Public Disclosure Authorized KINGDOM OF MOROCCO GOVERNING TOWARDS EFFICIENCY, EQUITY, Public Disclosure Authorized EDUCATION AND ENDURANCE A Systematic Country Diagnostic June 2018 Public Disclosure Authorized Public Disclosure Authorized Contents Abstract .......................................................................................................................................... vi Acknowledgements ........................................................................................................................ vii Abbreviations ................................................................................................................................. ix Executive Summary .......................................................................................................................... x Morocco’s poverty and shared prosperity outcomes .........................................................................1 1.1. Successes in reducing poverty and promoting shared prosperity ............................................................. 1 1.1.1 Elimination of extreme poverty and poverty reduction ................................................................... 1 1.1.2 Increased shared prosperity ............................................................................................................. 4 1.1.3 Other improvements in social and human development indicators ................................................ 7 1.2. Factors behind poverty reduction and improvements in social indicators ............................................... 8 1.2.1. Morocco’s pro-poor growth performance ........................................................................................ 8 1.2.2. Investment in education, health and other social services ............................................................. 10 1.3. Challenges to further reduce poverty and boost shared prosperity ....................................................... 16 1.3.1. Reducing inequalities ...................................................................................................................... 16 1.3.2. Attenuating the sentiment of poverty ............................................................................................ 22 1.3.3. Meeting the aspirational gap .......................................................................................................... 24 1.3.4. Growing the middle class ................................................................................................................ 26 The sustainability of Morocco’s economic and social achievements ................................................. 28 2.1. Economic Sustainability ........................................................................................................................... 28 2.2. Financial sustainability ............................................................................................................................. 33 2.3. Infrastructure service delivery sustainability........................................................................................... 35 2.4. Territorial sustainability ........................................................................................................................... 39 2.5. Climate Change and Environmental Sustainability .................................................................................. 45 2.6. Social sustainability ................................................................................................................................. 49 Factors constraining Morocco’s fastest inclusive sustainable development ...................................... 53 3.1. More inclusive market institutions .......................................................................................................... 54 3.1.1. For the business environment ........................................................................................................ 54 3.1.2. For SMEs and entrepreneurship ..................................................................................................... 63 3.1.3. For labor market inclusion .............................................................................................................. 64 3.1.4. For competitiveness and diversification ......................................................................................... 70 3.2. More inclusive public governance ........................................................................................................... 77 3.2.1. In elaborating and implementing the rule of law ........................................................................... 77 3.2.2. In administrating the state .............................................................................................................. 80 3.2.3. In delivering public services ............................................................................................................ 82 3.3. More inclusive human capital formation ................................................................................................ 85 i 3.3.1. Via education .................................................................................................................................. 85 3.3.2. Via healthcare ................................................................................................................................. 88 3.3.3. Via early childhood development ................................................................................................... 91 3.4. More inclusive social capital .................................................................................................................... 92 3.4.1. For women: the agency factor ........................................................................................................ 93 3.4.2. For all citizens: the trust factor ....................................................................................................... 94 Priority pathways to sustained inclusive development .................................................................... 98 4.1. Pathway 1: Getting closer to the efficiency frontier ............................................................................. 103 4.1.1. Through competition and innovation ........................................................................................... 103 4.1.2. Through favorable business conditions and improved access to finance ..................................... 104 4.1.3. Through improved public policy formulation and coordination ................................................... 105 4.1.4. Through access to quality public services ..................................................................................... 106 4.2. Pathway 2: Leveraging the efficiency frontier ....................................................................................... 109 4.2.1. Through labor market reforms ..................................................................................................... 109 4.2.2. Through targeted social protection programs .............................................................................. 110 4.2.3. Gender Mainstreaming ................................................................................................................. 111 4.3. Pathway 3: Pushing the efficiency frontier ............................................................................................ 112 4.3.1. Via early childhood development ................................................................................................. 112 4.3.2. Through quality of education ........................................................................................................ 113 4.3.3. Through urban and territorial development ................................................................................. 115 4.4. Pathway 4: Greening the efficiency frontier.......................................................................................... 116 4.4.1. Through integrated climate adaptation and water management ................................................ 116 4.5. Governance as the overarching cross-cutting pathway ........................................................................ 118 4.5.1. Through access to information and accountability ....................................................................... 119 4.5.2. Through voice, participation and engagement ............................................................................. 120 4.5.3. Through rule of law and justice..................................................................................................... 121 Conclusion ................................................................................................................................... 123 In-depth research ......................................................................................................................... 124 Annex 1. Data diagnostics ............................................................................................................ 125 References ................................................................................................................................... 128 ii Boxes Box ES.1 Key findings of the Commission on Growth and Development ......................................................... xiv Box ES.2 Promoting youth opportunities and participation in Morocco ........................................................