In February, French carmaker Renault inaugurated a new $1.5bn car plant in the Moroccan port town of Tangier on the Mediterranean coast. The facility will produce 400,000 low-cost vehicles a year of the company’s Dacia brand when its reaches full production in 2013.

The decision to build the plant in Morocco, which will largely serve the European market, has caused outcry in Paris, but it is great news for the government in Rabat.

Although the North African state has had some success creating new jobs in recent years, the Washington-headquartered IMF estimates that unemployment was above 9.1 per cent in 2011, and far higher among young people. Investments such as the Renault plant, which will directly account for 6,000 new jobs, along with an estimated 30,000 at its suppliers, are vital to cutting unemployment.

In June, Canada’s Bombardier said it would build a $200m aircraft component plant next to Casablanca’s Mohamed V airport. If government officials in Rabat are right, these will be the first of several firms to launch major new industrial schemes in the country.

Long-term economic strategy for Morocco

For some, the arrival of Renault and Bombadier is a vindication of the government’s high-risk strategy stretching back a decade aimed at turning the country into an industrial and service hub involving billions of dollars of infrastructure investments. For others, however, they are emblematic of years of waste, which will provide little long-term benefit to the Moroccan economy.

What we are seeing today is clearly the result of what has been done in the past, our long-term strategy

Adil Chikhi, Invest in Morocco

“What we are seeing today is clearly the result of what has been done in the past, our long-term strategy,” says Adil Chikhi, director of development and strategic marketing at state investment agency Agence Marocaine de Developpement des Investissements, also known as Invest in Morocco.

The agency was set up in 2009 as part of the government’s plan to build on its infrastructure by bringing in foreign investors. “We realised that investment, and foreign investment being an important factor, is key to development,” says Chikhi, a former investment banker whose career includes years spent in London and Paris. “Once you realise that investment is important, you need to put in place the right things to attract such investment and what I guess has been done so far is really to put in the building blocks.”

Among those building blocks, says Chikhi, is the country’s investment in infrastructure, such as roads, airports and a new port at Tangier. It also includes the development of free trade zones, competitive incentives for investors, a series of free trade agreements (FTAs) and renewed focus at a state level on education. These, he says, come in addition to the country’s already low labour costs and proximity to Europe. At its closest point, Morocco is only 14 kilometres from Spain’s east coast.

King Mohamed VI ascended to the throne in 1999, and by some accounts, the length of highways in the country has quadrupled since then, from 500 kilometres to 2,000km. In 2007, state rail firm Office National des Chemins de Fer du Maroc (ONCF) awarded contracts on Morocco’s first light-rail network, which connects Rabat with nearby Sale and opened in 2011. State airports operator Office National de Aeroports (Onda) is in the process of upgrading Marrakech and Fez airports at a cost of about $150m.

Port infrastructure in Tangier

Morocco’s most ambitious infrastructure project is the new port development at Tangier in the north, which is connected to the country’s highway and rail networks. The $1bn Tangier Mediterranean container port, also known as Tanger Med, is capable of handling 3 million container units, placing it among the 15 biggest ports in the world. Construction of the port was completed in 2007 and it came into service in 2008. Since 2009, construction has been under way of a second phase of the port, Tanger Med II, which will add a further 5.2 million container units of capacity at a total cost of about $1.7bn.

The construction of the port, along with the country’s 55 FTAs has transformed Morocco into an export-oriented industrial country.  “The port of Tangier has changed the whole positioning of Morocco in the sense that actually it is what allowed Renault to set up shop in Tangier,” says Chikhi.

Other incentives for investors include low labour costs. Government figures estimate that Moroccan employees cost $370 a month on average compared with $2,700 a month in Spain. Investors who set up shop in Morocco are also exempt from having to pay export duties, value added tax (VAT) or corporate taxes for five years. After this, the corporate tax rate is limited to 8.75 per cent for at least another five years. The government also provides up to 15 per cent of the cost of any industrial investment and provides land at a low price. Sources in Rabat suggest that the land the Renault plant was built on was effectively provided for free.

You are in a country where the infrastructure is much better than elsewhere in the Middle East

Karim Tazi, entrepreneur

But others are less impressed. Fouad Abdelmoummi, a Moroccan economist and executive director of Al-Amana, a Moroccan microcredit foundation, says that schemes such as the Renault plant provide little actual benefit to Morocco beyond the creation of jobs, although job creation remains a sensitive issue in the country.

“They can repatriate profits from these plants, they can also sell abroad and send the money straight back to base and limit the tax they pay, so all the state gets, all Morocco gets, is the income tax on 8,000 people,” he says.

“This strategy cannot work for a country of our size. It works for Dubai, or Hong Kong and it could work for large units of countries with in-built markets, of 100 million or so people.

“Renault said initially that they wouldn’t come and wouldn’t bargain so they got more land for nothing, more time tax free, half of the capital and 100 per cent of banking loans for the rest of the deal. It is an image project; even if it creates 8,000 jobs, it doesn’t make money for the state.”

Morccan expertise

But by bringing in foreign firms to produce cars and specialist equipment, the government is giving local companies the chance to build up their own manufacturing base providing equipment and services to export-oriented firms, says Chikhi. The same happened in the aeronautics industry, a surprising Moroccan success story.

Since the 1960s, several international carriers, most notably Air France, have used Morocco as a servicing base for some of their aircraft in the country. In the 1990s, component manufacturers such as the US’ Boeing, European Aeronautic, Defence & Space Company and France’s Safran started producing basic parts for aircraft. In the 2000s, they began to make increasingly more complex components. According to Invest in Morocco, there are now more than 100 aerospace companies in the country employing in excess of 7,500 people and generating revenues as high as $1bn a year. Through a series of free zones and industrial clusters, the government hopes to reproduce this success in other industries, from automotive parts to consumer electronics.

However, Moroccan businessmen complain that while big established domestic companies may be able to grow under the current set of plans drawn up by Rabat, long-standing issues such as corruption, stifling bureaucracy and a weak judicial system make it hard for new startups.

“You are in a country where the infrastructure is much better than elsewhere in the Middle East and North Africa in terms of roads, electricity, rail, telecoms, internet, mobile phones,” says Karim Tazi of Richbond, a $150m-a-year Moroccan bedroom furniture manufacturer and distributor, which produces all of its goods locally. “Everything here is much better; you can be up and running with a phone and internet in Morocco in 10 minutes. The hardware is good, yes, but the software is the problem and it seems that bureaucracy is a problem. The judiciary here is a nightmare.”

Some domestic companies have been able to thrive, though. State miner Office Cherifien des Phosphates is the biggest phosphates exporter in the world and accounted for about a quarter of all exports from Morocco in 2010 and 2011.

Government officials point to the company as a national champion, albeit one that is effectively a state-run monopoly. The firm is currently working on a $240m scheme to turn the port of Jorf Lasfar into an export and chemicals manufacturing hub as part of a wider $5bn development programme. The firm reported a strong financial performance in 2011, helped by higher phosphate prices, with profits of MD16.3bn and revenues of MD56.3bn.

Europe economic slowdown

Other industrial firms have not fared quite so well, however. Steel and concrete manufacturers were among Morocco’s success stories during the 2000s, as government spending on infrastructure soared, as did real estate values. By 2007, the construction industry was worth 6 per cent of gross domestic product.

Although Morocco’s real estate sector did not suffer as badly as its European neighbours’, there has been a slowdown in new public and private projects, and consequently demand for construction materials has fallen.

Chikhi remains hopeful that the construction sector will rebound, yet concedes that some external factors such as the European economy cannot be influenced by strategy alone. But if investors come anywhere in the region, he says, it should be Morocco, because of another intangible factor – stability.

“There have been coups here and coups there, generals being toppled, presidents being toppled. In Morocco, there has been political stability,” he says.

He believes that the Islamist Parti de la Justice et du Development (PJD), which won the largest share in parliamentary elections in November 2011, will help lend to that stability.

“[The] party’s model is Turkey,” he says. “You look at its openness, their success over the past 20-30 years. If we get a fraction of that we will be happy.”