Morocco Autos Report Q1 2013

As Morocco enters 2013, it is set to face another year of increased automotive manufacturing as Europecontinues to reshape its production landscape. While the country's leading producer, France's Renault,inaugurated Africa's largest plant earlier in 2012, the following year will see a ramp up in capacity.

However, BMI notes that downside risks remain in the form of a persistent and often unpredictableeurozone crisis. Nonetheless, BMI sees production in Morocco rising considerably over our five-yearforecast period, with a total completely built unit production of 95,171 in 2017.

Our forecast for 2013 looks set for 68,907 vehicles to be produced over the year, marking an 8.7%increase on the previous year. After expanding by 6.6% in 2012, BMI sees total vehicle productionremaining within the 8% growth mark year-on-year (y-o-y) through our forecast period to 2017. Mostvehicles produced in the country are expected to be exported to the EU.

Sales in Morocco are not likely to grow as rapidly as production, however. We expect annual productiongrowth to average 8.5% between 2013 and 2017, compared with an average growth of 7.6% in sales overthe same period. We forecast that the steady sales growth seen in previous years will continue, however,with 123,204 units expected to be sold in 2013, up from 116,587 in 2012. By the end of our five-yearforecast period in 2017, we anticipate annual sales of 167,904 units.

Exports will sustain the higher production and sales outlook while domestic economic performancewavers. BMI has cut its 2012 growth forecast for Morocco's economy to 2.5%, down from 3.0%previously, on the back of poor performance in the first half of the year and the many headwinds stillfacing the economy. Our real GDP growth forecast for 2013 remains unchanged, at 3.5%. Though weexpect both 2012 and 2013 to be challenging years as exposure to the European recession takes its toll,investor interest in the country as an export-oriented manufacturing hub for the European market, coupledwith a burgeoning tourism industry, should bode well for Morocco's underlying growth momentumthrough to 2015.

Nevertheless, the country is particularly vulnerable to the fallout of the eurozone crisis - something thatcould potentially derail Renault's plans to ramp up production in the country to 400,000 units by as earlyas 2014. Industrial production has also become more muted, growing by only 1.0% y-o-y in Q2 after astrong performance in Q1.

Although French President Francois Hollande is under pressure to resist the transfer of jobs away fromFrance, he is unlikely to make aggressive moves in this direction particularly as Renault has highlightedboth cheaper labour and a more flexible labour market as its motivation for shifting production away fromthe country. Addressing these particular issues will jar with Hollande's Socialist credentials and alienatesupport from unions.