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Cablegate: Morocco Macroeconomic Update and Economic

VZCZCXRO2098
RR RUEHTRO
DE RUEHRB #1801/01 2701534
ZNR UUUUU ZZH
R 271534Z SEP 06
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 4764
INFO RUEHAS/AMEMBASSY ALGIERS 4160
RUEHMD/AMEMBASSY MADRID 5581
RUEHNK/AMEMBASSY NOUAKCHOTT 3319
RUEHFR/AMEMBASSY PARIS 4391
RUEHTRO/AMEMBASSY TRIPOLI 0102
RUEHTU/AMEMBASSY TUNIS 9061
RUEHCL/AMCONSUL CASABLANCA 2179

UNCLAS SECTION 01 OF 02 RABAT 001801

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/MAG, STATE PASS USTR (BELL), USPTO (ADLIN AND
ADAMS), USDOC FOR ITA/MAC/ONE (ROTH), ADVOCACY CTR (JAMES)
AND CLDP (TEJTEL)

E.O. 12958: N/A
TAGS: ECON ETRD ELAB EAIR EINT ECPS KTEX TS
SUBJECT: MOROCCO MACROECONOMIC UPDATE AND ECONOMIC
HIGHLIGHTS; SEPTEMBER 2006


1. (U) This message provides an update on Morocco's
macroeconomic situation, together with other highlights of
recent economic developments, including:

A. Altadis's purchase of the remaining 20 percent of the
National Tobacco Monopoly.
B. The creation of a new fund (Oleo Capital) to support the
development of the olive industry.
C. Increased Moroccan textile exports to the U.S.
D. Morocco seeks Turkish tourists
E. Port reform sparks protests

2. (SBU) A Bumper Crop: Official forecasts for economic
growth for the remainder of 2006 remain extremely positive.
Building on a successful harvest, the Ministry of Finance now
predicts that annual growth for the year will come in at
least 7.3 percent, well above the baseline included in the
2006 budget, and a dramatic turnaround from last year's 1.7
percent. For its part, the IMF forecasts 5.4 percent growth.
The strong showing results largely from the agricultural
sector, which contributes 3 points to the total, versus its
contraction by 2.7 points last year. Non-agricultural
activities continue to grow at a more modest rate of 5
percent, the same rate as last year, aided by recovery in the
textile sector and a strong showing by Morocco's
metallurgical sector.

3. (U) The Casablanca Stock Exchange, as reflected in the
Moroccan All Shares Index (MASI), has enjoyed a bullish year,
up over 45 percent in 2006. Fueled by an influx of foreign
investment and a series of asset sales by the government, the
Casablanca Stock Exchange has outpaced all other markets
worldwide.

4. (SBU) Dropping Unemployment: Morocco's strong growth is
also reflected in a sharp drop in unemployment. The national
unemployment rate dropped from 9.8 percent in the first
quarter to 7.7 percent at mid-year, well below last year's
rate of 11.1 percent, and the first time in 13 years that the
number of unemployed dropped below 1 million. Strikingly,
while the agricultural sector provided more than half the new
jobs created by the economy (350,000 of 628,000 positions),
the steepest decline was recorded in urban unemployment,
which fell from 18.4 to 13 percent, and in that of
unemployment among young graduates, which fell from 26.5 to
17.7 percent.

Comment: While encouraging, the improvement has sparked
considerable skepticism, with one leading industrialist
questioning how Morocco can be within such close striking
distance (2 percent) of "full employment." Skeptics predict
that once the seasonal impact of the excellent harvest
passes, unemployment will return to more typical levels.

5. (SBU) Sectoral Developments:

A. Altadis/Regie de Tabacs: The Franco-Spanish group Altadis
moved earlier this month to purchase the remaining 20 percent
of shares of the national tobacco monopoly (Regie de Tabacs)
that remained in the state's hands after the company's June
2003 privatization. The purchase, for 4.02 billion dirhams,
was followed by conclusion of two agreements: one
guaranteeing the state a continued role on the company's
board of directors, and the second by which the company will
provide technical assistance to tobacco growers, to help them
develop blond tobacco and also diversify into olive
cultivation. The sale follows adoption in July of a decree
prolonging the state's monopoly on the importation and
distribution of tobacco products until the end of 2010, to
help "reinforce the sector and enable it to overcome the
continued decline in demand for tobacco products."

Comment: The monopoly extension appears to violate provisions
of the U.S.-Morocco Free Trade Agreement, and will be the
subject of further bilateral discussions.

B. Oleo Capital: The Ministry of Agriculture, Credit
Agricole, and Societe Generale of France launched a new fund
on September 18 in Marrakech to encourage the development of
olive farming in Morocco. The fund, Oleo Capital, will

RABAT 00001801 002 OF 002


invest approximately 180 million dirhams apiece in 10 olive
farms. The project aims to produce an additional 30,000 tons
of olive oil each year, meeting international standards in
terms of cost and quality. With planting of the farms
planned between 2007 and 2012, the first harvest is expected
in 2010. Fund managers predict investors will earn a 25
percent return over 12 years.

Comment: The olive sector is also a central element in
Morocco's proposal to the Millennium Challenge Corporation,
and MCC staffers will meet with Oleo Capital next month to
compare notes on the project. Earlier, analysts at both
McKinsey and BMCE Capital in Morocco had identified the
sector as one that offered high potential for Morocco.
Credit Agricole executives note that they plan four other
funds in areas ranging from animal husbandry to "high-tech"
agriculture, with a view to helping the agricultural sector
as a whole modernize.

C. Textiles: With public relations and other assistance from
USAID's New Business Opportunities Project (NBO), 10 Moroccan
firms participated in the 2006 "Magic Show" in Las Vegas in
August, earning orders estimated at 90 million dirhams (10
million USD). Participants said the experience helped them
better understand the U.S. market, and vowed to redouble
their efforts in coming years. Separately, in a press
conference following a meeting with visiting USDOC Deputy
Assistant Secretary Holly Vinyard, Minister of Industry and
Commerce Mezaour said Moroccan textile exports to the U.S.
have doubled in the first six months of 2006, thanks to the
U.S.-Morocco Free Trade Agreement.

D. Seeking Turkish Tourists: A delegation of 15 Moroccan
travel operators met with their Turkish counterparts in
Istanbul last week to encourage Turkish tourism to Morocco.
Royal Air Maroc launched direct flights from Casablanca to
Istanbul last year, with service 6 times weekly (including a
corresponding Turkish Airlines codeshare). Passenger load
has been relatively healthy at 65 percent, but the airline
has targeted 85 percent for the coming year. Industry
experts note that only 10,000 Turkish tourists came to
Morocco in 2005, but argue that the total can be dramatically
expanded if Morocco effectively promotes its cultural
attractions.

E. Port Conflicts: Casablanca port union workers
(stevedores) continue to resist the government's plan to
privatize port operations. Dock workers staged an all-day
strike on Wednesday, September 10, over fears of job
security. At issue is the privatization of port operations
(loading and unloading of ships) and the resulting loss in
jobs for stevedores employed under the current system. Union
leaders met with both the Minister of Transportation, Karim
Ghellab, and the Prime Minister, Driss Jettou, for over four
hours on September 20 without reaching a settlement. The
union is firm in its opposition to the plan, which they say
will mean the loss of over 700 jobs at Casablanca. In
contrast, the government is offering a buy-out plan,
emphasizes the efficiency and merits of their privatization
plan, and claims the jobs will merely be transferred, rather
than eliminated.
******************************************
Visit Embassy Rabat's Classified Website;
http://www.state.sgov.gov/p/nea/rabat
******************************************

BUSH

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