Guide to Economic Development in the Global Auto Industry - S6

significant amounts of parts from Moroccan
suppliers.
"This was a very rational decision," he said.
"It wasn't emotional at all."
In June 2015, PSA signed an agreement to
invest $650 million in the plant.

MOROCCO'S OFFERINGS
Morocco laid the groundwork to develop
its industrial sector about 15 years ago,
designating several free trade
zones that included a standing
offer of generous incentives
to foreign companies, and
promises to increase its pool of
skilled workers. One of those
zones, Tanger Med, in the north,
already had landed a Renault
factory with annual capacity
of 400,000 vehicles annual that
started operations in 2012, as
well as a host of suppliers and
related businesses. Another zone,
the Kenitra Atlantic Free Zone,
half-way between Tangier and
Casablanca, would be PSA's new
home.
Benefits offered to PSA and
other automotive businesses to locate in
the Atlantic Free Zone start with five years'
exemptions from corporate taxes, with a rate
of 8.75 percent over the following 20 years.
Companies also are exempt from value-added
tax and customs duties. The government will
subsidize up to 20 percent of total capital
expenditures. In the Kenitra factory's case, PSA

PSA Group CEO Carlos Tavares (right) tours the
Kenitra site, scheduled to launch production in 2019.

6

E C O N O M I C D E V E L O P M E N T G U I D E / J U LY 2 0 1 8

holds 95 percent of the shares of the company
that is operating the site, which was financed
by a combination of company equity, subsidies
and private banks.
"We have flexibility and we have no
constraints from the EU," said Qalam,
referring to European Union limits on the
amount of incentives that member countries
can offer to woo industry.
Still, the bedrock on which Morocco's
attractiveness rests is its low labor
costs. Fawad Ahmad, an analyst
with IHS Markit who has studied
the region, says automotive wages
are 73 percent less than in Spain
and considerably lower than in
Eastern Europe. Ahmad adds
that wages have been on the rise
in Eastern Europe as very low
unemployment put pressure on
employers.
"We'll have no difficulty
finding resources," Quemard said,
noting that a number of French
universities have set up branches
in Morocco. "Hiring and training
was a little challenging, but it
wasn't any different than any
other emerging market. It takes time."

PSA'S PART OF THE DEAL
To take advantage of Morocco's incentives,
PSA had to agree to export 85 percent of the
vehicles it builds there. They are most likely to
be subcompact and compact models built on
the group's new CMP architecture, developed

with its Chinese partner Dongfeng. Quemard
would not confirm which models they will
be, but analysts say the next-generation
Peugeot 208 will be the flagship model,
possibly followed by new versions of the
Peugeot 301 and Citroen C-Elysee sedans for
emerging markets. Production lines will be
up and running in spring 2019, with initial
annual output of 90,000 units.
"This plant will start with a new car, so
the timing will be led by the launch of the
product," Quemard said. "If the product had
been launched earlier, we would have been
ready to build it." The first prototypes will
be assembled this summer to verify quality,
processes and equipment.
Its engine - likely to be the EC5 1.6 liter
naturally aspirated 4-cylinder - begins
production soon. "We'll start exporting the
engines this year," Quemard said.
The vehicles initially will be earmarked for
sale in Africa, but Quemard did not dismiss
the possibility that some could be exported
to South America or even Europe.
In the end, the plant was completed months
ahead of schedule.

SUPPLY BASE
Practicing just-in-time production means
that an auto assembly plant must have a
network of suppliers close at hand. For the
Morocco project, some already were in place.
Last year, PSA imported 500 million euros
($586 million) worth of Moroccan-made parts
for its European factories, Quemard said.
"Renault opened the way," he said of his
competitor's local supply chain. "And when we
decided to do this project, it was the deciding
factor for a number of suppliers. They had been
considering Morocco, but they jumped because
there are now two OEMs localizing there."
PSA will draw from a network of 50
suppliers in the country, he said. The vehicles'
local parts content will start at 60 percent and
increase to 80 percent. To reach that level, PSA
will be required to purchase at least 1 billion
euros ($1.17 billion) worth of parts by 2022,
according to its sourcing agreement with the
Moroccan government.
Big names moving into the Kenitra
industrial park include Adient, which opened
a fabric-coating facility there at the end of
May. Nexteer broke ground last month. Other
new operations are coming from Faurecia,
Lear and Mecaplast.
"Building a plant using local resources takes
some adaptation," Quemard said, "But what I
can tell you is that we are absolutely on track."



Table of Contents for the Digital Edition of Guide to Economic Development in the Global Auto Industry

Guide to Economic Development in the Global Auto Industry - Intro
Guide to Economic Development in the Global Auto Industry - S1
Guide to Economic Development in the Global Auto Industry - S2
Guide to Economic Development in the Global Auto Industry - S3
Guide to Economic Development in the Global Auto Industry - S4
Guide to Economic Development in the Global Auto Industry - S5
Guide to Economic Development in the Global Auto Industry - S6
Guide to Economic Development in the Global Auto Industry - S7
Guide to Economic Development in the Global Auto Industry - S8
Guide to Economic Development in the Global Auto Industry - S9
Guide to Economic Development in the Global Auto Industry - S10
Guide to Economic Development in the Global Auto Industry - S11
Guide to Economic Development in the Global Auto Industry - S12
Guide to Economic Development in the Global Auto Industry - S13
Guide to Economic Development in the Global Auto Industry - S14
Guide to Economic Development in the Global Auto Industry - S15
Guide to Economic Development in the Global Auto Industry - S16
Guide to Economic Development in the Global Auto Industry - S17
Guide to Economic Development in the Global Auto Industry - S18
Guide to Economic Development in the Global Auto Industry - S19
Guide to Economic Development in the Global Auto Industry - S20
Guide to Economic Development in the Global Auto Industry - S21
Guide to Economic Development in the Global Auto Industry - S22
Guide to Economic Development in the Global Auto Industry - S23
Guide to Economic Development in the Global Auto Industry - S24
Guide to Economic Development in the Global Auto Industry - S25
Guide to Economic Development in the Global Auto Industry - S26
Guide to Economic Development in the Global Auto Industry - S27
Guide to Economic Development in the Global Auto Industry - S28
Guide to Economic Development in the Global Auto Industry - S29
Guide to Economic Development in the Global Auto Industry - S30
Guide to Economic Development in the Global Auto Industry - S31
Guide to Economic Development in the Global Auto Industry - S32
Guide to Economic Development in the Global Auto Industry - S33
Guide to Economic Development in the Global Auto Industry - S34
Guide to Economic Development in the Global Auto Industry - S35
Guide to Economic Development in the Global Auto Industry - S36
Guide to Economic Development in the Global Auto Industry - S37
Guide to Economic Development in the Global Auto Industry - S38
Guide to Economic Development in the Global Auto Industry - S39
Guide to Economic Development in the Global Auto Industry - S40
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