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Cablegate: Morocco Improves Its Economic Rankings, but Still

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DE RUEHRB #0070/01 0331227
ZNR UUUUU ZZH
P 021227Z FEB 10
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 1111
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEHCL/AMCONSUL CASABLANCA 0070
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS RABAT 000070

SIPDIS
SENSITIVE

STATE FOR NEA/MAG, NEA/PI AND EEB
STATE PLEASE PASS USTR - P BURKHEAD
AID/W FOR MEA
COMMERCE FOR NATHANIEL MASON

E.O. 12958: N/A
TAGS: ECON EAID EINV ETRD EFIN PGOV MO
SUBJECT: MOROCCO IMPROVES ITS ECONOMIC RANKINGS, BUT STILL
HAS FAR TO GO

REF: 09 RABAT 0701

1. (SBU) Summary: After years of lagging behind in world
economic rankings such as the World Bank's "Doing Business
Index" and the Heritage Foundation's "Economic Freedom
Index," Morocco is starting to show signs of improvement.
The most recent iterations of these reports show Morocco
moving up two places in the World Bank,s &Ease of Doing
Business8 rankings (from 130 in 2009 to 128 in 2010) and
jumping ten places in the Heritage Foundation,s Index of
Economic Freedom (101 in 2009 to 91 in 2010). The Moroccan
Government, through the local media, has sought to portray
these gains as the result of King Mohammed VI's economic
policies and reform. While the progress is welcome, the
indices also show that Morocco still has far to go,
particularly in improving the business climate -- in which
the indices show it continues to lag behind most of its
neighbors in the Middle East and North Africa region. End
Summary.

-------------------------------
The Effects of Economic Reforms
-------------------------------

2. (SBU) In the decade since King Mohammed VI ascended the
throne, the Government of Morocco has undertaken economic
policies and reforms aimed at stimulating growth. In fact,
Morocco has managed to achieve sustained real GDP growth,
which despite the world economic crisis, topped 5 percent in
both 2008 and 2009 and is projected to remain above 4 percent
in 2010. Dependence on the volatile agriculture sector has
diminished as its share of the GDP has fallen from 20 percent
in 1998 to about 16 percent in 2010. National strategies for
industrial production, tourism development, outsourcing,
green-energy production, agricultural development and
shipping, among others, have been put in place to position
the country better in the global economy. Morocco has also
sought to strengthen and modernize its public finance system
and support its private sector (reftel).

3. (SBU) Despite these encouraging signs, the multi-year
strategies and reforms put in place have not had much effect
on Morocco's rankings compared to similar and regional
economies in commonly watched international indices, such as
the World Bank's "Doing Business Index" and the Heritage
Foundation's "Economic Freedom Index." Still, both indices
have identified significant progress in recent years on
economic reforms as a decisive factor in maintaining
Morocco's relatively high growth rates. The World Bank's
research shows that the linkage between its index and the
potential for economic growth is strong. Higher rankings
indicate better (and usually simpler) regulations for
business and stronger protection for property rights, based
on ten indicators of business regulation that track the time
and cost to meet government requirements in business
start-ups, operations, trade, taxation and business closures.
(They do not reflect macroeconomic policy, quality of
infrastructure, currency volatility, investor perception or
crime rates.) The Index of Economic Freedom similarly uses a
series of ten economic measurements (including trade,
business and investment freedom and property rights) to
measure the degree of economic freedom in the world's
institutions. The higher the ranking in the economic freedom
index, the freer individuals are to work, produce, consume
and invest in any way they chose, notes the Heritage
Foundation in its report. Both the "Doing Business" and
"Economic Freedom" Indices compared 183 countries in 2010.

-----------------------------
Economic Rankings on the Rise
-----------------------------

4. (U) Local press reporting on the "Doing Business 2010"
report emphasized the finding that Morocco is among the most
active countries in instituting economic reforms to
facilitate commercial transactions and improve the business
climate. In 2010, Morocco improved its global ranking by two
places in the ease of doing business index, while maintaining
its rank of 13th in the Middle East and North Africa (MENA)
region. The improvement is primarily attributable to Morocco
moving up 44 places in the "getting credit" indicator and 4
places in "enforcing contracts." It saw no change in
"employing workers" or "closing a business." Morocco

substantially improved the information system related to bank
credits and was among 27 out of 183 countries to introduce
reforms to make obtaining bank credits easier.

Morocco's Recent "Doing Business" Rankings:

Year Rank MENA Rank
2007 115/175 10/17
2008 129/178 13/19
2009 130/181 13/19
2010 128/183 13/19

5. (U) Morocco's economic performance has been steady in
recent years, stressed local news reports on the Heritage
Foundation's "2010 Economic Freedom" index, sustained by
reform measures focused on competitiveness and
diversification of the production base. Major structural
reforms have aimed at ensuring macroeconomic and financial
stability and improving the overall entrepreneurship
environment, according to the Heritage Foundation. Morocco's
economic freedom score is now 59.2 out of 100, making it the
91st freest in the 2010 index, moving up 10 places from 2009.
It ranked 10th in the MENA region, moving up two places from
the last two years. The positive change in score reflects an
improvement in five out of the ten economic freedoms.
Morocco's economy benefits from relatively high levels of
business freedom, monetary freedom and investment freedom,
indicates the 2010 "Economic Freedom" report. Foreign and
domestic investments receive equal treatment, the report
continues, while the small but growing financial sector is
well-developed for the region. Simplifying the tax regime
and improving the transparency of fiscal management have been
major parts of the government's reform agenda, the report
concludes.

Morocco's Recent "Economic Freedom" Rankings:

Year Rank MENA Rank
2007 96/157 11/17
2008 98/157 12/17
2009 101/183 12/17
2010 91/183 10/17

-------------------------------
Evidence of Succeeding Reforms?
-------------------------------

6. (U) While the overall rise in these rankings reflects the
positive effects of reforms and will help spur economic
growth, much remains to be done, both reports stress.
Morocco continues to score low in some major indicators in
both indices, which has held back Morocco's advance in the
rankings over last the four years. For example, in the ease
of doing business rankings, Morocco received more bad news
than good, improving in only two of the ten indicators from
the previous year. Furthermore, in 2010 Morocco dropped 17
places in "starting a business," 7 in "construction permits,"
6 in "paying taxes," 5 in "registering property," 4 in
"trading across borders" and 1 in "protecting investors."
Morocco also received low ratings from the Heritage
Foundation for certain important economic freedoms,
particularly in "labor freedom," "property rights" and
"freedom from corruption." The judiciary is inefficient and
vulnerable to political interference, states the "Economic
Freedom" report, and labor market rigidity continues to
discourage dynamic employment growth.

7. (SBU) Comment: The reform camp within the Government
kept the local economic press well-supplied with recent
good-news stories about Morocco's improvement in the widely
watched indices, which had previously been the source of many
critical media pieces. This can only help as the modernizers
continue to push for economic liberalization to spur
continued growth. In the past, the Government has often
reacted by criticizing the methodology of the indices and
questioning the validity of the results. In private talks
with government interlocutors, we have emphasized that
whatever merit the government's arguments may have concerning
the fairness of the ratings system, the fact remains that the
problems these indices have captured are real ones that
Morocco needs to work on. No doubt the rise in economic
rankings for 2010 is a step in the right direction, and a
sign that the government's economic reform program has begun

to take effect. It is also a sign that the Free Trade
Agreement, USAID, the Millennium Challenge Corporation and
other mission efforts to improve the business climate are
having an impact. However, much remains to be done,
particularly in terms of improving the business climate -- as
exemplified by the low rankings in indicators related to
labor, commercial property rights and investor protection.
There is still significant space for improving and
simplifying business regulation, which would help consolidate
the dynamism of the economy. The Mission will advocate a
redoubling of efforts to address Morocco's weaknesses,
especially in the investment climate, and will seek
discreetly to strengthen the hand of economic reformers
within the Government, who continue to face foot-dragging and
second-guessing by some entrenched interests. End Comment.


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Visit Embassy Rabat's Classified Website;
http://www.intelink.sgov.gov/wiki/Portal:Moro cco
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