US embassy cable - 05RABAT197

UNCLAS SECTION 01 OF 02 RABAT 000197 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/MAG 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, MO, KMCC 
SUBJECT:  AMBASSADOR MEETS WITH ROYAL ADVISOR AZOULAY 
 
(U)  This message contains sensitive but unclassified 
material.  Please protect accordingly.. 
 
1.  (SBU)  Summary:  On January 20, the Ambassador spent 
over one hour exchanging views on economic development and 
promoting investment in Morocco with Royal Palace Advisor 
Andre Azoulay during a courtesy call to Azoulay's office. 
The typically subdued Azoulay was animated and energized 
during discussions of Morocco's participation the Millennium 
Challenge Account (MCA).  Azoulay and the Ambassador 
exchanged views on investors' positive responses and 
reactions to Morocco's business climate and to Government of 
Morocco (GOM) measures, which include liberalization 
policies, incentives, and negotiation of the soon to be 
implemented U.S.-Morocco Free Trade Agreement (FTA). 
Specifically Azoulay and the Ambassador discussed the film 
industry, textiles sector, and political risk insurance. 
The two also exchanged views on the lessons unsuccessful GOM 
housing projects.  End Summary. 
 
 
MCA 
 
2.  (SBU) After the Ambassador reviewed the details of the 
MCA and explained Morocco's eligibility, an energized and 
animated Azoulay enthusiastically embraced the concept, 
expressing appreciation that the USG was taking concrete 
actions - first the FTA, now MCA -- consistent with its 
commitments to support and promote reform in Morocco and the 
region.  The Ambassador encouraged Azoulay to press palace 
colleagues and the GOM to make progress on establishing an 
MCA steering committee and taking steps to propose elements 
of an MCA compact.  During a broad discussion of possible 
uses for MCA funds as part of a broad development and reform 
strategy, Azoulay and the Ambassador discussed the 
possibility of using MCA funds to back Morocco-specific 
"political risk" insurance for U.S. and other foreign 
investors as a way to encourage increased foreign direct 
investment.  Azoulay told the Ambassador he would travel to 
Davos for the World Economic Forum meeting and would seek 
out MCC CEO Paul Applegarth there to share his ideas and 
exchange views on Morocco's compact. 
 
FILM INDUSTRY 
 
3.  Azoulay outlined GOM incentives for the foreign film 
industry.  In contrast to other countries that give direct 
cash incentives, hoping the studios will spend even more 
during their stays in country, Azoulay explained, Morocco 
provides a package of cost saving measures to film companies 
who wish to use the geographically rich and diverse kingdom 
as a location.  In addition to a "virtually tax free" 
environment, the GOM provides government sites rent-free, 
provides transportation and makes national security 
personnel and soldiers available to the production teams. 
Ouarzazate - Morocco's cinema capital in the anti-Atlas - 
boasts world class sets, an increasing pool of skilled 
workers, and logistical support.  Dino De Laurentis has 
developed a modern sound studio there (recently inaugurated 
by King Mohammed VI).  Plus, Azoulay underscored, Morocco 
never charges for use of specific locations - be they 
seaside resorts, mountains or desert.  (Comment:  That U.S. 
and European studios continue to choose Morocco as a 
location indicates the strategy is working.  Studio 
officials remark to emboffs on the ease of obtaining permits 
and appreciate the access to GOM leaders.  Azoulay is an 
active and ardent supporter of cultural activities in 
Morocco, particularly of the annual film festival in 
Marrakech and the world-famous Gnaoua music festival in his 
family's hometown, Essaouira.) 
 
TEXTILES 
 
4. (SBU)  Turning to manufacturing investments, the 
Ambassador noted that after researching more than a dozen 
locations, including China, Fruit of the Loom (FOTL) had 
decided to invest USD 100 million to expand its operations 
in Morocco, creating up to 500 new jobs (and pumping at 
least USD 15 million annually into the local economy).  FOTL 
also plans to implement worker training programs and to 
participate in and contribute to GOM vocational training 
programs.  Azoulay and the Ambassador discussed that 
although Moroccan labor is not the least expensive, many 
other considerations tipped the scales, including worker 
productivity, affordable, reliable electricity, water, and 
fuel, modern transportation and port facilities (including 
the new Tangier Med-Port), and proximity to the European 
market.  The Ambassador noted that FOTL officials were also 
impressed by their access to the Prime Minister and other 
GOM decision-makers.  They were pleased to have been able to 
negotiate duty free import of capital goods and machinery. 
FOTL officials had told the Ambassador that the FTA's 
textile/garment market access provisions had also played a 
role in the decision.  Azoulay concurred, saying that FOTL 
as well as ST Microelectronics - a foreign owned producer of 
microchips that has decided to invest USD 325 million - are 
examples of companies already operating in Morocco that 
understand the advantages the kingdom offers. 
 
HOUSING PROJECTS 
 
5.  (SBU)  The Ambassador and Azoulay discussed lessons 
learned from failed GOM housing and resettlement projects. 
They expressed concern that the GOM had created unintended 
animosity and given potential fodder to extremists when in 
order to resettle slum-dwellers living on a garbage dump, it 
built new public housing apartment complexes (in one case 
next to an empty "industrial zone.")  The families that had 
once lived free of charge in shanties, tapping into 
electricity and water illegally, now must pay monthly 
mortgage (however low) plus utility bills.  The residents of 
the new housing projects are far from their old informal 
employment, but no new jobs are available and no vocational 
training has been provided.  While the slum was 
"unfortunate," extremist groups can and do set blame for the 
situation in the GOM housing scheme squarely at the feet of 
the government.  The Ambassador suggested the GOM consider 
new ways of tackling the "bidonville" slum question before 
it floats proposals to the MCA.