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Join on Telegram Rabat – The world is facing a chain supply crisis that could last months, if not several years, precipitating a renewed interest in building up national strategic reserves. That need was recognized by King Mohammed VI who, in his speech marking the opening of parliament, called for a new approach to manage Morocco’s strategic reserves.
The remark received little media attention, yet it tasks the government with establishing a new “integrated national system” to manage vast strategic reserves. The king emphasized the need for reserves to cover “essential goods and products, especially in the areas of food, health and energy.”
The new integrated national system to manage Morocco’s strategic reserves comes at a time when global supply chains are shaken to an extent rarely seen in peace-time. Shortages of containers, truck drivers, mechanical parts and port staff are resulting in a vicious cycle of ever-more precarious supply chains around the world.
The UK has faced warnings that shelves might not be stocked around Christmas time while the US is heavily impacted by record gas prices and shortages, as its reliance on foreign suppliers becomes a liability. While much of the headlines on shortages focus on Europe’s gas supply crisis ahead of a cold winter, staple products are starting to disappear from otherwise stocked supermarket isles.
Supply chain crisis
The ongoing global supply chain crisis started taking shape when the global economy surged following a disastrous year caused by the COVID-19 pandemic. As businesses and customers recovered from a difficult year, fragile global supply chains started to strain.
Most businesses around the world rely on steady deliveries of foreign products for their production and distribution, and in recent years storing reserves of such products in warehouses was increasingly seen as an unnecessary cost.
Increased efficiency in global supply chains saw businesses instead work with a “Just-in-Time” inventory system that depends on products arriving just when they are needed, reducing the need – and cost – of storing goods in warehouses. While this system is highly efficient, the current crisis is providing ample evidence of the system’s lack of resilience under suboptimal conditions.
The integrated nature of our supply chains mean that one small hitch in the chain can reverberate through the system and even create a vicious circle that is hard to stop.
In the US, for example, distributors are facing a shortage of truck drivers and the parts needed to repair broken trucks. Because the parts needed to fix trucks come from China, delivery can take weeks or months instead of days. This reduces the number of trucks available, slowing down deliveries further, in an ever worsening cycle.
National strategic reserves
In order to ensure that citizens do not go without the most basic necessities of life, most governments around the world manage “strategic reserves,” by stockpiling these products.
Once stockpiled, the government can use these supplies in two ways. Firstly, it reserves for emergencies, such as war or natural disasters. More commonly, reserves are used to stabilize prices of staple products by managing supply to meet domestic demand.
Oil and gas are the most common strategic reserves held by governments as a way to control the price and supply of vital energy. Superpowers such as the US and China hold vast reserves that they can use to stabilize pricing. When hydrocarbon prices are low, governments typically fill their reserves, allowing them to offload part of these reserves when prices rise.
This fundamental process was interrupted in Europe amid the COVID-19 crisis, and the bloc is now desperately refilling its reserves ahead of what is predicted to be a very cold winter.
But energy is only one part of strategic reserves. Russia stockpiles vast amounts of wheat, China has reserves of frozen pork, while Canada even stockpiles maple syrup.
Over the past decades countries have increasingly favored short-term profits over building reserves, a trend that has culminated in the current crisis. Without national reserves, countries are vulnerable to price swings in the global market, which is on full display in the current global supply chain crisis.
A regional issue
Facing insufficient supply while demand remains high, countries around the world are bracing for potential shortages. From semiconductor chips used in anything from household appliances to cars and industrial equipment, to beloved products such as toys, wine and Ben and Jerry’s ice cream, supplies are running low.
While a lack of ice-cream might not be as much of a problem as Europe’s lack of gas to heat homes during a cold winter, there is one strategic reserve that any government is wise to stock up on: food.
Rising food prices have a tremendous impact on domestic stability. Rises in bread prices alone have been linked to revolutions from the 1789 French Revolution, to the start of the Syrian civil war in 2011. Building food reserves is a smart way of preventing domestic unrest.
The foresight to stockpile food stuff is however not always a given. Egypt holds reserves of five months-worth of domestic consumption of wheat and cooking oil, while its neighbor Sudan, which has no such reserves, is facing shortages already, because its main port is blocked.
Prioritizing ample reserves is important, especially in the MENA region. A 2017 report for the World Bank Economic Review warned that “the combination of diets heavily reliant on wheat and wheat supplies dependent on imports means that events in global wheat markets play an outsized role for welfare outcomes in the region.”
Market volatility, the report predicted, would see major vulnerabilities for oil-importing countries such as Lebanon and Jordan, as well as less-developed oil exporters such as Iraq, Yemen and Syria.
More developed Gulf countries import most of their food, yet can cover for increased food prices as those prices typically increase alongside oil prices, increasing national revenue.
“Egypt and Morocco do not have the luxury of ample fiscal space to absorb sustained higher prices, although their higher domestic production levels help cushion price shocks,” the report stated.
Morocco’s strategic reserves
While Morocco has a thriving agricultural sector, the country’s lack of water means it imports some of its most important food products. Some of the most common items on a Moroccan table come from abroad, including mostly Russian-bought wheat for its bread, and Chinese gunpowder tea for its iconic mint tea.
King Mohammed VI’s directive to better manage and build reserves covering “food, health and energy,” comes at a crucial time for the Moroccan economy.
Morocco is predicted to have a good cereals harvest in 2021, following several drought-stricken years of diminished yields. The new “integrated national system” will likely be tasked with providing ample storage capacity to build reserves for times when yields are less plentiful.
Conversely, Morocco faces reduced imports of natural gas amid a diplomatic dispute with its gas-rich neighbor Algeria. According to Rystadt Energy, Algerian gas accounts for 12% of Morocco’s electricity production, a number that has been in gradual decline over the years.
New economic partnerships with hydrocarbon-giant Nigeria, and domestic gas exploration are hoped to cushion the impact of the spat with Algeria. Yet Morocco additionally needs gas to produce one of its most-wanted exports – phosphate fertilizers. The development of “green hydrogen” as an alternative is offered as a long-term solution.
Morocco’s solutions are showing foresight, yet require years to develop. In the meantime, building up vast gas reserves is likely the only short-term solution to limit vulnerabilities to global price swings such as the current surge in prices for natural gas.
The monarch’s call to consider “national needs” as part of the “country’s strategic security,” comes at an opportune time. The supply chain crisis will provide apt motivation to spur on lawmakers, and treat the country’s strategic reserves as the national priority that it is.
Morocco’s role as a prime source of stability and economic growth in the region depends on these reserves. The country has to limit its exposure to what could be a years-long supply chain crisis, while the effects of climate change will have a growing impact on its prospects.
As the king highlighted, Morocco has adequately managed its supply issues during the pandemic, now it needs to be ready to weather the storm of the tumultuous years ahead of us.
