labor rigidities.

# **2.1 Competition, Business Environment, and International Trade**

There are many factors limiting competition in the Moroccan economy. According to a study by the Royal Institute of Strategic Studies (IRES), “by reducing competition, protection allows for the emergence of monopolistic rents. Businesses that benefit from this situation have used price increases to collect super profits rather than investing in competitiveness through quality and new techniques” (IRES, 2014). Like in most countries in the Middle East and North Africa (MENA) region (Rijkers, Freund, and Nucifora 2014, Diwan, Keefer, and Schiffbauer, 2016, Diwan and Hadar, 2016), Morocco’s capitalism is dominated by personal connections and privileges, which are an integral part of a complex network of economic interests that hinder the emergence of new players (World Bank, 2009, 2015b). The effect is to maintain monopolies, impede the performance of the economy and weaken the growth of productivity and job creation. A recent study estimates that almost 13 percent of a representative sample of Moroccan manufacturing companies are held by individuals connected with circles of economic influence (Saadi 2016). These businesses operate in various economic sectors and are apparently more effective than their unconnected counterparts owing, in part, to the privileges that they enjoy in terms of commercial protection, application of the rules and regulations and access to financing. Beyond considerations of equity, the existence of connected enterprises can partially explain the slow overall structural transformation of the economy to the extent that these firms operate in sectors with low new business entry and exit rates and greater concentration.

While some sectors have liberalized (mobile telephony, for example), this progress cannot mask the lack of real competition between economic agents in many other sectors.<sup>3</sup> The regulatory framework governing competition has been updated, but its implementation has been suspended since 2014 pending the actual appointment of the members to the new Competition Council. Despite the many reforms aimed at refocusing the government on its general interest missions, public enterprises and establishments (EEPs) continue to play a major role in the national economy, creating de facto entry barriers to key sectors (agriculture and marine fisheries; energy, mines, water and the environment; infrastructure and transportation; housing, urban planning and local and regional development). Indeed, because of their status, modes of governance, public financial support and often monopolistic position they can constitute an obstacle to the opening up of many sectors.<sup>4</sup>

> 3The density of new businesses (a proxy for competition strength) in comparison with the total population is higher than in other countries in the region but low in comparison with many emerging market economies (Klapper and Love, 2010).

> 4At the end of 2015, the EEP sector represented about 8 percent of gross domestic product (GDP) and almost 25 percent of the country’s total investment through 212 public establishments, 44 companies in which the government had direct equity holdings and some 442 subsidiaries and public shareholdings.

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