Over the past few years, Morocco has established itself as a leading manufacturing hub for automobiles in Africa, surpassing South Africa as the biggest exporter of passenger cars on the continent. The North African country is well-placed geographically as well as economically (thanks to the African Continent Free Trade Agreement) to export cars to European markets, especially France, Spain, Germany, and Italy. While the market continues to grow and gain importance among auto manufacturers, it is to be seen if it can disrupt Asian auto manufacturing hubs in the future.
With the capacity to produce over 700,000 vehicles per year and employing about 220,000 people in the sector, Morocco has gained mass appeal as a leading automotive manufacturing hub in the African region. Several international auto manufacturers, such as Renault, Peugeot, and Volkswagen have set up units in Morocco and have been growing their exports from the market. The Moroccan government signed 25 separate trade agreements with several auto and auto parts manufacturers across the EU and the USA and this is estimated to drive the Moroccan automobile market to be worth US$22 billion by 2026. Moreover, the government has stated that it wants to reach a production capacity of 1 million vehicles by 2025.
Investments
Several companies have established presence in Morocco as a cost-effective gateway to the European markets, the largest of them in terms of production numbers being Renault. Renault was the first global auto manufacturer to enter Morocco in 2012 and has plants in Tangier and Somaca (Casablanca). The plants have a respective capacity of about 400,000 vehicles and 85,000 vehicles annually. The automaker has already exported more than 1 million vehicles from its Morocco plants and has further signed agreements with the Moroccan government to expand auto production in the country.
French automaker Peugeot (Group PSA) is another major automobile manufacturer in this country. In 2019, Peugeot opened a US$600 million plant in Kenitra, north of Rabat, which produces the Peugeot 208 at a capacity of 200,000 vehicles annually.
Other carmakers operating in Morocco include Volkswagen, which shut down its plant in Algeria in 2019 and moved it to Morocco. In a similar move, in 2021, Korean automobile giant, Hyundai, decided to suspend its production in Algeria and move it to Morocco, cementing Morocco’s position as the go-to manufacturing hub for automobiles in North Africa.
In addition to the presence of several leading car manufacturers, the country also houses a large number of parts manufacturers and has successfully leveraged backward integration. An American player, Lear, operates 11 production sites here for the production of automotive seating and electrical systems. Similarly, Chinese aluminum automotive parts manufacturer, Citic Dicastal, set up two plants in the Kentira region for the production of six million aluminum rims annually that it aims to supply to the Peugeot plant. In addition, auto part companies such as France-based Valeo, US-based Varroc Lighting Systems, and Japan-based Yazaki and Sumitomo also established presence in Morocco.
Morocco’s Auto Industry Is in Full Gear by EOS Intelligence
Apart from large international parts manufacturers, the country also houses several local players that support and provide parts to the automobile giants. The government has been promoting partnering with local suppliers to provide a boost to the domestic industry. In 2021, Morocco’s leading automobile manufacturer, Renault, entered into a strategic agreement with the government to increase local sourcing to US$2.9 billion by 2025 (from 2023 forecast of US$1.7 billion) and increase local integration to 80%, up from 2023 forecast of 65%.
While Morocco continues to cement its place as a leading auto manufacturing hub in Africa, it is simultaneously aiming to position itself as a preferred hub for EV and EV component production. In 2017, the government signed a deal with a Chinese electric automobile manufacturer, BYD Auto, to build a new plant in the Tangier region. The plant will be spread over 50-hectare and will employ about 2,500 personnel. However, its opening is facing delays and no date of completion has been announced yet.
In October 2021, a leading EV manufacturer, Tesla, deployed its first two supercharger stations in Morocco, marking its first foray into the African continent. While the EV giant has not announced its formal entry to the market yet, usually deploying supercharging stations and service centers has been its first step in entering a market.
In addition to this, in 2021, STMicroelectronics, an EV chip producer announced that it was set to open a new Tesla-dedicated EV chip production line at its facility in Bouskoura, Morocco, following a win of a contract with Tesla. Following this, STMicroelectronics also signed a strategic cooperation agreement with Renault to supply electric and hybrid vehicle advanced semiconductors for Renault’s Dacia Spring EVs range, starting 2026. While currently the Dacia Spring EV model is produced in China, chip production in Morocco raises prospects of the current electric model or any future models to be manufactured in Morocco, especially for the European market. This places Morocco in a strategic position to also become a leader in EV manufacturing in the African subcontinent.
Government initiative
While Morocco has a strong geographic advantage, given its proximity to several European countries that makes it an ideal export market, political stability is another factor contributing to the sectors growth. The Moroccan government offers a single window outlet at its Ministry of Industry and Trade, which makes it much easier for international players to do business as compared with other countries that are more bureaucratic and complex in their dealings. Moreover, the government is known to be consistent with their policies, which is critical for auto manufacturers looking to make long term investments.
The government has made tremendous efforts and investments in developing Morocco into a global auto manufacturing hub. Morocco has about 60 free trade agreements with Europe, the USA, Turkey, and the UAE, a fact that facilitates easy trade and exports.
In addition, the Moroccan government provides several tax benefits to companies setting up manufacturing units in the country. It offers zero tax for the first five years and 15% tax for the subsequent years. Moreover, it provides full exemption on value added tax and a 15-year exemption on business and occupation tax.
Apart from fiscal benefits, it has also constantly invested in infrastructure to ensure smooth operations with regards to both manufacturing and transportation. In 2015, the government allocated US$7.8 billion towards development of infrastructure including roads, airports, etc.
Moreover, in 2018, the government inaugurated the US$4 billion Al-Boraq high-speed rail line linking the two key auto manufacturing hubs, Casablanca and Tangier. The Al-Boraq line is also linked to the Tanger Med port, which is a key port for all exports to Europe. The Tanger Med port has also become the largest port in the Mediterranean region post its phase II development in 2019. The port now has a capacity of 9 million twenty-foot equivalent units, surpassing Spain’s Algeciras and Valencia ports in capacity. The development and expansion of the rail link and the ports have facilitated smooth export from Moroccan manufacturing plants to European markets.
Furthermore, the government also facilitates staff training through the creation of the Automotive Industry Training Institutes (Instituts de Formation aux Métiers de l’Industrie Automobile (IFMIA)). The training support centers address recruiting and competency development needs of companies operating in the sector. While three of the centers are managed by the Moroccan Automotive Industry and Trade Association (AMICA) at Casablanca, Kenitra, and Tangiers, the fourth center is run by Renault and is located at Renault’s Mellousa plant. The Moroccan government provided about US$10 million for the construction of the Renault training center, which has more than 5,000 students (about 4,200 of them work for Renault). This way the government provides comprehensive and all-encompassing support to the sector, which in turn is expected to permeate to the development of the local vendors and suppliers as well.
Other than this, Morocco enjoys the obvious advantage of low cost labor (although this is something common to the entire African region). The cost of labor in Morocco is about US$1.5 per hour, which is about one-fourth of that in Spain and much lower than many East European nations. Since companies such as Renault produce their entry level cars in Morocco, labor constitutes a high portion of the overall costs.
EOS Perspective
With strong political support, advantageous geographical location, and low labor costs, Morocco seems to have all the right ingredients for a booming auto industry. The sector has been witnessing exponential growth over the past few years and has already overtaken South Africa as the largest automobile manufacturer in Africa.
While the industry currently caters to the manufacturing of low cost models, it is also slowly creating a niche space for itself in the EV market, which is considered the future of the automobile sector. Moreover, the sector is creating an entire automobile ecosystem by encouraging and promoting backward integration, especially through the participation of local auto part suppliers and vendors.
There is clearly no contention that the North Africa is the leader in the automobile space in the region, however, it is still a long way before the region is a serious competitor in the global auto export market to countries such as China, India, Korea, or Mexico, which are global leaders. A lot will depend on how it manages to develop competencies beyond cheap labor and supportive policies, especially with regards to attracting premium and luxury models. While it has the potential, it will be difficult to displace leading hubs that are already competent in the space.
