Morocco’s challenge is Israeli tech’s opportunity

Next May, Israeli and Moroccan high-tech entrepreneurs and investors will attend a unique conference in Casablanca, Morocco. Although the conference’s official goal is to “promote cooperation between industries in the two countries,” as will be clear to all conference attendees, it is Moroccan high-tech industry that is trying to attract international investment for the struggling sector, and its executives hope to learn from Israeli entrepreneurs how to achieve this. But can Israeli high-tech industry play a role in this geopolitical process? Can it take over the Moroccan high-tech industry and post net gains in the process?

First of all, the combination of the words “industry” and “high-tech” in the context of Morocco may sound a bit pretentious at first, given that we are dealing with a North African country and in all of 2021 start-up companies have only (roughly…) Raised $29 million. Considering that Morocco raised $11.2 in 2020 and Moroccan tech startups raised $617,000 in 2019, it can definitely be said that “Moroccan high-tech industry is showing an impressive Growth.” If one also considers that the number of tech start-ups that managed to get funding has grown from two in 2019 to 15 in 2021, the picture becomes even clearer: There seems to be an opportunity here. The Moroccan start-up scene is showing promising signs of development and growth. Still, Moroccan startups lag behind their African counterparts when it comes to attracting the attention of investors. Even Egypt managed to raise $100 million for its tech startups.

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Dana Firon-Gross

Dana Firon Gross. Photo: Eyal Merilos

So what’s stopping Moroccan high-tech from thriving? A report released in January this year by TechCabal, an information and research platform focused on technology industries in Africa, analyzes the factors struggling for Moroccan hi-tech. Below are the highlights of the report:

Bureaucratic hurdles: Despite ongoing efforts to streamline the paperwork for start-ups in Morocco, the procedures remain difficult and unwieldy, therefore hampering young companies’ ability to grow and do business. Accessing global services like Google and Facebook notifications isn’t easy either. For example, start-ups have to pay special taxes or apply for special permits if they seek access to services outside of their immediate sales markets.

Complex relations between neighboring countries: According to the report, the countries of West and North Africa (Morocco, Algeria, Tunisia, Mauritania and Libya) maintain a closed border policy between them that restricts intra-regional trade, especially between Morocco and Algeria. A culture of hostile intra-regional trade makes it difficult for regional startups to expand and grow in this geographic zone. For example, when Chari, a Moroccan company that offers small business online ordering and delivery services, wanted to expand into Tunisia, it first had to set up a new company with no business connection — other than a common name and business model — with its Moroccan parent company. Israel’s ties with Europe and the United States allow companies to easily expand into additional markets. In Africa, on the other hand, the prevailing business climate (and not only that) works in the opposite direction.

Lack of trust from traditional industry: Unlike in the west, where it is common to see traditional banks backing fintech companies as well as food companies investing in foodtech companies, this is simply not accepted in North Africa. Big local companies don’t trust startups because they fear the ease with which they might collapse (among other common outcomes). One day you have work and the next day you don’t. And if local investors are not willing to invest in a company that has no local partners, what will foreign investors say? According to the report’s authors, “It’s a vicious circle that puts the startups in a very tight corner because it seems like everything is designed to kill them.”

Lack of fintech innovation: Of the top four tech hubs, fintech attracts the most funding in Nigeria, Kenya, South Africa and Egypt. But the further west we travel, the clearer it becomes that fintech hardly exists. According to the report, Morocco (like Algeria) does not yet have fintech solutions, although local and foreign investors are said to be very active in the field, especially in Africa.

language barrier: Like other North African countries, Morocco belongs to Francophone Africa (speakers of the African dialect of French). With most foreign investors speaking English, it becomes all the more difficult to find French-African speaking investors for start-ups.

How can Israeli high tech benefit from its Moroccan counterpart?

Firstly, by supplying qualified workers. Morocco can provide the local high-tech with the resources that are most lacking. The president of the General Confederation of Moroccan Enterprises (the umbrella organization representing 90,000 Moroccan companies) explained during the first business delegation from Morocco to Israel in mid-March that there are many engineers in Morocco who are graduates of local universities, some of them are too Graduates from European universities. Delegation representatives explained that given the fact that the local Moroccan industry is still quite small, the possibility of employing Moroccan engineers in Israeli companies seems to be a solution that would serve the interests of both sides. At the same time, the Ministry of Foreign Affairs announced the launch of a joint technology training program for students from the Engineering University of Morocco and Reichman University. If Israeli companies have figured out how to hire engineers from Ukraine, the remote work model seems more relevant than ever for high-tech workers and engineers from Morocco as well.

Second, Morocco offers a supportive business ecosystem and a bridge to Africa. As early as 2013, Morocco set up its own high-tech park in Casablanca, which houses over a hundred multinational companies. At the same time, tech giants like Microsoft, Oracle, Cisco, Google and Meta have already opened offices in Rabat, the capital of Morocco. Why did they do this? Undoubtedly, access to qualified personnel at attractive prices played its part. At the same time, according to the UN’s Doing Business Index 2020, Morocco ranks higher than Israel (43rd place) in opening businesses, and it takes only nine days to open a new business in Morocco. Israeli companies can easily establish a presence, participate in the new international ecosystem that is taking shape in Morocco, and thereby deepen their penetration of additional markets in Africa, particularly West and Central Africa.

Third, tax incentives for foreign investors. Companies incorporated in the free trade zone enjoy full tax exemption for the first five years, among other incentives, and such companies are also eligible for a reduced tax rate for the following 20 years. Likewise, taxes due on dividends paid to foreign shareholders are not withheld at source.

Fourth, an opportunity for Morocco arising from the Russian invasion of Ukraine. Already importing 90% of its energy needs, Morocco is exposed and highly vulnerable in terms of its fuel needs. Currently, at the height of the Ukraine conflict, Moroccans are grappling with diesel prices at $1.14 per liter and gasoline prices at over $1.32 per liter (after years of gasoline prices staying under the $1 mark). Although today 37% of the country’s electricity comes from renewable sources, the continuation of the war and sanctions against Russia will mean rising fuel and electricity prices. All of this clearly means that Morocco is vulnerable and particularly exposed to oil and coal prices and is therefore in dire need of renewable energy solutions. Quite a few Israeli companies will find this welcome news. Coincidentally or not, early last March, Israel’s Marom Group signed a deal to buy 30% of Moroccan renewable energy company Gaia Energy for about NIS 70-80 million.

In summary, Israeli high-tech industries and investments can play a strategic, geopolitical role, giving real context to the Abraham Accords between Israel and Morocco. Whether it is transferring know-how and skills, hiring engineers or investing in Moroccan ventures, the normalization of diplomatic relations with Morocco offers excellent business opportunities. Will we be ready to pick up the gauntlet?

The author is a partner at M. Firon & Co., leading the international partnership FIRON-UGGC with active offices in France, Morocco and West Africa.

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