ 604 701 684 S37 836 1160 1538 1751 25c3 2739 GROSS DOMESTIC PRODUCT 15416 16555 17990 19431 21383 22689 24915 33602 36418 41316 46820 51778 I/ Import taxes are included in commercial margins for those years. Source: Secretariat d'Etat au Plan et au Developpement Regiona1. Table 2.la: GROSS DOMESTIC PRODUCT BY SECTOR , 1967-78 (DEFLATORS) -------------------------------------------------------------__--------------__----------------------------------------------------- 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 -------------------------------------------------------------------__--------__----------------------------------------------------- AGRICULTURE 1.164 0.995 1.000 1.063 1.164 1.224 1.442 1.701 1.712 1.974 2.153 2.240 ENERGY, PUB. UTIL. l.034 1.029 1.000 1.000 1.008 1.010 1.008 1.140 1.111 1.149 1.098 1.267 MINING 0.964 0.980 1. 0o00 1.025 1.092 n. 955 0.972 4.236 4.4S5 2.943 2.750 2.514 MANUFACTURING,HANDICRAFTS 0.940 0.965 1.000 1.013 1.05fi 1.094 1.144 1.335 1.441 1.510 1.612 1.739 CONSTRUCTION 0.967 0.973 1.000 1.084 1.067 1.074 1.205 1.541 1.372 1.554 1.729 2.070 INDUSTRY 0.960 0.977 1.000 1.024 1.056 1.060 1.108 I . 783 1.686 1.618 1.695 1.834 TRANSPORTAT,ION,SERVICES 0.967 0.972 1.000 1.036 1.033 1.133 1.195 1.316 1.381 1.383 1.525 1.640 COMMERCE 0.927 0.932 1.000 1.011 1.028 1.034 1.043 1.146 1.163 1.1i63 1.224 1.277, GOVERNMENT 0.967 0.972 1.000 1.000 1.070 1.143 1.150 1.410 1.410 1.410 1.538 1.538 SERVICES 0.952 0.957 1.000 1.019 1.039 1.097 1.12f 1.266 1.301 1.303 1.413 1.480 IMPORT TAXES. 1.000 1.000 1.000 1.013 1.056 1.125 1.144 1.336 1.441 1.563 1.83f6 2.437 GROSS DOMESTIC PRODUCT 0.993 0.971 1.000 1.028' 1.070 1.112 1.176 1.499 1.487 1.509 1.613 1.730 Source: Secre6tariat d'Etat au Plan et au Developpement Ragional. TABLE -2,2 GROSS DOMESTIC PRODIJCT BY SECTOR,1969-78 (MILLIONS OF' DIRHAMS;1969 CONSTANT PRICES) 19S7 19S8 1959 1970 1971 1972 1973 1974 1975 1973 1077 1979 AGRICULTURE 2879 3731 3545 3740 4087 3999 3f73 4041 3594 4084 353P 4182 ENERGY, PU3. UTIL. 584 646 688 709 742 839 887 840 937 808 1081 1115 MINING 659 S59 848 848 674 797 901 1017 739 77P 901 960 MANUFACTURING,HANDICRAFTS 2635 2784 2930 3050 324" 3433 3747 3930 4186 4479 4802 5070 CONSTRUCTION 706 f93 742 782 932 8977 79" 798 1735 2099 2414 1967 INDUSTRY 4584 4762 5008 516.9 5595 5966 8332 6595 7497 8244 9178 911 ? TRANSPORTATION,SERVTCES 3272 3444 3542 3T40 3916 3974 4189 4333 476i4 5325 5582 5918 COMMERCE 3113 3280 3383 353 37 3724 3836 4129 4422 4830 5430 5701 5724 GOVERNMENT 16'70 182 8 1900 199f 2021 20R7 2133 2167 2538 3134 3,22 3972 SERVICES 8055 I/ 85501 8833 9273 9661 9877 10451 10922 12232 13939 190 5 15514 IMPORT TAXES / - - / 604 592 648 5 3 731 868 10S7 1120 1407 1124 GROSS DOMESTIC PRODUCT 15518 17053 17990 18894 19991 20468 21107 22416 24490 27387 29028 29932 1/ Import taxes are included in commercial margins for those years. Source: Secretariat d'Etat au Plan et au Developpement R6gional. Table 2.2a: Gross Domestic Product by Sector, 1967-78 Annual Growth, Percent 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 Agriculture - 29.6 -5.0 5.5 9.3 -2.2 -8.2 10.0 -8.6 10.6 -13.4 18.2 Energy, Public Utilities - 10.6 6.5 3.1 4.7 13.1 5.7 -5.3 -0.4 6.1 19.5 5.1 Min±ig - 0 -1.7 0 4.0 1.8.2 13.0 1209 -27.3 5.3 15.8 6.6 Manufacturing, Handicrafts - 4.9 6.0 4.1 6.5 5.7 9.1 4.9 6.5 7.0 7.2 5.6 Construction - -1,8 7.1 5.4 19.2 -3.8 11.1 0.1 117.4 21.0 15.0 -18.5 Industry - 3.9 5.2 3.6 7.8 6.6 6.1. 4.0 1308 10.0 11.3 -0.7 Transportation, Services - 5.3 2.8 5.6 4.7 1.5 5.4 3.4 9.9 11.8 4.8 4.2 H Commerce - 5.6 2.9 4.6 5.3 3.0 7.6 7.1 9.2 12.4 5.0 0.4 Government - 9.5 4.4 4.6 1.3 2.3 3.2 1.6 21.7 20.7 13.8 9.7 Services - 6.3 382 5.0 4.2 2.2 5.8 4.5 12.0 14.0 6.9 4.1 Import Taxes - .. 14.6 -6.4 -12.7 29.2 18.7 22.9 5.0 25.6 -20.1 Gross Domestic Product - 9.9 5.5 5,0 5.8 2.1 3.8 5.8 9.3 11.8 6.0 3.1 Source: Secretariat d'Etat au Plan et au b6veloppement Regional. TABLE 2.3- NATIONAL ACCOUNTS, IBRD ESTIMATES, 1967-78 (MILLIONS OF DIRHAMS; CURRENT MARKET PRICES) 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 GDP at Factor Cost .. .. 15753 16977 18771 19943 21762 31418 33702 37292 41051 (Total Wages) .. .. 6019 6443 6970 7671 8187 9672 1.1835 13356 16140 (Gross Surplus) .. 9734 10534 11801 12272 13575 21746 21867 23936 24911 Indirect Taxes 2362 2565 2711 2880 3299 4098 4919 5599 6919 Subsidies -125 -111. -99 -1.34 -146 -1914 -2203 -1575 -1150 GDP 1/ 15416 1.6555 17990 19431 21383 22689 24915 33602 36418 41316 46820 51778 Imports: G + NFS 2/ 3139 3349 3587 4321 4340 4488 5667 9453 12142 15557 18571 16584 Exports: C + NFS 3/ -2799 -3056 -3376 -35331 -3730 -4336 -5342 --9242 -8184 -7588 -8407 -9029 Resource Gap 340 293 211 790 610 152 325 211 3958 7969 101.64 7555 Toal Ccnsuu ptition 1/ 137:] 3 14754 15970 1696- 4 18.512 19839 21393 26484 30726 36869 420.56 46409 (Covei awent) 1878 2070 2238 2436 2706 2958 299.3 4036 5921 9211 1024 1.1168 11835 12684 13732 14.52.8 15806 16881 1.8400 22448 24805 27658 31+807 35241 Cross [Investr2nen- 2043 2094 2231 3257 3481. 3002 3847 7329 9650 12416 14928 12924 (Gross Fixed investmt)_t/2104 2193 2427 2988 3269 3177 3471 4932 8863 11778 15349 13400 (Changes in stocks)4/ -61 -99 -1.96 269 212 -175 376 2397 787 638 -421 -476 Doinestic Savings 1703 1801 2020 2467 2871 2850 3522 7118 5692 4447 4764 5369 Net Factor Income from -188 -248 -134 -76 66 174 565 1163 1713 1768 1706 1731 abroad 5/ Net Current Transfers from abroad 5/ 63 96 147 135 243 192 192 85 32 309 234 205 National Savings 1578 1649 2033 2526 3180 3216 4279 8366 7437 6524 6704 7305 GNP 15228 1.6307 17856 19355 21449 22863 25480 34765 38131 43084 48526 53509 1/ Data provided by Secretariat d'Etat au Plan 2/ Data from halance of payments (Table 2.6). 3/ Data from balance of payments (Table 2.5). 4/ Obtained as a residual item. 5/ Data from balance of payments (Table 3.1) Source: Mission estimates based on data provided by Secretariat d'Etat au Plan et au Developpement REgional. TABLE 2.3.a. NATIONAL ACCOUNTS, GOVERNMENT ESTIMATESI, 1969- 78 (CURRENT MARKET PRICES) 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 CDP 17990 19431 21383 22689 24915 33602 36418 41316 46820 51778 IMPORTS I/ 3480 4152 4224 4361 5497 9231. 11928 15276 18156 16177 TOTAL 21470 23583 25607 27050 30412 42833 48346 56592 64976 67955 GOVERNI4ENT CONSUHPTION, 2238 2436 2706 2958 2993 4036 592.l 9211 1-0249 11168 PRIVATE CONSUMPTION 13732 14528 15806 16881 184 00 ~2 244l8 24805 27658 31807 3524-1 01S1033 F TXED INVESTMENT 2427 2988 3269 3177 341 4~3 8863 17 14 30 /-Xo3_ 6 3 5 >~7 37E 2 4367 "'A 13 91 843-, 7888 8831 9405 .NIAN'S -3 N STOCKS-4/ 3 94 ! K 329 57 -1260 2~9 "CN-~~ N CONSTIA.17C (13 T 1(7 170 / '37 2 "O'u '7 ~3 7 2 (2 ' U~~~~ ~~~~~~~ 1' 'j 2 3 9 7 30 C 646' 7SC(C Cl 1 10ff ~~~~~~~~~~ ~ ~~~~2''> 21 0 /' .'z M123 7'--i~ 3 /7 30 95 8 >;J 87 ~7 2/4 :40W COKLN331>2< 7~~~~~~I3.3 I'3 2 '113--~11,1 . 60 2 2 "5. 72 78 1'R05S F72,0E INVESTPff.2"<3 27>2" 244I 2 ;2 0 37>. 5484 6800 8280 IXPO :73 II 3'~~~~~~~~~~~~~ o 11~)3 7 3 6 52I 4149 4648 '7-~: 3960 4 4 8 2 4962 HANGFP IN STOCKS 3A/ 3 7 3 22 -309 -32 134 25 -284 7Value is differerkt from balanc.e of paythn:-t sou-oces (table 3.1) or from tale'3' 2.3 and 2,4 dueto a different c'lassification of individual items included in non-factor services. 2/ Value is different from Tables 2.3 and 2.4 because imports and exports differ from Tables 2.3 and 2.4 Source: Secretariat d'Etat au Plan et au D6veloppement R6gional. Table 2.3b: DEFLATORS FOR TABLE 2.3 . 1967 - 77 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Gross Domestic Product 1/ 0.993 0.971 1.000 1.028 1.070 1.112 1.176 1.499 1.487 1.509 1.613 lmports 2/ 0.969 0.980 1,000 1,021 1.091 1.180 1.308 1.964 2.033 2.104 2,212 Exports 3/ 1.029 0.971 1.000 0.996 1.076 1.072 1.1,76 2.139 2.256 1.967 1.985 Consusmption 1-/ .968 0.973 1.000 1.016 1.056 1.100 1.144 1.360 1.437 1.544 1.732 (Private) 0.967 0,972 1.000 1.013 1.054 1.094 1.144 1.335 1.441 1.564 1.760 (Public) o.976 0.980 1,000 1.034 1.071 1.139 1.141 1.521 1.421 1.481 1.650 Gross Investment 1.061 .985 1.000 1.086 1.184 1.257 1.404 1.511 1.605 1.719 1.727 (Gross fixed investment) 1/ 1.059 ,987 1.000 1.091 1.192 1.302 1.434 1.518 1.616 1.732 1.854 (Cbanges in stocks) 4/ 0.993 0.971 1.000 1.028 1.070 1.112 1.176 1.499 1.487 1.509 1.613 Domestic savings 5/ 1.117 .966 1.000 1.168 1.232 1.420 1.726 2.309 1. 622 1.369 1.124 Net factor income from abroad 6/ 0.993 1.971 10(00 1.028 1.070 1.112 1.176 1.499 1.487 1.509 1:613 Net current transfers from abroad 6/ 0.993 0.971 1,000 1.028 1.070 1.112 1.176 1.499 1.487 1.509 1.613 National savings 5/ 1.129 .966 1.000 1.165 1 171 1.239 1.621 2.125 1.589 1.406 1.221 Gross Gross national product 4/ 0.993 0.971 1.000 1.028 1.070 1.112 1.176 1.499 1.487 1.509 1.613 l/ Implicit deflators obtained from table 2.3a. 2/ Import price index (Table 2.6) 3/ Export price index (Table 2.5) 4/ GDP deflator obtained fronm table 2.3a. 5/ Implicit deflator obtained from table 2.4 and 2.3 6/ IBRD international price index. Source: Mission estimates. TABLE 2.4. NATIONAL ACCOUNTS, IBRD ESTIMATES, 1967 - 77 (MiLlions of Dirhams: 1969 Market Prices) 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Gross Domestic Product 15518 17053 17990 18894 19991 20408 21187 22416 24490 27387 29028 Terms of Trade Adjustment2/ 169 -27 0 -85 -49 -369 -458 386 399 -251 -434 Gross Domestic Income 15687 17026 17990 18809 19942 snn?a 20729 22800 2488C 27136 28594 Imports: C+NFS3/ 3241 3425 3587 4233 3976 3802 4333 4812 5972 7392 8392 Exports: G+NFS4/ 2719 3145 3376 3544 3468 4044 4542 4320 3627 3857 4235 Capacity to Importi/ 2888 3118 3376 3459 3419 3675 4084 4706 4026 3606 3801 Resource Gap 353 307 211 774 557 127 249 106 1946 3786 4591 Consumption 1! 14163 15162 15970 16697 17523 18028 18707 19468 21380 23887 24352 (Government ) 1924 2113 2238 2355 2527 2597 2623 2653 4166 6203 6280 (Private) 12239 13049 13732 14342 14996 15431 16084 16815 17214 17684 18072 Gross Investment 1925 2135 2232 2999 2939 2284 2740 4851 6013 7223 8019 Gross Fixed Investmentli/ 1.986 2221 2427 2739 2742 2441 2420 3250 5484 6800 8280 Changes in Stocksf/ -61 -86 -195 260 197 -157 320 1601 529 423 -261 Statistical Discrepancies7/ -48 36 0 -113 37 -146 -469 -1411 -558 -188 814 Domestic Savings;/ 1524 1864 2020 2112 2419 2011 2022 3332 3509 3249 4242 Net Factor Income From Abroad -189 -255 -134 -74 61 152 480 775 1152 1171 1058 Net Current Transfer From Abroad 63 99 147 131 226 173 163 57 22 205 145 National Savings 1398 1708 2033 2169 2706 2336 2663 4166 4683 4625 5445 Gross National Product 15329 16798 17856 18820 20052 20560 21667 23191 25642 28558 30086 …__ _ _ _ _ _ _ _ _._._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 1/ Data from Table 2.3a. 2/ Capacity lno import minus exports of goods and services. 3/ See Table 2.6. 4/ See Table 2.5 5/ Exports in current prices divided by import deflator (Table 2.5 and 2.6) 6/ Change in stocks in current prices (Table 2.3) deflated by GDP deflator (Table 2.1a). 7/ Figures indicate statistical discrepancies resulting from the overall deflation procedure. 8/ Gross domestic income minus consumption. Source: Tables 2.3a and Mission Estimates. TABLE 2.4a. GROWTH RATES FOR TABLE 2.4., 1968 - 77 (TMfllions of Dirhams: 1969 Market Prices) 1968 1969 1910 1971 1972 1973 1974 1975 1976 1977 ross liwlne;;tą.2 P,(i,'mot 9.93 97 5,43 0 521 2, 3 3.82 ).80 9.25 11.83 5r99 l'O:C&:9ti j'5lsif3Z'i' '( ; co-ne ;3 4 iSJa5 40'JiE 9 02 0 3.44 '5.99 Q 14 9.03 5v37 . ;,,91t, . .: j i i ,.jl; t -;; ,, 4 1'-' . ',-i ni . G ą - 'i M: .'. f 13.9, 05 24 I I 23 . 78 1 3 ą 53 -i , -:12.31 23 8 -16 aą 6.34 3 980 U-+i iią Ss :0 ... n .eJą 7 . .ą; ) 11. 3 3 . .3 14' -410.43 5 4.1 i) 537 7) 01 7 95 932 11.73 3 95 ;1 --R- --- E 2 > SC ;., / .-E) ?.fi 1.0 i34 57 -C- 48.90 .z7 ; 4; t i , 56 2 ą 4.23 A, 54 2"'7 2.73 2 19 ą , 34 s t1 s20 U-2 2 9. 996 ;404 2395 20.12 1 -02 2 ' Y+>r( s 11,0.t 3 9,23J12; 12e86 0,1.1 -10. 8 -O.86 :.30 68, 74 24.00 21.76 ii Savings 22.31 . 3'I. 4,55 14I-454 --16,8 7 0,55 64.79 5.31 -7.41 30 56 Net Faotor Iricone from Abroad --3 492 47,45 44,78 182,43 149n1.8 215.79 61.46 48,65 1.65 -9,65 N9et Cu.-rent Transfers from Abroad 57.14 48, 48 -10,88 12,52 -23 . 45 -5. 78 -65.03 -61. 40 831, 82 -29 . 27 Natioiall Savinigs 22,17 19,03 6.69 24,76 -11,06 14.08 56.32 12.41 -1.24 17.73 Gross National Product 9.58 6.30 5.40 6.55 2,53 5.38 7.03 10.57 11.37 5.35 Source: Mission estimates based on data provided by Secretariat d'Etat au Plan et au D6veloppement Regional. Table 2.5: EXPORTS. 1967 - 72 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 A, CONSTAlIT 1969 PIiI OES (ljillions of di-rh;oms) 1. P'hosphates 500 540 551 618 635 727 861 1001 702 786 845 925 2. 'ihosphaee Derived Products j4 70 53 35 76 77 77 38 25 75 184 223 3, Atriculrural Prodmcts 1106 1253 1424 1403 1183 1440 1652 l298 1021 1201 1122 1112 4. oth'c tLaerale 243 '' 'l 218 201 186 256 289 289 207 193 256 266 3. Liedut"riel Pro.JUCics 142 261 204 24 0 252 302 722 391 411 405 512 510 Nov ilc/or servico 64 edO 926 1039 1136 1242 13Łi 1303 1262 17 1:316 1359 '1. 0,V 7 E 'f5/11 3468 1.044 4 5t2 4320 3627 3857 4235 13"5 .1 092 1 00 7 l.Ooo C: ,;1 0,9326 'J, '26 0,915 4,0 71 1,866 2 7ii7 2,498 '9Y '6' ')aeo *v<,vo, ithoote)o ) 7 : h u 8' L3 !) _0? 3, 96 0.947 0,'396 30'21 3.6 5 4,240 8 3L7 1,359 1 307 ''b y,.>J.tzAi.u; l ,*-,ohz;-'' l,,1'/ 1,'!OG dAo j l1 o130'1 1 l '515 K54 1-.'85 11,559 ,61O 7'2 1.722 2 0' [,1 1-ir l a e ' , oa .ss0. o.Y(900 ( I,.06 i 0 , i:97 0,57 1.5l.j ],593 I- 60 . lr.~~~~~~~~~~~~~~~~~~~~~~~~~i ,tft 0' .d