Research

Publication Date: 22 October 2008 ID Number: G00161819

Analysis of Morocco as an Offshore Location

Susanne Karlsson, Ian Marriott

This research analyzes Morocco's suitability for offshore outsourcing, based on 10 criteria: language, government support, labor pool, infrastructure, education system, cost, political and economic environment, cultural compatibility, global and legal maturity, and security and privacy of data and intellectual property (IP). Sourcing managers can use this report to judge whether Morocco might be a good location for their organizations' captive or outsourced offshore IT and business process services. Key Findings
Morocco is an attractive "nearshore" alternative, because its location allows it to be reached from Europe in two or three hours. Several established companies have nearshore centers in Morocco. Morocco lags behind other nearshore locations in terms of its ability to fight corruption and to provide a good political environment, but it is progressing in this area. The Moroccan government has several initiatives in place to promote the information and communication technology (ICT) industry, although it could be doing more.

Recommendations
Consider Morocco as an outsourcing destination if you are looking for a nearshore alternative that provides a good investor climate. But be aware that bureaucracy can slow down the process. Consider Morocco for call centers where you need French- and Spanish-speaking workers.

2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

ANALYSIS
Table 1 provides a summary of Gartner's rating of Morocco, based on our 10 criteria. Figure 1 shows Morocco's location and time zone difference compared with selected cities. Table 1. Morocco: Outsourcing Rating
Criterion Language Government support Labor pool Infrastructure Educational system Cost Political and economic environment Cultural compatibility Global and legal maturity Data and IP security and privacy
Source: Gartner (October 2008)

Rating Good Good Fair Fair Poor Good Fair Good Fair Good

Figure 1. Morocco: Location and Time Zone Differences

Morocco

Los Angeles -7 hours

New York -4 hours

London +1 hour

Paris +2 hours

Delhi +5.5 hours

Beijing +8 hours

Tokyo +9 hours

Source: Gartner (October 2008)

Publication Date: 22 October 2008/ID Number: G00161819 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 2 of 7

Language
Arabic is Morocco's official language, but French is widely taught and serves as the primary language of commerce and government. Spanish is also spoken in the northern part of the country by about 40,000 people. English is rapidly becoming the third foreign language of choice after French and Spanish among educated youth and is offered in all public schools from the fourth year onward, although these skills will take time to get to the workforce. Morocco has one private, English-language university, Al-Akhawayn, in Ifrane, founded in 1993 by King Hassan II and King Fahd of Saudi Arabia. The curriculum is based on an American education model. It is estimated that half the population of Morocco can speak French. Analysis: Although Arabic is the primary language of the vast majority of Morocco's 33.8 million people, English is becoming one of the foreign languages of choice. However, at the present time, most organizations will be looking at Morocco to service mainly French-speaking customers located in France. Additionally, Arabic-speaking countries in the Middle East, such as the United Arab Emirates, will be looking to Morocco for Arabic-speaking skills. Gartner rating: Good

Government Support
The government is continuing a series of structural reforms begun in recent years. The most promising reforms have been in the labor market and financial sector, and privatization has accelerated the sale of Global System for Mobile Communications (GSM) licenses in recent years. In January 2006, the bilateral free-trade agreement between the United States and Morocco came into effect. Morocco has devised a strategy dubbed the "Moroccan offer," which aims at sharpening its competitive edge by providing world-class infrastructure and training, as well as offering a set of unique incentives. The government has set a goal of creating 123,000 new jobs by 2012: 33,000 jobs in the IT industry 90,000 jobs in offshoring activities

Government is targeting an IT turnover of approximately $9.1 billion by 2012, including 25% in export markets. The composition by sector is as follows: Telecommunications: $4.3 billion Local IT industry: $2.4 billion Offshoring: $2.4 billion

The government is committed to training 100,000 engineers and managers and 8,000 Spanishspeaking graduates.

Publication Date: 22 October 2008/ID Number: G00161819 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 3 of 7

Analysis: The Moroccan government has published its "e-maroc" strategy to help promote the ICT sector and has also set ambitious ICT targets, including the creation of call center and IT jobs and turnover in specific marketplaces, such as telecom and offshoring. Gartner rating: Good

Labor
Morocco's labor force reached 11.35 million in 2007, out of a total population of 33.8 million people. In 2005, the service industry employed about 45% of Morocco's workforce. Of the population, 32% is below the age of 15 and only 4% is over 65 years of age. Analysis: Though Morocco has a fairly large labor force, only those that can speak French, Spanish or English can be employed in the IT outsourcing industry. The increasing migration of the population to urban areas should increase the total ICT labor pool over time. Gartner rating: Fair

Infrastructure
Mobile connections in Morocco are growing rapidly; they grew from 7,365,300 in 2003 to 19,996,000 in 2007. The penetration rate for fixed-line subscribers is low at just 7.85% in 2007 (2,393,767 subscribers). There were 560,000 Internet subscribers by the end of 2007. Morocco has embarked on an ambitious road-building program of 100 new kilometers per year and is also building a 500-kilometer Mediterranean lateral road linking Tangiers to Saaidia. The extension of ports and an international harbor complex on the Mediterranean coast of Tangiers are also planned. Morocco's call center industry is booming. In just a few years, it has become a leader in offshore French-speaking call center activities. According to Morocco's National Agency for the Regulation of Telecommunications, there are approximately 140 call centers, including 100 outsourced call centers. In December 2005, the government launched the construction of the first zone CasaNearShore Park, the first business area dedicated to offshore services and outsourcing, which is developed and managed by the Groupe Caisse de Depot et de Gestion. The offshoring zone, which will cost more than $300 million, was built on the outskirts of Casablanca and the Mohammed V Airport. Analysis: Morocco is investing heavily in infrastructure, especially its road network. Much of this is due to its tourism industry, which the government is promoting extensively. The country is located very close to Spain and France and also the Middle East with very little difference in time zones. The government is backing the construction of several ICT centers, with the Casablanca center already constructed and three more in the process of being built (RabatShore, TangerShore, MarrakechShore). Given limited resources, an inefficient bureaucracy and widespread nepotism and corruption, addressing the shortcomings of the country's infrastructure will prove difficult. Gartner rating: Fair

Publication Date: 22 October 2008/ID Number: G00161819 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 4 of 7

Education
Morocco's population was expected to reach more than 34 million by July 2008, with a 52.3% literacy rate. Education in Morocco is free and compulsory through age 15. Nevertheless, many children particularly girls in rural areas do not attend school. The country's literacy rate reveals sharp gaps in education, both in terms of gender and location. Nationwide literacy rates are estimated at 39% among women and 64% among men, but the female literacy rate in rural areas is only 10%. During the 30-year period ending in 2006, primary school net enrollment increased from 47% to 89%. Morocco has about 230,000 students enrolled in 14 public universities. Mohammed V University in Rabat is one of the country's most famous schools, with faculties of law, sciences, liberal arts and medicine. The University of Al Karaouine, in Fez, is considered the oldest university in the world and has been a center of learning for more than 1,000 years. The government has initiated a national training program focused on building key competencies in areas such as back office, client services and other software-related skills. The program aims to graduate 25,000 skilled professionals by 2009. Analysis: Though the university system is adequate, the Moroccan government could do more to encourage technology and language skills. Gartner rating: Poor

Cost
The cost of doing business is still relatively low in Morocco versus Western countries. Infrastructure in terms of facilities and office space is cost-competitive in Morocco. Labor costs are still low in this country compared with many other offshore destinations in this region. Analysis: The relatively low cost of doing business in Morocco should mean that it stays competitive as a nearshore location for French- and Spanish-speaking businesses and their customers. Gartner rating: Good

Political and Economic Environment

According to the Economist Intelligence Unit (EIU) country outlook, the political outlook in Morocco will remain generally stable, with no serious challenges to the rule of the king, Mohammed VI. The expansionary budget for 2008 underlines the government's desire to boost employment and address infrastructure issues, notably in housing. The economy will continue to face risks associated with its dependence on agriculture, which typically accounts for some 14% of gross domestic product (GDP) but provides the livelihoods of around 50% of the population. However, nonagricultural output grew relatively strongly in 2007, led by chemicals, metals and textiles, and also stimulated in part by the implementation of freetrade agreements with the U.S. and the European Union.

Publication Date: 22 October 2008/ID Number: G00161819 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 5 of 7

Assuming that agricultural output returns to normal, the EIU forecasts that real GDP growth will pick up again to 5.3% in 2008 and 5.5% in 2009 (compared with an annual average of 4.5% from 2002 through 2006). However, this is slightly below the government's targets, and it is lower than the annual rate of about 7.5% to 10% needed to significantly reduce unemployment and poverty. Unemployment stood at 7.7% in 2006. This figure masks significantly higher urban unemployment, as high as 33% among urban youths. According to the World Democracy Audit scores and rankings, Morocco ranks No. 92 out of 150 countries in the overall ranking (where 1 is the best and 150 is the worst), No. 101 out of 150 in press freedom and No. 57 out of 145 in corruption. In the World Bank's latest report on ease of doing business in 2008, Morocco is ranked No. 129 out of 178 economies. Analysis: Though not a democracy, Morocco under King Mohammed is very stable. It is also one of the largest economies in Africa, although still reliant on agriculture. A recent terrorist attack on the U.S. consulate could prove detrimental to the ICT industry in the country. Gartner rating: Fair

Cultural Compatibility
Tourism is the second-largest source of foreign currency for the Moroccan economy, with 5.8 million tourists visiting in 2005. The "Vision 2010" development strategy aims to increase tourist activity by the end of 2010 to 10 million. Morocco is active in Maghreb, Arab and African affairs. It supports the search for peace and moderation in the Middle East. Analysis: The main revenue sources for Morocco are tourism and agriculture, but the government is increasingly looking to the IT industry to provide export revenue from IT and ITenabled services. Morocco has good trade links with Europe, especially France and Spain, which should help the ICT industry in the country. Gartner rating: Good

Global and Legal Maturity

Morocco treats foreign-owned and locally owned investments equally and permits 100% foreign ownership in most sectors. Significant disincentives to foreign investment remain, including rising real wage levels, excessive red tape and an inadequate judicial system. Morocco is important for the U.S. in the region as its oldest ally and as a stable, democratizing and liberalizing Arab Muslim nation. It is also important as a partner in the global war on terrorism and as a constructive force in the pursuit of Middle East peace and other regional security challenges. Analysis: Morocco is opening up to foreign investments and has taken many steps to create an investor-friendly business climate, such as the creation of free-trade zones. Bureaucracy and corruption can hinder new business, but the government is taking initiatives to curb these problems. Gartner rating: Fair

Publication Date: 22 October 2008/ID Number: G00161819 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 6 of 7

Data and IP Security and Privacy

Morocco has a relatively comprehensive regulatory and legislative system for the protection of IP. IP rights, however, must be registered in both Casablanca and Tangier to be protected in Morocco. Morocco is a member of the World Intellectual Property Organization (WIPO) and party to several other international agreements and conventions dedicated to the protection of IP, including the Bern Copyright, the Paris Industrial Property and Universal Copyright conventions, the Brussels Satellite Convention, and the Madrid, Nice and the Hague Agreements for the Protection of Intellectual Property. Analysis: Morocco has fairly comprehensive protection of IP rights, although not to the same standards as Western countries. Gartner rating: Good This research is part of a set of related research pieces. See "Gartner's 30 Leading Locations for Offshore Services" for an overview.

REGIONAL HEADQUARTERS
Corporate Headquarters 56 Top Gallant Road Stamford, CT 06902-7700 U.S.A. +1 203 964 0096 European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM +44 1784 431611 Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA +61 2 9459 4600 Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo 153-0042 JAPAN +81 3 3481 3670 Latin America Headquarters Gartner do Brazil Av. das Naes Unidas, 12551 9 andarWorld Trade Center 04578-903So Paulo SP BRAZIL +55 11 3443 1509

Publication Date: 22 October 2008/ID Number: G00161819 2008 Gartner, Inc. and/or its Affiliates. All Rights Reserved.

Page 7 of 7