Economic impacts of phosphate extraction and valorization on the Moroccan economy: An input-output analysis Jamal AZIZI (PhD Student at Cerna Mines Paris-Tech, Chair: “Economics, Finance and management of commodities”) Abstract This paper aims to estimate and analyze the impact of phosphate extraction and valorization activities on the global Moroccan economy. By using an input-output framework, the study evaluate how an increase in final demand (e.g. export demand for phosphate rock or for fertilizers) of each of these industries could potentially affect the Moroccan economy. To do this, we have combined the detailed Profit and Loss (P&L) statement from OCP group, the state-owned company that has a monopoly in phosphate sector, with the latest 2014 Moroccan I-O table to bring out OCP activities and to split them into two sectors: “OCP-Mining” and “OCP chemical”. From the estimated models, we calculate several multipliers (output, income and employment) and linkage measures. Our results indicate that the OCP-chemical sector has a high production-inducing effect and a high income and employment-inducing effect compared to OCP- mining sector. The OCP-chemical sector impact on output implies that for each 1US$ sold fertilizers generate 2,61US$ in the Moroccan economy while the same amount demand for phosphate rock generate just 1,73US$. In term of income, OCP-chemical activity generate 3,11US$ for each 1US$ increase for the sector’s product while OCP-mining impact is equal to 2,25US$. In addition, the result show that OCP- chemical sector has more capacity to generate employment opportunities on a large scale compare to the OCP-mining sector. The total employment multiplier is equal to 8 man-years for OCP-chemical sector while it is about 3 man-years for OCP-mining sector. Our linkage analysis shows that OCP-chemical sector is strongly backward linked compared to OCP-mining sector that is intermediately backward linked with the others sectors of the economy. However, we note that the both OCP sectors have a low forward linkage effect. Keywords Input-output model; Output, Income and Employment multipliers; Backward and Forward linkages; OCP group; Moroccan economy 1 Summary Introduction .................................................................................................................................................................. 3 Methodology and data ................................................................................................................................................. 5 Uses Input-output analysis ..................................................................................................................................... 5 I-O table .................................................................................................................................................................... 6 Establishing the I-O table with OCP activities ................................................................................................... 6 I-O Model ................................................................................................................................................................. 7 Limits of the I-O model .......................................................................................................................................... 8 I-O techniques to estimate the impact of increased phosphate mining and valorization activities ................ 9 Multipliers ................................................................................................................................................................. 9 Output multiplier ................................................................................................................................................. 9 Income and Employment Multipliers ............................................................................................................ 10 Backward and forward linkage ............................................................................................................................. 10 Results .......................................................................................................................................................................... 10 Output multipliers .................................................................................................................................................. 10 Income multipliers ................................................................................................................................................. 12 Employment multipliers ....................................................................................................................................... 13 Backward and forward linkages analysis ............................................................................................................. 14 Conclusion ................................................................................................................................................................... 16 References .................................................................................................................................................................... 18 Appendices .................................................................................................................................................................. 20 2 Introduction Moroccan mining sector is dominated by phosphate accounting for over 90% of the sector’s total production. With about 75% of the world's estimated reserves of Phosphate Rock1, Morocco is the second larger phosphate producer and the world’s leading phosphate rock exporter, accounting for roughly one-third of world trade. Morocco is also leader in the export of phosphoric acid and fertilizers with respectively 47% and 19% of global export (IFA2, 2013). Phosphate exploration and extraction are managed exclusively by a state-owned company named OCP3 Group and valorization activity (e.g. production of Phosphoric Acid and Fertilizers) is managed mostly by OCP and with some others foreign producers in joint ventures. A brief presentation of the OCP group is reported in Appendix 1 and the detailed capacity by site, logistics and target markets of finished products are presented in Appendix 2 and Appendix 3. At national level, both extraction and valorization activities contribute significantly to the Moroccan economy. For instance, between 2009 and 2014, the phosphate and fertilizers exports represented on average 22% of the total exports (Figure 1) and contributed by 13% of the total foreign exchange earnings (Figure 2). In addition, the OCP group value added represented on average 4.4% of the national value added (Figure 3). The company directly contributed on average by 7,2% in the government revenues in term of dividends and corporate tax (Figure 4). In term of investment, OCP group started since 2010 an expansion program amounted to US$ 12billion to double mining output and triple fertilizer production by 2020. Also, the OCP group is the lager employer in morocco with a direct workforce of over 21000 employees and generate about 40000 indirect jobs through sub-contracting in the various regions (network of over 1500 local sub-contractors). This has a significant impact of employment at regional level. The OCP contributed by 35% of the total industry employment in region Doukka-Abda that located the OCP chemical activities and by 25%, 16% and 5% in the regions where the company has mining activities ( Table 1 and Figure 5). Beyond these direct macro-economic impacts, the sector has great contribution when it is integrated into the economy. This is achieved through several channels: additional revenues from industries related activities, employment generated by these activities, intermediate inputs provision from and for other sectors, research and development activities, and technology transfers. The company has therefore contributed to the services sectors like banking, assurance, financial services, transport, and logistics and amongst others. This paper aims to estimate and analyze the impact of phosphate extraction and valorization activities on the global Moroccan economy. By using an input-output methodological framework, the study evaluate how an increase in final demand to each of these industries could potentially affect the Moroccan economy. A significant advantage of utilizing input-output methodology is that the multipliers (output, income and employment) and linkage measures incorporate not only the direct effects, but also the indirect and the induced effects on the economy in response of an exogenous shock to one of the components of final demand (e.g. export demand, investment or stock variation). These detailed measures are useful for OCP group decision makers to identify an industrial target for a region or to planning a future production program. It is also useful for national policy makers and 1 According to the latest U.S. Geological Survey (2016), Phosphate rock reserves in morocco is estimated at 50 billion tonnes (world phosphate reserves is estimated at 69 billions tonnes). 2 International Fertilizer Association (www.fertilizer.org) 3 Office Chérifien des Phosphates (www.ocpgroup.ma) 3 planners who need to know in which sectors output, income and employment changes will occur. The next section discusses the application of I-O techniques to OCP mining and chemical activities. Our