MOROCCO, INDIA, PHOSPHATES AND BEYOND

C O N F I D E N T I A L SECTION 01 OF 03 CASABLANCA 000010 SIPDIS STATE FOR NEA/MAG STATE PLS PASS TO COMMERCE FOR NATHANIEL MASON E.O. 12958: DECL: 01/07/2019 TAGS: AG AMCHAMS ECON EIND ETRD MNUC MO PGOV PREL SUBJECT: MOROCCO, INDIA, PHOSPHATES AND BEYOND REF: 07 RABAT 1657 CASABLANCA 00000010 001.3 OF 003 Classified By: CG Elisabeth Millard for reasons 1.4 (b),(d). ¶1. (SBU) Summary: Morocco exports about 50 percent of its production of phosphoric acid to India, a dual-use item used extensively to produce fertilizer for the country's agricultural sector and a potential source for uranium. The value of Morocco's exports to India totaled USD 1.4 billion in the first ten months of 2008. To secure and increase its stake with Morocco's National Phosphate Office (OCP),India has implemented a three-pronged approach, which entails pursuing long-term mining and exploration contracts, joint ventures with OCP,s phosphoric acid facilities, and neutrality on the Western Sahara issue. While 99 percent of Morocco,s exports to India are linked to the phosphate business, India's interest in Morocco is increasingly extending to other industries like the outsourcing and automobile sector. End Summary. -------------- India's Demand for Phosphates -------------- ¶2. (SBU) India imports 50 percent of the world's production of phosphoric acid, a product used extensively to produce fertilizer for the country's agricultural sector. According to Indian diplomats here, India is increasingly looking to Morocco to meet its phosphate needs in light of its rising demand for fertilizer. (Note: Morocco holds about three-quarters of the world,s reserve of phosphates and is the largest exporter of phosphate rock and phosphate derivatives, with about 38 percent of the overall world market in those products. End Note.) Morocco exports about 50 percent of its phosphoric acid and about 22 percent of its rock phosphate to India, making the subcontinent Morocco's largest phosphate customer. The value of Morocco's exports to India totaled USD 1.4 billion in the first ten months of 2008, a significant increase from USD 560 million in 2007. (Note: The price of phosphate increased from a median of USD 100 per rock ton in 2007 to a high of USD 400 per rock ton in ¶2008. End Note.) -------------- Morocco-India Trade: Phosphates and Beyond -------------- ¶3. (SBU) From 2001 to 2007, bilateral trade between Morocco and India doubled to USD 880 million. During this period, Indian exports to Morocco rose more than five-fold to USD 320 million, while Morocco's exports to India increased by over USD 300 million reaching USD 560 million. Indian commercial officials at the Embassy here told us that total bilateral trade in 2008 was expected to reach USD 1.9 billion, marking a 125 percent increase in a single year. While much of the growth is due to Morocco,s export of phosphates, India,s interest in Morocco is increasingly extending to other sectors. ¶4. (SBU) In particular, Tata Group's joint venture with Morocco's National Phosphate Office (OCP) has opened the doors to other business opportunities in the outsourcing and automobile sectors. Indian outsourcing firms like Tata Consulting Services (TCS) and Genpact Limited have recently started to target the Francophone European market. The CEO of TCS, Mehdi Sahel, told Econof that India is looking to duplicate its IT and usiness Process Outsourcing (BPO) success with te Anglophone market, utilizing Morocco's geographic and linguistic advantages to target Francophone Europe. "Within the next 5 years Morocco can easily become the India of Africa", said Sahel. ¶5. (SBU) India's Commercial Attach in Rabat argues that "Morocco's free trade agreements with the European Union and the United States make it an ideal export platform for Indian companies seeking to enter not only the Francophone market in the north, but the sub-Saharan Africa market in the south". Within Morocco,s automobile sector, Tata Motors has a 21 percent stake in Hispano Carrocera, a company which just landed a long-term contract to outfit 800 urban buses in CASABLANCA 00000010 002.3 OF 003 Casablanca. In addition, Tata Motors hopes to target Morocco,s middle class with its low priced vehicle, the Nano, in the near future. -------------- -------------- The Indian Approach to Securing Morocco's Phosphate -------------- -------------- ¶6. (C) Despite India's growing economic relations with Morocco, it must nevertheless deal with competition from other interested countries, like Indonesia and Pakistan. To secure and increase its stake with Morocco's National Phosphate office (OCP),India has developed a three-pronged approach. First, it has pursued mining and exploration contracts with OCP. During his 2008 visit to Morocco, Ram Paswan, India,s Minister of Chemicals, Fertilizer, and Steel, signed several long-term contracts with Morocco,s Phosphate Office. Meryem Chami, Staff Assistant to OCP's Managing Director, told Econoff that India was awarded a number of contracts to operate in the highly coveted Jorf Lasfer Phosphate Processing Facility Plant. Chami also said OCP is presently reviewing a proposal that would permit India's National mineral Development Corporation (NMDC) to participate in the mining of Morocco's rock phosphate. (Note: Please strictly protect this sensitive commercial information. End Note.) ¶7. (SBU) Second, India has entered into joint business ventures with OCP's phosphate processing facilities. For example, IMACID, a phosphoric acid producer in Morocco, is a joint venture created between the OCP group and two Indian firms ) Chambal Fertilizer & Chemical Limited (CFCL) of the Birla Group and Tata Chemicals Limited of the Tata Group. Moreover, the OCP group owns a 50 percent equity stake in India,s fertilizer company, Paradeep Phosphate Limited (PPL),which has a multi-year supply arrangement of rock phosphates from Morocco to India. ¶8. (SBU) Third, India has adopted a neutral stance on the Western Sahara issue. India recognized Western Sahara in 1985 but withdrew that recognition in 2000 as its phosphate cooperation with Morocco improved. This neutrality on a thorny political issue arguably makes India a more attractive economic partner for Morocco. -------------- -------------- Assessing the Benefits of Morocco's Ties to India -------------- -------------- ¶9. (SBU) India's presence in Morocco elicits mixed sentiments. On the one hand, the GOM and in particular OCP have benefited financially from its rapprochement with India. In fact, Morocco met its 2008 economic growth target in large part due to the success of phosphates' increasingly preponderant share in Moroccan exports, says Hicham Alaoui, a financial analyst at BMCE Bank. On the other hand, concerns about India,s role in Morocco loom large amongst Moroccan textile operators, who fear that, like their Chinese counterparts, Indian firms will undercut them with rock-bottom prices. On balance, India's presence in Morocco is a positive development, as reflected in the fact that Morocco enjoys a significant trade surplus with the subcontinent. As TCS,s Sahel told us, "Who would have thought! Let,s run with it!" -------------- Comment -------------- ¶10. (SBU) Bilateral trade between Morocco and India presently favors Morocco, but given the price volatility of such raw materials and their derivatives, Morocco should begin thinking about shifting its trade focus towards the service sector. Specifically, India is a world leader in IT and BPO services ) one of the key pillars of Morocco,s "Emergence" strategy, which looks to create a modern and outward looking services sector. Indian firms like TCS are poised to capitalize on Morocco,s outsourcing infrastructure and should be encouraged to do so by the GOM. CASABLANCA 00000010 003.3 OF 003 ¶11. (C) Nonproliferation considerations: The International Atomic Energy Agency places the uranium resources in Morocco's phosphate deposits at around six million tons, which corresponds to twice the world,s uranium resources. (Note: In October 2007, OCP signed an agreement with Areva, France's nuclear energy company, to launch a joint study into the feasibility of an industrial site producing uranium from phosphoric acid. End Note.) Although phosphate exported from Morocco to India reportedly is exclusively for agricultural use, it could conceivably also be a secondary source for raw uranium. We understand India's Department of Atomic Energy has facilities that can recover uranium from phosphate rock and phosphoric acid, but we have no information indicating that the Indians are processing Moroccan phosphate through this extraction process. End Comment. MILLARD