AMBASSADOR MEETS WITH ROYAL ADVISOR AZOULAY

UNCLAS SECTION 01 OF 02 RABAT 000197

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TAGS: ECON EINV MO KMCC
SUBJECT: AMBASSADOR MEETS WITH ROYAL ADVISOR AZOULAY

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1. (SBU) Summary: On January 20, the Ambassador spent
over one hour exchanging views on economic development and
promoting investment in Morocco with Royal Palace Advisor
Andre Azoulay during a courtesy call to Azoulay's office.
The typically subdued Azoulay was animated and energized
during discussions of Morocco's participation the Millennium
Challenge Account (MCA). Azoulay and the Ambassador
exchanged views on investors' positive responses and
reactions to Morocco's business climate and to Government of
Morocco (GOM) measures, which include liberalization
policies, incentives, and negotiation of the soon to be
implemented U.S.-Morocco Free Trade Agreement (FTA).
Specifically Azoulay and the Ambassador discussed the film
industry, textiles sector, and political risk insurance.
The two also exchanged views on the lessons unsuccessful GOM
housing projects. End Summary.


MCA


2. (SBU) After the Ambassador reviewed the details of the
MCA and explained Morocco's eligibility, an energized and
animated Azoulay enthusiastically embraced the concept,
expressing appreciation that the USG was taking concrete
actions - first the FTA, now MCA -- consistent with its
commitments to support and promote reform in Morocco and the
region. The Ambassador encouraged Azoulay to press palace
colleagues and the GOM to make progress on establishing an
MCA steering committee and taking steps to propose elements
of an MCA compact. During a broad discussion of possible
uses for MCA funds as part of a broad development and reform
strategy, Azoulay and the Ambassador discussed the
possibility of using MCA funds to back Morocco-specific
"political risk" insurance for U.S. and other foreign
investors as a way to encourage increased foreign direct
investment. Azoulay told the Ambassador he would travel to
Davos for the World Economic Forum meeting and would seek
out MCC CEO Paul Applegarth there to share his ideas and
exchange views on Morocco's compact.

FILM INDUSTRY


3. Azoulay outlined GOM incentives for the foreign film
industry. In contrast to other countries that give direct
cash incentives, hoping the studios will spend even more
during their stays in country, Azoulay explained, Morocco
provides a package of cost saving measures to film companies
who wish to use the geographically rich and diverse kingdom
as a location. In addition to a "virtually tax free"
environment, the GOM provides government sites rent-free,
provides transportation and makes national security
personnel and soldiers available to the production teams.
Ouarzazate - Morocco's cinema capital in the anti-Atlas -
boasts world class sets, an increasing pool of skilled
workers, and logistical support. Dino De Laurentis has
developed a modern sound studio there (recently inaugurated
by King Mohammed VI). Plus, Azoulay underscored, Morocco
never charges for use of specific locations - be they
seaside resorts, mountains or desert. (Comment: That U.S.
and European studios continue to choose Morocco as a
location indicates the strategy is working. Studio
officials remark to emboffs on the ease of obtaining permits
and appreciate the access to GOM leaders. Azoulay is an
active and ardent supporter of cultural activities in
Morocco, particularly of the annual film festival in
Marrakech and the world-famous Gnaoua music festival in his
family's hometown, Essaouira.)

TEXTILES


4. (SBU) Turning to manufacturing investments, the
Ambassador noted that after researching more than a dozen
locations, including China, Fruit of the Loom (FOTL) had
decided to invest USD 100 million to expand its operations
in Morocco, creating up to 500 new jobs (and pumping at
least USD 15 million annually into the local economy). FOTL
also plans to implement worker training programs and to
participate in and contribute to GOM vocational training
programs. Azoulay and the Ambassador discussed that
although Moroccan labor is not the least expensive, many
other considerations tipped the scales, including worker
productivity, affordable, reliable electricity, water, and
fuel, modern transportation and port facilities (including
the new Tangier Med-Port),and proximity to the European
market. The Ambassador noted that FOTL officials were also
impressed by their access to the Prime Minister and other
GOM decision-makers. They were pleased to have been able to
negotiate duty free import of capital goods and machinery.
FOTL officials had told the Ambassador that the FTA's
textile/garment market access provisions had also played a
role in the decision. Azoulay concurred, saying that FOTL
as well as ST Microelectronics - a foreign owned producer of
microchips that has decided to invest USD 325 million - are
examples of companies already operating in Morocco that
understand the advantages the kingdom offers.

HOUSING PROJECTS


5. (SBU) The Ambassador and Azoulay discussed lessons
learned from failed GOM housing and resettlement projects.
They expressed concern that the GOM had created unintended
animosity and given potential fodder to extremists when in
order to resettle slum-dwellers living on a garbage dump, it
built new public housing apartment complexes (in one case
next to an empty "industrial zone.") The families that had
once lived free of charge in shanties, tapping into
electricity and water illegally, now must pay monthly
mortgage (however low) plus utility bills. The residents of
the new housing projects are far from their old informal
employment, but no new jobs are available and no vocational
training has been provided. While the slum was
"unfortunate," extremist groups can and do set blame for the
situation in the GOM housing scheme squarely at the feet of
the government. The Ambassador suggested the GOM consider
new ways of tackling the "bidonville" slum question before
it floats proposals to the MCA.