MOROCCO'S TEXTILE SECTOR IS IN TROUBLE

UNCLAS CASABLANCA 000014
SIPDIS

SENSITIVE

C O R R E C T E D C O P Y (ADDED SENSITIVE CAPTION)

DEPARTMENT PLEASE PASS TO USTR FOR PAUL BURKHEAD
DEPARTMENT PLEASE PASS TO COMMERCE FOR NATHANIEL MASON
STATE FOR NEA/MAG

E.O. 12958: N/A
TAGS: AMCHAMS EAID ECON EFIN ETRD MO
SUBJECT: MOROCCO'S TEXTILE SECTOR IS IN TROUBLE

REF: A. 09 RABAT 00039

B. 08 RABAT 1084


1. (SBU) Summary: With the economies of Morocco's principal
textile trading partners - France, Spain, and the United
Kingdom - slowing, the Moroccan Association of Textile and
Industries (AMITH) has sounded the alarm about prospects for
the sector, which typically constitutes a third of Moroccan
exports and the bulk of industrial employment. Morocco's
textile exports fell by 7.5 percent in the first nine months

V S A LIVE MSG
of 2008 compared to the same period in 2007, and the
Secretary General of AMITH expects this figure to easily
reach ten percent in 2009. Moroccan officials have promised
to assist the country's textile sector, but industry leaders
complain that the government's response has lacked urgency.
While the prognosis is somber, bilateral trade between the
U.S. and Morocco could benefit as Moroccan industry leaders
look to expand their export destinations. End Summary.

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Europe's Economic Slowdown Felt in the Kingdom
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2. (SBU) Morocco's textile sector is in trouble. The
economic slowdown in Europe, the destination of 92 percent of
Moroccan textiles, coupled with low cost competition from
Egypt and China, has left the industry on the ropes. Textile
exports fell by 7.5 percent in the first nine months of 2008
compared to the same period in 2007. This figure will reach
ten percent in 2009 as the economies of Morocco,s principal
textile trading partners - France, Spain, and the United
Kingdom - slow further, says Karim Tazi, Secretary General of
the Moroccan Association of Textile and Industries (AMITH).


3. (SBU) Tazi pointed out that Spanish companies like
Inditex (owner of Zara and Massimo Dutti)and Mango, who count
on Moroccan manufacturers to produce their finished apparel,
registered a 20 percent decrease in their European sales in

2008. While neither has yet announced plans to scale back its
production in Morocco, analysts see such a step as inevitable
in the second quarter of 2009. Tazi also highlighted a more
severe case in which more than half a dozen Moroccan textile
factories have already stopped production and laid off over
2,000 workers, despite efforts to manage their fixed costs
and wait out the crisis. The Ministry of Employment, however,
reported the week of January 26 that close to 50,000 jobs
were lost in the textile sector in 2008.

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Further Pressure from Regional Competitors
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4. (SBU) Industry officials note that the European slowdown
is affecting a sector that was already in difficulty as a
result of low cost competition from Egypt and China.
Kean-Francois Limantour, head of the Euro-Mediterranean
Center for Textile and Clothing Managers (CEDITH),argues one
of the prime factors of this trend is Morocco,s relatively
high cost of production. The Moroccan hourly minimum wage, he
notes, is 30 percent higher than in Tunisia and 60 percent
higher than in Egypt. A Werner International study recently
identified another competitive disadvantage: the fact that
Moroccans work an average of 1960 hours per year, due to
labor regulations, compared to 2200 in Egypt and Tunisia. As
a result, Morocco's textile productivity per year is
significantly less than its regional competitors. Egypt has
consequently increased its exports to Europe by seven percent
in the first nine months of 2008 compared to a 7.5 percent
decrease in exports from Morocco to the continent.


5. (SBU) Tazi adds that the interaction of the two factors
has had a crippling impact on Morocco's textile sector.
According to government officials, local manufactures have
been slow to raise investment, introduce new technologies,
and adapt to the new, more competitive, business environment.
The sector has pinned its hopes on the fast fashion trend,
led by Zara and Mango, in which European retailers leave
nothing in a store for more than a month, and set short
production deadlines of weeks rather than months. Morocco
had a natural advantage in meeting this demand, producers
believed, arguing that China and its Middle East competitors
are too far away to meet Europe,s deadline. Yet, Tazi notes
that this specific retail model relies on middle class
consumers in Europe, and is likely to be impacted more than
any other by the current economic crisis.
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Morocco's Textile Sector Reacts
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6. (SBU) On January 14, Morocco's textile industry organized
a forum in Rabat to discuss its concerns.
Industry leaders warned of imminent layoffs and closing
factories and appealed for urgent government assistance.
Specifically, AMITH requested that the Government of Morocco
(GOM) focus on employment retention and a decrease of fixed
costs including utilities. Industry leaders concede that
more than government support is required, however. Morocco
needs a supply chain revolution with more information
technology, more training in management, and more training of
workers. This will enable Morocco to enter the high-end
fashion industry, which has traditionally not been
susceptible to fluctuations in the economy, says Tazi.

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Government of Morocco (In)Action
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7. (SBU) In the industry's view, Morocco's textile sector
will continue to wither away in the absence of governmental
assistance. Industry leaders complain that the GOM has been
slower than others in the region in reacting to the sector's
needs. Government officials respond to criticism by pointing
to a USD 62.5 million initiative aimed at bolstering
Morocco's exports and the establishment of a fund to provide
short term financing to help firms innovate, but only a
limited amount of funding has been made available, according
to Tazi. Similarly, industry leaders say, there has been no
follow through with the government's examination of credit
guarantees for export companies and tax relief as possible
solutions. (Note: Morocco's corporate tax rate is 20 percent
higher than most of its competitors in the region. End Note.)
Industry leaders have also urged government officials to
honor its commitment to partially reimburse the training
costs for employees in the sector.

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Comment
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8. (SBU) While engaging industry leaders is an important
first step in addressing the problems plaguing the textile
sector, it remains to be seen whether government support will
be sufficient to stem its downhill slide. Europe's recession
has highlighted competitive weaknesses that already existed
here, and increased the challenges for a sector that was
already losing ground. Given the importance of the sector to
industrial employment, further government assistance is
likely. Whether it has a lasting impact, however, will
depend on whether Morocco's textile sector takes advantage of
it to renew its efforts to diversify its product range,
develop new export destinations, increase productivity, and
increase its competiveness in the region. This may lead
Moroccan producers to take another look at the American
market, which to date they have done little to exploit,
despite the opportunities offered by the free trade
agreement. (Note: In 2008, only three percent of Moroccan
textiles were exported to the U.S. End Note.)
MILLARD