Rabat – While Foreign Direct Investment flows experienced a 35% plunge in 2020, FDIs to Morocco remained virtually unchanged at $1.8 billion, according to the UN Conference on Trade and Development’s (UNCTAD) latest report on world investment.
COVID-19-induced economic and health challenges weighed heavily on foreign investment in North Africa in 2020. Despite Morocco’s phosphate and mining sectors being major contributors to the annual GDP, the national economy is emboldened by a non-energy-dependent industrial sector.
Morocco’s stable economic growth has helped attract investments in several manufacturing sectors, including automotive, aerospace, and textiles, and maintained a relatively unchanged influx of FDI, according to the UNCTAD.
The industrial sector was the main beneficiary of revenues generated by FDI in 2019, with an amount of 11.1 billion dirhams, up 27.2% compared to 2018, according to data from the Office des Changes.
The long-term commitment of the international firms operating in these sectors helped counteract the decline in cross-border investment inflows to Morocco, in contrast to other countries in the region.
FDI inflows to North Africa contracted by 25% to $10 billion, down from $14 billion in 2019, with major declines in most countries. Egypt remained the largest recipient in Africa, albeit with a significant reduction (-35%) to $5.9 billion in 2020.
The slowdown will be exacerbated for highly energy dependent economies in North Africa, due to the decline in energy commodity prices and demand, as the continent’s investment profile is focused on these resources, adds the report.
In neighboring Alegria, the overall volume of hydrocarbon exports reached 82.2 million tons of oil equivalent in 2020, for a value of $ 20 billion, declines of 11% and 40% respectively compared to 2019, according to the Ministry of Energy.
Simultaneously, imports of petroleum products have also fallen, saving Algeria more than $700 million. The consequences are swiftly felt: sudden unemployment, closure of businesses and decreased median household income. It is proving to be difficult for foreign investors to find incentives to direct capital flows towards the country.
In its annual report, the International Energy Agency (IEA) estimated that global oil demand is not expected to exceed its end-2019 level until 2023. In 2026, global demand is expected to reach 104.1 million barrels per day, a figure that is 4.4 million barrels per day higher than in 2019.
“Increased spending on capital and intangible assets will not translate directly into a rapid rebound in FDIs, as confirmed by the sharp contrast between optimistic investment forecasts and cautious start-up announcements,” said James Zhan, director of investment and enterprise at UNCTAD.
In Morocco, the industrial sector accounts for 26.5% of FDI, followed by the real estate sector with 24.5% (7.2 billion dirhams) and financial and insurance activities with a rate of 13% (3.3 billion dirhams), says the Ministry of Industry, Trade and the Green and Digital Economy in a note analyzing the figures of the Office of Foreign Exchange on FDI in 2019.
Projections of GDP growth and forecasts based on a range of investment factors indicate that FDI flows will fall by 25-40% to between 40% to between $25 billion and $35 billion.
According to the UNCTAD report, Morocco’s outflow ($492 million) was also significant, although it decreased by 45%, compared to 2019. By comparison, FDI flows to Europe fell by 80% during the pandemic, while those to North America experienced a lesser loss (-40%).
UNCTAD’s report views the recovery of FDI flows as dependent on the pace of economic recovery. But it also takes into account the possible relapse of the pandemic, the potential impact of stimulus packages on FDI, and political pressures, among other factors.
The relatively modest recovery in global FDIs, projected for the end of 2021, is influenced by continued uncertainty about access to vaccines, the emergence of new COVID-19 mutations, and the reopening of economic sectors.
