MOROCCO ECONOMIC HIGHLIGHTS

UNCLAS SECTION 01 OF 02 RABAT 000880

SIPDIS

SIPDIS

DEPT FOR NEA/MAG, NEA/ OFI, AND INL/AAE
DEPT ALSO FOR EB/TPP AND EB/IFD
STATE PASS USTR FOR D. BELL
STATE PASS USAID FOR J. RAGLAND
USDOV FOR ITA/MAC/ANESA
USDOL FOR ILAB
PARIS FOR ZEYA
LONDON FOR TSOU
ROME FOR ROSE

E.O. 12958: N/A
TAGS: ECON ETRD ENRG EFIN EAGR KIPR KTEX MO
SUBJECT: MOROCCO ECONOMIC HIGHLIGHTS

-Hu Emphasizes Economic/Commercial Ties on Three-Day Visit
-Royal Conglomerate interest in Jorf Lasfar
-Privatization Resumes: State Tea and Sugar Company
-FTA: ISP-Liability Laws Adopted "in Haste"
-Casablanca Exchange - Running with the Bulls
-Contraband Wheat Seized

Hu Emphasizes Economic/Commercial Ties on Three-Day Visit
-------------- --------------


1. Economic and commercial issues dominated Chinese
President Hu Jiantao's April 23-25 visit to Morocco - his
first stop on a three country Africa tour following his
trips to Washington and Riyadh. Responding to Moroccan
fears of China's domination of manufactured exports,
particularly the textile and garment sector (evidenced by a
surge of Chinese imports into Morocco),Chinese officials
agreed to establish joint ventures in Morocco to produce
Chinese manufactures with Moroccan labor (including
textiles) for export to Europe and Africa (but notably, not
to the United States under the newly implemented FTA).
Seven cooperative agreements were signed, including accords
on tourism promotion, public health, cultural exchange,
infrastructure, and scientific and technological research.
The Chinese also agreed to provide up to $500 million for
investment in infrastructure projects. An agreement for the
purchase of 800 thousand tons phosphate-based fertilizer (a
major Moroccan export) in 2007 through 2011 was also
concluded. China and Morocco also agreed to establish a
joint venture to produce phosphoric acid. Bilateral Sino-
Moroccan trade is about $1.48 billion or 50 percent more
than U.S.-Moroccan trade. However, in contrast, the balance
heavily favors China ($1.2 billion in exports, accounting
for five percent of Moroccan imports). China- Morocco trade
grew 28.2 percent in 2005, slightly more than the 25 percent
average annual rate of increase over e last several years.

Royal Conglomerate interest in Jorf Lasfar
--------------


2. Emboffs have learned that the royally-controlled
conglomerate ONA is in negotiations with Swedish-Swiss
engineering firm ABB to assume its stake in the coal-fired
Jorf Lasfar electricity generation facility joint venture
with Michigan-based CMS Energy. Jorf Lasfar - which
provides about 60 percent of Morocco's electricity (a demand
that is growing eight percent annually) - has a long term
concession to provide electricity at fixed rates through

2027. ABB has been seeking to exit the project for many
years, but CMS remains committed to its largest overseas
investment (and one of the largest U.S. investments on the
African continent). On April 23, ONA announced publicly its
intention to invest in electricity generation, an
unsurprising development in light of the GOM's plans to
liberalize the generation and distribution of electricity,
perhaps as early as 2007.

Privatization Resumes: State Tea and Sugar Company
-------------- --------------


3. After a pause of several months, the GOM has resumed
privatizing state companies. The state privatized the state
sugar and tea trading company (Somathes),issuing over 3.75
million shares, each nominally valued at DH 100 (about $11).
The trading company was created with the commercialization

RABAT 00000880 002 OF 002


in 2004 of the National Office of Tea and Sugar that had
held a 35 year monopoly on the importation and distribution
of green tea and sugar - staples of Moroccan consumption.
(In fact, Morocco reportedly boasts the world's highest per
capita sugar consumption.) The Somathes privatization
brings total privatization receipts from the sale of 70
state companies over the last several years to more than 77
billion Dirham (about $8.5 billion). Informal indications
are that the state ferry company Comanav will be one of the
next put on the block. Government officials say that 81.2
percent of investors in privatized firms are foreign (75.2
percent French, 9.4 percent Spanish, and 5.5 percent Saudi
Arabian) and about 18 percent are Moroccan.

FTA: ISP-Liability Laws Adopted "in Haste"
--------------


4. In an early backlash to FTA implementation, Moroccan
information technology experts have publicly criticized the
GOM's "hasty" adoption of internet-related IPR laws in
December 2005. The laws were adopted to bring Morocco into
compliance with FTA provisions, enabling the agreement to
come into force in January 2006. Attacking government
officials for rushing the laws through parliamentary process
at the behest of U.S. negotiators without sufficient
consultation with industry, Moroccan ISP providers and other
IT executives note their concern that Morocco has adopted
and will impose new and untested penalties for internet-
based piracy on the industry.

Casablanca Exchange - Running with the Bulls
--------------


5. On April 28, following a bullish April, the Masi
(Casablanca Stock Exchange Index) passed the psychologically
important 8000 point mark for the first time since the Masi
was created in January 2002. The Casablanca exchange rose
10 percent in April alone. Added to moderate growth in
February and March and a 20 percent rise in January, the
Casablanca exchange has enjoyed 46 percent annual growth.
Capitalization of the Casablanca exchange has reached 370
billion Dirham (about $40 billion or 80 percent of Moroccan
GDP).


Contraband Wheat Seized
--------------


6. Moroccan Customs "mobile enforcement teams" seized 80
tons of contraband wheat smuggled by truck from Algeria.
The seizure of six vehicles and their cargo occurred 50
kilometers south of the northeastern Mediterranean port of
Nador. While it is surprising to smuggle such a low value
commodity in such small amounts, some of Morocco's
persistent and recurrent sanitary and phytosanitary problems
are attributed to widespread illicit cross border animal and
commodity trade.



RILEY