There has rightly been a great deal of discussion about the need to increase South-South trade and economic integration to boost growth and help deliver social and political stability in emerging markets. Since the global financial crisis, this debate has special resonance for Africa as it is clear that the continent’s countries can no longer rely on direct investment from western Europe, let alone aid, to develop its economies.
Countries like Morocco, one of the most developed in Africa and a role model in successfully meeting the expectations revealed by the Arab Spring, have been actively addressing this new reality. Investment is being sought not just further afield in the Gulf, Turkey and India but also, importantly, closer to home, in Africa.
King Mohamed VI recently completed a landmark trip to Gabon, Cameroon and Senegal, accompanied by leading businessmen, to encourage cross-investments in the region. The impact of these milestone visits will take time to feed through but Morocco is already seeing the benefits of active efforts over two decades to provide a gateway to Africa.
Morocco, of course, boasts many attractions for investors looking to go South. It has excellent infrastructure and a qualified workforce that is cost-competitive. It enjoys proximity to European markets and an increasingly favourable framework for foreign investment.
Not surprisingly, this has already produced an expanding industrial base with particular clusters in automotive, aeronautics and electronics. All of which enables Morocco to play a natural leading role in South-South economic integration.
The Moroccan pharmaceutical industry, which is a pillar of Maera Capital’s current activities in Africa, illustrates the huge potential for growing investment and business in the sub-Saharan region. Led by a number of local small and medium sized enterprises (SMEs), it already generates $1.5bn in revenue.
These firms are mostly family entrepreneurs who learned their skills in the 1970s and 80s as licence manufacturers of big pharmaceutical laboratories. In the 90s, they successfully launched their own companies, producing an off-patent version of drugs with a stamp of quality at an affordable price.
The top five Moroccan pharmaceutical companies now generate $100m+ revenues. They have started expanding in sub-Saharan Africa through local distributors but also through their own manufacturing when required. And there is no shortage of opportunities. The African pharmaceutical sector today is already a $20bn market with annual growth of 20% driven by the emerging middle classes and the medical needs of a population increasingly concerned with its well-being.
Much of this growth is concentrated on countries with only a fledgling domestic industry, forcing them to rely on cheap Indian and Chinese imports whose quality can leave much to be desired.
For while large international pharmaceutical players, for example, have prioritised countries like South Africa and Egypt with what was seen as bigger potential, they have largely ignored smaller markets and left them untouched.
It has left a space for Moroccan companies to provide high-standard drugs which governments and health authorities want to offer their citizens. This is particularly the case in helping meet local needs in treating chronic conditions such as diabetes and cardio-vascular problems whose prevalence is high and increasing at an alarming rate. Their involvement also helps in the transfer of technology and know-how which in turn creates jobs and tax revenue.
Examples of successful African expansion from a Moroccan base include Cooper Pharma and Sothema, the latter a listed company on the Casablanca Stock Exchange. They now generate up to 10% of their revenue from their wider African operation.
Moroccan pharmaceutical players are showing they have both the means and ambitions to deploy their capabilities in neighbouring markets. But they are not the only reason why Morocco should be seen as a true regional powerhouse for north and west Africa. There are other sectors, too, with the potential to leverage strong local manufacturing know-how, economies of scale and an ever improving export platform.
Agribusiness and financial services, for example, are also consumer-led industries that offer promising prospects to the discerning investor with a long-term view. Leading groups like Saham or BMCE Bank have been active in acquiring and expanding assets in west Africa from their Moroccan base. A substantial part of their profits today stem from the region.
But with Africa’s performance a bright spot in a still uncertain global economy and demand from a fast-growing middle class across the continent, we are only at the beginning of the rapid expansion of South-South trade and regional integration. Morocco’s success should inspire non-African companies and institutions to look afresh at what the country offers as their base to expand southwards.
Rajaa Mekouar is the founder of Maera Capital, a specialist investment advisory firm focusing on agriculture and pharmaceuticals in Africa. She was previously a founding Principal at Lazard European Private Equity Partners.