Europe Slow to Invest in North Africa

Exploratory talks have begun on a free-trade zone, but investment lags because of worries over instability

THE machines at the Manatex textile factory here may be running full steam, but Mohamed Lahlou has no trouble getting his message across above the din.

"Morocco's textile jobs have doubled over the last five years, and they should more than double to 400,000 over the next 10 years," says the general director of Manatex and president of the Moroccan Association of Textile Industries.

"It is a result of our proximity to Europe," he says, "but what we are beginning to discover is that other regions are close to Europe as well. This year we've awakened to new competition from Eastern Europe, but if we aren't careful, it could also be Turkey and Southeast Asia."

Proximity to Europe and its new single market is what Morocco, Tunisia, and to a lesser extent Algeria, have been counting on for economic growth. "It's our big chance," says Mounir Bensaid, director of the Moroccan Center for Exports Production.

Yet while European investment has meant hundreds of thousands of jobs across the Maghreb - in textiles, tourism, and assembly of electronic components - neither the amount of investment nor the level of development and cooperation with Europe has met the southern Mediterranean's expectations.

Even as talk intensifies of following the example of the United States and Mexico to develop a free-trade zone, European observers say Europe's deteriorating economy suggests free trade with the southern Mediterranean is still far off.

Some Maghreb officials and business leaders worry that, while the Maghreb is counting on Europe, Europe's economic interest in the Maghreb could be diverted by investment opportunities elsewhere.

"The European Community's Single Market offers new opportunities, but at the same time it risks making things more difficult for us because it's going to become more accessible to some of our competitors," says Mustapha Nabli, Tunisia's minister for economic planning and regional development. Tunisia, with three-fourths of its exports going to Europe, is as commercially dependent on Europe as Mexico is on the US.

Further, the proposed integration of textile trade into the General Agreement on Tariffs and Trade in the current Uruguay Round talks would open Europe to new competitors, ending special arrangements for North African textile assembly industries.

Investments in Morocco's textile industry have dropped by a third since 1990, says Mr. Lahlou. One reason is that some subcontracted clothing assembly, a large part of Morocco's and Tunisia's textile activity, has shifted East, he says.

Political instability and a recent nationalist swing in Algeria's economic policy explain a reluctance to invest there, Moroccan and Tunisian officials say, although Italian investment has been increasing.

But Moroccan and Tunisian officials insist their countries' stability and economic results should earn them higher foreign investments. They especially note praise from the World Bank and the International Monetary Fund for Morocco's success in its 10-year-old structural adjustment program, and similar good remarks for Tunisia. Investment lags

Brandishing a recent government report entitled "Foreign Under-Investment in Morocco," Mr. Bensaid says: "What's astonishing to us is that the international financial institutions' high satisfaction in Morocco has not translated into a better awareness of our country and better investment results." The report shows foreign investment in Morocco doubling from 1988 to 1990 to $165 million, but still low compared to Turkey with $713 million in 1990, Egypt with $947 million, or Greece, with $1 billion among Mediterranean countries.

But European business leaders counter that if investors are turning elsewhere, there are good reasons. "The Moroccans get irritated when they see our small and medium industries signing on with someone in Taiwan, but [the investors] have done their homework," says Thierry Allix, North Africa specialist with the French Confederation of Industries and Services (CNPF).

Asia's distance from Europe is offset by its more streamlined bureaucracy, better infrastructure, and better-qualified workforce, he says - often at a lower price. Recent studies show an hour of work in Morocco costing more than in Indonesia, China, or Egypt.

"North Africa has a reputation for moving slowly," says Mr. Allix, a problem exacerbated in Morocco by the need to negotiate around royal family holdings. King Hassan's family is estimated to control almost a fifth of the country's wealth. Obstacles investment On top of all this, European investors and small-business owners remember the region's pro-Iraq fury during the Gulf war, when French flags were burned on the streets, Allix says. That, added to perceptions of a region susceptible to Islamic fundamentalism, combine to discourage potential investors.

Still, French investment in Morocco was outdistanced by Spain's for the first time last year, and Italy is catching up to France in Tunisia and Algeria, suggesting general interest in the region is growing.

"We are not looking to displace France in the Mediterranean, as some voices have suggested," says Gianfranco Varvesi, an Italian diplomat, "but we are increasing our investments in the region. And for very selfish reasons, we want a stable region, and we very desperately need Algerian [natural] gas."

Whether this means Europe is moving toward a western Mediterranean free-trade zone remains uncertain. At their Lisbon summit last June, EC leaders indicated an intent to create such a zone, making specific reference to exploratory talks with Morocco. A high EC official who has initiated similar discussions with Tunisia, predicts a free-trade zone with the Maghreb "on the horizon of the year 2000."

Thierry Bechet, chief of staff for Abel Matutes, EC commissioner for Mediterranean Affairs, says: "What the US is developing with Mexico ... will be a model for how we approach the Maghreb."

While official response on both sides has been positive, private observations are often less enthusiastic. "It's the right direction, but still a long way off," says a high-ranking official in the French foreign ministry - words echoed in Italy, let alone in northern Europe where attention is more focused on Eastern Europe.

Support for a free-trade zone is not unmitigated in the south, either. "If Europe proposed a free-trade zone for tomorrow, I'd have to say no," says Lahlou. "It would be the elephant confronting the fly."

Ironically, the Maghreb's proximity and historic ties to Europe may actually make deeper economic integration more difficult, complicated by fears of neocolonialism in the south and protectionist tendencies in the north. "With all the trouble a business can face investing and creating jobs somewhere else, it can be easier to quietly set things up far off in Asia than just across the Mediterranean," he adds. "With all the personal links, it's impossible to keep a secret."

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