The Emergence of North Africa

Stephen DeAngelis

March 24, 2009

For decades, the Maghreb has been best known for being part of the arc of crisis that begins at Gibraltar and ends in Pakistan. Maghreb is an Arabic word meaning “place of sunset” or “western.” Traditionally it refers to a region in North Africa that includes Morocco, Algeria, Tunisia, and, more recently, Libya. At a time when Western suspicions have deepened about Muslim countries because of the activities of radical Islamists, there is a remarkably upbeat report in BusinessWeek about the Maghreb [“The Rise of the Maghreb,” by Carol Matlack and Stanley Reed, 16 March 2009 print edition]. Matlack and Reed note that in the immediate post-Cold War period, a number of automotive parts suppliers set up plants in Eastern Europe, but many of those same suppliers are now shifting their facilities to the Maghreb. The reason — rising costs of doing business in Eastern Europe. For more on the troubles facing Eastern Europe, read my post Looking for Jobs that Last.

“North Africa, by contrast, offers far lower wages and plenty of eager workers. … Led by Morocco and Tunisia, the region of 84 million people is attracting serious investment—more than $30 billion over the past five years—to build everything from auto and aerospace factories to five-star resorts and call centers for multinationals. Even Algeria and Libya, long shunned on the international stage, are starting to revive their stagnant economies. Both are opening up to foreign investment and, with pipelines under the Mediterranean, have become important suppliers of natural gas to Europe as it seeks alternatives to politically unstable Russia.”

In several previous posts, I have discussed the importance of emerging market countries fostering economic sectors in which they have a competitive advantage. If low-cost labor is a country’s only competitive advantage, it is unlikely to develop a sustainable economy — just ask Eastern European countries that are losing jobs to the Maghreb. The question is whether countries in the Maghreb are setting themselves up for the same kind of fall. Matlack and Reed don’t really address that question; rather, they concentrate on current economic conditions there.

“The Maghreb … is likely to keep expanding in spite of the global economic turmoil. Growth forecasts for 2009 range from 3.7% in Tunisia to more than 5% in Libya. Euler Hermes, a consultancy that analyzes investment risk, now rates Tunisia and Morocco as safer than Hungary, Romania, and Bulgaria. … The Maghreb’s appeal is obvious. It’s in the Continent’s backyard: Tangier lies just eight miles from Spain across the Strait of Gibraltar. The region’s governments are relatively stable and business-friendly. And it’s cheap, with factory wages averaging $195 to $325 a month. Compare that with the average $671 monthly paid by French automaker Renault at its Dacia Logan factory in Romania. Those numbers help explain why Renault is building an assembly plant in Tangier that will be one of its biggest anywhere. The factory is expected to employ 6,000 workers and Moroccan officials say it could attract suppliers that would provide jobs for 35,000 more. Although the global crisis has delayed the plant’s inauguration by as much as a year, Chief Executive Carlos Ghosn says Renault remains committed to the venture, which will build low-cost Logan cars for the Maghreb and beyond. ‘We are optimistic about these markets,’ he says.”

Matlack and Reed report that other industries are also bullish on the region. But the low wages and longer work weeks won’t last forever. Eventually, middle class workers want better compensation and more leisure time to enjoy the things they can now afford. But for now, Maghreb workers are more affordable and flexible than workers elsewhere — mostly because there are no unions. The world is now so connected, however, that employees in northern African know how workers elsewhere live and what benefits they enjoy. Employers who fail to improve conditions and compensation will eventually face labor unrest and harsh public scrutiny. Not all employers who establish factories in low-cost countries are exploiting their workers (although some do). In fact, in most cases, local populations welcome companies that can provide steady employment (for more on why factories are welcomed in most developing states, see my post entitled Child Labor in the Developing World). Matlack and Reed focus on Casablanca, Morocco, as being typical of the environment that sets the Maghreb apart from other low cost regions.

“Far from the seedy, lawless outpost depicted in the Humphrey Bogart film that made it infamous, Casablanca is a bustling city of 4 million. Office towers overlook the walled Old Medina, an ancient district of narrow, winding streets. On the outskirts, workers are putting the finishing touches on a vast complex of office buildings called Casanearshore. It will house call centers and back-office operations for tenants such as Dell and Paris-based bank BNP Paribas that are eager to tap the French language skills in the former French colony. Another attraction for multinationals: skilled labor, thanks to a focus on schooling in Morocco and Tunisia. The World Economic Forum ranks the quality of math and science education in Tunisia 7th in the world (the U.S. is 48th). Morocco has even opened an American-style university in the Atlas Mountains.”

Tunisia has been trying to establish itself as an IT hub for some time. Morocco, however, is an entirely different story. It is the region’s poorest country and just over half of its population is literate. Morocco’s royal family has ruled the country with an iron fist, but the current king has appeared more willing to modernize Moroccan society than his predecessors.

“Morocco’s 45-year-old king and Tunisia’s long-ruling leader, Zine El Abidine Ben Ali, have privatized companies and loosened labor regulations, but the reforms are far from complete. ‘There is corruption, nepotism, petty jealousy,’ says Kathy Kriger, a former U.S. diplomat in Morocco who runs a Casablanca restaurant, Rick’s Café, modeled after the bar in the classic film. And while Libya and Algeria have made great strides—majors such as BP, Royal Dutch Shell, and ExxonMobil have invested there—they have even further to go.”

As globalization becomes more regionalized, the Maghreb appears positioned to take advantage of shortened supply chains to Europe and perhaps the rest of Africa. They also have natural cultural ties to the Middle East. Undoubtedly, the road ahead for Maghreb countries will have its rough spots; but like many emerging market regions, there remains a feeling of optimism that should help it press through the current economic downturn.