Morocco: automotive industry goes from strength to strength

Despite modest sales numbers, Morocco is becoming a real success story as an automotive manufacturing hub. How will the country sustain it?

Zakia Subhan, Analyst

02 February 2023

Each year, Moroccans buy about 180,000 new cars, a relatively small number considering the country has a population of 37 million. Despite this modest sales number, Morocco is becoming a real success story as an automotive manufacturing hub and in 2018, passed South Africa as the biggest exporter of Passenger cars on the continent. So, what are the drivers behind this steady expansion in production in the country?

Morocco’s performance continues to prosper on the African continent and internationally despite the effects of the COVID-19 pandemic and the war in Ukraine. 2022 saw 10% YoY growth in production, hitting an all-time high for the country, with just over 470,000 light vehicles being produced.

The country has put in place many measures to attract foreign investors, such as high-quality infrastructure, human capital training, and tax benefits. Foreign direct investment is continually increasing as companies are attracted to the country’s favourable economic conditions including numerous free trade agreements with the European Union and the US. These trade agreements contributed positively to the emergence of export activities in the country.

Morocco has created two industrial platforms in the Cite de l’Automobile in Tangier and the Cite de l’Automobile in Kenitra. These have been granted free zone status i.e., a total exemption from corporate tax for companies operating in these zones for five years, followed by a cap of 8.75% for the next 20 years. Over the long term, increasing investment from leading automakers in Africa and incentives offered by the government will majorly drive automotive output in Morocco.

The Moroccan automotive industry also benefits from the geographical location of the country. Trade time to Spain from Morocco is one to two days and although the country neighbours Spain, it has totally different cost structures; labour costs are roughly one-quarter of those in Spain and slightly lower than in Eastern Europe. Renault-Nissan-Mitsubishi was the only global automaker assembling vehicles in the country until the arrival of the Stellantis Group in 2019. For low-cost brands like Dacia and entry-level models from Peugeot, labour costs account for a higher proportion of the vehicle cost, making them a key reason to locate in Morocco.

What’s the outlook and how will growth be sustained?

Morocco intends to continue to grow and become one of the world’s major car manufacturing locations. To sustain growth, it will need to increase the local integration of the sector. The managing director of Renault says that the company sources many parts for their vehicles from local suppliers, including seats and axles, and that local content currently accounts for 60% of the final product. The challenge will be to make more progress on sourcing high-value components locally, including batteries and eventually, powertrains.

The next objective will be to decarbonise the industry and vehicle production, making it more sustainable. In November 2022, The Stellantis Group announced plans to invest 300 million euros to double production capacity at its Kenitra factory to 400,000 units. As part of the new line-up, the Citroën C3 will be one of the first vehicles on the Smart Car Platform, accommodating an electric powertrain. Dacia brand CEO Denis Le Vot recently announced that the next generation Sandero, built in Morocco, will also be 100% BEV.

As always, we remain wary of any unforeseen factors such as that seen last year with the invasion of Ukraine. However, prospects for the Moroccan industry seem encouraging and for now, considering the growth potential, we envisage minimal risk to our forecast.