Open Society Project. Part I: The Economy
My latest readings are taking over; Karl Popper’s ‘Open Society’ and LBJ’s biography are a great read. Catchy.
But seriously though; why can’t we think of a broad, far-reaching concept like the Great Society, and apply it to Morocco? The same ailments are there; poor education record, growing inequalities, racial problems do not arise, though we do have ethnicity problems- and as it turns out, Moroccans are quite racist when it comes to Sub-Saharan residents, even natives in Morocco.
Or perhaps we do have some sort of scheme. That’s called ‘The Grand Design’, a rough translation of ‘المشاريع الكبرى’: Tangier-Med seaport, a brand new highway network, and even the expected high-speed TGV Tangier-Casablanca. This is just to mention a few things the official line likes to boast about.The trouble with such policies can be summarized in two items:
– Transparency issues: I sometimes watch TV, and figures are sometimes displayed when it comes to these projects, something in the line of: ‘the project His Majesty has inaugurated yesterday in Oulad s5ar has a total cost of MAD 400 Million. The project, part of His Majesty’s Grand Design, will yield approximately 2500 jobs’. Interesting and informative, but not enough. Just so to remind the readers, this is money that has been spent on a project the taxpayer has not been consulted about, and upon which spending modalities they have little, if no say at all. I’m all for grand projects and strategic investment, but if I, tax payer, cannot have some effective mean in questioning the validity of such spending, then whatever comes next is irrelevant. My money, my voice.
Parliament and government are incompetent partly because the political establishment did not renew itself by looking at the best and brightest (but rather by recruiting fools and heirs) but mainly because they have been denied real power and ultimately responsibility before the Moroccan people. I seriously doubt someone like Abbas El Fassi would remain Istiqlal (and government) leader for very long if the party or the governing coalition was actually governing and with a popular mandate.
– Cost-Benefits analysis: such projects are usually presented to the executive (or legislative branch, whatever the ongoing political system) with failure standards, targets, cost per spending and expected profits, a razzmatazz of reports and projections that can shut down a failing project before it goes off course. Let us have a look at the Dam policy as an illustrative instnace. The one many of our citizens’ minds have been hammered with for so many years, that whenever an argument on whether Morocco is on the ‘right tracks’ our very own Godwin point is reached: “the Dams were not such a bad idea, were they?” Of course not. There are good ideas and bad ideas; Only good ideas work, and the Monarch (whether the late Hassan II or Mohamed VI) always have good ideas. The Dams’ building project was incommensurate, a symbol of Hassan II’s megalomania (like the Casablanca Mosque he built in a time of depression and structural adjustment program) that did little to prevent droughts like in 1995. The Dams French engineers and companies built were not suited for Morocco; and this national pride did very little to save small agricultural business to close down, and farmers to move to cities. It did not prevent Morocco’s main potential (agriculture) from lifting itself altogether from its dependency on rainfall. Can we say for sure that the Tangier Med seaport is going to be a success? Are we presented with documented material on the projects gains from buying a MAD 20 Billion high-speed train for Morocco?
This lengthy introduction is not another bitter attack on these investments; it is there to clarify my position on such ventures: My own perception of strategic investments is the backbone of this ambitious –somewhat pretentious- ‘Open Society’ thing. I believe that strategic investment is an important undertaking, which stakes the nation’s finances and potential on a long, if not very long term. The least we can do is to allow the broadest possible public debate on such spending. If in liberal democracies, a democratically elected government has to present the public with all guarantees the taxpayers’ money is not going to be wasted, then a semi-democratic, autocratic monarchy with a handful of technocrats nesting in the Royal Cabinet taking charge of the virtually everything definitely loses the moral argument they ‘know what’s best for the nation’. Grande Ecole graduates and McKinsey-style consultants might be bright minds (and from experience, this is rarely the case) but they lack the proper understanding of strategic thinking. And why should they be endowed with such quality? The latter are hired on missions, the former are trained to find immediate solutions. Just what the Makhzen ordered: short-term plugs for structural weaknesses.
Let us think over the Open Society on public investment: we need to address two important sectors to give us a head start in a versatile world: exports and education.
Exports are Morocco’s lifeline. According to a rating agency officer I happen to know, it is the only parameter that prevents Morocco from reaching a confirmed ‘Investment-Grade’ status: obviously, whatever investment is undertaken, or indeed any serious spending will be conditioned on the amount of foreign currency the Moroccan economy can field. Equally, foreign investors will be all the more interested in investing if our foreign currency position is strong and structurally viable. We cannot count indefinitely on Phosphate exports, or the Diaspora’s transfers, or even Tourism for funding our expenditure. We can no longer rely on cheap exports like textile (that destroy value, rather than create it) or low-tech devices (the new pride of these ‘Grand Design’ schemes). And as it is, the Royal Cabinet and the government have been ill-advised by McKinsey and other consultancy firms: How in the world did they come up with these ‘Strategic Advantages’? in fairness, the grim alternative was to get the advice of civil service expertise; A body which has been either drained of its competence or independence of mind, or indeed systematically shut down of all genuine decision-making.
As we look to the exports structure, several observations can be made:
* Agriculture and other traditional exports have a low value per exported ton: consider the 2009 export figures: Agricultural goods represent 10% of our exports and have a value of 5.915 MAD per ton.Two-thirds of our exports, the Mining industry, fare better with an average value of 11.981,1 MAD per ton, but when excluding lead, copper and iron, mining industry value averages only 8.648,72 MAD. Overall, exports in 2009 had an average value of 7075.7 MAD, and with weighted averages, about 6676,1 MAD.
* These numbers need to be compared to imports: average value for 2009 was 7232.93 MAD per ton, a weighted average of 7240,59 MAD. These computations show the differential in value between our exports and imports (mainly due to the over-reliance on low added value exports to make up for this shortfall by increasing quantities (that fail but to cover only 42 to 45% of imports)
In these conditions, how can Morocco chose sectors that can insure a good transition for strategic investment? I don’t claim expertise (not like a Consultant would do) but there’s an idea worth considering: shift efforts to the fishing industry. That encompasses fishing -as a primary sector activity- and all related activities: canned fish and other related food industry, but also shipyards. Building ships can help the industry expand beyond the scope of domestic demand and markets.
Shipyards all over the coast: We do have about 3.500 kilometres-long coastline, with about 28 significant coastal cities, out of which 8 are large enough to be equipped with such infrastructures. initial investment might be costly at first, but then it is easily offset, first by local demand for bigger and more reliable ships. And building on the experience of coastal ship, we can even consider a further step by building ships with a larger autonomy range, ships that can fish south of Mauritanian coasts, all the way down Senegal, Mali, or even on other continents –including North Europe.
Consider the fish-based flour: its value per ton is about 8.000 MAD, and all combined fishing products about 14.768,9 MAD/Ton. Ceteris Paribus, an increase of 10% in fishing exports reduces the gap in terms of added value per ton from a 7.240MAD (Imports) and 7.075,7MAD (Exports) to 7.542,1 MAD per ton. This does not bridge the trade balance deficit significantly (only about 2%, the effect of an absolute increase of 1% over these exports) but it addresses one of our structural weaknesses, i.e. the lack of high-added value in our exports; Believe it or not, an investment in fishing industry, even as a primary activity, does boost the total exported value per ton. The effect of a much bolder, much more ambitious investment in canned fishing product, shipyards and related industries and activities is bound to be more productive, with the ultimate objective to bring up Exports/Imports ratio from 45% to a more sustainable 60-70% and improve substantially our terms of trade.
Where can we find the ships then? Moroccan ports can either buy hulls for benchmarking (and these usually cost no more than a 2-3 million dollars, even less so when the ship is more than 20 years-old) or buy plans for specific ship classes. The idea is to provide our fishery industry with a brand new fleet (compared to the existing one) able to fish on our coasts, and even provide for long-range class ships. At the moment, Morocco has 2.500 boats and other ships. Instead of relying on old ships that cannot sail away from the coasts, efforts should be put in buying new ones, with a larger autonomy range. Under assumption that all the 2.500 boats have been scraped and replaced with newer, larger boats, total investment cost would match that of the High-speed train. The difference is that the new fleet can increase its yield and diversify it (by acquiring fishing rights in Mauritania or Senegal). as it is, fishing exports (a total value of MAD 15.72 Billion in 2009) can finance such investment over a short period of time (at a moderate discount rate of 4%, exports can pay for the upgrade in 5 years’ time with no significant exaction on exports revenues) and over the intermediate and longer run, generate profits in foreign currency.
Textile is the most explicit example of value destruction; following the Office des Changes figures for 2009, the synthetic textile fibre used in textile industry valued at MAD 15,855 per ton. However, value per ton for exported clothing was, for the same time period, MAD 4151,5, a differential only fur production makes up for. The idea that textile is a leading industry (as it makes up for about 19% of total exports) is a failure in view of these figures. If anything, we should move away from such heavily-subsidized industries to more productive ones. The argument about labour is irrelevant; out of the 1.267 million employed in industry, 108.000 work in the textile sector with little or no training. In the event of a booming shipyard industry (or any other booming industry) a workforce transfer would not entail much re-training, and under the condition of an unemployment benefit, wouldn’t cost more than MAD 700 Million a year for the whole employed workforce.
Other industries can be considered for possible investment, but in any case, these should meet a couple of of criteria: first, the added value per ton, net of re-export, should be positive (which is not the case for textile and outsourced services). Second, the amount of foreign currency it brings to the national economy. We need the cash to finance all the scheduled investment.
Speaking of which, the government balance sheet needs to be expanded and improved. Although I will deal with the subject in another post, the primary focus here is to increase government budget; Though it is desirable not to burden the economy with further taxes, a sensible rethinking of income and consumption taxes can actually yield money and be fairer to the less well-off. According to previous computations run on income and consumption distribution, conservative measures (upper bracket for income tax at 40%, and 20% on VAT) yield MAD 68,53 Billion, an increase of 23.% of government receipts, or a contribution to an increase of 50% in public investment. The objective is to scrap together enough resources to boost public investment to an annual expense of MAD 100 Billion on average, and sustain such expenditure over a period of at least 5 years.
Next piece will try and consider policies to make civil service more efficient and reduce bureaucracy.