“Morocco is my favourite country in the world,” says Marwan Shehadeh, managing director of Dubai-based Al-Futtaim Capital. “You can live there like a king. It has everything life has to offer.”
Shehadeh is not alone in his belief in North Africa’s potential. In early July, France’s President Nicolas Sarkozy spearheaded a summit that led to the creation of the Union pour la Mediterranee (Union for the Mediterranean), a new community made up of all countries bordering the Mediterranean Sea and members of the EU (see feature page 30).
Speaking at the summit, Sarkozy said: “The goal of the summit is to learn how to love each other in the Mediterranean, instead of continuing to hate and wage war. We will build peace in the Mediterranean together.”
Politics may be the catalyst for this initiative, but the goals of the union are deeply rooted in economics. North Africa is rich with energy reserves, which Europe needs. Algeria and Libya are already attracting significant interest from international oil companies, and Europe hopes to transform the region into a hub for solar power.
Other sectors are also potentially lucrative. Populations are young and growing, and economic growth is robust, at an average of more than 5 per cent a year for Algeria, Libya, Morocco and Tunisia. This means there is a need for more houses, and as populations get richer, they need more places to spend their money, which opens the door for investors such as Dubai’s Al-Futtaim Group to build shopping malls and retail parks.
However, some countries are more attractive to investors than others. North Africa spreads 4,500 kilometres across the continent from Egypt to Morocco. Culturally, the countries have many similarities. They are all Arab and Islamic but they are at different stages of development, and cultural influences also differ. Egypt is influenced by the East, especially Asia and the Levant, whereas Morocco is more influenced by Europe.
“North Africa is made up of different countries,” says Shehadeh. “You cannot generalise too much. Egypt is North Africa, Morocco is North Africa and in between you have Algeria, Tunisia and Libya, which are all very different. But in general, the appeal is that it is Europe’s next frontier. The new initiative from Sarkozy of a Mediterranean Union proves that Europe is definitely looking south for population and economic growth, together with gas and oil.”
With just the 14 kilometre-wide Straits of Gibraltar separating the two continents, Morocco is the closest North African country to Europe. It is also the closest culturally. Between 1912 and 1956, it was a protectorate of France, and the European influence is still apparent.
“For Morocco, its links to Europe are not just geographic, they are also cultural,” says Shehadeh. “There is a lot of French influence in Morocco, whether it is language, regulations, the mentality or the culture. It is all very French, and geographically it is also very close to Spain. That is attractive for us because it is as close as you can get to Europe in terms of stability, while still being in an Arab country where there is strong growth potential and a certain cultural affinity to us.”
With well-developed infrastructure such as roads and ports, an open economy that welcomes foreign investment, and established tourism destinations such as Marrakech and Casablanca, investors say Morocco offers the most immediate investment opportunity in North Africa. “Morocco is happening today,” says Shehadeh. “Right now, there is a shortage in housing demand of 1.2 million units, increasing by another 120,000 units a year, so housing requirements are huge.
“In addition, you have Europeans looking for second vacation homes, and retirees looking for a better and cheaper lifestyle in Morocco. Although that sector might be softening because of the European recession, local demand for primary houses remains strong. Morocco today is more like Portugal 10 years ago than anything else in the Middle East. It is quite a developed country in terms of infrastructure. There is still poverty, but the king is very well aware of that and is working to spread wealth to the lower and middle classes.”
Realising Morocco’s immediate potential, Gulf investors have been queuing up to launch projects in the kingdom. In 2006, Dubai-based developers Emaar Properties and Sama Dubai both launched projects, and were soon followed by investors such as Sorouh Real Estate and Maabar from Abu Dhabi, and Qatari Diar.
Another investor is Bahrain’s Gulf Finance House (GFH), which is building the $1.4bn Gateway City in Tangiers. Like other developers, the company is bullish on Morocco’s economic prospects. “The Moroccan economy has experienced excellent growth over the past few years,” says Esam Janahi, chief executive officer of GFH. “Additionally, Morocco is a far-sighted real estate investment location offering all the right natural elements for a harmonious environment.”
But these opportunities for Gulf investors may be short-lived as Morocco’s domestic real estate industry gathers momentum. “Over the past two years, Morocco has established its own big developers, and the government is less likely to give sweet land deals to foreign developers like it did in the past,” says Shehadeh. “Morocco has its own developers that are well capitalised and active in the stock markets, so [Rabat] is now doing things with its own companies rather than with foreign developers.”
Although Morocco’s proximity to Europe is largely advantageous, it can be a problem. The consensus is that the European economy is slowing and a period of recession lies ahead. This will have a major impact on the number of tourists and investors heading south across the Mediterranean. “The recession in Europe is my main concern,” says Shehadeh. “Especially in Spain, which is only 14 kilometres away from Morocco. It is inevitable the spillover will be felt. In fact, it is already being felt by a softening of demand from Europeans looking to buy property in Morocco. The other risks I am comfortable with.”
Tunisia’s fundamentals are similar to those of Morocco, and investors have targeted the real estate and tourism sectors. Another sector that could offer potential is finance. GFH is developing infrastructure at the $3bn Tunis Financial Harbour project.
Traditionally, Algeria and Libya have been more closed to outside investment than the rest of North Africa, but this is changing. Both coun-tries have substantial oil and gas reserves, and over the past few years have provided excellent opportunities for oil companies. These nascent projects are now serving as a catalyst for the development of other sectors. For example, UAE-based Emirates Aluminium (Emal) is considering plans for the world’s largest aluminium smelter, which would use Algerian gas, and GFH is planning Energy City in Libya.
“If you talk about the other markets such as Libya and Algeria, they are at an earlier stage of the development curve, but they do offer good opportunities for the future,” says Shehadeh. “I would say they represent a riskier profile, so you would expect a higher return. It is more of a long-term play.”
Despite the economic variations across North Africa, the new Union for the Mediterranean means they have one thing in common: they will all benefit from the expected inflow of investment from Europe. Morocco may be best placed to capitalise on these opportunities in the short term, but in the long term the more Europe moves towards North Africa, the more opportunities for Gulf investment there will be across the region.
Current account balance