176854 11/5/2008 13:26 08CASABLANCA209 Consulate Casablanca UNCLASSIFIED VZCZCXRO3745 RR RUEHTRO DE RUEHCL #0209/01 3101326 ZNR UUUUU ZZH R 051326Z NOV 08 FM AMCONSUL CASABLANCA TO RUEHC/SECSTATE WASHDC 8188 INFO RUEHAS/AMEMBASSY ALGIERS 3003 RUEHBM/AMEMBASSY BUCHAREST 0051 RUEHMD/AMEMBASSY MADRID 3827 RUEHFR/AMEMBASSY PARIS 0666 RUEHRB/AMEMBASSY RABAT 8440 RUEHTRO/AMEMBASSY TRIPOLI 0025 RUEHTU/AMEMBASSY TUNIS 2125 UNCLAS SECTION 01 OF 02 CASABLANCA 000209
FOR STATE NEA/MAG STATE PLS PASS TO COMMERCE FOR NATHANIEL MASON STATE PASS TO USTR FOR BURKHEAD
E.O. 12958: N/A TAGS: ECON, EIND, PGOV, PREL, AMCHAMS, MO SUBJECT: OFFSHORING - MOROCCO,S COMPARATIVE ADVANTAGE
1. (SBU) Building on its natural advantage of both geographic and linguistic proximity to Europe, the "offshoring plank" of Morocco,s "Emergence" strategy has succeeded in making the country a premier destination for European firms seeking to shift their operations offshore. Beyond language, geography, and culture, Morocco has benefited from its state-of-the-art infrastructure, and a liberalized telecom sector, to become one of the top five destinations in the world for the relocation of a company,s business processes. Nevertheless, to maintain its comparative advantage, Morocco must address two major challenges: the lack of skilled labor and increasing competition from Eastern Europe. End Summary.
Job and Wealth Creation Strategy
2. (SBU) Offshoring, defined as the relocation of a company,s business processes, is playing an increasingly important role in Morocco,s economy. A central part of the government,s "Emergence" strategy (an effort to diversify the economy and raise productivity) focuses on creating offshoring hubs in major urban centers including Casablanca and Rabat. A number of these are being financed by the Caisse de Depot et de Gestion (CDG), which manages Morocco,s pension fund. It plans to invest 2 billion USD in building four high tech offshoring facilities in Casablanca, Rabat, Fes, and Marrakesh, as part of its long-term strategy to create jobs and generate return on its capital.
3. (SBU) On October 22, NEA Maghreb Office Director Williams and EconOff visited Casablanca,s 550 USD million offshoring facility, Casablanca Nearshore Park (CNP). The Director General of CNP, Mohamed Lasry, explained Morocco,s long-term plans in this area and discussed existing and potential areas of cooperation between Morocco and the U.S., notably in the field of information technology. As an example of this collaboration, he said Dell has established helpdesks in Morocco to assist its French and Spanish clientele with technical problems, creating some 1,500 jobs.
4. (SBU) Although offshoring has clear benefits for the Moroccan economy, leaders in the field disagree about its long-term financial impact. On the one hand, Lasry told us that CNP would produce 26,000 jobs and generate over USD one billion in revenues by 2012. On the other hand, the Finance Ministry estimates that offshoring will create 9,100 jobs and contribute about USD 1.7 billion by 2015. Nevertheless, one thing is clear; offshoring is an important component of Morocco,s long-term economic development.
Morocco,s Comparative Advantage
5. (SBU) Morocco,s comparative advantage in the offshoring sector is four-fold. The first advantage is its geographic proximity to the European market. Second, Morocco,s labor force is multilingual, namely in French, Arabic and Spanish. The third asset is its state-of-the-art offshoring infrastructure. Finally, Morocco,s growing telecom sector is liberalized and modern.
6. (SBU) A clear example of Morocco,s unique position in offshoring is found in the latter sector. Morocco has already attracted close to half of Europe,s Francophone call centers and is highly competitive in the Spanish market. Moreover, the number of call centers in Morocco increased from 50 in 2004 to an estimated 200 in 2008, employing 18,000 people.
7. (SBU) Morocco has developed a successful fiscal incentive scheme to attract offshoring clientele to its facilities. The
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incentives at CNP include a corporate tax holiday during the first five years of business and 17.5 percent thereafter; telecommunication costs that are set at 35 percent below the market price; and training grants of up to USD 7,000 for each Moroccan employee during the first three years of employment. With 100 percent of the office space rented to multi-national companies, the incentives have proven to be effective in attracting corporations like Tata, Nestle and Accenture.
Obstacles in Maintaining Competitiveness
8. (SBU) Challenges remain, however. Chief among them is a lack of skilled labor. Morocco,s education strategy "Vision 2010" seeks to train 10,000 engineers by 2010, but will likely fall well short of its objective. A leading business paper recently estimated that only 4,200 engineers would enter the workforce by that date. Other skills are in similarly short supply: a McKinsey consultant who tracks offshoring recently told us that the future of the sector depends on whether Morocco can increase the supply of skilled labor. Some steps have already been undertaken: the offshoring facility in Rabat, for instance, will include a technical university to train individuals with the necessary skills to be competitive in labor force.
9. (SBU) The second challenge is increasing competition from Eastern Europe, which offers cheaper white-collar labor. Salaries for engineers in Romania, for instance, can be as low as one-third the Moroccan level. Already, some Moroccan-based companies are recruiting in Eastern Europe to fill positions. Many middle managers at companies in the Tangier-Med zone, for instance, have come from Romania and elsewhere in Eastern Europe.
10. (SBU) As one of the key pillars of the "Emergence" strategy, offshoring figures prominently in Morocco,s efforts to create a modern and outward-looking services sector. Hard-won success is at risk, however, until the government is able to implement the education reforms that will enable Moroccan schools to assure the supply of highly-skilled labor the sector requires. End Comment. MILLARD