Moroccos Auto Phosphates Exports to Narrow Account Deficit

Rabat- Morocco’s current account deficit will narrow over the next quarters, owing to the “booming autos and phosphates exports.”In a report by Fitch Solutions Macro Research, Morocco’s account deficit is set to shrink to 3.3 percent of GDP in 2018 and 2.2 percent in 2019, down from 3.6 percent in 2017.The lowered deficit is thanks to rising export growth, expected to continue in 2019. The main drivers behind booming exports are vehicles, phosphates, aeronautics, and agricultural products. The report also anticipates rapidly increasing growth in Morocco’s vehicle production. Production will grow by 18.2 percent in  2019, up from 16.8 percent in 2018, in line with the government’s 2014-2020 Industrial Acceleration Plan.The plan has two major goals. The first goal is to create 500,000 jobs, half of which are to be generated by Foreign Direct Investment (FDI) and half from the restored industry. Second, the plan aims to increase industrial production’s share in GDP from 14 percent in 2018 to 23 percent in 2020.“FDI has performed poorly over 2018, with liabilities (investments by foreign residents) contracting by 1.9% quarter-on-quarter in Q218. That said, this still represents a 3.9% increase on a year-on-year basis.”The report keeps an optimistic tone over Morocco’s ability to attract more FDI over the coming years.The US and Brazilian markets’ demand for fertilisers, “the primary end-product of Moroccan phosphates,” is also expected to increase, the report states.Moreover, the projected slower rise of global energy prices compared to the rapid rise in 2018, will support Morocco’s current account by moderating imports.Read Also: Report: Military Service Spending to Disrupt Morocco’s Debt ReductionRapid rise of oil prices pressured Moroccan imports The rapid rise in oil price “has put immense upward pressure on Moroccan imports,” states the report, explaining that Brent crude oil prices rose to $86.3 per barrel in early October 2018 from $57.2 per barrel a year earlier. Fitch expects Brent crude to remain $82 per barrel on average in 2019, calling the trend “more tepid oil price gains ahead.”As Morocco’s energy imports are expected to remain more steady, the current account deficit will gradually narrow. In its previous report, Fitch group argued that the Moroccan government is no longer considering capping fuel prices, taking back its earlier argument which stated that the “political pressure brought about by rising inflation on the back of higher oil prices, would push the government to cap fuel prices.”Read Also: Morocco to Spend MAD 2.35 Billion to Restore Old MedinasFor now, Morocco’s fuel prices cap scheme has “fizzled out,” since inflation is on the back foot again. “Given that we expected subsidies to account for nearly a third of new spending in 2018, the avoidance of this measure will be positive for consolidation efforts,” it states.The government had reportedly finalized a plan to cap fuel prices in July and was awaiting approval by Head of Government Saad Eddine El Othmani.The fuel price cap plan came amid growing anger and demonstrations against rising living costs that have fueled a boycott against three companies: Sidi Ali, Afriquia gas, and Centrale Danone.Morocco lifted fuel subsidies in 2015, deregulating the fuel distribution market. Now prices have reached a five year high as oil prices worldwide have increased.The public became angrier when a parliamentary report was leaked revealing fuel distributors had increased their profits. As prices increased, distributors’ profit margins widened, but they did not expand Morocco’s storage capacity to the extent they pledged. read more