World Bank: Morocco’s private sector lags despite economic progress

Morocco must enact deep structural reforms to boost its private sector and meet the demands of a rapidly growing labor force, according to a new report from the World Bank.

Despite steady economic growth in recent years, the report finds that Morocco’s private sector remains stagnant, with low business turnover and sluggish productivity. The findings come amid projections that roughly 300 million young people across the MENA region will be seeking jobs by 2050.

In Morocco, only 6% of businesses are newly registered each year, compared to 11% in countries such as Colombia. Exit rates are similarly low, between 6% and 8%, reflecting weak market dynamism and limited competition.

“The private sector is not dynamic enough,” the report states, pointing to underwhelming productivity growth of just 2.2% annually—well below the country’s potential given its infrastructure and human capital.

The World Bank warns that inefficient companies remain in the market longer than they should, while more productive firms struggle to scale. The result is a misallocation of resources that slows overall economic progress.

Climate Change and Investment Risk

Compounding these challenges are the effects of climate change. Droughts—measured by deviations from historical rainfall levels—can slash company sales by up to 40% and reduce labor productivity by about 42%. Much of this is due to the heavy reliance on temporary workers, whose attendance and performance drop during extreme weather conditions.

Droughts also undercut private investment. In the aftermath of severe dry spells, the share of firms planning to invest falls by nine percentage points. The reasons include reduced revenues, increased debt, and tighter access to credit, with rising interest rates reflecting higher financial risks.

Data Gaps and Labor Market Tensions

While Morocco has conducted a comprehensive economic census—something rare in the region—the report highlights a continuing need for greater data transparency and access. Improved data could help policymakers better analyze market trends and design more effective reforms.

Another persistent issue is the tug-of-war over talent between the public and private sectors. Around 8.25% of Moroccan workers are employed in government jobs, a figure lower than Iraq or Djibouti but still enough to create a “brain drain.” Public sector positions offer greater stability and benefits, pulling skilled workers away from private firms that need them to grow.

A New Role for the State

Ultimately, the World Bank urges Morocco to rethink the role of the state—not as a market player, but as a facilitator. That includes fostering a more competitive business environment, improving access to finance for small and mid-sized enterprises, and expanding opportunities for women and youth.

“The path forward lies in empowering the private sector,” the report concludes, “to unlock growth and provide meaningful employment in a changing economy.”