VII. Investment Climate Openness to Foreign Investment The Moroccan government actively encourages foreign investment and has made a number of regulatory changes designed to improve the investment climate in recent years. It welcomes foreign participation in its privatization program. These measures have contributed to an almost five-fold increase in foreign investment over the last five years. Morocco does not have a foreign investment law per se, but rather several sectoral codes covering industry, tourism, export industries, real estate, maritime, mining and crafts. The crafts code applies only to 100 percent Moroccan-owned firms and the maritime code applies only to firms that are at least 50 percent Moroccan-owned (100 percent for coastal fishing). The other codes apply equally to foreign and Moroccan investors, except for their foreign exchange provisions which favor foreign investors. The 1973 Moroccanization law limiting foreign ownership in a number of sectors was effectively repealed in 1990 and the 1964 law limiting petroleum distribution to Moroccan-controlled firms was effectively repealed in 1993. Foreign investment is now permitted in all sectors except agricultural land and a few sectors reserved for the state (e.g., phosphate mining, air and rail transport, public utilities). The Moroccan government is considering allowing private companies to build, own and operate electrical generation facilities that would sell electricity to the state electric utility. The sectoral codes provide investment incentives, including partial or total exemption from corporate income taxes, VAT, and import duties. Some sectoral codes also provide for government financing, although such financing is rarely available in practice. The level of incentives in some sectors depends on the location of the investment. This is designed to encourage investments in less developed regions of the country. Additional incentives accrue to investments in the Tangier free trade zone and the Western Sahara. Investment screening procedures apply only when an investor requests benefits under a sectoral code. These benefits are granted once the Ministry responsible for the sector has approved the proposal. Investments valued at over USD5 million are also reviewed by the Ministry of Economic Affairs. In the case of particularly large investments, incentives in addition to those specified by the applicable sectoral code may be negotiated with the government. Morocco has gradually reduced barriers to trade over the last decade, although the level of protection remains high. In recent years the government replaced quantitative restrictions (e.g. government monopolies and import licenses) with tariffs for all but a few goods, notably cereals, sugar, edible oils, meat, dairy products and textiles. The government's stated policy is to replace many of the remaining non-tariff barriers with tariffs within the next few years. The maximum tariff rate stands at 35 percent. There is also an import surtax of 10 to 15 percent, depending on the item. There is considerable smuggling of consumer goods into Morocco. The Moroccan government does not offer direct export subsidies. There is a temporary admission scheme which allows for the suspension of duties and licensing requirements on imported inputs for export production. In addition, a government corporation provides export insurance and financing, and the Central Bank rediscounts export credits at a preferential rate. Conversion and Transfer Policies The Moroccan dirham is convertible for all current transactions and for some capital transactions, notably capital repatriation by foreign investors if the original investment is registered with the foreign exchange office. Foreign exchange is routinely available through the commercial banks on presentation of documents for the repatriation of dividends and capital by foreign investors, for remittances by foreign residents, and for payments for foreign technical assistance, royalties and licenses. No prior government approval is required. The Central Bank sets the exchange rate for the dirham against a basket of currencies of its principal trading partners. The rate against the basket has been steady since a nine percent devaluation in May 1990, with changes in the rates of individual currencies reflecting changes in cross rates. Morocco's current account has stabilized and foreign exchange reserves have grown to approximately seven month's worth of merchandise imports, making a devaluation unlikely in the foreseeable future. The U.S. Embassy purchases approximately USD20 million worth of dirhams annually at the official exchange rate. Expropriation and Compensation There have not been any significant expropriations in Morocco since the early 1970s. The Embassy is not aware of any recent instances of private property being expropriated for other than public purposes, in a non-discriminatory manner, and in accordance with established principles of international law. Dispute Settlement The few recent investment disputes involving U.S. firms have been relatively minor affairs. There is no particular pattern to the disputes, which involve disparate issues and various government agencies. Minor disputes are generally resolved with the relevant government agency, although there is a formal inter-ministerial committee charged with resolving investment disputes. The King also recently charged the Central Bank governor with helping to resolve investment disputes. Disputes can be taken to the courts, although they rarely are due to inadequacies in the Moroccan judicial system. Morocco is a member of the International Center for the Settlement of Investment Disputes. Political Violence There have been no incidents of political violence since the riots in Fez in December, 1990, when a number of installations were destroyed. While similar disturbances in any of Morocco's larger cities cannot be ruled out, there is no evidence that the country is becoming more prone to such violence. Performance Requirements/Incentives There are no foreign investor performance requirements although, as noted above, investors receive incentives from the government to pursue policies deemed desirable. Companies that export or locate in less developed regions of the country may receive tax breaks and customs exemptions. There are no requirements or incentives regarding local value added, local equity, substitution of imports or employment of Moroccan workers, although the government can take these factors into account in deciding whether to approve investments under the various sectoral codes. Right to Private Ownership and Establishment Private ownership is permitted in all but a few sectors that are specifically reserved for the state, notably public utilities, rail and air transport, and phosphate mining. Apart from these few exceptions, private entities may freely establish, acquire, and dispose of interests in business enterprises. The Embassy is not aware of any instances where private firms are significantly disadvantaged in competition with state firms in access to markets, credit, or other business operations such as licensing and supplies. The Moroccan government has embarked on a program to sell its shares in 112 firms by the end of 1995. As of April 1994, it had sold some or all of its shares in 15 entities. While the government seeks foreign interest in most of the firms, it may reserve some holdings for domestic buyers. Protection of Property Rights The legal system generally protects and facilitates acquisition and disposition of property rights, including intellectual property rights. Morocco has a relatively complete regulatory and legislative system for the protection of intellectual property. It is a member of the World Intellectual Property Organization (WIPO) and is a party to the Berne copyright, Paris industrial property, and universal copyright conventions, the Brussels Satellite Convention, and the Madrid, Nice, and Hague agreements for the protection of intellectual property. Computer software is not explicitly covered by Morocco's copyright law. A quirk dating from the era of French and Spanish protectorates requires patent and trademark applications to be filed in both Casablanca and Tangier for complete protection. While Moroccan laws are generally adequate, enforcement is lacking. Counterfeiting of clothing, luggage, and other consumer goods is not uncommon. Counterfeiting is primarily for local consumption rather than for export. Regulatory System: Laws and Procedures Morocco's economic reform program has included improvements in the regulatory environment. In particular, the liberalization of the foreign exchange allocation system, the import regime, and the financial sector have reduced the government's role in the economy. Deficiencies remain in other areas, however, such as the labor law which limits firms' ability to high and fire workers. Even in areas where the regulations are favorable on paper, there are often problems in practice. Government procedures are not always transparent, efficient, or quick. Routine permits, especially those required by local governments, can be difficult to obtain. The Moroccan legal system is often inadequate for resolving disputes, particularly those involving foreign investors. Bilateral Investment Agreements A bilateral investment treaty between the United States and Morocco took effect on May 29, 1991. The treaty stipulates that U.S. investors will be accorded status no less favorable than any other nationality; expropriation claims shall be handled promptly; and disputes may be referred to international arbitration. Similar agreements are in effect with Morocco and Germany, France, Kuwait, Sweden, the United Kingdom, and Switzerland. OPIC and other Investment Insurance Programs Morocco has had an Overseas Private Investment Corporation (OPIC) agreement since 1961. Similar agreements are in effect with the agencies of France, Sweden, the United Kingdom, and Switzerland. Morocco is also a member of the Multilateral Investment Guarantee Agency (MIGA) and the Kuwait-based Arab Investment Guarantee Organization (OAGI). Labor Unskilled labor is generally plentiful and inexpensive. Employers are free to negotiate wages and salaries, subject to the minimum wage law. The current industrial minimum wage is dh 8.8 (about 80 cents) an hour. There are, however, shortages of certain skilled workers. The Moroccan constitution gives workers the right to organize, bargain collectively and strike. There is an active trade union movement, and strikes are not uncommon. Foreign Trade Zones/Free Ports There is a free trade zone in Tangier in northwest Morocco. The zone is open to both Moroccan and foreign companies. The 65 companies located there may import goods duty free and are exempt from other taxes. The only requirement is that all local workers be paid directly in foreign exchange, which they are then obliged to exchange for dirhams at Moroccan commercial banks operating in the zone. Moroccan labor laws apply in the zone, but few, if any, firms are unionized. There is also an offshore banking law covering Tangier. Two banks -- both affiliated with major French banks -- have been established under the offshore banking law. Capital Outflow Policy In general, Moroccans cannot obtain foreign exchange for investments abroad and the government does not offer incentives to invest in other developing countries. However, several large Moroccan companies have invested abroad in recent years. In particular, the holding company ONA has invested in Europe. According to Moroccan balance of payments statistics, Moroccan investment abroad has been around USD20 - 30 million over the last few years. U.S. Major Investors Goodyear Maroc parent company: Goodyear sector: tire production number of employees: 600 Industries Marocaines Modernes parent company: Procter and Gamble sector: soaps and toiletries number of employees: 500 Coca-Cola Export Corporation parent company: The Coca-Cola Export Corporation sector: soft drink concentrate number of employees: 45 Others S.G.S. Thomson parent company: S.G.S. Thomson (France) sector: electronic components and semiconductor manufacturing number of employees: 1,600 Pechiney - MMA parent company: Pechiney (France) sector: aluminum cookware manufacturing number of employees: 1,280 Bymaro S.A. parent company: Bouygues S.A. (France) sector: civil engineering number of employees: 1,000 Renault Maroc parent company: Renault S.A. (France) sector: motor vehicle assembly number of employees: 800 C.G.E. Maroc parent company: C.G.E. (France) sector: electric cable and transformer manufacturing number of employees: 675 Polymedic parent company: Hoechst AG (Germany) sector: pharmaceutical manufacturing number of employees: 350