Cablegate: Donor Community Programs in Morocco

VZCZCXRO5458
RR RUEHLMC
DE RUEHRB #1677/01 2511709
ZNR UUUUU ZZH
R 081709Z SEP 06
FM AMEMBASSY RABAT
TO RUEHC/SECSTATE WASHDC 4625
INFO RUEHTU/AMEMBASSY TUNIS 9045
RUEHCL/AMCONSUL CASABLANCA 2110
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC

UNCLAS SECTION 01 OF 05 RABAT 001677

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/PI AND NEA/MAG
STATE PASS TO USAID CJUDGE

E.O. 12958: N/A
TAGS: EAID ECON EFIN KMCA MO
SUBJECT: DONOR COMMUNITY PROGRAMS IN MOROCCO

REF: A. RABAT 176

B. RABAT 661

This cable is sensitive but unclassified - protect
accordingly.

1. (U) This is the third part of a three part series on
international donor activities in Morocco. Part 1 (ref A)
covered the World Bank while part 2 (ref B) discussed the
European Union's Barcelona Process.

2. (U) Summary. A wide variety of international donor
organizations are present in Morocco and many have
increased their activities in recent years as the GOM has
demonstrated a new openness to political reform, social
inclusiveness and economic liberalization. Donors are
generally favorable towards Morocco as a recipient country,
but see implementation as slow and feel that the GOM could
do more to coordinate donor assistance. Many believe King
Mohammed VI's year-old National Initiative for Human
Development (INDH), offers a potential vehicle for such
coordination, but are skeptical of its current managerial
capacity. The Government of France (GOF) is the largest
bilateral donor in Morocco and recently announced a new
five-year $1.15 billion program in addition to its existing
programs. Leading areas of interest for the donor
community include infrastructure, education, water and
waste water, agriculture, environmental protection, health
care, finance, housing and social issues. Assistance
projects are predominately financed by loans but also
include grants. End summary.

-------------------------
FRENCH PROGRAMS
-------------------------

3. (SBU) The new GOF project redefines France's position
as Morocco's largest bilateral donor. The bulk of the
funding is allocated to 4 sections: basic education and
training (25%); job creation, business modernization,
loans, microcredit loans, loan guarantees, and risk capital
(30%); social and economic infrastructure projects such as
social housing, rural electrification, rural roads, and
rural potable water projects (24%); and water treatment and
sewage projects (7%). More modest sums are allocated to
rural health; cross cutting programs (in the fields of
governance, judicial reform, security, and drug
interdiction); culture (music, dance and libraries); and
French language programs (in science and business). The
French Embassy tells us that funding will also be used to
promote south-south cooperation with Sub-Saharan countries,
and the 900,000 Moroccans living in France. The GOF plans
to encourage the Moroccan migrs to increasingly
repatriate money to develop the economy, enlist them to
help provide training for Moroccan businesses, and assist
the development of the Moroccan tourism industry by
building low priced accommodations.

4. (SBU) The GOF usually contributes approximately $280
million per year to assistance programs in Morocco,
including its contributions to those under the umbrella of
the European Union (EU), of which more than $100 million is
from the French Development Agency (AFD). The AFD has been
active in Morocco for 15 years offering loans with
concessional interest rates and grants. Originally, it
concentrated on infrastructure projects such as power
plants, rural roads and dams, but for the past three years
has focused on social programs such as education, health
care and microcredit lending. The AFD promotes the idea
that the people implementing assistance should be Moroccan
and 38 percent of its total commitments in Morocco go to
private sector organizations. The AFD is one of the more
successful international donors as far as coordinating its
efforts with others. It currently has joint financing
projects with the World Bank, the African Development Bank
(AFDB), the Japanese International Cooperation Agency
(JICA), and the Moroccan National Water Company (ONEP).
The AFD has worked on water issues for most or its
existence in Morocco and the sector still accounts for the
largest part of its portfolio here. The AFD feels water
is an excellent issue for the INDH to manage and use to
coordinate the efforts of the international donor
community.

5. (U) The GOF's largest non-AFD program is to pay for
30,000 Moroccan university students to study in France at a
cost of over $100 million per year. This is a

RABAT 00001677 002 OF 005

long-established program in which many high ranking GOM
officials have participated. France also pays $38 million
per year to maintain 30 French elementary schools in
Morocco. Still other GOF assistance programs include job
training, microcredit lending, and a $38 million project to
help restructure small-to-medium size enterprises' (SME)
short-term debt. In addition, infrastructure projects
include helping Morocco connect its electrical grid to
those of Spain and Algeria, and improve its railroad
system. There is a $19 million program for drought
alleviation. Finally, the French are also working to
improve Morocco's system of land titling, where reportedly,
rural law enforcement is inconsistent and hampers
privatization of small farms.

-----------------------------------
OTHER EUROPEAN DONORS
-----------------------------------

6. (SBU) Most European countries channel the bulk of their
assistance efforts in Morocco through programs of the EU
(see ref. B). However, many EU members maintain bilateral
programs as well that allow them to concentrate on areas of
particular interest to them. The office of the European
Commission in Rabat has organized the EU Cooperation
Council to help coordinate the efforts of the international
donor community. It welcomes non-EU members and meets on a
regular basis. Besides EU countries, the Council also
includes representatives from the U.S., Canadian, Swiss and
Japanese Missions in Morocco, the United Nations
Development Program, and the European Investment Bank and
the World Bank. Unfortunately, efforts to increase
cooperation between donors remains elusive. Three years
ago, discussions showed that donors manage their work
differently and much aid is tied to purchases of goods and
services from the donor country. In addition, collecting
information on donor programs is difficult because some
countries do not want to share information and donors do
not always have accurate statistics. However,
(predominately European) donors have been successful in
establishing a number of thematic groups to coordinate
planning in areas such as the INDH, water, rural
development, education, housing, women's issues and
protection of oases. Council members note that the INDH
program has great potential to promote greater cooperation
between donors and that the GOM has asked "almost everyone"
for funding to support the INDH. Privately, however, most
Council members have expressed concern over how the INDH
would be managed and whether the GOM was up to the
task.

7. (SBU) The Government of Germany (GOG) has historically
been the largest bilateral donor in Morocco after France
and has been active in the country since the 1960s. For
the two-year-period of 2004-05 it committed $137 million
for assistance programs in Morocco (actual disbursements
will vary depending on progress in individual projects).
Of this amount, $13 million will come in the form of grants
for technical assistance while loans will account for the
rest. Currently, the GOG concentrates its assistance
efforts in three fields: water and sanitation,
environmental protection and economic growth. Kordula
Melhart, Cooperation Counselor of the German Embassy, told
econoff that the GOG's greatest successes have come in the
field of water and sanitation where Germany is one of the
leaders in Morocco. She added that the GOG would like to
cooperate with other donors on water projects, but it was
waiting for the GOM to develop a coherent plan for its
water resources.

8. (SBU) In the field of environmental protection, the GOG
concentrates on renewable energy and is coordinating its
efforts with the GOF and hoped to also work with the
Belgium Embassy in the future. The GOG concentrates its
efforts in the field of economic growth on job creation and
training. It recently established a microcredit program
and is working with the GOF, the International Finance
Corporation and the European Investment Bank. Melhart said
that the GOG does not advance funds directly to the GOM for
assistance work. Instead, the GOM submits bills for
expenses incurred and the GOG reimburses it. In principle,
the information is reported to the Ministry of Finance
(MOF), but she was not certain that this actually
happened. Melhart added that one of the largest challenges
to German assistance efforts in Morocco is getting the GOM
to implement programs on a timely basis.

RABAT 00001677 003 OF 005

9. (SBU) The Government of Spain (GOS) is another major
donor to Morocco, with most assistance targeting northern
Morocco and are linked to Spanish exports or foreign
investment. The GOS currently has a $25 million program to
finance Moroccan SMEs that buy Spanish goods. Spain was
one of the earliest countries to pledge funds to the INDH
and has offered $38 million over the 2006-09 time frame for
health care, housing and education. In addition, the GOS
has a $50 million debt conversion program for private
investment and donated $12 million for reconstruction
efforts after the 2004 Al Huceima earthquake in northern
Morocco. Although not an assistance program, the GOS has
additional ties to Morocco because it buys CO2 credits from
the GOM as part of the Kyoto Accord. Spanish officials
reported that the GOS always works directly with the MOF
for its assistance programs.

----------------------
OTHER DONORS
----------------------

10. (SBU) The Government of Saudi Arabia (GOSA) is a major
contributor to assistance programs in Morocco, but it does
not coordinate either with other donors or among its
various programs, which are often financed by different
individuals within the Saudi royal family. For example,
following the aforementioned earthquake, the GOSA donated
$50 million for relief efforts. Another time, a Saudi emir
donated $30 million to finance two hospitals, one
specializing in the treatment of cancer in Agadir and
another focusing on children's ailments in Erricchedia.
Also, several years ago, following the sinking of a Saudi
oil tanker off the coast of Morocco, the GOSA gave $50
million to the GOM to cover the cost of cleaning up the
ensuing oil spill. However, when the wind changed
direction and blew the oil spill out to sea, the GOSA
allowed the GOM to keep the money to build Alakhaywayn
University instead.

11. (SBU) When one time donations are made by the GOSA or
its citizens, the funds are sent to the Saudi Embassy in
Rabat and transferred to the Ministry of Interior in
tranches to assure that the work is being done properly.
In addition, there is a joint committee of the GOM and the
GOSA to decide how the money is to be spent. The GOSA only
gives assistance funds to the GOM, or an NGO recognized by
GOM. In either case, the funds are controlled by GOM.
The GOSA also works through the Saudi Fund for Development
to establish more traditional assistance programs.
Historically, this fund has concentrated on children's
issues, building roads, assisting the handicapped and
locust alleviation. The GOSA has cooperated with the World
Health Organization in Morocco, but it generally does not
coordinate with other donors in the country.

12. (SBU) The Government of Kuwait (GOK) has participated
in development projects in Morocco since the 1970s through
the Kuwait Fund, and in the past 10 years has contributed
over one billion dollars in aid. Most of its assistance
comes in the form of low interest loans. Since 1996, the
Kuwait Fund has financed projects in the following sectors:
agriculture irrigation and dams ($391 million), highways
($339 million), water and sewage ($140 million), energy
($107 million), development bank activities ($40 million)
and industrial projects ($11 million). Since 2000, the
level of assistance has diminished as the GOM seeks to
re-focus Kuwaiti funding towards foreign investment and
away from assistance projects. All Kuwaiti funding goes
directly to the GOM and bypasses NGOs altogether. To
access the money, the GOM undertakes a technical study and
then presents its findings to the Kuwait Fund.

13. (U) The Government of Japan (GOJ) has been active in
the field of assistance in Morocco since the late 1970s and
has provided approximately $1.3 billion in loans and $240
million in grants to the GOM. Japanese programs have
predominately focused on the fields of fisheries,
agriculture, water, health care and culture. Currently,
Japan concentrates its efforts in three fields. First, the
GOJ offers long-term credit with concessional interest
rates to finance infrastructure projects such as rural
roads and electrification. Second, it offers grants for a
fisheries research center. Finally, the Japanese
International Cooperation Agency provides experts to help
upgrade Moroccan institutions to meet the challenges of
economic globalization.

RABAT 00001677 004 OF 005

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MULTILATERAL PROGRAMS
----------------------------------

14. (SBU) The World Bank plays a leading role in
assistance activities in Morocco and its programs were
discussed in ref. A. The European Development Bank (EDB)
works in four major fields in Morocco. It makes long-term
concessional loans for infrastructure, energy, water and
waste water projects. It also supports the private sector
by assisting SMEs, operating an investment fund, offering
risk capital, and participating in microcredit projects.
The EDB also has environmental projects, most of which
focus on waste water programs for major cities. Finally,
the bank has a number of social programs related to
education, health care, rural roads ($75 million over the
last 10 years), social housing, and modernizing 17 Moroccan
hospitals ($50 million over the next five years).
Representatives of the EDB express concern that Moroccan
SMEs lack transparency, a claim widely shared throughout
the country, but are encouraged that the World Bank is
taking action to improve the situation. They also said
that Morocco's economy was evolving well, but felt that
social areas such as health care and education lag behind
international standards and that they need more investment
than infrastructure projects.

15. (U) The Islamic Development Bank (IDB) conducts three
types of projects in Morocco, project finance, trade
finance and insurance, and technical assistance. Its two
main technical assistance programs involve working with
NGOs to reduce poverty and advance women's issues, and
promote cooperation between North African and West African
countries to support the training of mid-wives and to
assist SMEs. Technical assistance from the IDB helps
transfer knowledge between its 56 member states. The
bank's major projects in Morocco include financing for
highways, electric utilities, potable water, railroads, a
refinery and dams. IDB representatives admitted the bank
does not coordinate much with other donors.

16. (SBU) The United Nations Development Program (UNDP)
has a smaller assistance budget in Morocco than its
counterparts (approximately $7 million in 2005), but it is
an active player in promoting cooperation among donors.
Its major programs include governance, environmental
protection, poverty reduction and human rights.

------------
THE GOM
------------

17. (U) The MOF coordinates the GOM's foreign assistance
funding including those going to public enterprises. The
MOF reported that in 2005 foreign assistance funding
increased 20.5 percent from 2004 to approximately $2.4
billion and this in turn followed a 31 percent increase
from 2003. Of this amount, 54 percent went directly to the
Moroccan Treasury for redistribution and 46 percent went to
public enterprises such as the Highway Department, the
National Electric Agency and the National Water Company.
The MOF reported that 76 percent of assistance funds came
from multilateral sources and 24 percent from bilateral
donors. Grants, mostly from the EU, accounted for five
percent of assistance funds and loans accounted for the
other 95 percent. Approximately one-third of these loans
carried concessional interest rates while the rest were
close to market rates.

18. (SBU) Several officials from the donor community
expressed frustration with the GOM for its lack of
promoting cooperation among donors. One even said the GOM
often plays donors off against one another thereby
promoting competition for bigger programs rather than
cooperation. The same person noted the 2005 Paris
Declaration meeting in which Morocco was selected as one of
14 countries to participate in a pilot program to promote
coordination among donors. Unfortunately, GOM
representatives reportedly never attended any of the
subsequent meetings for the program, claiming that they
were too busy. Donors also said that the MOF's official
assistance statistics were understated because they omit
many bilateral assistance programs and do not include
assistance from Arab countries although they felt the MOF
could get the information. Many donors commented on the
slow pace of implementation of assistance projects in
Morocco and one said that of the numerous developing world

RABAT 00001677 005 OF 005

countries in which she had worked Morocco was the poorest
in terms of timely implementation of projects.

--------------
COMMENT
--------------

19. (SBU) Following the 2003 Casablanca bombings and the
GOM's ensuing pursuit of political reform, social
inclusiveness and economic liberalization, Morocco has
become somewhat of a darling of the international donor
community. Contributions of assistance have grown in
recent years and the types of programs the GOM has pursued
have expanded widely beyond infrastructure project and into
fields related to social conditions. Still, many donors
complain that project implementation is too slow (see refs
A and B) and there is insufficient coordination among
donors. Fortunately, donors have made advances in
cooperating through thematic groups that address various
issues. While the donors hope the INDH program can be a
catalyst for the GOM to improve coordination efforts among
them, they remain skeptical that the GOM has the expertise
and the desire to do this. Members of the donor community
have shown great interest in the Millennium Challenge
Account and the organization's representatives have
consulted regularly with other donors during their visits
to Morocco. In addition, the rise in social programs
compliments similar programs contained in the USG's Middle
East Partnership Initiative. The USAID program in Morocco
is well-established with the donor community and will be of
great assistance as the Mission attempts to coordinate with
other donors where feasible.

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