Italy and Morocco Move Toward a Strategic Economic Partnership.
For the past ten years, Italy and Morocco have been two of the most economically dynamic countries in the Mediterranean basin. Morocco’s rise as a manufacturing and distribution hub for companies seeking to nearshore operations close to mature European end-markets, as well as emerging African end-markets, has created new potential synergies for a deeper Italy-Morocco commercial partnership. Recognizing the potential, Rome signed a strategic cooperation declaration with Rabat on November 1, 2019 that included the explicit goal of consolidating the economic, commercial and financial relations between the two countries. Focusing on the energy, industrial manufacturing, infrastructure development, and maritime sectors, the declaration established greater Italy-Morocco value chain integration as a diplomatic priority.
During the year prior to the declaration and then in period immediately following its signing, several Italian automotive component manufacturers opened either their first plant or additional plants in Morocco. As a result, Italy-Morocco commercial cooperation now forms one of the key pillars of the Kingdom’s automotive manufacturing value chain. Building on already existing industrial cooperation, Rome and Rabat are now eyeing cooperation in green energy. As Italy moves beyond natural gas, Rome has the opportunity to rebalance its hydrocarbon-oriented energy diplomacy and engage Rabat in the renewable energy and green hydrogen sectors. Building upon their experience in the automotive sector, Italy and Morocco can utilize their commercial synergies to develop green energy value chains.
Rome’s Re-balancing in the Maghreb?: Perceptions and Realities
By strategically focusing on markets in what Italian policy makers have termed ‘il Mediterraneo allargato’ (the enlarged Mediterranean), Italy has become the European Union’s second largest manufacturer. Prior to the COVID19 pandemic, the value of Italy’s sold production exceeded that of France by one-third. A crucial element for Italy’s GDP, Rome’s Mediterraneo allargato strategy has resulted in Italy’s exports to the Mediterranean basin far exceeding its exports to the United States and China respectively. When examined from the perspective of comparative trade data, Morocco appears to be of secondary commercial importance for Italy in the Mediterranean region. In 2021, Italy was Morocco’s sixth largest source of imports, with the value of Italian goods imported by the Kingdom totaling $2.97 billion. Although significant, the value of Spain’s 2021exports to Morocco were three times that of Italy and the value of France’s exports were double. Similarly, Italy was Morocco’s fifth largest export market in 2021, with the value of Moroccan goods purchased by Italy totaling $1.56 billion. The value of Moroccan exports to Spain ($7.87 billion) and France ($7.52 billion) respectively were more than quadruple the export volume to Italy.
The fact that Spain and France’s bilateral trade volumes with Morocco – $17.1 billion and $13.71 billion, respectively –considerably exceed the $4.53 billion Italy-Morocco trade volume has created an impression that Italy’s commercial orientation in the Maghreb is unbalanced, favoring Morocco’s neighbors. The discrepancy is more striking when considering Italy’s 2021 volume of bilateral trade with Algeria ($9.12 billion) is more than double Italy’s bilateral trade with Morocco. Italy was Algeria’s top export market in 2021. Italian imports amounted to $6.62 billion, reflecting Italy’s importation of Algerian natural gas. In 2021, Algeria supplied 23% of Italy’s piped gas imports as well as 23% of its LNG imports. Italian energy major Eni, under the de facto control of the Italian government, is the leading foreign partner of Algeria’s state-owned oil and gas company Sonatrach. The relationship deepened further on May 26, 2022, when Eni and Sonatrach signed an agreement to boost the volume of Algerian piped gas sent to Italy by 26% to help compensate for Italy’s loss of Russian supplies.
The Algeria-Italy energy relationship and Eni’s large oil and gas assets in western Libya near the Algerian border have traditionally tilted Rome’s diplomatic attention in the Maghreb toward Algeria. Italy’s central Mediterranean geography also plays a role. Rome has long promoted trilateral energy interconnectivity between Algeria, Tunisia, and Italy, the most emblematic symbol of which is the Trans-Mediterranean (Transmed) natural gas pipeline. Owned jointly by Eni and Sonatrach, the 2,475 km Transmed pipeline is one of the longest in the world, spanning Algeria, Tunisia, Sicily, and the Italian mainland. The electricity grids of Algeria, Tunisia, and Italy similarly are scheduled to become interconnected in 2025 upon the completion of a 192 km-long, 600MW undersea cable between Tunisia and Sicily.
Yet when viewing Italy’s economic engagement in the Maghreb beyond the scope of Rome’s energy relationship with Algiers and Tunis, the significance of Italy’s economic relationship with Morocco comes into clearer focus. Morocco has emerged as a better export market for Italian goods than Algeria. In 2021, Morocco’s import of Italian goods surpassed Algeria’s import of Italian goods by 17%. Reflecting the advances in Morocco’s manufacturing ecosystems and the growth of its consumer markets, Italy-Morocco bilateral trade tends to involve higher value-added products. Morocco’s main category of exports to Italy is automobiles and automotive components reflecting Italy’s integration into Morocco’s automotive manufacturing value chain. In 2020, automotive exports to Italy totaled over a half a billion dollars, representing about one-third of the Kingdom’s total exports to Italy.
The robust participation of Italian firms in Morocco’s automotive ecosystem exemplifies how the commercial synergy between Italy and Morocco functions as a win-win partnership and serves as an important model for how the partnership can be expanded to other economic sectors.
Italy’s Integration into Morocco’s Automotive Manufacturing Value Chain
One of the most important firms operating in Morocco’s automotive ecosystem is the Geneva-headquartered, Franco-Italian semiconductor manufacturer STMicroelectronics. The semiconductor integrated circuits (‘microchips’) manufactured in the company’s plant in Bouskoura have helped ensure the resilience of the automotive microchip supply chain amidst global shortages. The expansion of the Bouskoura plant’s capacity to produce microchips for electric vehicles (EVs) was a contributing factor in Morocco’s advance into EV manufacturing, with the Kingdom now aiming for a 2025 annual production capacity of 300,000 EVs. Even leaving aside STMicroelectronics’ Morocco operations, the role that Italian firms are playing in Morocco’s automotive industry is significant, both by virtue of the number of factories in the Kingdom and on account of the diversity of specialized components they produce to support the Moroccan automotive manufacturing ecosystem.
The Italian wiring harness company SEWS Cabind, now owned by Japan’s Sumitomo, has three production sites in Morocco that supply Fiat Chrysler’s factories outside of the Kingdom. Headquartered in Collegno near Turin, the company has had a long presence in Morocco’s automotive ecosystem opening its first plant in 2001. With two additional plants in the Kingdom, SEWS Cabind’s total Moroccan workforce numbers 6340 employees. Lombardy-based Magneti Marelli, now part of the U.S.-headquartered Marelli conglomerate, operates two plants in Tangier employing a combined 700 persons. Tangier and Casablanca are the sites of Renault’s automobile factories. Magneti Marelli built its second plant in 2018, the same year that Lombardy-headquartered MTA Automotive Solutions, a leading Italian company in the production electrical and electronic automotive components, opened €42 million facilty in Kénitra near the site of Peugeot’s factory, which inaugurated its operations in 2019. MTA’s plant is expected to employ 450 persons upon the 2024 completion of its final phase development. In 2021, Peugeot’s parent company Groupe PSA merged with Fiat Chrysler in 2021 to form the Stellantis conglomerate further facilitating Italy’s integration into the value chain. Consequently, Fiat will begin to produce its new mini-electric car model at the Kénitra plant where Peugeot is already manufacturing a similar electric vehicle.
Many Italian automotive component manufacturers in Morocco are smaller, generally employing 30 to 150 persons, but their output of essential components is crucial for the smooth functioning Morocco’s automotive manufacturing ecosystem. Most of these firms opened their plants during 2018-2020, the period directly before and after the signing of the Italy-Morocco strategic partnership declaration. Almost all of the firms are headquartered either in the Piedmont region in or near Turin or in the Lombardy region in or near Milan, suggesting that regional and municipal government-to-government and business-to-business relationships could play a vital role in advancing Italian-Moroccan business relations in industries outside the automotive sector.
Green Energy Value Chains: A New Frontier of Italy-Morocco Commercial Cooperation
Renewable energy offers Italy the opportunity to recalibrate its energy diplomacy beyond the confines of the Maghreb’s geography of natural gas deposits. Such a recalibration has taken place with the engagement of Italian firms in Morocco’s wind power sector. Enel Green Power (EGP), the renewable energy arm of Italy’s multinational power giant Enel, operates two wind power plants in Morocco with a combined installed capacity of 527 MW. Upon completion of the company’s third plant in the Kingdom currently under construction, EGP’s total wind power capacity in Morocco will be 807.8 MW. In 2019, five days before the signing of the Italy-Morocco strategic cooperation declaration, EGP signed a cooperation agreement with Morocco’s Research Institute for Solar Energy and New Energies (IRESEN) for a wide range of research and development (R&D) activities in renewable energy production, storage, and distribution. Since Italy’s Ministry of Economy and Finance is the largest shareholder in EGP’s parent company Enel, the collaboration symbolizes a new direction in Italy’s energy diplomacy in the Maghreb.
Rome’s new approach was also demonstrated during the 2022 natural gas crisis in the wake of Russia halting gas flows to Europe in Spring 2022. In mid-April 2022, Italy’s then Prime Minister Mario Draghi visited Algeria to secure additional natural gas supplies to help offset the country’s supply shortfall. Immediately following the agreement with Algiers, then Foreign Minister Luigi Di Maio, who had signed the 2019 strategic cooperation agreement with his Moroccan counterpart Nasser Bourita and remained in his post under the subsequent Draghi government, phoned Bourita to reiterate Italy’s position that “Morocco is a strategic partner and a key interlocutor of Italy in the region.”
One important advance for Italy-Morocco green energy value chain cooperation was the October 2021 agreement between Italian cranes and logistics company Paradiso Fratelli SRL, an international specialist in wind turbine installations, and Morocco’s Somalev Cranes & Logistics to form a joint venture partnership called PSA Wind Services. As the company’s initials PSA ( ‘Paradiso Somalev Africa’) indicate, the joint venture aims to install wind power plants in Morocco as well as across Sub-Saharan Africa. In June 2022, the Italo-Moroccan joint venture carried out its first lifting, handling, and assembly engineering services at the new 150 MW wind farm being constructed in Taza, Morocco. With the addition of wind turbine component manufacturing in Morocco as well as R&D operations, as has occurred in the Kingdom’s automotive industry, Morocco could become the hub of a Euro-Africa wind power value chain. A similar potential exists for solar energy through the expanded production of solar cells and solar panels in the Kingdom.
One of the most promising opportunities for Italy-Morocco cooperation exists in Morocco’s drive to develop its green hydrogen production capacity. In contrast to conventional hydrogen, called “gray” hydrogen because it is produced from natural gas in a process that release large amounts of carbon dioxide, green hydrogen is carbon-free, produced by using renewable energy to split water into hydrogen and oxygen. Green hydrogen can then be combined with nitrogen from the atmosphere to make a green form of ammonia, which is a basic input for fertilizer production. As the world’s fourth largest fertilizer exporter but lacking natural gas production of its own, Morocco is seeking to replace its expensive natural gas-derived ammonia imports with green ammonia produced domestically from green hydrogen.
While Morocco has launched three promising green hydrogen projects with international partners, the Kingdom is still in the formative stages of developing its green hydrogen ecosystem. An opportunity exists for Italy to play an extensive role in Morocco’s green hydrogen value chain, as it does in the automotive sector. Significantly, the Italian multinational oil and natural gas services company Saipem and Italy-based Alboran Hydrogen signed a memorandum of understanding on March 4, 2021 for the joint construction of a green hydrogen plant in Morocco. While plant will be among five to be built by the consortium (three in Italy, one in Albania), the green hydrogen plant will be constructed to produce green ammonia and to supply Morocco’s fertilizer industry.
As global value chains become more localized in the Mediterranean basin while simultaneously transitioning to green energy, new synergies are developing for expanding commercial cooperation between Italy and Morocco. A focus on Italy-Morocco green energy cooperation would also enable Rome to rebalance its energy diplomacy in the Maghreb, which has been shaped by the geography of natural gas deposits. Italian firms already play a considerable role in Morocco’s automotive manufacturing ecosystem and the experience gained from Italy’s integration into the automotive value chain should be utilized in promoting Italo-Moroccan cooperation in developing green energy value chains in involving manufacturing and R&D operations in the Kingdom. The production of green hydrogen and especially its derivative green ammonia is a sector that holds great potential Italy-Morocco cooperation, helping the Kingdom develop sustainable, climate-friendly fertilizer production. Morocco has been significantly increasing its own high value agricultural exports while Italy is the world’s tenth largest agricultural food exporter. Moroccan-manufactured mineral fertilizers are becoming a fast-growing export to the Italian market, suggesting that Italy-Morocco green hydrogen cooperation should conducted within a wider framework of ensuring mutual food security and integrating value chains for the production of food exports.
Professor Michaël Tanchum is a non-resident fellow with the Middle East Institute’s Economics and Energy Program. He teaches at Universidad de Navarra and is a senior fellow at the Austrian Institute for European and Security Policy (AIES). The author would like to thank Rocco Schwerfel and Matilde Romito for their research assistance.