Given Morocco’s comparative political stability, economic resilience, and improving business environment, the country is increasingly attracting interest from multinational companies (MNCs) seeking management or manufacturing hubs for North Africa and beyond. However, underneath the surface of Morocco’s relatively positive story there are also challenges, such as its small domestic market size, external dependencies, and complications in trading across North and West Africa. In my latest visit to Morocco, I set out to explore these market dynamics and determine whether Morocco is an attractive regional hub for MNCs.
North Africa’s rising positive story?
Morocco stands out as a strong candidate for a management hub for North and West Africa or the entire African continent for a number of reasons:
- Location: Morocco’s proximity to Europe, the rest of Africa, and other countries in the Middle East make it attractive due to ease of travel and trade, especially for European companies
- Government support for hubs: Because King Mohammed VI is driving initiatives to position Morocco as a regional hub, the government is easing the operating environment for setting up management hubs in the country and providing incentives (such as tax breaks, land, and training support) for establishing manufacturing hubs
- Availability of skilled workforce: The country’s skilled workforce and attractiveness to expatriates from Europe and (Francophone) Africa benefit its potential as a hub for North Africa
- Political stability: A stable political system with low risk of large-scale upheaval or insecurity creates a safer and more predictable investment environment
- Connections to Africa: Morocco is expanding links to other African countries, especially in West Africa, through telecommunications, banking, and aerial transportation infrastructure upgrades
Challenges remain beneath the surface
Still, there are reasons for MNCs to be hesitant to set up their regional hubs in Morocco. First, Morocco’s addressable market size is relatively small for many sectors, which complicates efforts to make the case for significant investment in the country. It has the lowest GDP per capita in North Africa, smallest government budget except for that of Tunisia, a manufacturing sector that is relatively small and is only recently diversifying from textiles and phosphates, and a less-developed local business environment than some of its neighbors such as Tunisia and Egypt.
Next, even though Morocco is a relatively stable market, its economy is not very resilient to the potential impacts of instability or insecurity due to its high dependence on tourism and FDI. The impact of a terrorist attack or other insecurity could have detrimental effects on the economy. In this instance, key sectors such as tourism and foreign investment would be adversely affected and that would hurt overall employment and growth in the economy. Finally, the Moroccan economy’s external dependencies, such remittances from and exports to Europe, make it vulnerable to factors outside of its control.
Moroccan authorities are implementing a host of reforms to reduce the country’s external dependencies and to set the economy on a sustainable growth path. While successful implementation of most reforms increases Morocco’s competitiveness, executives still have to assess the country not only on its general qualities but also on whether and how it can bolster their strategic vision in North, West and potentially all of Africa. Senior executives must determine their long-term priority markets in Africa, define their route-to-market for each country, and evaluate whether that route can be supported cost-effectively from a hub in Morocco.
For more details on what must be considered when establishing a management hub, FSG clients can use our existing Hubbing in EMEA framework and stay tuned for upcoming reports on hubbing and establishing an effective route-to-market strategy in North Africa. Not a client? Contact us to learn more.