As much of Morocco’s economy struggles to absorb the shock waves from Russia’s invasion of Ukraine and the adverse effects of the ongoing drought, one sector in the country has been benefiting exceptionally – the phosphate production and export business. In combination with Morocco’s regional investment growth in sectors such as energy, construction, and tourism, Morocco’s fertiliser diplomacy at the regional and global levels could further boost Morocco’s geopolitical importance and drive positive outcomes for its foreign policy goals in Africa and abroad.

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Morocco’s economy grew by 2 percent in the second quarter of 2022, compared to 14.2 percent during the same period of 2021, according to statistics by the country’s High Commission for Planning. During the second quarter, non-agricultural activities increased by 4.2 percent, while the agricultural sector shrunk by 15.5 percent. Overall, Morocco’s economic growth is forecast to slow down to 0.8 percent in 2022, compared with 7.9 percent in 2021, as a result of a 14.7 percent decline in the agricultural sector because of severe drought. Additionally, inflation will likely accelerate to 6.3 percent on average in 2022 compared to 1.4 percent in 2021.

On the other hand, the phosphate production business has witnessed remarkable growth in the first half of 2022 benefiting from the supply disruptions to the global fertiliser market off the back of the ongoing war in Ukraine. Morocco has a large fertiliser industry with huge production capacity and international reach. It is one of the world’s top four fertiliser exporters following Russia, China, and Canada. With most economic indicators signalling a continuation or even worsening of the already high levels of global food inflation in 2022, Morocco’s role in ensuring both the supply and price of fertiliser will become even more vital to the stability and affordability of food supplies both locally and abroad.

State-owned and private companies have been expanding their investments in Sub-Saharan Africa in recent years, boosting the kingdom’s economic clout as it also seeks to strengthen its diplomatic engagement. PANGEA-RISK argues, in this special report, that Morocco’s position as a gatekeeper of global food supply chains will further assist its aims in growing its geopolitical clout and advancing its foreign policy goals on the continent, especially regarding its preferred autonomy option for Western Sahara.

Trade deficit widens

The economic recovery in Morocco continued to slow down considerably in 2022 (see MOROCCO: ECONOMIC RECOVERY THREATENED BY DROUGHT AND COMMODITY PRICE SHOCKS). Growth was mainly held back by a sharp contraction in agriculture due to a severe drought. The unfavourable weather conditions along with global inflationary pressures have driven Morocco’s inflation rate up to 5.1 percent in the first half of the year. The poor agricultural season is increasing demand for imported food at higher international prices, amid global supply-chain disruptions. Overall, GDP growth is expected to slow down to 0.8 percent in 2022, as demand for exports and tourism remain weak. Morocco is also vulnerable to sharp increases in hydrocarbon prices as it imports most of its energy needs, despite rising renewable electricity generation. The same risks will likely carry over into the next year. However, 2023 could see a rebound in growth, projected at 3.3 percent, as agriculture recovers and the pace of growth in other sectors returns to pre-pandemic levels.

As such, Morocco’s trade deficit grew by 56.5 percent to USD 20 billion in the first eight months of 2022 on the back of higher energy and wheat imports. Imports rose 44.8 percent from a year earlier to USD 45 billion, while exports increased 37 percent to USD 25.4 billion. Morocco’s energy bill soared the most, up 128.3 percent to USD 9.4 billion, while the cost of wheat imports more than doubled to USD 1.7 billion.

These adverse effects on Moroccan GDP will be only partly offset by the surge in the international price of fertilisers – of which Morocco is a major exporter – which is assumed to rise by 50 percent, equivalent to a 3.3 percent gain in GDP at the current levels of exports. Morocco reported a 67.7 percent rise in the exports of the mineral and its derivatives – including fertilisers – to USD 7.1 billion. The automotive sector led industrial exports with USD 6.1 billion, up 30 percent. Tourism revenue more than doubled to USD 4.8 billion as the sector recovers from the fallout of the pandemic. Remittances from Moroccans abroad, key to the country’s inflow of hard currency, increased 11.3 percent to USD 6.5.4 billion, while foreign direct investment rose 36 percent to USD 2.4 billion.

Combating high inflation rates

Morocco’s central bank, Bank Al Maghrib (BAM), on 27 September raised interest rates by 50 basis points to 2.0 percent in an effort to slow down a surge in inflation. During the first eight months of the year, inflation continued to accelerate, reaching 8 percent in August after 7.7 percent in July, 6.3 percent on average in the second quarter and 4 percent in the first one. It was mainly driven by higher food and fuel and lubricant prices.

Furthermore, available data show gradually more widespread price increases. Out of the 116 sections of goods and services of the reference basket of the consumer price index, 60.3 percent increased by more than 2 percent in August compared with 42.2 percent in January. Considering these developments, BAM projects that inflation will accelerate to 6.3 percent on average this year compared with 1.4 percent in 2021, before returning to 2.4 percent in 2023.

In the past, high prices have led to social upheavals in Morocco that have spiralled beyond the state’s control. In the aftermath of the 2008 global financial crisis, and before the outbreak of the Arab Spring uprisings, cities across the country held meetings to coordinate action against high prices and the deterioration of social services. In 2008 and 2009, Moroccan streets witnessed continuous protests against the rise in prices, after inflation reached 3.7 percent in 2008, its highest level since 2000. The COVID-19 crisis, combined with the stagnation of annual GDP per capita levels over the past decade, has led to the exhaustion of the Moroccan middle and working classes. It has particularly affected those in the informal sector, which represents 30 percent of the GDP and 70 percent of the country’s employment. Inflation under such circumstances puts a heavy burden on families and businesses, growing the risk of social unrest (see MOROCCO: ECONOMY BOUNCES BACK, BUT PANDEMIC AND SOCIAL THREATS WEIGH ON OUTLOOK).

RECENT PROTESTS AGAINST LIVING COSTS

Being conscious of the perils of high inflation levels, on 30 August, the government raised the minimum wage for the public sector worker by 9.3 percent to USD 350 as of September. The minimum wage for agriculture workers has also been raised by 10 percent and for industrial workers by 5 percent. The government also announced the signing of a social agreement and a national charter for social dialogue with workers’ unions, including improving working conditions and increasing wages.

Minimum wages in Morocco are already higher than in competing economies in the region and, despite the country’s relative political stability, foreign investment, including in the automotive industry, has not been sufficient to offset job losses in traditional industries, such as agriculture. Although it may be a political move, the minimum wage increase is an economic gamble that is unlikely to address the country’s employment challenges. The announcements will likely not completely mitigate the risk of public protests. However, it will generally be seen as a gesture towards the unions, and the poorer classes and it could go some way towards alleviating concerns about purchasing power.

Phosphate sector grows

In the first half of 2022, Morocco’s phosphates and derivatives exports grew by 67.7 percent to USD 7.1 billion. During the first quarter of 2022, Morocco’s state-owned Office Chérifien des Phosphates (OCP) group, the country’s phosphate rock miner and phosphoric acid manufacturer and fertiliser producer, recorded a turnover of USD 2.4 billion – up by 77 percent compared to last year, over the same period. OCP’s 2021 revenues had risen by 50 percent to USD 7.7 billion, with fertilisers contributing 62 percent, according to company figures. In 2021, OCP accounted for about 20 percent of Morocco’s export revenues. It is also the country’s largest employer, providing jobs for 21,000 people.

Russia is currently the world’s largest fertiliser exporter, accounting for 15.1 percent of total exported fertilisers. And fertiliser represents one of the greatest vulnerabilities for both Europe and Africa. Russia’s invasion of Ukraine has serious implications for global food security. Both in terms of supply, and also because fertiliser can be used for leverage. Morocco could therefore become central to the global fertiliser market and a gatekeeper of the world’s food supply that could counteract the attempt to militarise fertilisers in the ongoing conflict with Russia.

PHOSPHATE MINING IN MOROCCO

In that sense, Morocco has a distinct advantage in the production of phosphorus fertilisers. It possesses over 70 percent of the world’s phosphate rock reserves, from which the phosphorus used in fertilisers is derived. And this makes Morocco a gatekeeper of global food supply chains because all food crops require the element phosphorus to grow. Unlike other finite resources, such as fossil fuels, there is no alternative to phosphorus. The war in Ukraine is now set to drive a 7 percent drop in global fertiliser production over the next year. As Europe becomes a net importer of fertiliser, that is pressuring supplies and hiking prices within Africa. Some farmers in West Africa are reporting a quadrupling of imported fertiliser costs; others are making do with local alternatives.

Before the outbreak of the Russia-Ukraine war, OCP had over 350 clients on five continents. About 54 percent of phosphate fertilisers bought in Africa come from Morocco. Moroccan fertilisers also account for major domestic market shares in India (50 percent), Brazil (40 percent) and Europe (41 percent). India and Brazil have reached out to Morocco to fill additional supply gaps. And in sub-Saharan Africa in particular, the combination of joint venture partnerships in local fertiliser production and direct outreach to farmers has resulted in a remarkable boost to African agricultural yields.

Morocco plans to produce an additional 8.2 million tonnes of phosphorus fertiliser by 2026. Currently, production is at about 12 million tonnes. The state company recently announced that it would increase its fertiliser production in 2022 by 10 percent. This would put an additional 1.2 million tonnes on the global market by the end of the year.

Turning fertiliser diplomacy to its advantage

Beyond expanding export revenues, Morocco has used OCP’s exports as a foreign policy instrument, particularly in Sub-Saharan Africa, where the company blends sales, investments in local production, and development outreach to create an expanding network of commercial connectivity. Recently, OCP has been used to drive its ultimate goal, namely, garnering support for its claims to Western Sahara while simultaneously disenfranchising its enemy, the Polisario Front (see MOROCCO: RAPPROCHEMENT WITH SPAIN WILL EMBOLDEN ALGERIA TO RAISE GAS PRICES). OCP has given away 180,000 tonnes of phosphate and sent a further 350,000 tonnes at a discount to farmers in 20 African countries. The donated and discounted volumes will represent 16 percent of African demand this year and a quarter of OCP group’s sales on the continent.

AFRICA FERTILISER PRICE INDEX

The US has been backing the OCP’s expansion as a means of undercutting Russia’s attempts to exploit the fertiliser shortage. At a meeting in mid-August, Samantha Power, Administrator of the US Agency for International Development (USAID) and Mostafa Terrab, Chairman and CEO of OCP Group discussed how the company would continue to channel discounted fertiliser to smallholder farmers across Africa. In 2020, the OCP had a 54 percent market share of fertiliser exports to Africa. OCP has set up several joint ventures with other African countries to turn phosphate into phosphorus, a key nutrient in fertilisers. Already, the firm has subsidiaries in 12 African countries, including Nigeria, Ghana, Côte d’Ivoire, and Senegal.

In 2018, OCP Africa launched its Agribooster program to provide African farmers with “inclusive and customised end-to-end solutions” to increase their yields, incomes, and long-term livelihoods. The program facilitates relationships with input suppliers, financial services providers, and commodity buyers to optimise the use of seed, fertiliser and other inputs, loans and insurance, mechanics, warehousing, and offtake mechanisms. Operating in West Africa’s four largest economies – Nigeria, Ghana, Côte d’Ivoire, and Senegal – the Agribooster program has benefitted 630,000 farmers, resulting in considerable crop yield increases across the board.

But Morocco’s most important fertiliser partnership is with Nigeria. OCP supplies over 90 percent of the annual fertiliser demand of Africa’s most populous country. In 2018, OCP Africa and the Nigeria Sovereign Investment Authority (NSIA) signed a protocol agreement for the construction of a new USD 1.4 billion ammonia and fertiliser plant with the aim of OCP boosting fertiliser supplies to Nigeria from 1 million to 3 million tons over a period of five years. OCP’s Nigeria factory will have an annual production capacity of 750,000 tons of ammonia and 1 million tons of fertiliser. Morocco’s open-hand policy towards Nigeria has already started to pay its dividends. Though Nigeria still has not decided to suspend its recognition of the Polisario’s self-styled Sahrawi Arab Democratic Republic (SADR), it has recently adopted a position of positive neutrality. Up until 2015, Nigeria repeatedly voiced support for the Polisario Front during the annual debate held by the UN General Assembly every September. As the new nature of Morocco-Nigeria ties took shape, Western Sahara disappeared from Nigeria’s annual address to the UN General Assembly.

In addition to its plant in Nigeria, OCP Africa is investing approximately USD 1.3 billion in the construction of an industrial fertiliser complex in Ghana. Combining Moroccan phosphorus products with Ghanaian natural gas, OCP will similarly produce ammonia, urea, and Diammonium phosphate (DAP), the most popular type of phosphorus fertiliser worldwide. Like the Nigerian facility, Ghana’s fertiliser plant will also have an annual fertiliser production capacity of 1 million tons. Since Ghana’s population is only 15 percent of the size of Nigeria’s, OCP is looking to the Ghanaian facility to export to other West African markets.

For East African markets, OCP is building Africa’s second-largest fertiliser production complex in Ethiopia. Using phosphoric acid supplied by Morocco and gas and potash (a key source of potassium), the USD 2.4 billion first development phase will have an annual production capacity of 2.5 million tons. In 2021, OCP signed a joint development agreement with Ethiopia’s Ministry of Finance to operate the facility. OCP expects the joint venture company will start supplying the Ethiopian fertiliser market in 2023. In 2025, OCP plans to invest an additional USD 1.2 billion in a phase 2 capacity expansion that will enable yearly fertiliser production to reach 3.8 million tons. Morocco is currently courting several African countries relentlessly, including Kenya, Madagascar, Tanzania, Rwanda, and others. Morocco has signed 19 economic agreements with Rwanda and 22 with Tanzania – two countries that traditionally backed Western Sahara’s quest for independence.

In September, Morocco gained a major foothold in Kenya one of the largest economies in the East African Community, extricating a statement from its State House that revoked their support for the Polisario-run SADR that has been partially recognised in the international arena by 41 UN countries. Reports suggest that the newly-elected President William Ruto’s promise to deal with Kenya’s high cost of living – by promising to lower the price of fertiliser – may have been the reason behind the revocation. Now with Kenya withdrawing its support, the number dropped to 40 (see SPECIAL REPORT: KENYA WILL INEVITABLY HAVE TO BORROW MORE TO FUND GRANDIOSE ECONOMIC PLANS).

Overall, Morocco’s fertiliser diplomacy has demonstrated that the balance of power in Africa appears to be shifting progressively in its favour. The ongoing supply crisis will continue to offer further economic and diplomatic opportunities for Morocco and expands the kingdom’s soft power influence across the continent.