Toronto - Let me start by clarifying some of the confusion this article’s title may create. What follows is not policy advice for Moroccans to substitute rice for wheat as their diet staple! Rather, the topic covers the economic part of political economy, my other passion.
Toronto – Let me start by clarifying some of the confusion this article’s title may create. What follows is not policy advice for Moroccans to substitute rice for wheat as their diet staple! Rather, the topic covers the economic part of political economy, my other passion.
Nobel laureate economist Joseph Stiglitz, a true Keynesian, once warned against neo-conservative policy advice for developing nations; namely, encouraging countries to stick to their core strengths and their comparative advantage in international trade. Put simply, if Morocco produces good citrus fruits, it should find ways to increase the production and the commercialisation of oranges and tangerines. The same goes for phosphates and tourism, Morocco’s other high-income earners. As good disciples of the Washington Consensus (the International Monetary Fund and World Bank), Morocco’s successive governments since independence have followed this advice in letter and spirit, so effectively that I have often looked forward to Christmas as the only time to get delicious Moroccan clementines purchased right here in Ontario.
At first, it seems rather foolish to argue with the sensible advice to focus on a country’s economic strength. But Stiglitz, the former World Bank Chief Economist, nevertheless described this policy advice as reckless. He said “That is wrong…forty years ago, South Korea had a comparative advantage in growing rice. Had it stuck to that strength, it would not be the industrial giant that it is today. It might be the world’s most efficient rice grower, but it would still be poor.”
This may come as a surprise to some, but back in the early 1960’s, South Korea, much like Morocco, was largely dominated by an agricultural economy and an oppressive political environment. But this is where the similarities ended, and both countries diverged on different paths. General Park, who took power in a military coup in 1960, held a deep desire for economic participation driven by a nationalist agenda, despite being an undisputed dictator. King Hassan II was a shrewd political leader, but his economic record was weak, and he was less keen to involve the masses in a participatory economy. He favoured a handpicked crony elite to run a rentier economy.
Some would argue that this analogy is not fair, since General Park came to power by a military coup while the King legitimately inherited his power through his lineage. I would argue that the analogy is rather unfair to General Park, who needed to cling to power after the coup for his own survival and did not have to do much else, as other military dictators have. He chose, however, to redeem his dictatorship with strong economic performance. Ironically, despite all his economic feats, he was later assassinated in 1979.
Speaking of Generals who lived-and-died by the gun, General Oufkir comes to mind. Had that president-wannabe succeeded in overthrowing King Hassan II in his failed coup, Morocco would almost certainly be in far worse shape today. The man was notorious for being personally involved in the torture and execution of the regime’s opponents. He showed a clear lack of patriotism and career opportunism when he served in the French army. A nationalist economic revival under him would have been highly improbable…Again, it is hard to keep with the traditional civility not to speak ill of the dead!
Back to the economy. Ever since its independence, Morocco has remained culturally and economically tied to its former colonizer, France. Morocco faithfully pursued France’s economic agenda and stuck to its so-called economic strengths. Of course, as Morocco’s first trading partner, France has every interest not to disturb the balance of its trade surplus.
Fast forward some 50 years and the results could not be clearer. Morocco is still an excellent producer and exporter of citrus fruits, the third largest phosphates exporter, and a respectable tourist destination. Sadly, however, according to World Bank data, Morocco finds itself at the lower end of middle-income countries. South Korea, on the other hand, has one of the highest incomes per capita in the world.
How Did This Happen?
In his early days after the coup, General Park’s obsession with his economy-first, democracy-later philosophy drove him to diversify the country’s economic sectors. He incentivized home-grown companies to compete with the dominant southeast Japanese neighbours on their own turf, ranging from ship-building and electronics to manufacturing and transportation. As a result, South Korea managed to decrease its high-cost technology imports and tip the trade balance in its favour. Not long before, Korean rice farmers took months to grow a ton of rice to export to Japan. In exchange, they were getting back the equivalent in value of a Sony TV set, which took only couple of days to assemble. A formidable trade imbalance in hindsight!
The Economic, Social, and Environmental Council (ESEC), as the Kingdom Advisory Council par excellence, in its latest annual report of 2013, recgonized Morocco’s economic challenges and offered some sound policy advice. Namely, the need to stabilize the country’s public finances in light of stagnating tourism and MRA (Moroccans Residing Abroad) remittances, along with tackling the ominous pubic deficit and public debts. The ESEC also called for an industrial technology transfer under a new sector-wide strategy, with efforts to prop up SMEs (Small and Medium Enterprises). Some of its other policy advice, however, was not so sound, such as cutting public services and subsidies in an already weakened conjuncture to balance the budget. It also failed to address the rampant problem of tax evasion, much less the call for a progressive tax code, in which high earners are proportionally taxed on their income. By and large, the report was generous in identifying the challenges and naming general remedies, but came short on delivering tested methods to achieve them.
As I was skimming through the 119-page report, I was astounded to learn that the advisory council has a whopping 99-members for a relatively small country. This is when the White House Council of Economic Advisers runs with three senior advisors supported by 29 staff charged with the daunting task to manage the largest economy on Earth!
Jobs, Jobs and Jobs!
Officially, Morocco’s unemployment hovers below 10%. This figure is highly misleading. It does not account for the under-employed and the unregistered unemployed, not to mention those who often find themselves in precarious jobs with no social protection without union representation. Morocco needs to rethink its strategy to make headways in the area of job creation and jump-start the economy. To this effect, policy makers need to break the cycle of relying mainly on traditional economic drivers such as agriculture, mineral extraction, and tourism. All these economic activities are prone to elements difficult to harness, such as the weather for agriculture, fluctuating international markets for phosphates, and perceived safety concerns for tourism. While economic sectorial diversity may not be the immediate panacea to Morocco’s economic ills, it should offer a medium-term relief of sorts.
Monetary and Fiscal Policy
La Banque Du Maroc needs to embark on a systematic lowering of interest rates for a couple of reasons. When interest, being the cost incurred when borrowing money, is low, it allows affluent private citizens and commercial entities to seek other ways to maximize their profits through investment in the real economy instead of hording in banks. Interchangeably, interest is also the profit made by lending money. With a government-targeted production strategy, the banks should in turn lend money to SMEs. The borrowed funds should be aimed at the production of goods and services and steer away from the punishing consumption loans that most Moroccan households have been increasingly using to buy imported goods.
Along with this monetary policy, the government needs to introduce a transparent fiscal policy. This could be done by increasing enforcement mechanisms to fight against tax evasion. Corruption has always been a problem as a cheaper cost for paying taxes. It allows taxpayers to bypass the tax authority by paying a fraction of the due tax in form of bribe to corrupt officials. The solution that has been tried and tested is also market-based: increase the cost of corruption as way of doing business for both parties. Namely, with prohibitive costly fines that exceed the taxable amount and the dismissal of those found guilty of receiving bribes, in addition to stiff criminal charges.
The government also needs to accelerate its efforts to incentivize Moroccans to repatriate assets horded abroad. I understand this step has already started, with some success.
For a country such as Morocco, where local investor confidence needs some assistance, it is imperative for public stakeholders to engage in partnerships with the private sector to target certain sectors of the economy. This formula has worked elsewhere. Economic agents act rationally. Therefore, they will not invest in sectors in which the government has not shown confidence by putting a dog in the race, per se. If, however, the government is willing to provide infrastructure, tax breaks, and share risk as part-owner of new start-ups, it should alleviate some of the psychological barriers for potential investors. A good business idea is a viable idea in that it responds to customers’ needs.
To this effect, the PPP ventures do not need to create new needs, but rather respond to existing market demands. This could be done by manufacturing goods that respond to viability criteria. Specifically, these products have to be locally manufactured, not only assembled. In addition, these products should substitute imports with local alternatives. This formula would have the dual benefit of tackling unemployment and the trade deficit by decreasing imports. For a start, these goods do not have to be cutting edge like electronics or cars, although that might follow once a learning curve is reached. The focus should be placed on basic household appliances like stove ranges, water heaters, basic solar panels, bicycles, three-wheel scooters, etc. I am confident Morocco has enough talent within its borders and from its diaspora to harness the necessary technical know-how. All these appliances are currently imported either from China, Turkey, or Europe, which creates a debilitating trade deficit for public finances.
One would argue the wisdom of such advice, noting that Made-in-Morocco products will not be able to compete with the imports on the price-quality scale. That may be true at first, but with enough time, the economies of scale rule will prevail. In other words, the increase in volume of units produced should decrease the production cost of each unit. Quality should follow as competition grows between local manufacturers. This is how Turkey became another manufacturing giant and a solid exporter.
But what would prevent Moroccans to continue buying imported goods? As a response, the government could increase import taxes to prop up local manufacturing. The World Trade Organization may not like what could be perceived as protectionism, but that is too bad! Morocco could rightfully claim its right to develop and declare these sectors vital. A similar strategy is already in place with regard to imported vehicles, although the motivation was never about a local car manufacturing, but the protection of the local dealerships of imported vehicles, another aspect of the ubiquitous rentier economy.
Of course, change will not yield the anticipated results if it not part of a comprehensive national strategy, which would include much-needed education reform towards an education-for-employment model.
Have I mentioned that all the above needs a solid political will? You bet!
Photo by AFP/Fadel Senna
The views expressed in this article are the author’s own and do not necessarily reflect Morocco World News’ editorial policy
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