AF 7 FILE CCoPY VOL. 1 Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

THE ECONOMY OF Public Disclosure Authorized

March 14, 1963 Public Disclosure Authorized

Department of Operations EQUIVALEtNTS

Currency Unit = dirham (DH) up, 1 = U.S. $0.1974

EH 5.o6 = U.S. $1.00

DH 1 million = U.S. $197,400

DH 100 million = U.S. $19,740,000 Weights

All weights are expressed in metric tons unless otherwise stated. Area

1 hectare = 2.471 acres

100,000 hectares = 247,100 a,res THE ECONOMiY OF MOROCCO

Table of Contents Page

BASIC DATA

MAP OF MOROCCO

SUMPMARY AND CONCLUSIONS ......

I. BACKGROUND FOR DEVELOPMtENT ...... 1

II. GROWTH AND STRUCTURE OF THE ECONOMY ...... 8

A. National Accounts Data ...... 8 B. Production, Investment and Employment by Sectors . ll ...... Forestry...... 16 Fisheries ...... 16 ...... 17 Manufacturing and Handicrafts ...... 19 Building and ...... 22 C. Infrastructure e ...... 23 Transport ...... 23 Electric Power ...... 25 D. Money, Credit and the Capital Market ...... 26 E. Prices and Wages ...... 31 F. Public Finances ...... 32 G. External Finance and Trade ...... 37

III. DEVELOPvENT POLICY IN PRINCIPLE AND PRACTICE. 41

IV. LONG-TERM PROSPECTS AND CREDITWORTHINESS ...... h7

APPENDICES

A. DEVELOPPENT OF HUMAN RESOURCES

B. LIST CF MAJOR IIONETARY INSTITUTIONS IN MiOROCCO

C. PUBLIC INSTITUTIONS IN MOROCCO

D. INSTITUTIONS WITH PUBLIC PARTICIPATION

E. STATISTICAL APPENDIX LIST OF SELECTED TABLES IN THE TEXT

Page

Number of vehicles, traffic circulation ...... 24

Development of minimum hourly wage 1948-62 ...... 32

Central Government's estimated and actual revenues and expenditures 1955-63 .. 33

Foreign aid contribution in capital budget...... 35

Balance of payments 1952-61 (in U.S. dollars) . . . . 37

Development Plan 1960-64 - Production targets . . . . 42

Development Plan 1960-64 - Investment targets . . . . 43

Development Plan 1960-64 - Financing targets . . . . 45 BASIC DATA

Area: 172,000 square miles

Population: (in thousands) 1960: 11,230 Foreigners 395

Total: 11,625

Gross National Product

1961 9.2 billion dirhams Investment 11% of G.N.P.

Gross National Product per capita: $156 equivalent

Public Finance 1962 (millions of dirhams)

Ordinary Expenditures 1,823 Revenues 1,596

Capital Expenditures 505 Revenues 258

External Trade 1961 (millions of dollars)

Imports (c.i.f.) 450 50% from

Exports (f.o.b.) 363 37% to France

Main Exports

Phosphates 82 Manganese Ore 18 Lead Ore 9 Citrus 3 Tomatoes 15 Wine 11 Canned Fish 22

Foreign Exchange Reserves

End of October 1962 - U.S. $184 million equivalent

Estimated Public

Outstanding October 31, 1961 - Estimated U.S. $388 million equivalent M ROCCO EUTA MEDITERRANEANNSEA MQO R O C C /TETOU~~~~~~~~TOAN

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OCTOBER 1962 18RD-675R SUldiARY ANED CONCLUSIONS

1. lM1orocco is not a rich country, yet it has a number of natural resources and physical advantages which impart diversity and development potential to the economy. It has commercial deposits of various minerals, particularly high-grade rock, of which Morocco is a leading producer. It has soil and water resources, which provide a large potentis2 for modern irrigated agriculture. The majority of the population remains dependent on traditional agriculture, which continues to exist along side a relatively small but growing modern agricultural sector. IModernization of agriculture from the point of view of both the export sector and the internal market remains a manor problem for the Moroccan economy. The estimated rate of population growth, between 2.55' and 3,;, underscores the importance of expansion of production for the internal market. As wit. agriculture, traditional handicrafts exist along side the country's few modern industries.

2. At the time of independence, lM,orocco was already equipped with a modern road networlk, railroads and airlines, hydro and thermal power electric systems, a system of , major port facilities, and the core of a system of . By and large these basic facilities have been and continue to be underutilized. It should also be noted that in an attempt to round cut the existing infrastructure base by bringing the less developed facilities of the ex-Spanish Zone up to the level of the ex- French Zone, by integrating the facilities of the two zones and by extendin.y the infrastructure grid to the generally less developed areas of the country P'.orocoo has been continuing to make a significant investment in basic economic facilities.

3. After _iorlcd lar II Morocco experienced an economic boom wilich reached a peak in 1951-52, when foreign private capital, primarily French, was attracted and there was a substantial inflow of French public capital to finance inf'rastructure, as well as French and American public capital to finance military installations. However, before independence in 1farch 1956, the private capital inflow changed to a heavy outflow, which persisted for several years and has continued on a smaller scale ever since. French public financial aid stopped in 1957 following mounting tension between Morocco and France, but significant financial aid started to become available soon after from the . The flight of F'rench private capital was accompanied by an exodus of French nationals, many of them entrepreneurs and technical and professional personnel. Notwithstanding the exodus, the French influence in public administration, industry, commerce, and the modern agricultural sector continues to be of great importance. The departure of foreign entrepreneurs, personnel, and capital has been a significant element in the loss of momentum in the economy and the fall in investment. A number of poor harvests, the worst in 1961, have contributed to Morocco's economic difficulties. The promise for agricultural recovery, imparted by a reasonably good harvest in 1962, has been put in jeopardy by serious floods in the highly productive agricultural area of Le Gharb in January 1963. ho. Morocco's development efforts are in principle coordinated within the framework of an elaborate 5-year plan for the period 1960-64. Although investment under the plan has two more years to run, it is already clear that the targets set in -the plan cannot be achieved, that the 6.20 annual growvth of national output envisaged cannot be fulfilled, that the high marginal savings rate projected will not be realized (although at present Morocco's tax income is calculated to be at the respectable level of 17% ci GNP), and that the expectation of almost total -nternal financing of the cost of the plan cannot be fulfilled. In fact, in the public sector about 50, of the cost of the plan to date has been financed from abroad. Public investment has been growing, but measured in volume is still below the previous boom levels. Iiith the resumption of French aid in 1962, as part of a iranco-Moroccan rapprochement, and the expected continuation of the flow of U.S. aid (although probably at reduced levels), most of the investment needs of the public sector are likely to find adeauate finance for the next few years. However, the cumbersome administrative structure with its growing number of agencies and burgeoning staffs, but with shortages of senior supervisory and management personnel and intermediate technical personnel, imrposes a serious limitation on the capacity of' Morocco to carry out its developmenlt plan.

5. Private investment fell sharply from 1953-57, but has since re- covered somewhat, although it remains significantly below the 1952 level. The ratio of total gross investment to G-P, which was about 20'/Jl in the ear'>- 1950;s, was only 10%, in the period 1959-61. A rise in private savings has been offset by the private capital outflow, despite the institution of ex- che: e controls in mid-1959. The Government, conscious of the importance of a favcrable investment climate, has attempted to improve the climate by regularizin.- its relationships with the two former protectorate powers, France and , and by adopting a series of measures intended to stimulate productive private invest;ment. Stabilization of the internal political situation through the adoption of a new constitution in December 1962 is also likely to contribute to improving the investment climate. An Investment Charter has been adopted offering inter alia equipment premiums (subsidies of 15)% to 20, on the purchases of new machinery) for netv investraent, tax incentives and selective tariff protection and guarantees for the repatriation of new capital investments. In addition the resources of the Banque Nationale pour le Developpement Economique (BNDE) have been strengthened through an increase in capital in the course of which IFC acquired 25% of the napital structure and a new *15 million IBRD line of credit, and other credit institutions have been established, particularly for agriculture. A National Investment Fund has been established with a view to stimulating the level of private investment by requiring entrepre- neurs established in Morocco to invest a stipulated percentage of their anmual profits in approved fields and in lieu of such additional investment requiring them to purchase special long-term public development bonds up to a specixied amount of their annual profits. It is too soon to know what impact this scheme will have on private investors; it may result in an in- creased level of investment and/or forced saving by enterprises now estab- lished in Morocco, but it may also act to deter new investors. - iii -

6. and the growing pressure to do somethi-ng about urder- employment have become increasingly serious problems for the Moroccan Government. The National Promotion Program, started in July 1961, has been a major effort to provide employment for some part of the year for large numbers of Moroccans on a variety of public works such as roadbuilding, re- forestation, land improvement, irrigation canal construction and comparabi.e pursuits. It is estimated that during 1962 between 400,000 and 450,000 Moroccans worked for some part of the year on projects of this sort. Haif of the cost of the wages is paid in kind with grants of U.S. surplus agri- cultural commodities.

7. For the future, growth of agricultural production in the modern sector depends in the short and medium term on the willingness of European farmers to remain in Morocco and in the longer run on the modernization of agricultural production and on market prospects. The continuation cf the preferential treatment accorded Mloroccan exports in the French market, as well as the opportunities for Mioroccan exports in the markets of other member countries of the European Economic Community, are likely to turn in part on the nature of the future relationship between Morocco and the EEC, which now absorbs about 60% of Moroccan exports.

8. Prospects for mineral exports seem quite good for phosphate rock, while exports of other minerals are not expected to show improvement in the near future. However, systematic prospecting for minerals and continues at a serious pace and holds some promise for the future. Growtn of manufacturing will depend in important part on Morocco's ability to attract foreign private investors with the requisite technical and marke-cing skills. This would mean redressing the persistent net outflysi of private capital ever since 1955. Notwithstanding this outflow, Morocco has generally had a favorable balance of payments, reflecting in large part significant foreign public expenditures in Morocco and substantial foreign economic assistance.

9. In the seven years since independence the Moroccan financial authorities have been able, notwithstanding a very rapid increase in govern- ment expenditures, to preserve a reasonable degree of financial and mone-ary stability. There have, however, been some danger signs recently. The growth in recurrent expenditures persists (e.g. of which military expenditures account for about 25% of the ordinary budget). At the same time government revenue has not been growing at the same rate. Thus in 1963 a substantial deficit is anticipated. The recent accelaration in price increases has also led to considerable pressure for repeated wage increases.

10. In sum, the Moroccan economy has promising economic potential deriving from its diverse resource base, its installed basic facilities, and its apparent ability to attract significant sums of foreign public capital, but whether this potential will be translated into a shift from the near stagnation of recent years into the more satisfactory growth which the Government would like to induce, depends on many factors, not the least of which are improvement of the investment climate, formulation of more realistic and more focussed economic policy objectives than now are apparent, - iv - improvement of the executive and administrative capacity of the count-'v, and the future of Morocco's export markets. Even if the potential for growth is not fully exploited, there remains enough variety and resiliency in the economy for Morocco to withstand fairly unfavorable economic develoj.- ments. Foreign exchange reserves are at a satisfactory level and the extyr- nal debt and debt are not excessive when compared to the size of t;^e economy, which is reflected by the debt service ratio of 6%. In all these circumstances Morocco should be able to service a reasonable amount of additional debt on conventional terms. Present export prospects, however, would not enable Morocco to increase its borrowing on conventional terms enough to keep pace with its needs for foreign aid without a rise in the debt service ratio. If Morocco is to have a margin for servicing foreign private investment care must be taken so that the debt service ratio does not climb too high. Thus, although at present creditworthy to service additional debt on conventional terms, Morocco may in the future require a reasonable amount of aid on non-conventional terms. The latter contingen- cy, however, may not arise if Morocco should be able to settle its out- standing debt to France on favorable terms as part of the series of Franco- Moroccan negotiations which had an auspicious opening in 1962, leading to the resumption of French aid to Morocco in July after an interlude of 5 years. T_E ECONOMY OF MOROCCO

I. BACKGROCUND FOR DEVELI)FE,!

1. The Kingdom of Morocco, in the northwest corner of the African continent, faces northward on the Mediterranean, westward on the Atlantic, southward on the Sahara and eastward on . Morocco's geographic position explains and accounts for a good deal of the country's history and its current position in world affairs.

2. Historically, Morocco has been a crossroads for traffic flowincr across W4orth Africa into Spain and southern France, as well as for the fLou of trans-Saharan traffic into the countries astride and bordering the southern rim of the Saharan desert. And like all traffic involving people. goods, ideas, architecture, and culture more broadly, the flow has been a two-way affair and evidences of it have remained. Thus in Morocco there are Roman ruins, ancient l'Iedinas and Casbahs, and medieval Portugese and Spanish fortresses, side by side with modern French-, and to a lesser extent, Spanish architecture, ranging from governmental structures to economic i.n- frastructure. These are the overt signs; there are innur,erable and in many ways mnore profound evidences in religion, education, language, social org-,anization, law, economy, political concepts, etc. It is in light of th_s rich and diverse legacy of history that lIorocco today is engaged in shap-ng its new political institutions, building its eoonomy, and under- going the vast technological changes implicit in the processes of political and economic modernization.

3. On December 7, 1962, Horocco achieved the first written crnstitv- tion in its history. The constitution was prepared at the instance of King Hassan II in redemption of a pledge made by his father, the late King Mohammed V, on his return to Miorocco in late 1955, from a French-imposed exile. From his return until his death in early 1961, King Mohammed pre- pared the ground for a reform of i;Ioroccan political institutions, which wrere at the moment of independence a peculiar synthesis of French colonial administrative structure and traditional Moroccan institutions, carefully preserved by the French as part of the Lyautey doctrine of "indirect rule". With the formal achievement of independence in 1956, came the desire to horoccanize, inter alia, the political structure and institutions of the country.

L. King Mohammed moved slowly with respect to revamping the political structure. With his death, there was some speculation that a political vacuum might develop, and that the proposal for a written constitution micht fall into limbo. Hence, it is important to the political evolution of the country that his son and personally designated successor, King Hassan, has been able, within two years of his father's death, to submit a constitutior, - 2 -

to a national referendum, which in the event, has overwhelmingly approved its adoption. About 85% of the registered voters (citizens of both sexes, age 21 or over, who registered) cast ballots in the December 1962 refe-ere- dum on the constitution, and 95% of these voted in favor of its adoption.. This decisive vote in favor of the constitution came in the face of the campaign of the principal political opposition in the country - the Union Nationale des Forces Populaires (UNFP) - for a boycott of the referendum. The opposition, which was founded by the more radical elements of the when they split from the Istiqlal in 1959, urged the boycott principally on the ground that its demand for a national constituent as- sembly, popularly elected, to draft the promised constitution was ignoreci. The opposition also objected to various substantive provisions of the new constitution, particularly the concentration of power in the monarch. The Union iPiarocaine du Tr-avail (UTT), frequently closely associated with the UNFP, was also opposed to adoption of the constitution.

5. The Istiqlal, the independence party, which represents the prin- cipal conservative, nationalist and traditionalist elements supporting the monarchy, and which has constituted the different governments since in- dependence in various combinations with non-party personalities and members of small minority parties, campaigned for the adoption of the constitution, along with the trade union federation closely associated with it, the Union Generale de Travailleurs iiarocains (UGTIi). However, since the adoption of the constitution in early January 1963, the three principal Istiqlal ministers (including the party president) have writhdrawn from the government. in a dispute over the role in the first post-referendum cabinet of Ahmeci Reqa Guedira, who occupies th-e posts of Vice-Premier, Director of the King's Cabinet, M-inister of the Interior and iiinister of Agriculture. The King himself is premier, continuing the practice initiated by his father who became premier during 1960 and occupied that position in the cabinet in office at the time of his death early in 1961.

6. 1lorocco has made a peaceful transition from the reign of King Mohammed V to the reign of King Hassan II, and continues to make a peaceful transition from absolute monarchy, reinforced by an accumulation of colon-aL institutions ancd policies, to a strongly centralized monarchy with a written constitution allocating governmental powers and guaranteeing individual rights.

7. In view of the potential importance of the new constitution to Morocco's political and economic stability, it would seem useful at this noint to describe briefly the nature of the constitution. The constiti'ton establishes a strong hereditary monarchy, disposing of considerable executivTe powers, and recognizes the incumbent royal line as the constitutional one the monarch is vested with numerous important prerogatives, including the right of dissolution of Parliament on his own initiative, and the right tD submit a wide range of issues directly to public referendum; it guarantees a broad range of individual and civil rights; and at the same time it rules out the institution of a one-party political system; and it establishes the first elected national legislative bodies (a bicameral parliament) in M,1orocco's History, including a lower house elected by universal franchi.',3e - 3 - and an upper house elected by a special and somewhat more restricted franchise. The first election for the National Parliament as well as .'or provincial, municipal and rural community assemblies established by the constitution are to take place during this year..

8. The meaning of the new constitution and its likely impact on the course of events in Morocco will only begin to become clear after the or- ganic laws are enacted which will spell out in detail the structure, dutlc, powers and procedures of the various new institutions to be established under the constitution. The effective allocation of political power and the relationship of the -arious institutions to one another will also only begin to become clear after there has been an opportunity for the new con.- stitutional arrangements to operate. Only with the passage of time then will it become possible to ascertain the role that the monarch will play in his different constitutional capacities (i.e. King, leader of the state religion, Commander-in-Chief of the armed forces, and head of the Council concerned with the national promotion scheme and the economic development planl that the new legislature will play in making public policy and dis- posing of public revenues, and that the new Judiciary will play in con- stitutional affairs,

9. Along with the development of a new constitutional structure, Morocco has been engaged ever since independence in an active and wide- rangiing foreign policy. Morocco's relationships with the tr,,o former protectorate powers, Prance and Spain, have been central to her foreign policy. fter a period of complicated relationships, which at times became str-ined, Miorocco in 1962, after the termination of the Al erian war, entered a new era of friendly relations with France and appears to be seeking a comparable rapprochement with Spain. In fact, after an interruption of some five years, France resumed under the Franco-Noroccan accord of July 1962, the provision of important economic aid to 1'iorocco, even before the resolution of outstanding contentieux franco-marocain involving financial claims of both countries against one another, arising from a variety of sources deriving from the operation and termination of the protectorate. The indications are that both countries are seeking an early and mutually agreeable resolution of these claims. Also in view are a series of negotiations on future trade relations between Morocco and France in view of the impending limitations likely to be imposed on the latter's dis- cretion to accord preferential treatment to Moroccan imports as the pro- visions of the Treaty of Rome and implementing acts of the Common Market take effect. It is probable that by 1967 France will no longer be able to accord Moroccan imports preferential treatment. A Moroccan association or'. arrangement with the Common Market may, of course, occur and alter the outlook of Moroccan trade relationships not only with France but with all of the EEC countries.

10. Morocco has also had recent conversations with Spain which may lead to further negotiations on the status of Spanish enclaves and ter- ritorial holdings on the periphery of the Moroccan borders. - 4 - ii. Morocco has not so far fully accepted the boundaries of the former protectorates and has laid claim to areas of the lying both in and in Algeria.

12. Morocco is actively involved with Algeria as fellow members of the group of African states and of the Arab League, as well as one of the prospective members in the various proposals for a union of Morocco, Algeria, , and possibly . Morocco and Algeria are also simultaneously involved in negotiating new trade, aid and other economic relationships of the two countries with France as an aftermath of the Algerian war. The evolving relationships with France mayi have a bearing on one another as well as the evolving political and economic situations in the two countries may have a bearing on one another.

13. Further afield in , Morocco maintains active, if com- plicated, relationships with Tunisia, Libya and the United Arab Republi'c. The intimacy of these relationships has fluctuated over time with the politics of Maghreb, Arab League and Franco-North African relations. Else- where in Africa, Morocco has been active in founding the Casablanca grou7 of states, which in addition to Morocco, Algeria and the UAR, comprises Ghana, Guinea and Mali. There have been various tensions within the Casa- blanca group and the meeting of heads of state scheduled to be held in Morocco in December 1962 had, as a result of these, to be canceled. There have also been recent indications of a possible rapprochement between the small Casablanca group of African states and the larger Monrovia group, which includes INiigeria, Sierra Leone, Liberia, Ethiopia and Somalia as-well as the twelve African states of French expression which have constituted their own trading area, which is associated with the EEC. The association of the latter with the EEC as well as their organization of their own trading area has implications for Morocco's existing trade with these African states and for future trade possibilities for Moroccan exports.

14. In addition to its role in the western Hediterranean, in the Maghreb, in the Arab League, and in the Casablanca group, Miorocco has been active on the larger international scene. Thus, late in 1962, Morocco successfully stood for election to the U.N. Security Council winning the seat ordinarily reserved for a country from the Near East and Africa, although in the process this meant defeating a fellow African state, Nigeria.

15. Morocco has a diversity of natural resources and physical ad- vantages which impart strength and variety to the economy and could provide the basis for significant economic development. The climate tends to be favorable for agriculture along the coastal plains and for some distance inland. Rainfall, however, tends to be irregular, at times limited, and generally concentrated during the winter months. The uncertain rainfall has in recent years led to several poor and even disastrous crop years, particularly for grain harvests. And early in January 1963, the danger of of earlier years was replaced by serious floods in the rich farmlands of Le Gharb area which made thousands homeless and destroyed some of the most valuable citrus vineyards and grain crops of the country. The recovery of the agricultural sector in 1962 after the disastrous cror year of 1961 is inow once again in peril. There is, though, ample water for ex- tensive irrigation and irrigation is accorded a high priority in Morocco,s development plans. There are varied mineral deposits, including some o+f the richest deposits of phosphate rock in the world. Among the other minerals to be found in commercially exploitable quantities are lead, zinc, manganese and iron ore. There are also coal deposits and there appears to be some promise of oil and gas supplies, and possibly potash.

16. In the field of economic infrastructure there is a significant disparity between the facilities oi the former French and Spanish zones. _r the developed area of the former French zone there is substantial economic infrastructure in the form of a road network and railroad system, port in- stallations, hydro and thermal power generating capacity and installed irrigation capacity. It should be noted that railroad and power facilities were established during the protectorate period under private concessions. However, the Government has long been defraying a substantial part of the capital costs of the facilities. The former Spanish zone is less well- equipped and one of the Mioroccan priorities, in practice, in carrying out its development plan, seems to be an attempt to install an infrastructure base in the ex-Spanish zone comparable to that which already exists in the ex-French zone, and to link the structures of the two zones. In view of the high level of specifications used by the 'French in constructing the infrostructure in their former zone, the Moroccans are engaged not only in expa-ading the facilities available in the former Spanish zKre but in im- -proving their standard. There is also a significant disparity between thle economic irfrastructure in the former French zone, the largest part of the col:ntry, and the level of economic activity in the country.

17. The fast-growing population of the country is now about 12 million people; the land area of' the country is approximately 172,000 square miles or roughly the size of the state of California. Although the land population ratio is still satisfactory, there is discernible a growing pressure on the cultivable land. The population is estLmated to be increasing at 2.5 - 3."C7 per annum. This rate of growth poses problems for the future as well as a series of more immediate problems which are beginning to weigh heavily on the government. The considerable number of under-employed people in rural areas and the increasing number of unemployed people in urban areas have precipitated a serious problem which the government is attempting to meet in part through the National Promotion PTrogram pursuant to which temporary employment is afforded to a large number of people on public works such as roadbuildin;, reforestation and land restoration projects.

18. Contrary to the rapid growth of the Islamic Moroccan population of 29% between 1952 and 1960 according to the official census taken in those years, the European population, largely French and Spanish, which continuedJ to grow until 1955, decreased by about 50% between 1955 and 1960. There has also been a decline in the MIoroccan Jewish population which has decreased between the two censuses by 25% (or from 212,000 in 1952 to 160,000 in 1960). The statistics for the 1952 census are apparently open to some question, particularly those with respect to the Islamic Moroccan population, according to the Central Statistical Service of the Ninistry cf - 6 -

Finance ani National Economy (see no.l: l'Accroissement Quantitatif de la Population du Pays, Service Central des Statistiques, , April 1961). The number given for Islamic Moroccans may have been as much as 10% beloT what it should have been. If this adjustment is made, the increase in Islamic Moroccan population is put at about 2.7% per annum instead of 3.25%. In any event the Central Statistical Service puts the growth rate at between 2.5% and 3% per year, and in its opinion "closer to 3% than 2.5%". The fragmentary evidence available since 1960 suggests that the decline in the European population and in the Moroccan Jewish population has been slowing down somewhat.

19. The growing Islamic Moroccan population has created serious pressures for increasing social services, particularly in the fields of education, health service and rural facilities. The bulk of the Islamic Moroccan population lives in rural areas although there are now over 1/L of this population or about 3 million dwelling in urban areas. In fact, the urban Moroccan population grew by 1 million according to the two censuses (which must be viewed here with the same caution as above) compared to an increase in the rural population of 1.5 million during the same period. This means the HIoroccan urban population grew by 66% compared to the 23% growth in the Moroccan rural population, or almost three times as fast. The bulk of the Mioroccan urban population, 78%, is located in 30 centers although for census purposes 117 centers were designated as urban.

20. The decline in the size of the European and Jewish population is one of the many aftermaths of the Yoroccan passage to independence, starting with the periodic violence in the years immediately preceding and following indePendence, and continuing with the uncertainty surrounding the political future of the country and the potential place for the non -Moslem communities in it. The departure of this number of people has frequently also meant the departure of important and relatively rare professional and technical skill-. It has also frequently been accompanied by a departure of needed entrepre- neurs and their capital. Morocco, aware of its needs for trained manpower and for private capital for investment, has been trying to stem the tide of emigration and the flight of capital. The new constitution with its many guarantees of individual and civil liberties may create a more assured atmosphere for these troubled groups and halt these important outflows. The rapprochements Morocco is seeking at the international level too may help stem the tide and improve the general investment climate of the country.

21. The growth and structure of the Moroccan economy, as Chapter II reveals, in many ways reflects the background for development just outlined. In many ways the basic comparison implicit or explicit in Chapter II in- volves a comparison between the high point of the protectorate period, the hoom period in the early 5ols, with the aftermath of the abrupt termination of a h5 year period and all the dislocations and adjustments inevitably in- volved. Hence, the measure of performance, in a sense, starts with an un- usually high base, and is followed by a particularly difficult and in many ways unusually sharp decline characterized by an exodus of a significant part of the key economic group and a serious flight of capital, and by an uneasy political and economic climate, in part engendered by the change it- self from protectorate status to independence, in part by the fluidity cf the evolving situation inextricably interwoven with the problems of con- solidating power and nation building, and in part hy the unsettled situation throughout Northwest Africa.

22. The comparison is, however, inescapable. There is no going back. The structure and growth of the economy in the post-war period encompasses the boom and its aftermath and now the economy reveals trends not always consistent but understandable in light of this background. In many ways the Moroccan economy, like the Moroccan political situation, appears to be at a turning point, where the colonial past has, in large part, been absorbea into the national experience and the stage set for a more "normal" evoluticni of both the economy and the polity. -8-

II. GROI,TH AlTD STRUCTURES OI THE ECONOMTY

A. National Accounts Data

2>. The Moroccan economy is based on agriculture, primarily of a traditional subsistence type, modern industry and traditional handicraft, and rining of several minerals, being the major one. WhARile th-c modern part of the economy only supports 30a of the population, it probably contributes more than half the gross national product (GNP). The percentage contributions to Gil? of the major production sectors were in 1960

Agriculture 27% Industry and handicraft 12% Mining 5' Transport, trade, and services 37%

25. GNP amounted to DH 9.2 billion (or $1.8 billion) in 1961. Witt a population estimated at about 11.8 million in 1961 this puts the average pe!r capita income at Dh 780 or $156. The average conceals the wide dif- le--rnces in income between the modern sector and the tradi-ional sector. The following table shows per capita private consumption expenditures for the major population groups in 1960

Per capita consump- Population Groups Population in thousands ticn expenditure (in dirhams)

Moroccan Moslem (rural 8,155 400 Moroccan iMoslem (urban) 2,915 600 Moroccan Israelites 160 1,200 French 175 Li,500 Algerians 95 600 Other foreigners 125 2,500 Total 11,625 550

The difference in living standards among the various population groups reflects the duality of the Moroccan economy, the modern and the traditioncal sectors. The present tendency is for an increasing group of Moroccans to move into the higher income categories as they replace French emigrants in the modern sector. The movement of rural population into urban areas alse probably accounts for some rise in the income of Mloroccans. However, in view of the fact that the largest absolute population increase continues to occur in rural areas, the relatively stagnant rural income level imposes a serious brake on the possibility of any general rise in per capita inccmc. -9-

25. The post-war economic development of Iiorocco can be divided ir½ two parts, with the first period of rapid development coming to an end in 1953-54L, followed by the onset of a period of relative stagnation which st`:i11 persists. The post-war investment boom, generated in the first instance bTr a large inflow of public and private European capital, mainly French, and of public American capital, reached its high point in 1952, and thereafter tapered off. Since 1954 the economy has been relatively stati-_

26. A large increase in agricultural production carried GNP to an a'i- time high in 195h. During the next eight years GNP at constant prices has hovered around a level slightly below that of 1954, varying; only moderate'l. with the outcome of each year's harvest. Production continued, however, to increase; in mining (40%), in industry and handicraft (194), in power pro- duction (13%), in transport and other services (17%) and in public salaries (58%), the largest absolute contributions deriving from the two last sects.S. The direct causes for the stagnation in GNP were the fall in agricultural production from the 1954 high (8% from 1954 to 1960, and another 16% in 1960-1961), the drastic fall in building and construction activity (49%), a comparatively small fall in commerce (6%), and the reduction in net inco;ie from abroad (40o0 from 1954 to 1960 and another 43% in 1960-1961).

27. The now eight-year long period of near stagnation has been accompanied by a rapid rise in the Moroccan population. The Moslem popula;.cn is growing at a rate of almost 3%, while the foreign population is now diminishing slowly (except for the probable substantial outflow of Algerians sin-e the end of hostilities in Al-eria in mid-1962), but steadily after the outflow of perhaps 250,000 betwJeen 1954-1961. There were about 20% more people in Mlorocco in 1961 than in 1954 sharing about the same real GNP. Although this indicates that real per capita incomes were decreased by 20%, it can be shown that the decline may be fully explained by the foreign emigration, each of the foreigners having had a comparatively high income, leaving the native Moroccan population with substantially unchanged per capita incomes.

28. The development of incomes is also reflected in the development of private consumption which in terms of value increased by 30% from 195 1i to 1960, but in terms of volume only rose by 4'S,during the same period, the difference being accounted for by price increases.

29. While private consumption thus has been largely stagnant during the last eight years, public consumlption just about doubled in volume. This reflects the rapid increase in central government expenditures of a recui- rent type. Private consumption has kept its proportion of GNP almost un- changed over the last ten years, the proportion showing only a moderate butr, insignificant decrease from 77%O in 1953-55 to 75%, in 1959-60. Public con-- sumption on the other hand has increased its proportion of GNP almost con- tinuously from around 7% in 1952-54 to 12% in 1959-60.

30. The development of the Moroccan economy has closely reflected the level of investment. During the boom years, after World W4ar II, gross -n- vestments increased rapicly. Their proportion of GNP exceeded 20% in thli - 10 - early 1950's. The boom reached a high in 1951 for investment in machine7, in 1952 for public works, and in 1953 for building and construction. As a whole, gross investment tapered off rapidly from 1953 onwards to reach a low in 1957, 50% below the previous high. Investment (mainly private) ia machinery and building and construction fell as much as 60% below the previous high. In 1957, gross fixed investments amounted to only 9% of GNP, with public investment at a level of about 3% of GNP. Investment recovered from the 1957 low and exceeded 11% of GNP in 1961, the recover; mainly occurring in private investment, including investment partly financed or supported by public means. 1/ The total volume of gross in- vestments was 25% higher in 1961 than in 1957 (but still about 40% below the 1952 high). The increase during the last four years occurred primarily in investment in machinery and public works, whereas investment in buildir.g and construction has continued at a very low level.

31. The level of gross investment amounted to DH 1,040 million in 1961, of wjhich DH 400 million was in machinery, DH 370 million in public works, and DH 270 million in building and construction. The Moroccan authorities estimate that depreciation in machinery and other equipment exceeded DH 400 million in 1961. This means that net investment in machinery and equipment in certain sectors of the economy was balanced by disinvestment in others. (The continuous increase in industrial producticn since 1959 - industry being the main investor in machinery - suggests that investments made have been used to increase capacity in sume branches an-/ or that capacity has been better utilized in other branches with surplus capacity).

32. Nothwithstanding the increase in private investment during the last four years, the current composition of gross investment has changed remarkably from that of the boom years. In 1952-54, private investment (as defined in footnote 1/) made up 85% of gross fixed investment, leaving 15% to public investment. In 1959-61, the share of private investment had fallen to 70%, wihereas that of public investment doubled. It should be noted, however, that the increased proportion of public investment is due to the fall in private investment, not to any rise in absolute public investment.

33. Domestic savings have been almost unchanged during the last ter. years at a level of 12-13% of GMP. As GNP has been unchanged since 1954 this means that the volume of domestic savings has also been substantially unchanged since 191L. Gross investments were larger than domestic savir7s up to and including 1954, the deficit having been covered by an inflow of private and public capital. Domestic savings have, however, since 1955

1/ The division of private and public investment expenditures made by tl, Moroccan authorities includes in private investment public subsidies to private investment and possibly also investment in public enter- prises. If this division, which is the only available one, is accepted, private investment rose by 70% in value from 1957 to 1961 and public investment by 13%. exceeded domestic gross investment, the surplus taking the form of a pri-rat2 capital flight, especially accentuated during the period 1956-59, prior -o the imposition of exchange controls on capital movements. Tentative estimates of private and public domestic savings show that public savinrgs have been decreasing almost continuously since 1952 and probably were niL. or even negative in 1961, whereas private savings which have been increasn1g somewhat irregularly, reached around 11% of GNP in 1958-60 compared to 8& in the period 1952-54. Public savings which fell in 1959 to a level belovr public investments, appear to have fallen even more in 1960 and 1961. Private domestic savings on the other hand since 1955 have exceeded private investment, the excess amounting to as much as 7% of GNP, in some years, but lately decreasing with rising private investment. The indications aie that private savings declined in 1961 as a consequence of the poor crop.

B. Production, Investment and Employment by Sectors

Agriculture

3h. About 40% of the total area of 42 million hectares of Morocco is arable; another 12% consists of forest. About half of the arable land (or 7.6 million hectares) is used for grazing, and about half can be classified as cultivated land. However, one third of the cultivated ].and lies fallow each year, leaving 4.7 million hectares for cropping and 0.5 milliO!I hectares for orchards. One million hectares is owned or used by 5,000 Eu-opear farmers, mainly Frerc-h "colons", who together with a few thousend Moroccans have developed a hignly modern agriculture, employing about 100,0Y0 people, and producing about 205% of total value of agricultural out- put and the major part of agricultural exports. European production dominates the production of wine and citrus, and is important for vegetableF and soft . The traditional agricultural sector consists of about oie million farms cultivating roughly four million hectares and supporting two thirds of the Moroccan population. It is largely of subsistence character; about 70%00 of all cereals, 90% of all milk, 80% of all butter, 37% of all fresh vegetables, 65% of all , etc. - on the average 40% of all products consumed in rural Mvlorocco - are consumed by the producers them- selves.

35. The volume of agriculture production which reached a high in 1952, has only been equalled once since. There have been a number of bad crops, the worst in 1961, when agricultural production fell as much as 23% below the previous 1954 high. In spite of the general state of stagnation in agricultural production during the last eight years and the fluctuation -n crops attributable to climatic conditions, there have been varying trends in the production of individual commodities. The production of the basic output of the traditional sector, cereals, tree crops, and prodaoLr. has been quite stable, whereas production of severalofjthe products of the modern sector, primarily citrus fruits and certain vegetables has been growing rapidly, - 12 -

36. Moroccan agriculture is based on a favorable resource base. Ft is endowed with 1.7 acres of cultivated land per capita, the quality of the ,ua- tivated land is good and water is available for irrigation. The people ',vrkir- on the land are hardworking but largely illiterate and untrained in modern techniques. Progress has been made in the modern sector of agriculture in the past, leading to increased and diversified exports. This progress is partly a result of conscious government policy promoting this developments partly the result of large private, mainly foreign, investments in agri- culture. The progress in the traditional sector has on the other hand only kept pace with population growth in that sector, leaving little, if anything) over for improvement in living standards.

37. Government policy is to raise living standards for the large mass of farmers by reducing underemployment (estimated to amount to some 5o%) diversifying production, diminishing subsistence consumption and increa. Erg trade in agricultural products, and promoting specialization.

38. In order to effectuate this policy the Government has recently reorganized and expanded its institutional framework. Its first step was to toncentrate the responsibilities formerly distributed among a number of ministries. The Office National des (ONI) was created in 196(, with responsibility for investment, land use, and extension work in irrigated areas. Another institution, the Office National de Modernisation Rura.e (ONM3R), was created in January 1962, to increase and divers.Ify production, including the provision of extension services, on non-irrigated land. The methanism for providing credit was reorganized during l962, and a new puJilic credit institution, Caisse Nationale de Credit Agricole (CNCA), took over the functions of existing agencies, operating through a network of branches and local credit societies. A planned Office Foncier, to be in ch.arge of the land tenure reforms, has not as yet come into existence. However, e Government has taken some intermediate steps to achieve one of the goals sought from land reform, namely improved production and marketing of crops by encouraging the development of cooperatives. Regulations relating to the encouragement of new foreign investments in agriculture have recently been promulgated. The Government has adopted a policy of import sub- stitution for agricultural commodities connected with the establishment of domestic food industries. The Government has also adopted a policy of limiting the land area allotted to cereal production, calling for intensi- fication of cultivation where appropriate on the one hand, and substitution of new crops for cereals where this seems desirable on the other. Export promotion of agricultural products has continued too through a series of bilateral trade agreemrLents, particularly with France. The government position on its future relations with the European Common Market and the evolving Comrmon Market of the Union of African and Malagasy States (UAM) has, however, not yet been clarified.

39. The CINJI is completing an inventory of existing irrigation pos- sibilities. It is believed that about 4OO,OO hectares could be irrigated by modern irrigation; about half is now supplied with dams, and about 1ll,OC:) hectares equipped with primary and secondary canals. The area at present under irrigation is somewhat smaller. The large investment in major irrigatLcn ln- - 13 - stallations is obviously still underutiliond. There are several reasons for this lack of response from the farmers. Farmers living in irrigated areas are not required by law to make the further investment required to use water brought to the borders of their land by irrigation canals. Some colons, who have long been farming on land irrigated by their own means, have not been inclined to rrake use of the water brought to the boundary of their land by investment in additional irrigation facilities. The colons appear to believe their existing investment adequate, whereas ONI authorLties appear to believe that the failure to invest is due to the uncertainties t1ne colons have felt surround their future position in the country and the prospects for their large export trade in agricultural produce. Traditioilal. farmers, because of the tenure systems and the lack of knowledge, in the ab- sence of an effective extension system, have not had the initiative or motivation to invest. And even where these obstacles may have been overcc:nr-O, they have generally not had adequate access to credit facilities.

4o. ONI has also initiated a long range study, which is to be fin3nrecd by the U.N. Special Fund, of the development possibilities of the Sebou Valley, which appears to offer adequate water and suitable soils for sub- stantial extension of irrigation in the large area over the next twenty years. Development of the Sebou Valley would require a large capital in- vestment.

41. A pilot project which may have considerable significance is in progress at Sidi Slimane, involving the extension of a zone already irri- gated from a Sebou tributary, the introduction of beet, the conse- qu:ntial change in the total crop rotation pattern, and the development of rational livestock production.

42. The ONMR which operates in all areas outside those specifically under ONI jurisdiction has a wide net of operations all over the country in cooperation with local and regional authorities. It is responsible for "Operation Plow" which, throagh the help of tractor pools, plows land fcr small farmers. This scheme reached a high point in 1959 when 300,000 hectares were ploughed but this volume has declined and only 110,000 hectares were ploughed in 1961/62. The program is, however, scheduled to increase again this year. ONvR work has been complemented by work done under the National Promotion Program. This program, which started in 1961. and which is designed to utilize the large pool of unemployed and under- employed workers in the country, is estimated to have provided work at one time or another during 1962 for a total of 400,000 to 5CC,000 people on roads building and repair, reforestation, land clearance, construction arid repair of irrigation canals, etc. The labor force is paid two dirhams a day plus an equivalent amount in kind, mainly in wheat flour. The United States PL-h80 program provides the wheat for the scheme, while the cash outlays are financed from the capital budget. (This contribution to the area of work for which OiNlNR is ordinarily responsible is not at present charged to the separate budget of MN14R.) The National Promotion Program wqas apparently institutionalized as a permanent program as part of the Council for National Promotion and Planning to be established under the new constitution approved in the December 1962 referendum. Presumably the work of the Program, and by CNlR. and other governmental institutions affected by it, will be correlated in the new Council. - 14 -

43. Whether the government will be able to impart momentum and dire- - tion to the agricultural sector will in significant degree turn on executive capacity and administrative and operational ability, especially in the de- velopment and utilization of extension services. The lack of qualified people is illustrated by ONMR which states that its requirements for engineers, technicians, and extension workers are only about 25% fulfilled. ONPR activities include personnel training programs which might in a few. ynars improve the prosent situati.mn.

44. Limitations on the development of agricultural production are also imposed by market prospects. WJhile certain of the commodities which are now imported could be produced in Morocco (more or less efficiently), the scope for expansion of production for the domestic market is otherwise limited for the short run to grow at a rate not very much faster than population growth. Export markets are at the moment growing for such commodities as citrus fruits and to a lesser extent for wine. However, for many agricu.I.- tural products, such as wine, wheat, and vegetables, preferential entry to the French market is of central importance. This market is not expected to grow, and may even become non-preferential within three to five years' time if the implementation of the Treaty of Rome proceeds according to plan. In addition, tariff levels of the European Economic Communit-y as a whole may accord advantages to members and preference to states associated with the EEC for products now important in Moroccan exports to the EE%C countries. If Morocco does not - through association or arrangement - ensure that its exports will enjoy the sairme terms as those that some of its major com- petitors may come to enjoy in the EEC market, her exports stand to suffer.

45. Cereals, which account for about 40% ol total agricultural pro- duction are grown on about 80% of the cultivated area. The average produc- tion amounts to almost 3 million tons, but variations have occurred from as much as 3.4 million tons to a low of 1.3 million tons (in 1961). Exports of cereals have averaged 0.5 million tons, although sometimes imports have been necessary. Exports are mainly sold to France under special annual preferential agreements. Imports have recently come from the United States under its PL-480 aid programs. The Moroccan cereal market is controlled by a public agency "l'Office Cherifien Interprofessionnel des Cerealesl" (O.C.I.C.). It guarantees a stable domestic price for cereal production and has a monopoly on imports and exports of cereals; it also organizes and regulates domestic sales of cereals and carries out a stockpile policy. A current problem of some importance for Morocco is justifying the import of wheat (mainly soft) and other cereals from the United States under PL-480 special aid programs, while at the same time exporting cereals, hard wheat and other cereals (at higher prices), to France. The Moroccan hard wheat surplus and the soft wheat need may not be reconcilable by a switch in production from one to the other, as soil and climatic conditions are probably not too favorable to economic farming of soft wheat.

46. Vegetables have long been of importance in the traditional sector and several have gained increasing importance in modern production for ex- ports. Thus Morocco supplies France with a growing stock of the first - 15 - vegetables if the season, 'Iles primeurs". Vegetable exports ncw account for about 8% of total exports, tomatoes alone accounting for 5% (almost DH 100 million in 1960), exhibiting an overall promising but somewhat irregular increase. Industrial crops, such as tobacco, plants, and aromatic plants for perfumeries, are of limited importance.

47. There are two types of viniculture in Morocco; the traditional used mainly for making raisins and consumed locally and the modern intro- duced by Europearsand producing wines mainly foz exports. Vine production rose rapidly up to 1956 but has since shown a very irregular development, Exports vary between DH 50 and 80 million. A government agency "Bureau des Vins et Alcools" controls and regulates the production, the storing, imporvs, and sales and purchases of alcoholic beverages.

48. The most important agricultural export crop is citrus fruits. It is grown efficiently in modern, irrigated plantations. The area planted as well as the actual output has grown rapidly over the last ten years; production has doubled over five years to almost half a million tons in 1961. Citrus fruit exports amounted to well above DH 200 million in 196)1 and accounted for 12% of total exports. Slightly more than 40% are sold to France now against 80% four years ago. This is due in part to a fall in sales to France, but also in part to a rapid expansion in sales in markets outside France, especially WJest (now purchasing about 1/3 of Moroccan citrus exports). It appears unlikely, however, that Moroccan citrus exports can long continue to grow at the accellerated 16/' a year at which they have been growing. i/

49 Most of other tree crops belong to the traditional sector. One of the most important is olives, production to a large extent going to sub- sistence consumption and to oil factories for processing. Production

1/ Projections made by FAO suggest that exportable supplies of oranges and may range between 5.5 million and 5.8 million tons by 1970 - compared with actual exports of around 2.5 million to 3 million in recent years. On the other hand the import demand, at prices comparable writh those recently prevailing, may rise only to 4.3 to 4.9 million tons. This would mean an exportable supply in excess of import demand of approximate- ly 1 million tons. In any event it seems inevitable, in view of the large plantings of trees in various countries that, in years of normal weather, there will be considerable pressure on prices for export oranges in the future. The creation of the European Common Market qill create a high preferential area consisting of the principal importers of citrus fruit. This will tend to favor those citrus fruit exporting countries which are associated or have an arrangement with the Common Market and to work to the disadvantage of those who are not. There is likely to be a larger proportion of citrus fruit shipped in processed form in the coming years. It appears that the United States will pro- bably capture the bulk of this trade for the foreseeable future. - 16 - has been variable. Almonds, which to an increasing extent are produced in plantations, are primarily for export. Production and exports have been variable. Apricots, figs, dates, and other fruits are mainly produced for domestic consumption.

50. The livestock population, predominantly in the traditional sectoi has been fairly stable over the past ten years, comprising about twelve million sheep, eight million goats (falling) and 2.5 million cattle, as well as donkeys, horses and mules. Despite a gift by the U.S. government. of 100,000 tons of for feed, the number of livestock declined con- siderably in 1961 drought. The livestock production is estimated to con- tribute about one third of total agricultural production, the main products being milk, meat, hides and wool. Most of these products are consumed locally; some are prepared by local handicrafts and industries for export. Production is, however, not sufficient to cover Morocco's needs. Thus Morocco spends normally about DH 40 million on imports of milk, butter ann. cheese.

51. Poultry farming is of importance in the traditional sector. Thei~e has been a not insignificant export of eggs, which has, however, been de- clining during the last four years.

Forestry

52. Natural forests cover betwreen 4 and 5 million hectares, virtuall:- all in the public domain. Plantations of eucalyptus, mimosa, etc. which cove3r about 130,000 hectares, however, are but half state-o1ed. There are also some 2.8 million hectares of esparto grass in the public domain. Forest production covers the country's need of fuel wood, and 20% of its needs for building timber (requiring imports of 200,000 tons worth DH 54 million in 1961). Cork production amounts to about 40,000 tons, at a value of about DH 25 million, making Morocco the fourth largest producer in the world. Exports have shown a tendency to decline. A newly established paper pulp mill produces and exports about 25,000 tons of paper pulp from eucalyptus trees. Plans are also now in progress to pulp esparto grass, which is now exported in an unfinished state.

53. Forest production may well increase in the future, especially of building timber, if some mountain areas should be opened up by access routes. Production of timber for pitprops and for paper pulp should in any event in- crease by some 5% a year, i.e. at a rate in pace with the anticipated grGALh of the installed eucalyptus plantations. The present reforestation program, (12,000 hectares a year), mainly of eucalyptus trees, promises a more long- term growth trend. Reforestation is one of the major projects of the National Promotion Program.

Fisheries

54. Morocco's coastline abounds in fish. Almost all of the fleet of 1,700 boats have been built since the war. There are a number of good harbors along the Atlantic, especially Safi and , and the - 17 -

Mediterranean coast affords easy access to the fishing grounds. 80% of the landings now consist of sardines which are canned by a large number of smaLl canneries. The major part of the remainder is consumed in the ports of landing; only a minor portion is transported fresh and sold inland.

55. Fishery production increased about three times from 1938 to 194°, during the ensuing ten years it rose another 50%. Judging from the develcp- ment of exports this progress has continued during the last three years. Total export value of fish and fish products amounted to DH 135 million irn 1962, i.e. 8% of total exports. Export prospects are dependent in important part upon the preferences accorded by France. Prospects for larger domestic sales of fresh fish hold promise if adequate transportation and commercial services can be arranged. 1/

Mining

56. Mineral output which doubled in value between 1938 and 191)8, doubled again between 19)48 and 1959. Growth slowed down to 5% a year there- after, and in 1962 production probably actually declined. The mining con- tribution to GNP now amounts to 6'o. 90% of production is exported, the export value being about DH 700 million in 1961 or about LhO% of the value of total exports. Employment in mining has been steadily decreasing (35,000 in 1962) due in part to the modernization of the mines.

57. Mineral production although diversified is dominated by phosphatoe; of which 1Morocco has enormous reserves of easily mined high grade rock close to IJ-lantic ports. Total production volumeemseby 5.5% a yeac.- from 1950 to 1957, -:-d from then on by 9% a year. This increase was made possible by an increased level of investment from 1956 onwards. Total production now amounts to 8-9 million tons, about 205% of world output. In 1961, 10% were sold on the domestic market and the remainder, worth DH 410 million, ex- ported unprocessed (of which only 15% went to France). Phosphate is mined and sold by a very successful governmental commercial enterprise and monopuLy, Office Cherifien des Phosphates (O.C.P.). About 40% of the sales value accrues to the Government either directly as profits or indirectly as taxes, custom receipts, etc. There is doubt as to whether the present growth rate in phosphate sales and related government revenues can be maintained. World demand for phosphates has been growinE at 4 to 5% a year, and is expected to continue to grow at this rate. Morocco's share of the world market has thus been increasing at a faster rate than the rate of growth of the world market. Although Morocco is highly competitive, and is taking steps to remain so, future growth is expected to be more in line with world consumption trends. Actual production increase planned for the period 1961 to 1971 by OCP is 4-5%. The reason for this lower rate of growth is the coming into production of new phosphate mines in other countries and the development of new tech- niques making it economically feasible to concentrate poorer qualities of

1/ In 1960 the urban population spent 7 dirhams per capita whereas the rural population spent only 1.5 dirhams per capita on fish. - 18 - phosphates, thus giving the hiigher quality of lioroccan phosphates a so.e- what smaller advantage theretofore. Prices are expected to fall and OCP in anticipation of this trend is therefore attempting to cut production costs by modernization of their nines. The production of super-phosphete.o and other has been contemplated for some years. One small factory now produces super-phosphates for the local market, and a major chemical complex based on phosphate is planned near Safi.

58. Production of iron ore, which before the war exceeded one millicn tons, reached a high of 1.9 million tons in 1957. Exports, mainly to the U.K. and Spain, have been falling, and totalled about 102 million tons in 1962. It is believed that production, in spite of a weak competitive position, will continue at a level of about 1.5 million tons. Studies are being made on how to concentrate economically the poorer ores, of -hich large reserves are stil:L available in Morocco. Local steel production is also under consideration.

59. Production of manganese ore reached a peak of 570,000 tons in 19-b, with a value of DH 114 rmillion, second in importance only to the Moroccan production of phosphates. The principal purchaser of metallurgical manganese is France, while chemical grade manganese is also sold to the U.S0; it is actually the principal product sold to the dollar area. Al- though production growth has been somewhat irregular in the past, total output doubled from 1950 to 1961 (while value increased sllghtly more). High grade reserves presently mined are thought to be nearing exhaustion, and prospecting for new deposits is under wvaay, including tUe examination of the possibility of economically working lo-wer-grade deposits. oG. An average of 500,0CCO tons of coal a year were rr.ned during the 1950's but during the last three years demand has fallen and only about 400000 tons have been produced. lExports in recent years, primarily to France and Algeria, have been at a rate of about 200,000 tonEr Over the long run some increase in production may be expected, mainlv to satisfy an anticipated increase in domestic demand. Prospecting for oil has been going on for some years. Minor deposits have been found and ~xploited at several locations. Production has been about 100,000 tons per annum since 1952. A transitory increase to about 160,000 tons is expected for 1963. Active prospecting by Italian, Belgian, German, rrench, and American in- terests as well as Moroccan state interests, is going on.

61. A variety of other minerals with a total production value of about DH 100 million are mined in Morocco. The production prospects for lead and zinc suggest an absence of striking development; lead production, part of which is refined in Morocco, is expected to increase some while zinc production is expected to fall some over the next few years. A new pyrrhotite mine may be brought into production at KCettara under largely public auspices at a rate of production of 300,000 tons a year if the chemical complex at Safi should in fact come into being. - 19 -

62. The main government instrument in developing the mineral resourcec besides OCP is an independent government agency - the Bureau de Recherch,es et Participations inimeres (BRfl'4), which has been engaged in the mineral exploration of Morocco since 1928. Besides its own research and prospectirE, it participates in its technical capacity or with relatively limited financial investments in more than 30 private, mainly foreign-owned, mining companies. As mineral resources by definition belong to the state, the government gives concessions for prospecting and actual mining operations, either to private enterprises or to BRIM. The private enterprises are nct as a matter of law required to accept BRPM participation. Some of the major BRPM participations are in Socie:te Cherifienne des Petroles (SCP) (51,,), which is responsible for much of the major oil prospect.ing projects in the country, in coal mines, in lead rines and in the majority of Spanish-owned iron ore mines.

Manufacturing and Handicrafts

63. Manufacturing and handicrafts accounted in 1960 for about 13% of SNP; handicrafts alone accounted for about 2%. Industry basically produces for the domestic market, although food canneries and vegetable fibre in- dustries have large exports. Almost LU% of manufacturing is in food pro- cessing, 20%) in metal and machinery industries, and another 25% in textile and leather industries. The balance of 15% is widely distributed and in- cludes building materials and chemical products. Traditional handicrafts proauce much of the output in ceramics, , leather and metal goods. The total number employed in 1962 in manufacturing industry was only 116,000, of which half were employed only seasonally (usually six to nine months in the canneries or the vegetal fibre industries). The number employed in handicrafts is not fully known, but estimates vary widely between a low of 125,000 and a high of LOO,000. These numbers include a large number of children employed at low pay.

6l. There were about 7,500 foreigners working in industry in 1962, a much lowrer figure than obtained a few years ago. The foreign employees were spread over all industries and did not exceed 20% of the labor force in any of them. Of 1,100 manufacturing enterprises, 700 were either branch*cs of foreign ccmpanies or owned by foreigners residing in MIorocco. In terms of numbers of enterprises Moroccan interests dominated only the canneries, the fat and oil industries, and the ready-made clothing industries. Handi- crafts are completely controlled by Ioroccans.

65. Industrial production rose two and a half times during the period 1938 to 1953, principally in industries producing for the domestic market. Some industries, however, suffered setbacks in the mid-50's as European suppliers regained prewar markets; handicraft industry has also been ad- versely affected by imports of rewr -competitive substitutes for thei product&. However, total manufacturing production continued to increase at a rate of 1 to 2% a year up to 1958. After a recession in 1959, production rose rapidly during 1960 and 1961, bringing it up to 15% above the 195B level. The indications are that production has continued to increase, but at a slower pace, during 1962. The slow-down is partly explained by the fall - 20 - in consumer purchasing power consequent on the poor 1961 crop. Utilisatic-, of the industrial productive capacity available increased during 1961, but fell again during the first half of 1962, especially in the food industries.

66. The Government has been most anxious to promote industrializatior and has in recent years taken a number of steps, including the establishm.e. of a number of new institutions, to that end. Prominent among the new institutions is the Bureau d'Etudes et de Participations Industrielles (BEPI) which was set up with governnent funds to make studies of industrial possibilities, formulate and organize industrial projects, and participate with private capital in financing them. Another, the Banque Nationale poLl le Developpement Economique (BNDE), was established to provide medium and long-term loans to industrial and other development projects. The Moroccan Government,under a recent reorganization, now has a minority of Bi'lDE's stop; and Moroccan and foreign financial institutions including the Internationil Finance Corporation hold the balance of the stock. BEPI has recently ta:er. participations in some important new foreign enterprises, with a substantia-L share of the equity holdin-s. BY;PI thus has participations of betwieen 40 and 50% in the new ENI , the new tire factory, two car assembly plants, and a tractor industry. B,.PI is also responsible for studying the establishment of the projected DH 125 million chemical complex at Safi. Unde-. construction, but at more advanced stage, is a sugar refinery at Sidi-Slimane. Under consideration by BEPI are a textile mill, a paper puln factory, a steel tube factory, a naval shipyard and steel works. There are recent signs that the hcroccan Government is becoming concerned about th, di,ficulties and complexities of organizing major industrial undertakin. , and af BTFt s capacity to do so. The Government at any rate now appears to be more anxious to encourage private Horoccan and foreign investors to play a larger role in expanding the industrial base of the country.

67. The Government policy to encourage industrial investment was in- augurated in June 1957 when a new customs tariff was established, introducing protection for certain new industries in Morocco. In 1958 an Investment Charter was promulgated, wiich offered new industries tax advantages such as exemption from custom duties on imported equipment, rebates on imported raw materials, and a taxation advantage in the form of accelerated amorti- zation rates. The charter was complemented in 1960 by an unconditional guarantee of repatriation for new foreign investments approved by the Government. Capital earnings were already freely transferable. In ordler to encourage decentralization of industry,and particularly to resuscitate the waning economy of , which went into decline when it lost its inter- national statup in 1960, provision was made for government subsidies, i.e. equipment premiums up to 20% on investments in the province of Tangier and up to 15% for investments in all other parts of Morocco except for the main industrial area of Casablanca and Mohammedia. Certain basic industries, industries processing Moroccan raw materials, and industries engaged in the production of consumption goods for the Moroccan market, have priority. The Government Investment Commission controls and directs new private in- vestments by screening applications for investment benefits and determining the benefits to be allocated to each new project. It thus can exclude certain industries from receiving benefits, whenever it is satisfied thal - 21 - no further investment is needed in those industries. The value of privat+. investments handled by the Investment Commission in 1959 was DH 23.5 million, of which DH 12 million was in new enterprises or ventures. Comparable figures for 1960 were DH 85 million and DH 42 million, and for 1961 DH 62 million and DH 10 million. The remainder or majority of the investments were for extension of existing industries. In this connection it should be noted that capital from sources domiciled in Morocco (without distinction as to origin) has accounted for about 80%o of the total value of investments under the Charter.

68. In contrast to the foregoing measures for encouraging private investment corporate taxes were raised January 1, 1962 from 22.5% and 25%o to 30%. At the same time, a new scheme was introduced, lmder which 3% to 15% of taxable company profits are paid into a National Investment Fund. The Fund, which has as its purpose the stimulation of productive investmneo';, reimburses company deposits without interest, if within three years of the deposit a company makes investments in itself or in other companies at least equal to double the sum it has deposited in the Fund. Deposits which are not reimbursed at the end of three years are to be converted into long- term 3% savings certificates. The Fund is to invest the savings in produc- tive undertakings. While the new scheme may give existing enterprises in- centive to plough back more of their profits, it may well have a discourag- inig effect on new investors contemplating coming into Morocco for the first time. The impact of the National Investment Fund and of the increased company taxes on investment, and development generally, cannot yet be evaluated,

69. The Government's overall policy on industrial development is formulated in the National Development Plan, 1960-64 (discussed below). The Plan calls for an increase in manufacturing production of 61% between 1960 and 1964, to be achieved through annual investments of Di 230 million.

70. Food processing enterprises, which employ almost half the labor force in manufacturing industry, include fairly large industries producing exclusively for the domestic market such as flour mills and bakeries (con- trolled by OCIC), sugar refineries (the private Compagnie Sucriere Mviaro- caine), cooperative dairies, and private breweries. Coffee and tea are imported, processed, and packed by a government agency (Office National du The). Tobacco industries are a government monopoly, bringing the govern- ment an annual income of about DH 80 million. There are also a large number of canneries for fish, fruit, and vegetables which have concentrated on the export market. These canning enterprises which expanded rapidly in the early post-war period reached a high point in 1950, after which production fell by 1/3 by 1955. Since then there has been a recovery to the 1950 high point and in the last few years, 1958 to 1961, production increased again. In 1961 total sales were about DH 300 million, of which DR 200 million were export sales. More than 50% of the exports are sold to France, where preferential treatment is accorded annually for specified quantities. The size of some of the quotas accorded, in the face of available canning capacity and uncertainties as to the continuation of preferential French treatment in the future, has recently caused the ex- porters to seek new export outlets. - 22 -

71. Textile and leather output increased by some 25% from 1958 to 19.1; the increase probably slowed down in 1962. The textile industry now has a capacity sufficient to supply about one-third of domestic demand, but seems to have been affected by foreign competition more strongly than other in- dustries.

72. The metal and machinery industries include a number of foundries, and machinery producing, assembling and repairing industries, some of which have only recently been started. The industry has, with the exception of some new assembly plants for trucks, made very slow progress during the last four years. This holds true for the chemical industries too (mainly super- phosphates for the local market) and a new rubber industry. The cement and other building material industries have benefitted from the demarnd engendered oy the reconstruction of Agadir, destroyed byr an earthquake in 1961. The cement factories produced 685,000 tons in 1962, 1), more than in 1961, but still well within their overall capacity. Prosnects for expansion are obviously linked to a renewal of building and construction activity which has been depressed. The vegetal fibre ("crin vegetal") industry, em- pl.ying about 25,000 people during nine months of the year exported almost 100,000 tons of fibre at a value of DH 33 million in 1961. Morocco is the world's largest produicer of vegetal fibre. The volume has been stable since 1958, but prices which are fixed among the producers, have increasec.

Buildin, and Construction

73. Building and construction, including public works, account for aboat Li of G.'P, downi from 10%a- in 1952. Total value of building and construction, including public works, was estimated at DH 638 million in 1961 or about 60% of tot;al investment, which is roughly the same proportion that has prevailed since 1953. The industry employes an estimated 65,000 people, a large proportion of which are artisans.

74. The building boom which reached its high for construction in 1952 and for building in 1953 was followed by a severe slump which brought building activities down 60% and construction 40S. The industry started to recover in 1958; construction activity increased by almost 30% by 1961, partly as a result of the reconstruction of Agadir. BuilJing activity, which rose more slowly, increased by 15%o between 1957 and 1961. Building authorizations, however, fell in 1960-1961 and again in 1961-1962. 1/ Building industry activity thus continued at a depressed level into 1962. Prospects of the building and construction industries appear to be par- ticularly dependent upon demand in the public sector.

1/ Building authorizations for the iirst nine months of 1962, compared with the same period of 1961, for the 19 municipalities which account for the major part of total building activity. Authorizations do not. necessarily give rise to the same amount of investment. - 23 -

C. Infrastructure

75. The infrastructure in Morocco, that is transportation, telecom- munications, and power, is highly developed, especially in the former French protectorate. Thus railroads, roads, airfields, and the leading ports are of international standard, pcwer is almost completely integrated with a high voltage grid, and telecommunications are partly automatic. Most of the investment in infrastructure was made in the post-war period, especially during the period 19L9-52. This was a period of rapidly in- creasing production and the infrastructure was designed wzith French standar.o to take care of the long-term needs of a rapidly growing economy. The change in political circumstances and economic climate interrupted the growth and left the country with an under-utilized infrastructure base which has ever since been under-utilized, i.e., there is substantial unused capacity in electric power, irrigation dams and rrajor canals, roads, airfields and ports. 1/ This results in a heavy burden of maintenance and drainage of public funds.

76. The Government wants to integrate the former Spanish protectorate with the former 1rench protectorate by raising the standard of its infra- structure to the level of the latter, and by knitting its roads, tele- communications, and powier grid more closely to the rest of the country. The Covernment has the same -oal for those outlying parts of the former Frerch protectorate south of the Atlas mountains and in the eartern part of the cowutry. Some public expenditure is also involved in the current nationalization of the railro-.ds and electric power companies, and remainino pri-'-ate telephone companies in the former Spanish zone and the former inter- naticnal zone of Tangier.

Transoort

77. Norocco has an excellent road network, with 12,600 kilometers of principal and secondary roads, almost 90;/z of which are surfaced. These roads are the sole responsibility of the iN:inistry of Public WJorks. There are furthermore 9,000 kilometers of tertiary roads, partly financed and handled by the provincial authorities, partly by the Ministry. Present government priorities in road investment are to improve roads in the former Spanish zone and to connect them with the rest of I'orocco, similarly to improve and connect the roads of the outlying areas with the developed Atlantic Coastal area, and to build tertiary - roads. A major problem of road investment is to obtain roads of good standards, economically con- structed with maximum employment of labor. The National Promotion Program may alleviate the problem as part of the Program employs labor at low cost for the construction of tertiary roads.

1/ There is also an under-utilized base and as yet an unrealized tourism potential; some of the important hotel facilities are state- owmed. - 2L -

78. The utilization of the road network is suggested by the following figures on the development of the number of registered vehicles and of traffic.

Number of Number of Ton-kilometers Year utility vehicles passenger cars Vehicle kilometers by public mears

17 _/ (millions)- 2 (millions) 1950 14 ,000 37,000 1,560 n.a. 1951 16,500 LL,000 1,830 n.a. 1952 20,500 5h,000. 2,220 n.a. 1953 25,500 67,000 2,530 224 1954 31,500 80,000 2,710 258 1955 3 4,500 90,000 2,720 296 1956 35,800 94,000 2,670 279 1957 36,,00 95,500 2,230 238 1958 L40,600 106,800 2,260 227 1959 13,000 115,000 2,380 207 1960 h6,800 124,800 2,h60 247 1961 51,000 :36,900 2,600 338

Although the number of passenger and utility vehicles has increased sub- stantially during the period covered, actual traffic circulation has been stagnant since 1954. 2/ Transport of goods is regulated by the Government which allows private enterprises to freight only goods directly concerned with their princ:ipal activity, e.g. manufacturing or agriculture. Private transport of this type accounts for about half of total transport volume, while the Government's independent agency, Office National de Transport (Oi'T), supervises the transportation of goods by licensed public carriers and allocates freight among them. The OI\T has the power to allocate freight between road and railroad transport. All public passenger transport has to be licensed by the Government and is usually performed by a large number of small enterprises.

79. The Moroccan railway system has a length of 1,750 kilometers, mainly single track, about one-third electrified. The system consists of one major line tlhrough the country and additional lines linking mining areas with export ports. Three companies have had railway concessions up to and including 1962. During this period the Government has participated in these ventures to the extent of 90% of the investment expenditure, and also covered deficits resulting from the very low tariffs established by the

1/ Former Frerclh Protectorate only 1950-57, total Morocco 1958-61.

2/ Traffic circulation was estimated for 1958, and with this as a base the Ministry of Public Works computed the volume of traffic for a series ot years from the annual consumption of motor-fuel. - 25 -

Government. The railroads are to be nationalized in 1963, involving what is anticipated to be a modest cost in view of the already substantial Govern- ment contribution to thetcapital costs of the railrcads. Traffic doubled from 1950 to 1961 for phosphates, which account for more than one thiyd of receipts, but since 1956 other traffic seems to have been falling, a con- sequence of relatively static mineral production and increased competition from private road transport. Small railways in the former Spanish zcne have recently been closed.

80. Morocco has a number of good and well equipped ports, the major ones in Casablanca, Safi, Kenitra, Agadir, Tangier and Nohammedia. About 75' of the maritime traffic of Morocco goes through Casablanca. This port as well as that of Safi are well utilized, sometimes over-utilized, while most other ports have unused capacity.

81. Morocco has about 30 airports an! at least 50 smaller airfields plus a number of small private airfields. Since 1961 all of these airports and airfields have been managed or controlled by the I'Iinistry of Public Works. One airline, Royal Air lhiaroc, which is majority-owned by the Govern- ment, has a monopoly on national and international air service; the latteer service it can and does share by arrangement on a bilateral basis with other airlines. Air traffic has doubled since 1°55, but the utilization of the airports remains low. Investment has recently been concentrated on flight equipment. There is need for more meteorological and safety equip- rrent to rmake more of the interior airfields usable for expanded domestic cori ercial traffic.

82. The telecorLunication net is geographically rather well developed. There are, however, only 80,000 telephone subscribers in the country. Ninety-live percent of the rural centres have a semi-automatic system, while fully automatic systems are to be introduced in 1963 between all the major cities. The Government Post, Telegraph and agency (PTT) is fully in charge of the services, which also include the production of certain telecommunication parts. The utilization rate is said to be satisfactory. Investment costs are covered by the Government budget.

Electric Power

83. Total installed capacity of electric power in Ilorocco amounts to 500 MH of which about 80/ is hydro power. A well developed grid connects a capacity of 450 NJ. is produced by private concessionaires, the principal one being Energie Electrique du hlaroc (E4). The private companies have long been closely associated with the Government which has provided a good deal of the investment capital - as much as 1!5% for ENM. All electric power is expected to be nationalized in 1963 (compensation payments are expected to be a modest amount, payable over a three or four year period). Consumption of electric energy rose by 15% a year from 1946 to 1956, requiring a heavy investment in new capacity, mainly in hydro power. The new capacity,vwhich came into operation in 1954-55, has since proved to be more than adequate. The increase in consumption between 1956 and 1962 has only been 2% per annum. There is also a substantial under- - 26 -

utilized thermal capacity, much of which, however, is obsolete. Power consumption is expected to rise, especially in the phosphate mines. The major consumers, industry and households, are only expected to increase their consumption slowly notwithstanding the low household consumption (only 20 KWh per capita per annum). The investment plan calls for ex- pansion of hydro power and for conrnection between the grids of the former Spanish Protectorate and the grids of the rest of the country.

84. Some of the hydro stations have the dual purpose of providing irrigation as well as power. New irrigation and/or hydro-power dams are being built or are planned, notwithstanding the existing under-utilized state of both the existing power and irrigation installations, e.g. a United States Development Loan of ,23 million was extended in 1960 for an irrigation project in the far northeast corner of the country. Con- struction has been delayed, however, by a series of technical difficulties, including a decision on the best allocation of water between power and irrigation.

D. Money, Credit and the Capital larket

85. The monetary system of 14orocco is largely the same as that built up by the French during the Protectorate. However, when the French devalued the franc in December 1958, Morocco refused to follow suit0 This led to a conriderable speculative outflow of capital which resulted in the institu- tion of exchange controls by Morocco in July 1959. The Moroccan Government a2]o took over the Banque dF'tat du Maroc in July 1959 and con--erted it into the Banque du lviaroc, a state-owned central bank. The previous system of mutual overdraft facilities ("compte d'operation") bet;ween the French Treasury and the Central Bank was then suspended. In October 1959, almost a year after French devaluation, the Moroccan franc was clevalued from 420 to 506 to the dollar (i.e. fractionally below the French franc) and a new currency, the "dirham" was intrtduced, one dirham being equal to 100 old Moroccan francs. The monetary system has also been reorganized and com- plemented with new credit institutions during the last three years with the explicit purpose of facilitating economic development.

86. 1Morocco has at its disposal a banking system which - in the view of the Central Bank - includes all the institutions Morocco requires at present. There are 25 Moroccan and foreign private banks. There is the Banque Centrale du Credit Populaire with 5 regional branch banks which, based on public capital and private deposits, supply sma:Ll credits to handicraft and small-scale industries. All credits to agriculture, short., medium- and long-term, are as of October 1962 the responsibility of one institution, la Caisse Nationale de Credit Agricole. Based on public capita.l, it operates through a net of regional branches which support local agricul tural credit societies, Another bank, a mixed public-private institution, la Bancue Marocaine du Commerce Exterieur (Biv!CE), created in 1959, involving both Moroccan and foreign capital, with the primary purpose of financing foreign trade transactions and refinancing foreign trade credits given by other banks, has in practice engaged more broadly in commercial banking activities. Two other institutions, mainly private, are the '"Caisse - 27 -

Marocaine des Marches"t, which was created to facilitate transactions betreer. public authorities and the private sector, and "Caisse Centrale de Garantie", which specializes in providing guarantees for credits which are of develop- ment interest but which might not otherwise be granted.

87. There are a number of other specialized institutions mainly con- centrated on long-term credits and the capital market. "La Banque Natior;aJc pour le D&veloppement Economiquelr(BNDE) created in 1959 by public and private interests (and recently enlarged by IFC participation in combination with a $15 million IERD loan) provides medium and long-term loans mainly to indusPt for development projects. It can also participate in such projects. It can rediscount medium-term credits given by commercial banks and in its turn re- discount these as well as its own credits with the Central Bank. "La Caisse de Pr^ts Immobiliers du Maroc" is confined to giving medium and long-term credits for building and construction. Although of mixed ownership, since 1960 it has been managed by the public institution, "La Caisse de Je'p^t et de Gestion". The latter institution has four major functions giving it a central place in the Moroccan capital market. First, a number of insti- tutions are obliged to and others have the option to deposit their funds in La Caisse de D6pbts. Among the most important of the former type is La Caisse d'Epargne Nationale and among the latter are retirement, corporative, and m.tual savings funds. Second, La Caisse de Dep^ots is entrusted with the financial management of a large number of special funds such as the Habous (religious property fund), the National Social Security Fund, etc. It also manages the National Retirement Fund 1/ and the Fond d'Eauipement Communa].. wh ch f innce investments mado by local governmental authorities. Third, dep-5its are invested in Government bonds or lent on short-ttnrm to the Treasury; deposits are also used to purchase shares and bonds. La Caisse also has the right to participate in public and mixed enterprises. Some cf the more important participations are in La Caisse de Pr^ts Immobiliers du hiaroc, BMCE, and Maroc-Touriste. Fourth, La Caisse de Deo^ots has established a special agency, which re-insures insurance issued by com- mercial insurance companies. Thus, La Caisse de Depbt is in a key position to play a dynamic role in promoting investment of importance to Moroccan economic development. Finally, a special public institution should be mentioned, the "Bourse de Casablanca" (official name 1'Office de Cotation des Valeurs Mobilieres de Casablanca) which is the sole market for bonds and shares in Morocco.

88. The banking system, which is well developed, has a large element of government control and participation, with public capital, subsidies. and management playing a dominant role in many of the specialized insti- tutions. The Government also authorizes and regulates the establishment of new private banks in Morocco. The Central Bank supervises the activities of the Banking system and carries out its fairly conservative through its powers of persuasion and a handful of legal tools. Com- mercial banks have rediscount facilities in the Central Bank up to a global

1/ La Caisse Nationale de Retraites et d'Assurances created in 1959. - 28 - ceiling fixed once a year for each bank. Rediscounting is automatic for export credits while other credits are eligible only if the Central Bank has given its prior authorization. The global ceilings have equalled about 18% of the deposits of each bank, while total Central Bank redis- counts in fact stayed around 10% of total private deposits during 1962 (up to September). Before being eligible for rediscounting by the Central Bank, medium-term credits must be discounted with one of the specialized semi-public institutions, e.g., the BNDE (the most important in this field and the BNICE). There are no liquidity quotas or reserve regulations, but the Central Bank has followed the practice of making agreements with the banks to keep their lending rates below the agreed level and also keep a reasonable proportion of their assets in short-term "effets publics". The Central Bank regards its powers as fully satisfactory.

89. The monetary development of Mdorocco in recent years has been marked by considerable fluctuations in money supply (in addition to those of a seasonal character). Money supply fell at independence in 1955-56, and again after the French franc devaluation in December 1958, and before exchange restrictions were imposed vy Morocco in July 1959, and the Moroc- can currency devalued. These abrupt decreases in money supply were largely due to flights of private capital and consequent falls in foreign exchange reserves. A build-up in reserves between 1956 and 1958, and again after the July 1959 Moroccan monetary reforms, on the other hand, contributed to the increase in money supply. During this same period bank credits had been rather stable, varying between DH 1100 and 1300 million. Treasury net bor-owlng had also been relativ-ely stable, expanding frorm a level of DH 30C 400o million in 1954-57 to about DH 500 million in 1958-60. Money supply grew from its pre-independence high in 1955 by 35% to December 1960, or at the same rate as the general price level and GNP in current prices. The table below shows the development of money supply, GIVP, and the ratio of money supply to GNP from 1954 to 1962.

End of Money Supply 1/ GNP Mloney Supply/GNP year DH millions DH millions percentage

1954 1,950 6,880 28 1955 2,128 6,920 31 1956 1,774 7,090 24 1957 2,070 7,640 27 1958 2,409 8,510 28 1959 2,461 8,300 30 1960 2,870 9,250 31 1961 3,067 9,230 33 1962 (Sept.) 3,518 n.a. n.a.

1/ Currency and deposits. - 29 -

9G. The liquidity built up in the banking system during 1959 and 1960 became the basis for a credit expansion in 1961 - the first in ten years -- credits rose by DH 260 million or about 20%, mainly in short-term credits. While credits to agriculture declined, because of a reduction in need for credit to finance dtocks of food, credits to most other sectors rose. The credit expansion was financed by the private banks by increased redis- counting with the Central Bank, DH 75 million, by sales of their holdings of Treasury bonds, DH 50 million, and by a substantial decrease in their holdings of foreign exchange reserves, namely DH 123 million. The Treasuri managed on the whole to finance its deficit with minimum recourse to the Central Bank, and maximum recourse to the resources available in financially autonomous public and semi-public institutions, and to public reserves on deposit in banks and ca)ital market institutions. At the same time the Treasury was expanding its public indebtedness, it managed to retire certain short-term bonds. In total, there was a fall in foreign exchange reserves of DH 260 million and an increase in money supply of about DH 200 million by the end of 1961.

91. During the first half of 1962 credit expansion continued at a slow pace, while Treasury deficit-s- ending continued at a rapid rate, with more recourse to the Central Bank. This led to an increase, inter alia, in the circulation of bank notes. The main source of finance, however, was increasing deposits at the Treasury and the Postal Checking System. At the same time the private banks and Banques Populaires managed once again to lend to the Treasury. Due to the credit expansion, expansion of Treasury deficit-spending, and the reversal during the spring of the outflow of foreign exchange reserves, deposits in the banking sector rose. These larger deposits seem to have become in turn the basis for a new credit expansion during the period July-September (the latest period for which data is available).

92. During a normal year there is ordinarily a seasonal increase in credits during the third quarter of the year in connection with the harvest, which is usually followed by a decline in the last quarter of the year. However, the substantial deficit anticipated in the budget for 1962, makes it likely that Treasury spending continued to have an expansionary influence on the monetary sector during the second half of the year, which may also have stimulated bank credits. As the money supply of the economy rose rapidly during the first nine months of 1962, the liquidity of the economy also increased. 1/ The rise in bank liquidity between December 1961 and August 1962 is illustrated by the DH 108 million rise in deposits in private banks and Banques Populaires and the DH 70 million rise in their extension of credits (without recourse to rediscounting). The rise in general liquidity may also explain the rapid increase in deposits at the Treasury and the Postal Checking System, which in turn reinforced the ability of the Treasury to continue its deficit-spending in a way not directly in- volving the Central Bank, but with an impact on the economy not too dif- ferent from that which borrowing in the Central Bank might have had. l/ Assuming that GNP was as much as 10% higher in 1962 than in 1961, the ratio of money supply to GNP was 35% in September 1962. Compare table in para. 89. - 30 -

93. In one view the present expansion may be regarded as a return to "normal" conditions. From the end of 1954 up to the end of 1960 total credits remained largely unchanged, while the value of GNP rose by 35% due to price increases. During the 21 months ending September 30, 1962, credits surged upwards 28%, i.e. far more than GiWP during the same period. The relation between bank credits and the general activity of the economy has not as yet been restored to the pre-independence level. This comparison with the high 1954 level of credits may appear arbitrary, but it may never- theless suggest that the nature of the present credit expansion need not te automatically viewed as unsound. The risk involved in a general rise in liquidity is that the liquidity will be translated into effective demand for goods and services which may not be immediately available in the Moroc- can economy. It should be noted, that in the Moroccan economy there re- mains under-utilized capacity in industry, in agriculture, and in building and construction, which could provide some margin for absorbing part of the increased demand. On the other hand, there is generally a scarcity of skilled workers, and a number of commodities, mainly investment goods and consumer durables, are almost completely supplied from abroad. Thus the liquidity situation, can be viewed as potentially inflationary in nature. In any event, whatever the increase in demand as a result of the bank credit increase and the mobilization ofidle money by the Treasury may be, it is not likely to coincide exactly with the pattern of available underutilized resources. Some part of the increase in demand is likely to be directed towards scarce resources creating some pressure for a rise in prices and causing some imports to rise.

94. The principal suppliers of capital on the Moroccan capital market are insurance companies, the "Caisse de Depbt et de Gestion", the government and public agencies, and private enterprises. The market is, however, very much dominated by government supplies of capital as well as by government demand. The actual free capital market handles only a limited amount of the capital flow. Its size is indicated by the value of bond issues it has been able to absorb. The value of French and 1Moroccan Government bonds in circulation actually diminished from 1954 to 1960, but this involved a con- solidation with a sharp reduction in the value of short-term bonds and an increase in the value of Moroccan medium-term bonds (from DH 151 million to DH 290 million). During the same period new private (and to a limited extent local authorities) bond issues amounted to only DH 73 million. The situation changed substantially in 1961, when new private issues amounted to DH 78 million, including DRI 27 million for RIDE. The improvement in the market for private bonds was probably a consequence of a reduction in govern- ment short-term bond issues of DH 95 million without any increase in its long-term borrowing. The actual volume of transactions in shares on the share market in Casablanca is very limited and amounted to only DH 17 million in 1961. More important for financing new enterprises is direct participation by the state, by public and private banks and other public enterprises. For instance, BEPI's new participation in 1961 amounted to DH 17 million. The participation from foreign and Moroccan sources has developed as follows in the "societes anonymes" : - 31 -

in percentage 1955 1956 1959 J.960

Moroccans ) 3 39 35 31 Foreigners residing in Morocco ) 37 31 34

Foreigners residing abroad 69 60 29 31

Of the total 1Moroccan participation in 1960, 21% was by the state or public agencies, and 14h by private investors.

E. Prices and WViages

95. Until 1958 the movement of prices in Morocco followed that of Fran:c owing to the close economic links between the two countries. Wholesale prices rose by 15% from 1953 to the end of 1958 and retail prices increased only slightly more. Wiiholesale prices were almost stable from 1958 to late 1959. Partly due to the devaluation of the Moroccan currency late 1958 they rose by 18% by the end of 1961. Mounting prices of domestic products and especially food products, due to the poor harvest, iaere responsible for :iuch of the increase in 1961e W'holesale prices fell durinio the first nine months of 1962, primarily due to a fall in food prices. Retail prices rose about 3% a year between 1953 and 1958, and the cost of living continued to increase at a steady 3% rate mitil December 1961 in spite of the upsurge in wholesale prices. As a result of a rise in custom duties in September 1961, and higher food prices following the bad 1961 crop, a general wage increase took place in January 1962, whereupon the cost of living rose by 4%; rising food prices increased the cost of living another 2% during the fall 1962.

96. Prices of many commodities have been subject to control since 1957; any increase in list prices is subject to prior authorization, de- pending on the goods, from either the Central Government or regional and local authorities. Rents established before 19118 are controlled by govern- mental authorities; other rents have been free of ccntiol. Pribe control asas extended in October 1962 to include most ccmmodities and services not pre- viously subject to such control. The apparent reason for the extension seems to be the risk of a wage-price spiral resulting from repeated appli- cation of the minimum wage rule, which is geared to increases in the cost of living index. Wages are generally freely determined by collective bargaining between employers and trade unions. However, the Government does establish a legal minimum wage, which since 1960 has been linked to the cost of living index. If the index rises by more than 5%, a special committee (La Commission Centrale des Prix et des Salaires) composed of representatives of Government, employers' organizations and trade unions meets to advise the King as to the wage adjustments deemed necessary; in practice the advice given has been followed. Thus, a 5.7% increase in the minimum wage was decreed by the Government effective January 1, 1962. The increase then serves as the basis for collective bargaining between employer and employee organizations for negotiating all wage levels above the minir-:. The cost of living index in November 1962 reached the level where a new w!ags increase should be considered under the existing practices. - 32 -

97. There is no general index for wages and salaries in Morocco. However, the minimum hourly wage in Casablanca has developed as follows (in Moroccan francs) :

1948 1952 1955 1956 1957 1958 1959 1960 1961 156-.

34.6 47.0 56.9 66.9 66.9 76.9 76.9 80.i/8 80.8 65.L

98. Official policy has adopted the principle of a 48-hour six-day work week. Workman's compensation for on-job accidents has been official policy in Morocco since 1927. A new social security system was instituted in 1961. The "Caisse Niationale de Securite Sociale" covers all employees in commerce, industry and the professions. Those covered are required to contribute 2.5% of their wages to the fund, which is matched by a contri- bution equal to 5% of wages paid by employers. The new system provides payment benefits for death, old age, invalidism and sickness which is not covered by Workman's Compensation. Another older scheme which covers the families of employees has been consolidated with the new scheme at a cost (to the employer) equal to 8% of the wages he pays to his employees.

F. PUBLIC FIH;I.I IES

99. The Central Government is respon8ihlp for ahou,t 21% of the Grbcs Nati-r&a Ezrtnditure. This proportion has increased rapidly since the advent of inucependence (it was 16% in 1955) reflecting the assumption cf responsibi- lities by the Moroccan Government theretofore financed by the Protectorate Government, and the tendency towards increasing public participation in the Moroccan economy. The Central Government controls a significant number of financially more or less independent public institutions, as has been dis- cussed above, a list of which appears in appendix C.

100. The powers of the provincial and rural local authorities are limited, especially on the financial side. The provinces have in practice no active financial life, although they do operate a budget approved and substantially financed by the Central Government. Expenditures are con- fined to maintenance and improvement of roads, bridges, and wells, and may include operation of ferries and allocation of subsidies to rural "communi- ties". Cities and other urban municipalities have their own budgets, which are also subject to approval by the Central Government. The Central Gove~rn- ment acts on behalf of the cities and other urban municipalities as a col- lector of the taxes which they impose. Taxes usually include a general sales tax; there are also various fees for services supplied by the urban authori- ties, and there are at times subsidies provided by the Central Government. The municipalities also have the right - with approval of the Central Govezr-- ment - to borrow on the capital market. Municipal expenditures include in addition to ordinary administrative and maintenance expenditures, contri- butions to primary education. All cash reserves must be deposited with the Treasury. The limited magnitude of the financial fhnctions of all these authortiis is illustrated by the fact that expenditures only amounted to about 10% of the value of Central Government expenditures. The revenues raised by local taxes and fees amount to between 10 - 15,' of the total revenues of the Central Government.

1 / This rate was introduced November 1, 1959. - 33 -

101. The Central Government's estimated and actual revenues and ex- penditures in recent years are set out in the following table

1955 1957 1958 1959 1960 1961 1962 1963

Budget Estimates

Revenues on ordinary budget (772) 1059 1241 1270 1322 1iL41 1506 1552

Revenues 1/ on capital budget 101 31 105 123 149 218 258 167

Total revenues 1/ (873) 1090 1346 1393 1471 1659 1764 1719

Ex,penditures on ordinary budget 772 1108 1328 1392 1483 1616 1823 20'<5

Expenditures on capital budget 346 269 367 354 351 451 505 720

Less foreseen under- sperding on ordinary budget 0 30 40 4O 70 70 90 130

Total expenditures 1118 1347 1655 1706 1764 1997 2238 2625

R(current surplus or deficit (-) +101 +12 +58 i41 +58 +113 +31 -186

Total budget deficit (-) -245 -257 -309 -313 -293 -338 -47hi -906

Actual Outcome

Revenues on ordinary b-idget (750) 974 1117 972 1134 1176 n.a. n,,a.

Revenues 1/ on capital budget n.a. n.a. (105) (118) n.a. n.a. n.a. n.a.

Total revenues 1/ n.a. n.a. 1222 1090 n.a. n.a. n.a. n.a.

Exp. on ordinary budget (749) 935 1102 1257 1309 1477 n.a. n.a.

Exo. on capital budget (316) (279) (276) (299) (340) (381) (450) n.a.

Total expenditures (1065) (1214) (1378) (1556) (1649) (1858) n.a. n.a.

Recurrent surplus or deficit (-) n.a. n.a. +120 -167 n.a. n.a. n.a. r..a.

Figures comprise the whole of Mjlorocco only from 1958. 1/7Cf a recurrent nature - 34 -

Not included in these figures are the operations of annexed budgets total- ling about DH 115 million in 1963, rinting Office, Post, Telegraph, and Telephone Office, Radio and Television, Ports) apart from the contributions from the general budget to their activities, nor a number of extra-budgetary treasury activities, relating to the use of certain foreign aid receipts and treasury contributions for special purposes.

102. The general impression is one of considerable expansion of the Government's role in the economy. Even after making allowance for the former Spanish Protectorate, which was not included in the Budget before 1958, recurrent and capital expenditures together increased at a rate of about 9-10% a year from 1955 to 1961, a rate of growth expected to increase to 125 and 17% respectively during 1962 and 1963. Most of the increase in actual expenditure between 1955 and 1961 is explained by rising recurrent expenditures (annual increase 12,,). Capital expenditure, on the other hano, was little higher in 1961 than in 1955 (and at constant prices somewhat less). From 1953 to 1958 there was a year-to-year decline in government investment outlays. The subsequent increase from 1958 to 1962, was however rapid (13% per annum), partly accelerated by expenditures caused by the re- construction of Agadir, destroyed by an earthquake in 1960. A substantial increase (43%) is budgeted for 1963, but the real increase will, of course, be dependent upon the ability of the Government to plan and supervise the execution of public investment projects. Administrative problems, including lack of trained staff, has in the past lead to consistent underspending on the capital as well as ordinary recurrent budgets. The underspending has varied between 5% and 17% for the total budget, variations being slightly larger for the capital budget. Lack of finance seems to have been a problem only in 1958. 1/

103. The pattern of recurrent expenditures has been fairly consistent from 1955 to 1962.2/General administrative expenditure and debt service seem to have been rising slower than the average, while public health, education and - especially - defense have been rising more rapidly. The rise in recurrent educational expenditures has been steady and has averaged 16%' per annum; the rise in recurrent defense expenditure has been largely connected initially with the assumption of military functions by an independent state and later with the take-over of foreign military installations. 3/ The structure of capital expenditure (budget estimates

1/ Capital expenditures were then cut 25% below budget estimates; increased local borrowing failed to compensate for a fall in total foreign aia. 1958 was the first year writhout French capital aid and the first year of American capital aid.

2/ According to the budget estimates, the breakdown of actual expenditure not being available.

3/ The proportion spent ondefense and security forces rose from about 16% before independence to almost 30/0 in 1957, but the proportion fell slightly thereafter, and has been around 25% during 1960-63. The cost of defense is equal to total expenditure on the capital budget. again as breakdown of actual expenditure not available) has varied from year to year. Expenditure for defense, post, telephone and telegraph, education and agriculture outside irrigation has been comparatively static, thus accounting for a falling proportion of all capital expenditure betweern 1955 and 1962. The proportion being spent on irrigation has been rising, particularly since 1961, when ONI was established. Expenditure on other public works has also been rising rapidly. A considerable proportion - 13% in 1961 - has been spent on the reconstruction of Agadir, which, how- ever, is now assuming a less significant role. The 1963 budget estimates project a further rapid rise in irrigation and public works generally, and a restoration of the expenditure level for non-irrigated agriculture to the same proportion it held in 1955.

104. Government revenues have not been increasing as rapidly as Goverr:- ment expenditures. Budget estimates call for a rise of 11% per annum between 1955 and 1961, which would have kept pace with the anticipated rise in expenditure during that period. Actual revenues (which are not fully known) have, however, developed much slower than estimated; the shortfall has been increasing ever since 1957. Consequently the Government has be- come more cautious in its budget estimates for 1962 and 1963, and income for 1963 is actually estimated to fall. The Government has allocated certain recurrent income to its capital budget. These recurrent revenues together with those allocated to the ordinary budget were in the early 1950's budgeted to exceed recurrent expenditure by substantial amounts, but since independence estimates of surplus have been more modest.

105, The 1963 budget is the first to anticipate a deficit (as much as DH 186 million) on recurrent account. The Government's plan to save out of recurrent income for its own investment expenditure was apparently not fulfilled in 1959, 1960 and 1961 (under reasonable assumptions of the out- come of total revenue). The Government has thus had to cover not only all capital expenditure but also some recurrent expenditure with domestic borrowing and foreign aid. Domestic Treasury borrowing seems to have been especially heavy in 1961 and 1962; some Treasury borrowing during 1962 was probably from the Central Bank, causing an increase in the supply of printed money (compare para. 91). The foreign aid contribution has been estimated in the budgets in the following amounts:

DH million 1955 1956 1957 1958 1959 1960 1961 1962 1963 Foreign aid 211 203 230 126 191 202 202 237 (553) Total capital expend. 346 319 269 367 354 351 h51 505 720 Foreign aid/cap.exp. % 61 64 86 34 54 58 h5 47 77

The actual outcome is only known for 1958 and 1959 when foreign aid actually covered DH 110 million and DH 163 million respectively or 40% and 55% respec- tively of actual public capital expenditures. The 1963 budget estimates show a significant increase in dependence upon foreign ai . It seems quite likely that a larger amount of foreign aid will be disbursed during 1963 than in earlier years. (Compare para 109.) - 36 -

106. The rate of taxation, as measured by actual revenue, amounted t-o about 15% of GNP (not including local taxation of, say, 1.5% of GN'P). During the past few years the sources of income have been 25% - 30% from customs, 25%- 30% from indirect taxes, 15% from direct taxes, 15% from government monopolies, with various other miscellaneous sources making up the balance of government income. Several fiscal reforms have recently been instituted. Customs duties which generally have been rather low, were raised in September 1961. The corporate profits tax was raised from 22.5% - 25% to a flat 30% on January 1, 1962, and at the same time a com-* pulsory savings scheme was introduced under which 3% - 15% of company profits are deposited in a National Investment Fund (compare para 68 ). Wage and salary-earners and fixed-capital owners, other than farmers, have had their taxes raised slightly, and are now subject to a progressive incont. tax, up to a maximum of 30%. Farmers paid a type of head tax (the "tertiiA, up to the middle of 1961, when it was abolished, and subsistence farmers became virtually tax free. In an attempt to encourage investment in agri- culture, farmers selling for cash are now assumed to earn an "average nolm'. income based on acreage and livestock, on which they pay a progressive tax of up to 16%. A new form of sales tax was introduced Jar.uary 1, 1962, which amounts to about 8% on almost all goods and 4% on all services. It is estimated that the new sales tax means an increase of about 1% above the incidence of the previous comparable type of taxation. Some local taxes have also been raised as part of the 1962 tax reforms. - 37 -

G. External Finance and Trade

107. The following table illustrates trends in the Moroccan balance of payments

Balance of Payments

(Millions of U.S. $ Equivalents)

1952 1956 1958 1960 1961

Exports f.o.b. 274 343 349 382 363

Imports c.i.f. -516 -459 -101 -413 )I_8

Foreign government ex- penditures 149 253 166 86 63

Other services, transfers - net 20 -33 -24 -8 -18

Balance on Current Account -73 io4 90 47 -4o

Foreign Grants n.a, 13 14 17 16

Foreign Loans 43 50 24 44 1

Loan Repayments, etc. -4 -13 -4 -L -9

Private Capital Net 37 19 2 -30 -37

Errors and Omissions Net 19 -316 -87 -2 -23

Balance on Capital Account 95 -247 -51 25 -12

Foreign Reserves 22 -1143 39 72 -52

Note: 1952 and 1956, U.S. ,l = 350 francs; 1958, U.S. $ 1 = 420 francs; 1960, 1961, U.S. $1 = 506 francs (- 1DH 5.06). 1952-57 only former French Zone, 1958 including Spanish Zone, and 1960 and 1961 including Tangier. Figures rounded to balance.

108. The Noroccan trade balance has usually shown a deficit, which during the boom years in the early 1950's was only a reflection of the heavy capital inflow. XThile exports grew by 6% annually (in dollar value) from 1952 to 1956, and from then on remained almost static, imports declined almost continuously up to and including 1959, but then rose abruptly br 3< - 38 - in the two years 1960 and 1961. The trade deficit consequently declined rapidly through 1959 and began to increase again in 1960. For the past ter years expenditures of foreign governments, mainly for military installations and bases, have been an important element in foreign receipts. They have, however, fallen from a high of $253 million in 1956 to $53 million in 1961 and are expected to decrease further to about $40 million in 1964-65. Other services usually result in a net deficit. The continuing decline in tourist trade during 1959-61 contributed to the rising deficit during this period. Mlieasures have recently been taken to promote tourism, a trale which now contributes DH 126 million gross or DH 20 million net of cost of IMoroccan tourism abroad.

109. There has been a fairly steady inflow of foreign aid. Assistance from France which bias interrupted in 1957 during a period of political strain, averaged $50 million a year for the period 1952-57. French aid was replaced by aid from the United States, disbursements of which reached a level in 1960-61 of $60 million a year (including some ';16 million of grants included under current account). U.S. loan aid includes financing for non-project imports and direct budget support loans; this category ot' aid amounted to L40 million in 1960-61, and to $30 million in 1961-62. A U.S. Development Fund loan of 223 million was made for an irrigation scheme in 1960, but has only been partly disbursed to date. A program of In /¾80agricultural commodity imports was started in 1961 (in connection wfith the Moroccan National Promotion Program, compare para 42 ). Total PL-480 aid rose to approximately $35 million in 1962. Other U.S. aid, h-wever, was reduced in 1961-62 and the expectation is that the decrease will continue. On the other hand, improvement of Franco-Moroccan relations has been accornpanied by a new French aid agreement in July 1962 providing for a resumption of French aid. The one-year agreement provided for total assistance of ';60 million, composed of '-D million for development loans to finance projects, $20 million for medium-term export credit guarantees, and `20 million for public overdraft facilities with the Banque de France. Continuation of French aid is expected to be discussed during the first half of 1963.

110. Private capital, which flowed into Miorocco in ample amounts during the early 1950's, has been flowing out of Morocco ever since 1955, the eve of independence, and particularly in 1956 (the major part labelled "errors and omissions" in the balance of payments statistics) immediately fol- lowing independence.There was also a large speculative outflow in the first half of 1959, described above, in connection with the Moroccan decision not to follow the devaluation of the French franc in December 1958. As an aftermath, exchange controls were introduced in July 1959, and in October Morocco devalued its currency. Thereafter the private capital outflow diminished, but still remains a considerable drain on the economy. It has recently been partly offset by some new foreign private investment, mainlv foreign industrial enterprises establishing plants in Morocco.

111. Foreign exchange reserves which declined by $3143 million in 1956, recovered the loss and reached a high of $260 million in early 1961. This was theni followed by a loss of `50milIiofi during 1961.' In the spring of 1962 the loss was temporarily halted, but by October reserves had fallen - 39 - again to $,184 millioni, cr the equivalcint of the cost of about five month's imports.

112. Morocco's external debt was estimated to amount to the equivalent of $388 million at the end of October 1962. The debt includes French Government loans totalling ^219 million, channeled through the Fonds de Developpement Economique et Social (F.D.E.S.) between 1949 and 1957, on which Morocco suspended service payments in 1958 in the difficult political atmosphere surrounding the Algerian war. With the end of that war, the prospects for Franco-Moroccan agreement on this and other outstanding French claims and Pioroccan counter-claims appears more favorable. The Franco- Moroccan aid agreement of July 1962 is the first tangible sign of the im- proving relationship. The figure for total debt does not include any esti- mate of possible Moroccan debt to Irance which may accrue from any settlem.er.t of these outstanding claims or any estimate of the unsettled claims of the Spanish Government for reimbursement for expenditures made by Spain in the former Spanish Zone in northern Morocco before independence and unification of the French an(d Spanish Zone. Here again, a recent improvement in Spanish- Moroccan relations may augur well for settlement of outstanding claims.

The total debt figure also excludes $166 million of loans extended by the U.S. Agency for International Development and its predecessors, v7hich are repayable in dirhams, or at the option of Morocco, in dirhams or dollars.

113. Payments of interest and amortization on the debt now being ser- vi-ed in foreign exchange amIo.mt to about $9 million equivalent per year. If the F.D.E.S. debt were to be serviced in accordance with the original amortization schedules, another 112 million would be added, bringing the total annual debt service to $21 million, or 6%o of 1961 exports.

114. Moroccan exports totalled DH 1,836 million ($363 million) in 1961, of which about 45% were foodstuffs and beverages, 45% raw materials, and 10% manufactuled goods. The value increased from about DH 1,020 million ($290 million) in 1952 1/ or by about 20% expressed in U.S. dollars. There has been hardly any increase between the years 1956-1961. Export volume rose between 1952 and 1961 by about 4,hoand at the same time export prices fell by about 15% (in dollars). There were two 20% devaluations in this period, one in 1957 and one in October 1959. Exports of several important items expanded during this period. Phosphate exports rose from 15% of total export value in 1952 to 24% in 1961. Exports of citrus fruits about 12% in 1961 after a long and steady expansion. Morocco has also developed her exports of other fruits and vegetables successfully. Exports of canned fish have also increased rapidly during the last five years to 6% of total exports. On the other hand exports of cereals and coal have fallen from 1952 to 1961 in both volume and value, and exports of manganese and other minerals have been affected by world market price declines. Exports of manufactured

1/ This includes a rough estimate of former Spanish 7one exports. - 4o - products were also low in 1960 and 1961. Since independence ITIorocco has continued to sell 35-50% of her exports to France, the remainder being widely distributed.

115. Almost all M4oroccan exports benefit in tre French market from "tariff quotas" exempting them from a portion of the regular French duties. The quotas are usually generous but in the case of a few products, such as oranges, wines and canned fish, where IMoroccan production has been growlirp rapidly, an increasing proportion of the produce has had to be sold in Fr?nce without this preferential treatment or in other markets. Fruit exporters have been especially successful in developing new markets for their produce. Phosphates and other mineral exports have a good market in France but a major part is sold to other countries.

116. Moroccan imports have fluctuated with changes in domestic business conditions and harvest variations and have grown more erratically than exports. They exceeded DH 1,900 million ($540 million) in 1952 1/ but fell to DH 1456 million (about $330 million) in 1959. By 1961, they had increased again sharply to DH 2969 million ($4b8 million). The volume of imports was probably unchanged from 1952 to 1961, while import prices are estimated to have risen by 20C5 in dirhams and fallen by about 15% in dollars, The terms of trade were largely the same in 1961 as in 1952.

117. Moroccan imports consist of about 255 foodstuffs and beverages, sugar alone accounting for 8%. The tonnage of sugar imports rose rapidly up to 1958 and has since then been at a level of 360,000 tons a year. "Other consumption" goods, including textiles and passenger cars, account for slightly moie than 25, of total imports; fuel and raw raterials account for 15% and semi-finished products for another 155o, while the share of industrial equipment has varied between 10% and 15% during the last five years. IJith the collapse of the pre-independence investment boom the share of machinery and equipment has declined. About 50%5 of Moroccan imports usually come from France. Second largest supplier is the United States with 11 in 1961, higher than any year before (the increase mainly due to PL-480 shipments).

118. Export volume and value fell slightly during the first nine months of 1962, part of this due to low agricultural exports following the bad crop in 1961, partly due to a considerable fall in minerals other than phosphate. The volume of imports remained unchanged but the value fell by 6% thus reducing the trade deficit by 50%. Reductions were mainly in fuel, industrial equipment and finished consumption goods. 2/

I/ This includes a rough estimate of former Spanish Zone imports.

2/ Preliminary figures for the whole year 1962 show that exports rose by 2% from 1961 to DH 1,762 million, and that imports fell by 5% from 1961 to DH 2,151 million. - 41 -

III. DEVELOPMiENT POLICY IN PRINCIPLE AND PRACTICE

119. Since 1949 there have been four successive development plans. The 1949-52 four-year plan stressed investments in basic infrastructure and appears to have achieved its purpose. The 1953-57 four-year plan, which emphasized investments in agriculture and "welfare", spanned a period of political change and unrest with associated economic uncertainties, which tended to distract attention from the plan. Nevertheless, government con- tributions to education and social welfare were raised substantially during this period. The 1958-59 "transitional" two-year plan favored directly productive industrial investment. The first Investment Charter wlas intro- duced during 1958, and a number of measures relating to the objectives of the plan taken during this brief period seem to have borne some fruit in the years following, including an increase in private investment, and a rise in industrial procluction after the 1959 slump. The result of these three plans suggests that the concentration of effort on chosen sectors met with some success, but at the same time the other sectors not stressed or planned for wiere left behind.

120. The first major effort (the fourth development plan) to establish an over-all long-term policy for coordinated economic development came with the Five-Year Plan, 1960-64. This plan was drawn up over a two- to three-year period by an elaborate system of commuissions and research teams- some of which are in principle continuously trying to improve and revise thD plan, 1/ A revision of th-Le new plan, including a fuller description of Lthe industrial sectors with lists of projects to be undertaken, was issued late in 1961.

121. The objectives of the Plan as revised are stated to be an increase in "Production Int6rieur Brut" 2/ of 6.2" per year (initially 7%) in order to raise per capita income, about 3.5% a year, to diminish the number of unemployed and underemployed, and to achieve greater economic self-suf- fiency for Mlorocco. To achieve these objectives the Plan gives priority to an intensive educational and training profpram (Sec Appendix A ) , tech- nological improvements in traditional agriculture, government investment in basic industry (including mining exploration and exploitation) and the promotion of private industrial investment. At the same time, the Plan envisages a better organization of public authorities at all levels for the implementation of the Plan, combined with a reduction in the number of foreign civil servants.

1/ For a full description of how the present and previous plans cane into being see "Planning in Morocco" by Albert IWaterston, The Economic Development Institute, IBRD, 1962.

2/ Compare National Accounts Table in Appendix E. - 42 -

122. The following table sets out the major features of the revised plan :

Sector Value added in Annual increase of % of Total DH millions value added per cent Production ______1960 1965 1960-1965 1960 1965

Agriculture 2,651 3,155 3.5 32.4 28.6

Power 175 303 11.7 2.1 2.7

Mines, construction mater. 581 784 6.2 7.1 7.3.

Manufacturing industries 1,061 1,671 965 12.9 15X0

Building and construction 325 698 16.5 L.0 6.2~

Transport and services 1,496 1,927 5.2 18.2 17A)i

Commerce 1,907 2,538 5.9 23.3 22.9

Total production L/ 8,197 11,077 6.2 100.0 100,0

Imports -2,208 -3,oo6 6.4 -26.9 -27.1

Exports 2,013 2,761 6.5 24.5 24.9

Net service exports 290 310 i.h 3.5 2.8

Private consumption 6,879 8,131 3.Lh 84-.0 73.L1

Public consumption 266 345 5.3 3.2 3.1

Gross fixed inves-tments 918 2,495 22.1 11.2 22.5

Stock changes net 38 0 - 0.5 0.L

123. The above table reflects the targets to be achieved in 1965, the year after the end of the plan period. 2/ The targets seem to be internally consistent. The planned targets mean that the period of economic stagnation

l/ "Production Interieur Brut", compare table 5 in Appendix. The breakdown is not exactly comparable, partly because of revisions, partly because of different definitions of concepts.

2/ Although the plan covers the period 1960-6L, the basis for the production comparisons are the years 1960 and 1965, the reason being that invest- rnents made during the years 1960-64 are expucted te h'ave an impact one year lD (Cf Le D&veloppement Industriel, page 17). - 43 - had to be terminated; total production was to rise by 6.2%, compared with the lack of any overall increase in the five-year period preceeding 1960. Viewed by sectors this required continued growth at the same rate in mining (5.8%), but an acceleration of growth in such sectors as manufacturing, transport and services, an end of stagnation in such sectors as power and commerce, and the reversal of falling production in agriculture, building and construction. The growth rate was projected to increase from 3.6% in 1955-60 to 9.5% in 1960-65 in manufacturing industries, and from 2.1% to 5.2% in transportation and services. Two large increases were projected - an increase of 11.7% for electric power and 16.5% for building and con- struction. Projections of a 3.5% annual increase in agriculture meant that agricultural production in 1965 was planned to exceed the high 1954 (and 1958) production level by only 10%. This target bears examination in view of the expected population rise of 20% between 1958 and 1965.

124. Private consumption for the total population was only expected to rise a modest 18% (compared with 26% for the Moroccan population) over the wihole 1960-65 period, reflecting the need to limit private consumption and channel resources to investment. Public consumption was not expected to increase its share, but this omitted consideration of public sector salaries which are included in GNP estimates and, in view of the existing trends (see para. 102), could be counted on to be quite expansive. Gross investment was supposed to rise 22% per annum, which would have increased the investment level above any previous boomtime level. There could be no doubt that the growth in production projected would indeed require sub- stantial investment. The total planned production increase of DH 2,880 million would require, according to the Plan calculation, gross investment of DH 7,680 million, or investment of 2.7 dirhams for each dirham of pro- duction increase (i.e. e capital output ratio of 2.7). This ratio was not implausible, when the available unutilized capacity, especially in infra- structure, was taken into account. The Plan called for the following categories of investment:

Gross Investment Per cent of total in millions of dirhamns

1960 1961 1962 1963 1964 1960 1964

Machinery and tools 357 558 704 877 1104 38.9 50.6

Public WTorks 310 354 469 558 633 33.8 29.1

Building 250 307 354 402 412 27.3 20.3

Total 917 1219 1527 1837 2179 100.0 100.0

This breakdown seems consistent with the requirements of the planned pro- duction. The planned trebling in machinery investment has also been re- flected in the anticipated trebling of machinery imports. * -

125. There is, however, a conflict implicit between the object of the Plan to create as much employment as possible, and the stress placed in the Plan on the use of mechanization and capital-intensive methods in production in order to keep standards high and costs internationally competitive. Manufacturing, building industry, mining, and electric power together re- quired set investments of DH 2 billion (as against only DH 0.9 billion for agriculture) or 37% of total net investments. But the increased production in these sectors would help to create only 125,000 new jobs by 1965. Another 75,000 would be employed in transport, services and administration. The labor force was, however, expected to grow by about 600,000 from 1960 to 1965. The problem of unemployment would thus not be solved by the invest- ment scheduled to be made in industry, nor would it be solved by the pro- jected investment to be made in the other sectors. The best that could be hoped for is that the number of unemployed and underemployed would not in- crease during the Plan period, and as suggested by the above projections, even this holding of the line does not seem within reach under the present Plan. The Plan forecasts a shift in priorities from industry in the period 1960-64 to agriculture in the succeeding period 1965-70, which sector is then expected to expand considerably more than planned during the current five-year period. Modernization and expansion of agriculture with its feedback affect for growth of domestic industry hold out hope for an im- provement in the employment situation over the long term.

126. The five-year Plan accords a priority position to the development of the country's human resources. There can be no quarrel with this assess- mert of 11,orocco's need for trained and skilled personnel in just about every facet of national life, particularly at the intermediate and higher tech- nical, supervisory and management levels.

127. The process and objective of the development of the country's human resources are freQuently referred to in association as Moroccanization, although the term is sornetimes employed in a broader sense to mean the re- placement or reconstruction of the total legacy of the protectorate period to achieve a situation more indigenously and intrinsically IXioroccan. In any event, there are two dimensions to Moroccanization. The first is trans- formation of the complex of institutions inherited from the protectorate period into national institutions reflecting more closely the aspirations, values, and imperatives of Moroccan life as the Moroccans see them. The second is staffing the revamped institutions with trained Moroccans wherever and whenever possible, and then using these new Moroccan institutions to train cadre of more qualified Moroccans or produce results more in keeping with Moroccan goals, as the case may be. Because of the importance the Moroccan Government attaches to this subject, a special Appendix on develop- ment of human resources is included with this study. The Appendix deals with the evolving educational system and the . (See Appendix A) - L5 -

128. The financing of Plan investment was to be 95% out of domestic resources. This would have required that the domestic savings ratio in- crease from the rather stable level of 13$ of GNP, where it has been during the past ten years, to above 20%. This meant a marginal savings ratio above 40h. It has been recognized by the Plan economists to be a completely unrealistic target. No revision has yet been made, however, and the called for financing of the Plan still reflects this pattern:

(Millions of dirhams)

Net fixed investment 5,520 Local savings 7,470

Depreciation 2,160 Foreign private capital - 100

Stock investment 140 Foreign public capital 790

Total gross investment 7,820 8,160 Less increase in exchange reserves 340

7,820

1?9. The responsibility for revising and perfecting the Plan is with the Division de la Coordination Economique et du Plan in the M4inistry of Economy and Finance. This division does not, however, have operational or supervisory power to implement the Plan, and no other agency is charged with the responsibility of coordinating implementation of the Plan. However, in the new Constitution, adopted in December 1962, provision is made for a new Council for National Promotion and the Plan, which presumably will fill this gap. Although a central coordinating agency has been lacking, the Government has taken steps to implement the Plan in various sectors. It is enough here to refer to the creation in the agricultural sector of ONI[ in 1960, and ONIMR and the Caisse Nationale de Credit in 1962, and the introduction of a new Investment Charter in 1961, the revision of custom tariffs in September 1961, and the taxation reform in 1962 - all together a series of steps in a policy to promote economic development through larger private investment. The Government budget has, in the meantime, placed increased emphasis on capital expenditure, as well as larger support on the recurrent side of the budget, for agriculture. Defense expenditures, which now amount to about 25% of recurrent expenditures, have been relatively lower during 1960-63 than in the immediately preceding years.

130. Economic development during 1961 and 1962, although the results are not now fully known for 1962, does not leave ally doubt that the Plan is not going to reach its targets within the Plan period. 1960 Investment figures were included at their actual level in the Plan. 1961 Investment, planned to increase by DH 300 million or 33%, actually rose only by 7%. Gross National Product fell 4% in 1961, instead of rising by the planned 5.5%. The circumstances surrounding this shortfall, especially the bad - 46 -

crop, might explain poor performance as an accident which will not be re- peated within the Plan period. The crop failure in 1961, however, has had repercussions into 1962, causing among other things a slower growth in industrial production, due to lower consumer purchasing powqer during the first half of the year, as wel]l as lower exports of agricultural products. Indicators of investment activity do not show any significant increase during 1962. (Investments were planned to be 67% higher than in 1960.) Industrial production may have picled up during the fall 1962, and there appears to have been significantly better agricultural output; mineral produc- tion though showed signs of difficulties, due to lower export demand for some minerals and due to a tendency for the demand of phosphates to level off. All in all GNP seems to have grown some from 1961 to 1962, but it appears most unlikely that it grew enough to make up for the 1961 deficit of almost 10% in achieving' the 1961 Plan target, and still less likely to have achieved another 6% rise in accordance with the Plan target for 1962. Financing of the Plan, which assumed 95% would come from domestic sources, and only a limited extent from foreign aid, (e-60 million gross a year over the Plan period) does not seem to have been a limiting factor in the implementation of the Plan. Although domestic saving obviously has not been increasing according to the Plan schedule, forei,.n aid has actually been available in larger amounts than planned.

131. The inauguration in 1961, of the National Promotion Program, which is not provided for in the Plan and has been administered more or less as an autonomous experimental institution outside ordinary Government activity, was obviously a reflection of t;he need to try to find a more positive soalution to the unemployment Iroblem than anything envisaged in the Plan. Seemingly successful in 1962, the scheme has now obtained sufficient im- portance to be institutionalized by the provisions of the new Constitution and is to be coordinated with future planning efforts.

132. The Government seems to have taken the shortfall in the fulfill- ment of the Plan into consideration recently. In addition to the creation of the above-mentioned Council for coordination of the development effort, and institution of the National Promotion Program, arrangements were made in early 1963, to coordinate the activities of BEPI, BRP1IM and OCP by designating the director-general of OCP as coordinator of these three major state agencies concerned with productive investment. The importance of faster growth in agricultire has been realized and is reflected by larger budget provisions for this sector; the King has also recently proclaimed that agricultural development will henceforth be of primary concern in national development. The budget for 1963 also takes into account the actual experience of the earlier years with respect to shortfalls in the anticipated mobilizatior. of internal resources, public saving, and foreign private investment, and places even heavier reliance on foreign aid than before. IV. LONG-TIRM PROSPECTS PSD CGREDI74ORTHINESS

133. The future rate of growth of the Moroccan economy will depend primarily upon how well and how fast the country's economic potential, which is considerable, is put to effective use. This is of course to a large extent a political matter, involving the country's capability to decide on priorities, give direction to the economy, and to carry through with the measures necessary to mobilize administrative capacity and tech- nical skills, on the one hand, and financial resources, domestic and foreign, on the other. But it is also a matter of motivation and esprit, to evoke a general aspiration for and belief in development, to modify customs and transform traditions inhibiting development. Two thirds of the Moroccan population are still directly dependent upon traditional subsistence agriculture using ancient techniques of cultivation for their livelihood; about 90% of the population is still illiterate. The neces- sity of communicating new ideas and the spirit of change past this barrier has been recognized by the Government in its development policies.

134. The planning and administrative structure of government has not been organized to keep the development plan under review and abreast of the changing conditions of the economy and to coordinate the resources, powers, and channels at the disposal of the government to execute the Plan. It may be that the new Council for hational Promotion and the Plan will have the power to keep the Plan under constant review and to coor- dinate Plan implementation. Development policy has involved taxation reforms with the purpose of promoting private investments, reorganization and establishment tf new agricultural and industrial development and credit institutions, increased public support for agricultural development in recent years (especially in the 1963 budget), and expansion of education, primarily primary education. The unemployment problem has been tackled with a large-scale program of public Torks, directly supported by foreign aid. MIeasures have been taken to afford all children reaching six years of age the opportunity of a five-year prirmary school education, with univer- sal primary education as the goal. Some initial steps have been taken with respect to adult education. Much remains to be done, however, in secondary, technical, vocational, professional, and teacher-training education; in agricultural extension and demonstration work and land reform; etc. Although individual policies adopted appear appropriate, the coordination of the measures taken to effectuate them has left much to be desired; and the weaknesses in the administrative structure and the gap in staffing of key agencies, e.g. O1NI and ONMR, have also hampered the execution of development policies.

135. There has beeh a tendency of the Government to play an increasing role in the economy through government regulations and controls, and through expanding government participation in productive sectors of the economy. This tendency may serve to increase the level of investment and to promote but it may also tend to discourage private investment and inhibit new initiatives, especially by overseas investors. A centralized economy with significant public participation requires a well-staffed - 48 - and well-trained public administration in order not to become a brake on development. At present the country's administrative capacity, notwith- standing significant increases in the size of the public service, still lacks middle and upper grade administrative management and technical personnel and still is supported to an important degree by many foreign technicians, main- ly French. (See Appehdix A on Development of Human Re3ources.) Thus the administrative capacity does not appear equal to the development ambitions of the Government. On both capital and recurrent budgets underspending has been a constant phenomenon; often it appears because of the lack of staff to prepare, initiate, supervise, and carry-through to completion the complex of projects. The existing and planned in-work training of Moroc- cans in public and private service should gradually increase the adminis- trative capability of the country. The policy ol l oroccanization not- withstanding, the Government seems prepared to continue for some time to utilize the services where needed of foreign technicians, advisers and teachers.

136. It is now obvious that the Plan will fall far short of its ob- jectives partly because the private investment envisaged by the Plan has not been forthcoming. Public investment, on the other hand, although it has fallen short of Plan goals, has come closer to the levels budgeted. Since many public facilities already are underutilized it is highly im- portant to change the pattern of investment with more devoted to the commodity-producing sectors. The Government has chosen to promote pro- ductive investments in two ways. One is the recent promotion of private irrestments with the help of taxation reforms and subsidiesz earlier reforms seem to have ha,d some success. The other is direct or indirect Government participation in productive investments.

137. I;orocco's domestic resource mobilization measured on one hand by the revenues raised by the public sector equal to about 17% of GNP, and on the other hand by a private savings ratio of around 11% should be sufficient to support a much higher investment ratio than the average 10% during the past few years, of which actually at least 2% have been financed from foreign sources. However, recurrent public expenditures have risen rapidly and have since 1960 exceeded public revenues. Public savings have thus be- come increasingly negative. The public sector has actually financed about 50% of its capital expenditure from foreign aid and 50% from Treasury borrowing within the country, up to now primarily of a non-inflationary kind. Private domestic saving has since independence exceeded private domestic investment. The excess saving has partly been channeled to the public sector, but a varying and comparatively large portion has been exported. Rising private investments during 1959-61 have tended to absorb more and more of private savings. The Treasury had increasing difficulty in 1961 and 1962 in financing its deficit from non-inflationary domestic sources; some inflationary pressure has begun to develop. The 1963 budget deficit of DH 900 million is planned to be financed by DH 550 million from foreign aid and by DH 350 million from domestic sources, almost twice the amount raised by the public sector within the country during any other year. If the Government at the same time is successful in promoting domestic pri- vate investment, there will obviously be more demand for capital than the domestic market Ls likely to be able to supply - unless the domestic savings ratio is sharply raised in accordance with the Plan estimates. - 49 -

138. It is obviously not possible to measure the benefit to the country of various public expenditures in an objective and meaningful economic sense. Comparisons with other countries regarding proportions of GNP spent by the Central Government show that i'Iorocco's spending of about 21% of GNP (in 1961) is comparatively high. The trend has been towards a higher proportion ever since independence when it was 15%. Bublic consumption (excluding transfers, etc.) has doubled its share of GNP during the last ten years. Central Government recurrent expenditures were rising faster than capital expenditures up to 1962 when they accounted for 80% of the total budget. The 1963 budget shows, however, something of an alteration in this trend. Such a division of expenditures is of course somewhat misleading, as not all investment expenditures are important to development, while some re- current expenditures are obviously of importance for development, as for instance maintenance of public infrastructure and recurrent expenditures for education, two expanding items. Some recurrent expenditures have, however, less economic importance, as the 25% spent on defense or the in- crease in the number of temporary employees in the public administration for social reasons.

139. Moroccan development is bound to be dependent upon a number of key external factors. The direction that Morocco's relations with France and the Common Market generally take over the next 3 or L years will be of major importance to Morocco's export trade. The projected growth of 6.5% a year in exports in the Plan, although consistent with other Plan projections, calls for a growth in exports about twice as high as the rate achieved over tho last 10 years. Another source of income to Morocco, which during the periud 1°55-60, more than offset the deficit on the trade balance, has been foreign government expenditures, mainly on military installations. These expenditures have been falling from a high of $253 million in 1956, and are expected to continue falling until remaining U.S. bases are fully evacuated by the end of 1963. Morocco may still receive an estimated income of$Lb million annually after that date, deriving from civil expenditures of foreign governments in Morocco. It is also becoming increasingly evident that the Government is planning to finance a rising proportion of its capital and re- current expenditures with the help of foreign aid. Foreign aid - mainly from France and the United States - is expected to continue at a rather steady rate. U.S. aid can be expected to taper off some from the 1962 high, but French aid disbursements should pick up if aid under the new one- year aid agreemient of July 1962 is drawn down and renewed as now appears likely in 1963 and thereafter.

140. Manocco's external debt is not uncomfortably high and foreign exchange reserves are at a satisfactory level. The foreign debt service ratio arw stands at 6% of export earnings, before any draw down on the recent IBRD $15 million loan in December 1962. One reason Morocco's debt service ratio is no higher is that much of its aid has been and is being extended on highly favorable terms. Morocco should be able to service a reasonable amount of additional debt on conventional terms. Present export prospects, however, would not enable Morocco to increase its borrowing on conventional terms enough to keep pace with its needs for foreign aid without a rise in the debt service ratio. If Morocco is to have a margin for - 50 - foreign private investment care must be taken so that the debt service ratio does not climb too high. Thus, although at present creditworthy to service additional debt on conventional terms, Morocco may in the future require a reasonable amount of aid on non-conventional terms. The latter contingency, however, may not arise if Morocco should be able to settle its outstanding debt to France on favorable terms as part of the series of Franco-Moroccan negotiations which had an auspicious opening in 1962, leading to the resumption of French aid to Morocco in July after an interlude of 5 years.