Is Moroccan FDI Economic Snake Oil?

In recent years, Morocco has successfully attracted a growing flow of foreign capital, becoming the top foreign direct investment recipient in the Maghreb region (Northwest Africa), and one of the largest in the African continent.

Morocco may have charmed multinationals, but wider economic benefits have yet to materialize.

However, a new report from the African Development Bank (ADB) entitled, Does Foreign Direct Investment Improve Welfare in North African Countries?, suggests that these investments do not seem to have a major impact on a population’s quality of life.

“Overall, FDI contributes to economic growth in North Africa, which in turn generates additional revenues for governments and the population,” the report states, adding that government spending and infrastructure development tend to amplify the positive effects of foreign funds. In Morocco most investment inflows were directed toward the services and tourism industries (finance, business activities, restaurants and hotel businesses), with almost no FDI addressed to primary activities and few into manufacturing. This imbalance, the report suggests, may increase wealth inequality among Moroccans.

Adugna Lemi, associate professor, department of economics at the University of Massachusetts Boston, agrees that the presumed link between FDI targeted to the service sector and an overall improvement in the living standard, remains inconclusive at best. “This is true not only in Morocco but also in other non-resource-based African countries: expectations of FDI aimed at establishing greenfield factories that create several thousand jobs has not happened in this part of the world,” he explains.

With France, Saudi Arabia and Spain among Morocco’s largest investors—thanks to its political stability, secure economic growth and strategic geographic position—the country emerged from the turmoil of the Arab Spring as a preferred destination for many important multinational industrial conglomerates.

France, in particular, employs more than 80,000 people through subsidiaries of companies such as Renault, STMicroelectronics, Sanofi Aventis and Nestlé. More recently, the Canadian aerospace and transportation company Bombardier and the American food and beverage conglomerate Mondelz International have also opened production lines in Morocco. “Whether the positive impacts of the newly created wealth are felt nationwide,” says Lemi, “is a question for leaders of the country in designing appropriate policies.”