FDI: How to boost reinvestment

Despite the strong increase in the stock of foreign investments, the share of reinvested profits remains low and does not exceed 20%, presenting a shortfall for the national economy.

The reinvestment rate in Morocco remains far from the world average. This is one of the main conclusions of a study by the Policy Center for the New South (PCNS) entitled “Reinvestment of FDI in Morocco: A potential to be exploited”. The authors of the study first recall that Morocco’s attractiveness to foreign direct investment has improved significantly over the past two decades. “The improvement of the business climate as well as the adoption of export-oriented sectoral strategies have encouraged many multinational firms to settle in Morocco. The stock of FDI has thus increased from 10 billion dollars in 2000 to 73 billion dollars in 2021, i.e. an average annual growth of 10%”, underline the authors of the report. However, this growth should not hide certain aberrations, in this case that of the low amounts reinvested by these companies.
It should be noted that one of the relevant criteria which makes it possible to judge the sustainability of FDI in a country is the reinvestment of their income from a first investment. Thus, reading the data on FDI income in Morocco reveals that direct investors are less inclined to reinvest the profits collected and nevertheless prefer to repatriate their dividends. These represent an average share of 75% over the past two decades.
On the other hand, although it has recorded strong growth between 2005 and 2021, the share of reinvested earnings remains low and does not exceed 20%, well below the averages observed elsewhere in the world, thus presenting a shortfall in win for the Moroccan economy.
The study thus recommends the implementation of tax incentive measures like some countries. Tunisia, for example, has adopted a tax relief for foreign companies that reinvest within the limit of 35% of net profits subject to corporate tax. China, meanwhile, has expanded tax benefits for foreign investors by exempting them from income tax withholding applied to the reinvestment of profits made in China. Italy has also introduced a reduced tax rate for profits reinvested to acquire assets or increase employment. Examples that could inspire Morocco to increase the reinvestment rate, since the current low rate could represent “a bad sign, jeopardizing Morocco’s economic attractiveness”, warns the study.

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