2009 Index of Economic Freedom

Quick Facts

Population:

• 30.5 million

GDP (PPP):

• $119.4 billion
• 8.0% growth
• 5.0% 5-year compound annual growth
• $3915 per capita

Unemployment:

• 10.2%

Inflation (CPI):

• 2.0%

FDI Inflow:

• $2.9 billion

Morocco's economic freedom score is 57.7, making its economy the 101st freest in the 2009 Index. Its score is 2.1 points higher than last year, reflecting small increases in six of the 10 economic freedoms. Morocco is ranked 12th out of 17 countries in the Middle East/North Africa region, and its overall score is just below the world average.

Morocco's economy benefits from relatively high levels of business freedom, monetary freedom, and investment freedom. Foreign and domestic investments receive equal treatment. The small but growing financial sector is fairly well developed for the region. Simplifying the tax regime and improving the transparency of fiscal management have been major parts of the government's reform agenda in recent years. Privatization has been steady for about a decade, but the state maintains at least partial ownership across a broad spectrum of sectors, from energy to telecommunications.

Morocco scores less well in labor freedom, property rights, and freedom from corruption. The judiciary is inefficient and subject to substantial corruption and considerable political interference. Rigid labor market rules discourage employment growth; the unemployment rate hovers around 10 percent.

Background Back to the top

Morocco has the world's largest phosphate reserves, a large tourist industry, and a growing manufacturing sector, but agriculture still accounts for about 20 percent of GDP and employs roughly 40 percent of the labor force. A free trade agreement between Morocco and the United States took effect in January 2006. In 2007, economic growth slowed as a result of the rising cost of energy imports and a drought that curtailed agricultural production and prompted increased imports of wheat. Morocco is a stable constitutional monarchy. King Mohammed VI has encouraged political and economic reform, the expansion of civil rights, and the elimination of corruption.

Business Freedom 76.2 Back to the top

The overall freedom to conduct a business is relatively well protected under Morocco's regulatory environment. Starting a business takes less than half the world average of 38 days. Obtaining a business license takes less than the world average of 225 days. Bankruptcy proceedings are relatively easy and straightforward.

Trade Freedom 68.0 Back to the top

Morocco's weighted average tariff rate was 11 percent in 2006. Some prohibitive tariffs, import restrictions, services market access barriers, inconsistent and opaque government procurement, burdensome biotechnology regulations, non-transparent and inefficient customs procedures, and corruption add to the cost of trade. Ten points were deducted from Morocco's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 65.1 Back to the top

The top income tax rate is 42 percent, down from 44 percent in 2007. The top corporate tax rate is 35 percent. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 22.3 percent.

Government Size 76.5 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 28.0 percent of GDP. Social welfare programs, the public wage bill, and subsidies (rising in response to food and energy costs) have driven expenditures higher.

Monetary Freedom80.5 Back to the top

Inflation is low, averaging 2.3 percent between 2005 and 2007. Although price controls and subsidies are being phased out, the government influences prices through state-owned enterprises and utilities, including electricity; subsidizes fuel, health products, and educational supplies; and sets prices for staple commodities, including vegetable oil, sugar, flour, bread, and cereals. Ten points were deducted from Morocco's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom60.0 Back to the top

Foreign and locally owned investments are treated equally, and 100 percent foreign ownership is allowed in most sectors. There is no screening requirement. The government has set up regional investment centers to decentralize and accelerate investment-related procedures. Corruption and inadequate infrastructure are deterrents to investment. Residents and non-residents may hold foreign exchange accounts with some restrictions. Certain personal payments, transfers of interest, and travel payments are subject to approvals and requirements. Some capital transactions require government approval. Mining and ownership of agricultural land are not open to private investors.

Financial Freedom50.0 Back to the top

Morocco's financial system is fairly well developed for the region. Relatively high costs of credit discourage more dynamic entrepreneurial activity. Five major banks dominate the banking sector. Despite its intention to privatize its large holdings in several banks, the government still retains large shares in a number of them. Several state-owned specialized banks together account for 43 percent of assets. New banking legislation has been enacted since 2006 to enhance the supervisory capacity of the central bank. Capital markets are relatively well developed, and there is an ongoing campaign to increase modernization and transparency. Morocco's Casablanca Stock Exchange is one of the few regional exchanges that impose no restrictions on foreign participation.

Property Rights35.0 Back to the top

The judiciary is influenced by the king and is slow to deal with cases. It remains to be seen whether new laws protecting intellectual property rights will be enforced effectively.

Freedom From Corruption35.0 Back to the top

Corruption is perceived as significant. Morocco ranks 72nd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Corruption exists in the executive, legislative, and (especially) judicial branches of government, and foreign firms have identified it as an obstacle to doing business.

Labor Freedom30.8 Back to the top

Morocco's restrictive labor regulations hinder employment and productivity growth. The non-salary cost of employing a worker is high, and the difficulty of laying off a worker creates a disincentive for additional hiring.