COMMERCE NEAR THE BORDER: NEW DYNAMISM, OLD

UNCLAS RABAT 000435

SENSITIVE
SIPDIS

DEPT FOR NEA/MAG - KAAILAU, EEB/TPP/BTA - EGAN

E.O. 12958: N/A
TAGS: ECON ETRD ECIN PREL MO AG
SUBJECT: COMMERCE NEAR THE BORDER: NEW DYNAMISM, OLD
MINDSETS

REF: A. RABAT 431

B. RABAT 256

C. 08 ALGIERS 1282


1. (U) Summary: Historically oriented both commercially and
culturally toward Algeria, the Oriental region of Morocco's
Mediterranean coast has abandoned hope of an imminent opening
of the border with Algeria, closed since 1994. International
trade in the region largely depends on smuggled duty-free
goods from Spain and subsidized products from Algeria, along
with a range of goods similarly transiting eastward. Some
contraband trade has been replaced recently by domestic
commerce, as well as some legitimate foreign trade hobbled by
cumbersome transshipping. Businesses and administrators in
the region keep a somewhat skeptical eye on the Algerian
frontier, hoping that propitious conditions in the future
will yet make the Oriental "the Strasbourg of the Maghreb."
A few cross-border projects including electrical
interconnections and a gas pipeline have succeeded on the
basis of strong mutual economic interest. On a national
scale businesses are focused on expanding trade in the
Maghreb but differ as to whether the best engine would be
international efforts such as the Eizenstat Inititative,
intragovernmental promotion, or efforts by regional business.
Regardless of who is responsible for the impasse, little
will happen until Algeria agrees to open the border. This
cable is the second of two reports on economic development in
the Oriental; Ref A focused on domestic development. End
Summary.


2. (U) Oujda, the seat of the Oriental region, was
historically the transit point between Morocco and Algeria,
and retained its eastward orientation for many years
following Moroccan and Algerian independence, and the 1963
war between the two. For a brief dozen years in the 1980s
and 1990s licit cross-border commerce and travel was a major
economic activity for the Oriental, but that golden age of
commerce ended abruptly in 1994 with the closure of the land
border.

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Evolving Patterns of Contraband
--------------


3. (U) The proximity of untaxed or subsidized goods across
the borders with Spain (the Spanish enclave of Melilla
adjoins Nador) and Algeria has historically driven a thriving
trade in contraband goods. Jilali Hachemi, regional director
of the Moroccan External Commerce Bank (BMCE) told Econoff
that the "informal" sector including trade in contraband
goods and other unlicensed commercial activity accounted for
60 percent of employment in the Oriental region as recently
as a decade ago. Principal commodities in the past have
included "duty-free" appliances from Europe, and cement,
iron, manufactured products and subsidized food products and
fuel from Algeria.


4. (U) An Oujda area commercial farm operator told Econoff
about an incident several years ago in which a colleague
reported seeing his company's branded sacks of potatoes for
sale in Oujda markets, in a year in which he had contracted
his entire potato crop for export to Spain. The farmer
discovered that his potatoes, which he had sold to Spanish
buyers at 5 dirhams per kilo (about 62 cents),had been
resold to Algerian buyers in Spain and shipped to Algeria,
where they were marketed at lower prices thanks to government
subsidies. Smugglers bought the potatoes in Algeria and
trafficked them across the border back to Oujda, where they
were on sale at 3 dirhams per kilo (about 38 cents).


5. (SBU) In recent years, however, increasing availability
of a broader range of consumer goods in Oujda as the region
develops better logistics links to the rest of Morocco has
dried up the market for smuggled products from Algeria,
according to Oujda Chamber of Commerce President and Member
of Parliament Driss Houat. The Chamber has conducted surveys
of the informal commerce from Algeria and found that it has
dropped by half since 2000, added Chamber Director Rachid
Slisli. Proof of the waning demand for contraband goods is
the 2009 opening in Oujda of big-box retail chains Aswak
Assalam and Marjane, similar to Walmart but in the latter
case owned by the King's holding company. Not only is
business brisk at the stores, Houat asserted, but significant
quantities of Marjane shopping bags are found discarded at
the Algerian border, indicating that the availability of
higher quality and reasonably priced goods in Oujda has
reversed the direction of the smuggling. Nevertheless,

smuggling subsidized fuel from Algeria continues to be a
high-margin activity, with fuel prices in Algeria
approximately half those in Morocco. Oujda's agriculture
depends on the cheap fuel to achieve profitability, explained
Chourak, and thus the Government of Morocco turns a blind eye
to such smuggling as long as the products stay local.


6. (SBU) Similarly, as tariffs continue to drop under
Morocco's free trade agreement with the EU, the smuggling of
traditional high-end goods from Melilla has become less
lucrative, and the organized networks of smugglers of
high-value products have disappeared. Contraband from
Melilla now consists primarily of cheap, counterfeit apparel
and consumer products manufactured in China, and the
smugglers tend to be low-income people on the margins of
society carrying small quantities on their person, said Tarek
Yahya, the President of Nador's Chamber of Commerce. The
GOM's tacit acceptance of the continued smuggling is
demonstrated by the observation that Customs checkpoints to
intercept contraband are situated not along the borders with
Algeria and Melilla, but scores of kilometers to the interior
along the roads connecting Oujda or Nador with the rest of
Morocco.

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The Strasbourg of the Maghreb
--------------


7. (SBU) Moroccan government officials and private
businesses assert that the opening of the border with Algeria
would revolutionize the eastern Oriental, particularly Oujda.
Moroccans insist that, in contrast to past patterns in which
the Oriental imported a wide variety of goods from Algeria,
Oujda is now positioned to ship Moroccan products to eager
consumers on the Algerian side of the border. Oujda is the
logical commercial center of the Maghreb, claimed Regional
Investment Center (CRI) director Farid Chourak, adding that
the Government of Morocco has reserved state-owned farmland
along the border as the future location of a "Maghrebine
logistics zone" for shipping companies in a future with open
borders and greater economic integration. The Government of
Algeria owns the adjoining farmland across the frontier, he
noted, and could use its half to create a true international
logistics hub.


8. (SBU) Oujda hopes to be the "Strasbourg of the Maghreb"
in a more integrated future, Chourak continued, hoping to
host Maghrebine institutions such as a Council or Parliament
that may be created. Additionally, many contacts told us,
Oujda was a leisure destination for Algerian tourists and
visitors who enjoyed the "freer lifestyle" during the years
of open borders, as testified by the number of fading tourist
hotels. Many believe the re-opening of the land crossing
would revive Oujda's draw for Algerian visitors.

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Dreaming of Open Borders
--------------


9. (SBU) Chamber of Commerce President Houat insisted that
private businesses on both sides of the border (and indeed,
across the Maghreb) are eager to open the border. "Everyone
is convinced we lose a lot" by the continued border closure,
he stated, and the continued closure is a result of the
"personal stubbornness" of Algerian President Bouteflika.
Moroccan business representatives in the Oriental assesed
that a border opening would principally benefit Moroccan
exporters, because they have a wider variety of consumer
goods to trade, and Algeria's most attractive export, fuel,
would be less attractive as a licit commodity, subject to
Morocco's heavy fuel taxes. Therefore, they concluded,
Algeria is unlikely to budge on opening the border for
commerce. Houat stated that the inhabitants of the Oriental
bear "all the costs" of Morocco's Sahara policy by being
victims of the "economic war" that Algeria imposed through
the border closure. However, he asserted, businesses in the
region would willingly work with their Algerian counterparts
given the chance.


10. (SBU) In the meantime, Houat explained, commerce between
the two countries is strangled by the complications of
finding alternatives to land shipping. Houat told Econoff
that he once tried to source aluminum from an Algerian
provider for the wire factory he owns in Oujda. He recounted
a story of multiple visits to negotiate the sale, each
requiring a train trip from Oujda to Casablanca, a flight to
Algiers, and a drive from Algiers to the Algerian supplier

located only forty kilometers east of Oujda. After months of
working out how to transship the aluminum through a third
country, and how to transfer the payment back through third
country financial institutions, the first sample batch of
aluminum finally arrived ) six months after he had begun his
effort to purchase it. "I'll never do business with Algeria
again," Houat vowed, until the land border is open.


11. (SBU) At a dinner hosted by the president of the
regional chapter of the General Confederation of Moroccan
Enterprises (CGEM),a dozen businessmen with interests in
building, banking, logistics, and agriculture echoed Houat's
story, insisting that trade with Algeria around the closed
land border is too cumbersome to be profitable. Products
sent by ship must nominally pass through an intermediary so
that the bill of lading that arrives in Algeria shows a
non-Moroccan shipper, they reported, and no Moroccan banks
can clear transactions directly with an Algerian bank,
requiring payments to pass through a third party as well.
The result, they summarized, is that the border closure harms
Moroccan and Algerian traders, but benefits the French and
Spanish intermediaries who facilitate the trade.

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Slim Pickings from Economic Integration
--------------


12. (SBU) Houat, Chourak, and CGEM members pointed to
successful cross-border projects such as the electricity
interconnections and natural gas pipeline as evidence that
the private sector can drive for specific economic
cooperation projects when it is in both countries' interest.
However, they assessed, most opportunities for commerce
across the border would require land transportation of goods
and people for profitability. Given the difficulties they
have experienced trying to conduct business across the closed
border, they predicted measures short of border opening were
unlikely to promote much economic activity. The only
exception, the CGEM interlocutors proposed, would be the
utility of allowing Moroccan banks to establish branches in
Algeria, and vice versa, to simplify the cumbersome financial
transactions they had described as part of any efforts at
trade with Algeria.


13. (SBU) Representatives of a variety of Moroccan business
doing business with Algeria and other Maghreb countries told
Econoff in Casablanca that there were several ways to improve
Maghreb economic integration. Ninety percent of the
businesses surveyed cited the closed land border as the
foremost impediment to trade flows within the Maghreb.
Seventy percent of the companies reported that they were
already trading with Algeria, Tunisia and Libya, but
highlighted the inefficiencies and additional costs that
arise from the closed border. The surveyed business urged
that the USG play a role in facilitating dialogue between the
governments of Morocco and Algeria, and press to open the
border. Morocco's phosphate parastatal monopoly OCP Groupe
told Econoff that the Eizenstat Initiative was an ideal
vehicle for promoting integration. Others, however,
including CGEM Vice president of Maghreb Affairs Hamad Kesal,
opined that events such as the recent "First Forum of
Maghrebine Businessmen" held in Algiers are more effective.
"Bringing business executives from North Africa together will
be the catalyst for integration," Kesal stated. However, the
Director General of the Casablanca Stock Exchange assessed
that while the Algiers meeting was a good first step, true
economic integration will require political involvement by
the governments.

--------------
Still a Long Way to Go
--------------


14. (SBU) Comment: While the economic promise of economic
integration in the Maghreb tantalizes Oriental inhabitants,
as well as the rest of the Kingdom, there is little optimism
among Morocco's business community that anything short of a
reopening of the Algeria-Morocco border would significantly
affect commerce in the region. The benefits of regional
trade are apparent to all parties, but private sector actors
do not believe they can drive economic integration alone
without political participation from all the Maghreb
governments (Ref B). Moroccans remain convinced that the
closure of the border is simply a manifestation of bad will
on the part of the Algerian leadership, and seem to be
equally convinced that the USG could convince Algeria to
reverse course if we tried hard enough. While Post

wholeheartedly supports efforts to break the logjam through
step-by-step economic integration, we must recognize that the
logistical impediments to commerce remain difficult to
overcome, and most businesses are skeptical that any effort
will come to fruition absent a change of heart in the
leadership in Algiers.


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