Rabat – The latest episode of The Policy Center for the New South’s weekly show interviewed Najib Saoumai on the challenges of integrating Morocco’s informal sector.
On August 6, 2020, Morocco announced its recovery plan from the COVID-19 pandemic with a budget of MAD 120 billion ($13.4 billion). The main focus of the plan is to relaunch the economy, safeguard and promote employment, preserve the health of workers, promote good governance, and speed up the process of formalizing the economy.
The integration of the informal sector, a scourge that weighs heavily on the domestic economy, depends, among other things, on the ability of local authorities to create a “suitable” local business climate, according to economist Najib Saoumai. Saoumai was the guest of The Policy Center for the New South’s (PCNS) weekly program, “PCNS Tuesdays”.
“Informal activities need production areas and infrastructures that comply with health and safety measures, which local authorities can develop on the outskirts of cities, with easy access facilitated by an adequate transportation system,” explained Saoumai.
This statement only gains in relevance once applied to the way in which Morocco has been managing the COVID-19 crisis: there is a strong reliance on local authorities to both inform the public, and enforce government regulations.
Saoumai also spoke of the importance of the fiscal and financial factors to facilitate the transition from informal to formal sectors. Saoumai recommended that tax exemptions must remain intact if not improved upon.
He also advocates for the establishment of more flexible tax mechanisms and systems.
It’s important to note that Morocco has reduced its key interest rate to 1.5% and released $3.3 billion to fight against the pandemic Some would assume it could be wiser to raise taxes, especially for corporations and companies. But Saoumai argues that this will only hinder employment and the process of transitioning to a mostly formal national economy.
Saoumai also recommended the creation of incubators dedicated to the guidance of informal sector operators, that will help accompany and finance already existing informal businesses.
Businesses prospects in light of government’s social ambitions
In addition to the previously proposed measures, Saoumai emphasized the impact of subcontracting systems, as large companies use informal businesses to reduce costs, noting that the solution for this problem should be fiscal. By establishing value-added tax relating to subcontracting to startups, can largely contribute to tax revenues.
“Encouraging start-ups through privileged access to public procurement can also encourage more operators to enter the formal sector”, he said.
The promotion of e-payment is also an important factor in the fight against the informal, said Saoumai, noting that studies have revealed a correlation between electronic payment and GDP growth. Proving its relevance in impacting the growth of the informal sector, hence the need to build a strong electronic financial culture.
These propositions, as stated by the guest economist Najib Saoumai, are more relevant than ever in light of the implications of the current pandemic. Saoumai also noted the fragility of the Moroccan formal sector as witnessed in the early months of the pandemic. Many workers were unemployed following the reduced activity.
Mass unemployment rates are an unfortunate result of the pandemic worldwide and are in no way exclusive to Morocco. But it is important to state, as Morocco plans to recover from the effects of the pandemic, and wants to finally tackle some of its most pressing issues.
Considering King Mohammed VI’s announcement in his July 29 2020 speech, establishing social security “for the benefit of all Moroccans” over the next five years is now a national priority, important to stabilize the economy.
This would also contextualize the government’s latest bold decision: the regulation of national cannabis production. Decisions like these, and their committed follow-up by local authorities, are necessary to the success of Morocco’s newly announced endeavor.