* X I - a Report No.1 1 918-MOR Kingdom of Morocco Poverty, Adjustment, & Growth (In Two Volumes) Volume I Main Report January 1994 Country Operationw Division Country Department I Middle East and North Africa Region FOR OFFICIAL USE ONLY MICROGRAPHICS Report No: 11918 MOR Type: ECO Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization CURRENCY AND EXCHANGE RATE Cunrency Unit = Dirham (DH) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 DIH per UtS$, End of Period 6.27 8.06 9.55 9.62 8.71 7.80 8.21 8.12 8.04 8.15 9.05 |DH per USS, Period Average 6.02 7.11 8.81 10.06 9.10 8.36 8.21 8.49 8.24 8.71 8.54 FISCAL YEAR January 1st - December 31st FOR OFFICIAL US ONLY JUNDRM OF MOROMg POVRY .ADAUSnnMN.& #1 0UVrH TABLE OF CONTENTS Pago No. EXECC771ESUM~A Y *....... .. .................... I CHAPTER I: A PROFILE OF POVERTY ................... 1 A. INTRODUCTION . .................... I B. DEFINING INCOME POVERTY ... ................. I C. AGGREGATE POVERTY INDICES AND THEIR EVOLUTION SINCE 1984/85 ............................... 3 D. AN OVERVIEW OF LIVING STANDARDS CONDMONS . . 8 E. POVERTY MONITORING ........................ 13 CHAPTER II: GROWTH & POVERTY REDUCTION DURING ADJUSTMENT 15 A. INTRODUCTION ............................. 15 B. THE MOROCCAN STABIUZATION EXPERIENCE ....... 15 C. THEROLE OFiISCALPOLICIES .................. 17 D. CHANGES IN INCENTIVES AND EMPLOYMENT GROWTH 19 E. WAGE POLICIES ................. ....... 23 F. THE ROLE OF WORKERS' REMITTANCES ............ 25 G. FUTURE PROSPECTS FOR POVERTY REDUCTION ..... 26 CHAPTERIII: URBAN POVERTY .............................. 30 A. INTRODUCTION ..............*............ 30 S. THE URBAN POOR: EMPLOYMENT AND WAGES ...... 30 C. REDUCTION OF POVERTY AND EMPLOYMENT GROWTH 34 D. CONCLUSIONS ....... ....................... 40 This report was suprvid and drfted by Mirl Pato. Prncpal contros Included Gulemo Haldm, Andrd Komn, Marn Ravalon, Fr s Steler and Domiique Van DeWade of the Bank and Jean-Paul Azam and Riccardo Fini, consuls. Patic Conway. consultant, contibuted to Chapr V. Michael Walton was the pe rvwe for the rept Mr. Ahmed Abzahd and his team at the Directon de la Sttsdque, Minby of Economic and Social Affis, Morocco, Wny provied astane aN the informion from te Uving Stundard Measurement Survey Data. At ft time th report wus prepad, Mahmood Ayub ws the DWson hdef and Harid Kohl was fth Dect. HMne Taln desk-topped the r prt. Ths document has a tted distibutio and may be used by recpients only In the prfomac of their officia dutie Its contents may n otewis be discloed whout Wodd Dank au triz CHAPTERIV: RURALPOVERTY ........ ................ 44 A. INTRODUCTION ..... . .. ........ . 44 B. AGRICULTURE DEVELOPMENT . 44 C. THE CROPS AND THEIR PRICES .................. 46 D. EMPLOYMENT AND WAGES IN THE RURAL SECTOR ... 48 E. ACCESS TO LAND ..................... .64 F. ACCESS TO CREDIT . ...... 59 G. FINANCIAD PSICAL ASSETSN.. 60 H. CONCLWSIONS ... .... .62 CHAPTER V: SOCIALPOUCY AND THEPOOR ....... 65 A. INTRODUCrON. 65 B. SOCIAL PROGRESSAND POVERTY . .66 C. PBUC SPENDING AND THE POOR.. 74 0. WHO BENEFITS FROM SOCIAL PROGRAMS? . 81 E. CONCLUSIONS..... 84 ANNEXES ANNEX l: STATISTICAL TABLES ANNEX II: ALTERNATIVE METHODS OF CONSTRUCTING POVERTY LINES ANNEX III: A NOTE ON POVERTY MEASURES ANNEX IV: THE INFORMAL SECTOR ANNEX V: DIRECT AND INDIRECT TRANSFER PROGRAMS ANNEX VI: SOCIAL SECTOR DATA A Ol,IWW 1. The Govenment of Morcco Is prepaig a stradtgy for Po vety alviatin and ocial promoton. This eport Is contbutin to such a sttegy. It ia hud on a compoher veLivi StandardAMeasumentSurvey ILSMSJ implmentedin 1891 withank SAWL e reptw lesand assesses thenature and dimension of povertyinA Morocco; It discuse the role of past and current public polce on poverty; and It provide recommendafons for policy interventions to further imovo the livig standards of the poor. 2. 7he report highffights the success of the Moroccan Govenment In alleviatig poverty through policis tthave produced laborintensive pattern of growth. Thrissuccess Is all the mo, remarkable because ft was achieved du theo 198s, o perod of profound stoliatbn and adjustment. However, progress In socal icto has not ben commensrate with kmrnvements in the pove.ety indcators and in spite of recent efforts Mrocco has not been able to catch up with compartor counties. 3. Economic growth is crucial for reducing povert further. it is also crucia, for providing the financing for basic social serices to improve the living standards of the poor. The challenge for the Government of Morocco n the 1990s is to Increase investments In human capital, withn o framework of fiscal discipline. These investments wtD not only contrute, in the long un, to higher growth: most Importnt, they wll mprove thelf that peopl led, which Is, In essence, whst economic development is al about. A.N_ _ _ _ O_ rw*h kd dmvow 4. Only two dedes ago, Morocco had a GNPper capita of US$500 and tho poor wer estimated at 6.05 mlion. By 1991 the GNP per capift had doubled and the number of poow, ds pid popution growth, had halved. Most of this poverty reduction occurred duri the iate 1980s. a comparison betwoen a 196485 household consumption survey nd the 1990-91 LSMS indictes that the percentage of the population with an avege consmpto below the poverty lgne feN from 21% to 13% durng that pedod. Changes In poverty over time /n Morocco should be troated with caution because there are copraison problems between these two surveys. Moreover, the chokco of a poverty line inevitbly involves some element of arbitrrness. 5. However, this report demonstrates that the conclusion that poverty fell In the second pwt of th 1980s is robust to the choice of diffetrent poverty lines and poverty measures. NoneWhless, this Is a fragile kmprovement: an estimated 1. 7 nmrion people are -ii- 'near poor' as bo' have xpendture evels which are only 00% above the povet line. They are therf vulnerble to even smal deterortions in economic conditions. 6. T Govement's success In reducing poverty duing the 180 is largely atbtarutabl toitsably stablke the economy, undertake comprehensve strcturalreforMs and maintan high economic growth. Many of the polrcies in the 1970s that led to the economi cfsa also contnrbuted to poverty. Imporn end price controls and an overalued exchange rate affected fe profitability of aricultue, the main soue of ircome for theV l poo; subsdtked creditpograms favofed capitalintensive industris; andpu.ic sending was dhaWned towars infrstructre in urban ares, large ioration proiects in agdcutue, ad defspograms Thereversalofternsof trdeinthelate 970s* togetherwithanincrese h inteational intwest rates, large budget deficits and declining productity of public iveshtmnts peciptted a severe balance of payments csisin 1983. The ensuing period of adutent inluded a first phase of contrafctonary monetary, exchange rate and fiscal policies which deteiorated the living standards of the population; and a second phase in which sructural reforms in the trade, price, financial and fiscal areas were aimed at strngthenig the supply response of the economy and increasing productivity. During this second phase income and consumption expanded substantially. 7. The Govenment's program succeeded in achieving extemal and internal balanes.; in keeping inflation rates within single digit levels andin steadily improving debt indcators What is more important, stablzation was not achieved at the cost of economic rcson. Sustad GOP jrowth helped to protect consumption levels of tho population at rge. wersrealconsumptionporcapitahaddeclinedintheearly1980itregistereda growth of 4.5% on average juring the period 1987-1991. The key elements of the tGovernmnt program that contributed to the reduction of poverty were tho following: (a) structural reforms in the incntive framework promoted growth in labor demanding sectors, especially those oriented to the export markets, and in the &dwn based informal sector. Poverty reduction was achieved through expansion in temporaty and unskiled fobs - which in the manufacturing sector grow at 17% per year -, at lower real wages; fbi iber tionpiciesandgoodrainfallrisedegriculturaloutputandthe incomes of famers; while the increase in the agricultural minimum wage protected the incomes of rral wage earners; and Ic) in spite of a reduction of the budget deficit from double digit levels at the beginning of the l980s to less thn 2% of GDP in 1991, spending in the social sectors fil reatively less than totalpublic expenditure. Real sociSl expendituV per capit fol only by less than 2% a year during the 1980s. 8. The overall social indicators in Motrocco have improved durng the lst twenty years. There is, for example, evidence that children's welbeing has impoved sinficanty: ifant mortality has decined by 30% and the mortalty of children under fiv has falhen by 54%. However, Morocco's achievements in social outcomes pale by comparson with those of other developing countries. For example: infant mortality is stifl 25% higher than In th average lower-middle Income country; the fertilityrate is 22% higher; totaland fomale primary school eollments are 38% and 44% lower respectively. In additfon, many of these kn*ators are chaacterked by important imbalances along gender, urban-rl and reginal lnes. 9. Whatare the causesbehind theserelatively poorsocialindicators? Cearlypart of the explanation ries in the poor social conditions and large disparities inherited fom the past Thus, a comparison of the social indicators in Morocco and comparator countries in 1965 reveals disparities which were even larger. Secondly, scarce attention was glhve' In the 1960s and the 1970s, to both the level of public social spending and to issues of equality In access to social services. 70. In recant years the Govemmenthas paid greaterattention to the retively poor socia conditons of the population, and has even protected aggregate social spnding during the years of adjustment. Yet, the composition of such spending shows that urban areas received the larger share and the sAocation of public funds was not targeted to favor the poor. When considering the access to public services, urban-rural imbalances are strikin. For example, over 90% of households have potable water and electrcity in urban areas but only around 14% In rurl areas. And for some indicators the disparities have widened over tni: the gap between the W7teracy rate In urban and r-al areas has slightly incresed In the last twenty years. C. UEQYIMfflRPiLEM 11. The above analysls indicates that, desvite recent progress in reducing poverty, knproving the living standards of the less advantaged remains a priority for severl reasons: lal there ae about 3.3 million poor in Morocco. A larger number, mainly located In rual areas, have expenditure levels just above the poverty line; lb) thre is a substantial variation in living conditions, and welfare indicators, even among the poor, between urban and rural areas; and -Af- fic social indeatos In Morocco are wel below those of comperator counte# and enonmous dispares In the access to social socs exist betn.weun wn ad rural areas and, to a lesser extent, betwoeen nales and femobs. 12. Designing a strategy to improve the iJving conditons of the poor will have to start with an identificaon of who the poor are and why they ae in poverty. Who aI Jb P<>2c7 13. Aggegatepovertynumbersmaskimportanturban-ruralandregionalvarations. Sfft. poverty In Morocco is increasingly a rwrl phenomenon: in 1991, 72% of al poor Ie., 2.5 mion of whom more than half extremey poor) lived in rural areas, compared to 70% In 1985. And the station may have worsened in the last two years owing to the devastating effects of a prolnged drought. there is a strong inequatit, of consumpton expendts between nrl and urban areas. Thus, in 1991 only 8.8% of the rnapopulation ent more than DH 8500 per capita per year (apprximately 3.5 times the ruralpoverty lnei whilo 38% of the urban popuation did. T.d, there are marked regional vaiatons n the incdnce of poverty Thus, the proporonof the popuationin povetrangos fombolow5% in te rich urban costal areas to above 25% in the rual areas of the CenterNort*, East and Center-South regions. 14. The poor In urban areas shae some of the charactedstics of the poor In rral areas. They tend to have above average household sizes and a highor number of inactive members in their households They are more likely to be unemploye4 or undermpoyed. Theylive rlativelymorein sub-standard housing. Illiteracyrates ethohighostandprimary enrollment rates are the lowest for te two groups. There are, however, differences in the ying standards of the poor in the two areas. Firt, among the employed, te highestpovety levels are found in rual areas, among rural wag eanmers, followed by small-scale fames £aSoond while only the poorest in urban areas do not have access to basic servces (e.g., pipod water, eoctrcity or sewerage), such access Is available only to the bettor-off h rual ares. Obstacles for females hn access to srvices are more pronounced in ra araes, and poverty appears tobe the mostfImportantcause. Thus, among tho pooresthiruralareas, ony about one In ton gids is enrolled in school. 15. Incone sources also vary between the two areas. The LSMS shows tht In mrala a the heads of poor households are more likely to be wage erne than lAndowner and theirincome Is highly dependent on the seasonalnature of the work offerdin agriculte. In fact, the highest proporton of wagoe amers who work less than fivo months i found among the poor. And although unemployment Is low In drual areas. it Is strongly correlated with poverty.: about half of all the unemployed are poor. The second major rural poverty groupl srepresented bysmalrscale farmers, owningless than an acre of land. The maoty of these househofds cultivate other farms through sharecroppins agrements naddition to their own. 16. The poor tn u wb ars are engaged In self-employed actvities, or earn their lving as wage eamers. The typical wage "ear among the poor ears one-third of the average wage and about half the legislated minimum wage. Of those that ar seffemployed among the poor, most aore concentrated in commercial ectivites, and to a lesser extent, In manufacturing. Most of their activities relate to street vending, and only some work In establishments or at home. Finally, unemployment affects almost 30% of the .abor force among the poor, compared to an overal urban unemployment rate of 20%. Women In the poorest households experience the highest rates of unemployment in uban aeas. WMy aw a he ooor? 17. The causes of pove.ty in urban andrural areas are closely related. Perhaps the most importnt determinant of poverty in urban areas is dhe strong grgwth of the urban labo &w& relatve to the growth in employment opportunities. Thts, in spite of the downward pressure on wages, the unemployment rate has been rising. Moreover, even for those who find employment, the risk of poverty exists because many of them work In low-productht. low-agg iobs or are partially employed. l8. But the growth of the labor force In urban areas has been driven by al m-loati. and only to a lesserextentby the naturalgrowth of the population and risiglabor force partiipation rates. Emigrants are pushed out of the rural areas by lack of eaming opportuniieseand areattrcted to the citiesby the expectationsofhigherpaidjobssndbythe reaity of bettereconomic and socialservices. The high ftjtyrtes in ru.alareas. especially among the poor, have lowered the capacity of poor households to invest In the human cafl of their children, thus reinforcing the state of deprvation. The unequal dstribuon of assets and lnd reinforce poverty. In rainfed areas, where most of the rura poor live, agriculture is characteed bylow productivity, because of lack of access to irrigation, andlow use of other productive inputs. And besides agriculture, the rural sector has fai7ed to produce atmatio ) 'iployment opporunities. 19. The most important reason for the social depdvation in which most rualpeople live is the historically low level of auhfLwdin in essential services water, elctricfty, roads. schools and health cOics. And In isolatedareas Income poverty is compoundedby the lack of social and agricultrl infrastructure such as farm to market rads, flood protection works and irrgation facilities. The allocation of social expenditure In both urban and ural areas has also been biased towards services that favor the better-off, like higher oducation and curatve hospital based health care. Finally, Inadequate socfal safety nets have failed to prOtect the most vulnerble, so that indicators like child malnutation are much higher In Morocco than in comparator countries. - vi- 0. A STrRAEGYFOIIIMMOWA M MtvacoAmMs OF 77 S _M&Elak ebt arowth 20. Duing tt second haff of the 1980s. mcrooconomic and structural reforms contbutedsubstantially to abor-intensive and sustainedgrowth. This is the most effective long-un remedy against poverty. In thiz context, efforts to consolidate intenal and extemal baances, promot low and stable inflation, and improve the incentive framework need to be continued. Neverthfelss, given thelargedevelopmentgapbetween theurbanandruralareas, the rate at which poverty can be reduced wildepend notonly on the rate of econom growth butalsoonitssectoralcomposition and on te distribution of thebenefits of thegrowthitself. 21. Since most of the poor lve in rural areas, a pro-rural bias in growth is likely to be pro-poor. Growth in the rural sector should come from increases in the productivity of both agriculture and of other economic actvities (on-farm as wel as off-farm). 22. Policy interventins to increase the productivity of the agricultural sector could encourage farmer to grow whatever crop best adapts to the particular land they are working on. In this context, the abandonment by the Government of the policy of 'seff-sufficiency in food production is a most important step. In addition, policies would aim at: iaJ improving the flexibility and the competitiveness of the sector through the continuatfon of liberalization policies of the external trade regime, the internal prices and marketing regulations; ibJ targeting public investments In agdculturo to areas where most poorlive (eg., rainfed areas) through interventions that have a public good aspect, such as land consolidation works, destoning, construction of access roads etc.; and in rehabilitating existing irngation projects and possibly extending inigation to new land but only where economically feasible; (c} inproving land tenure policies. Given the complexity of a reform of the land tenure system, a short term objective would be to improve legislation regarding rural contracts and, in particular, the share cropping system which mostly affect the poor. The development of arental market forland would also allow some small scale farmers to work elsewhere and eam wage income, while tho better endowed and better skilled farmers may work more efficiently on larger plots of land; and (di targeting agricultural support services (crop production, livestock and extensionJ, and agriculturalinfrastructure truralroads, irngation canals, etc.) to areas where most poorlive. By reducing the formidable supply side constraints that poor farmers face, these interventions will enable them to increase productivity and output in response to the new system of incentives. - vii- 23. A moe market-basedandproductive agricultwralsector wouldgenertee hiher demand forlabor. Moreover, alargeragriculturasurplus wouldmostlkedrive thocration of employment and income opportunities In off-fann rural activit;es. For example, a recent study on the agro lndustriai sector has shown that this sector has the potential to generate large increases in emplrnpent. And tourism and other services sectors may develop fast if economic and social infrastructur improves. 24. G3nerating employment opportunities in the rur areas would also rlieve migration to urban areas. As indicated earlier, migrton has been the main cause of te growth of the urban labor force, at rates above the en dJoyment exwnsion anda major caea of unemployment. A further pull-factor into the ufrban labor market is tho existng gpa ahUWW & n nus* ti.l and the nadofttu minimum? wj= (with the fomer L-eing 50% higher then te latterd. Although a complete removal of this gap may be unwarrnted because of possible productivity differentials between the two sectors, a gap ot this magnitude seems untenable, especially in view of the fact that there is no systemati bias in the distribution of food prices over the territSg .* x5i O;. 5 '. R, j .. Total 99 109 ItS 9S 112 97 III 102 . 9 i -38 -38 Femae 99 tOI 107 88 108 89 108 102 61" * -44 -59 Swny SElo IAga Rat (X '@i ;. s :, Total 80 S3 4S 61 Si 81 53 97 o4 S8 -38 -52 F_em 78 44 40 S3 39 71 S4 94 4 i57 -47 -7S AdtMullDtacy(% Total 20 46 35 43 19 52 is 7 . 4 . .$ 120 F.m_lo 30 57 44 SO 29 66 19 11 . .a 32 11' Soa : Wodd Developmat Report 1992, So Indicas of Dvelopment 1991-92, LSMS, Direction doe l Staltquo Mo ?.co 1991 -10- Tabe 1.5: SELECTED INDICATORS IN URBAN/RURAL AREAS I1%)~~~1) _ _ _ __ _ _ __ _ _ _ URBAN RURAL Active people per household 1.74 2.70 Activity rates of those aged 15 or mroe 48.70 64.80 % of active population with a second job 1.60 7.80 Unemployment rates 20.60 5.60 Mean months of unemployment 22.20 11.00 % of poputation riving In shacks 9.30 72.10 % of houseotds with potable water 91.90 14.20 % of households with garbage pickup 84.80 2.00 % of popuation with electricity 90.40 12.70 % of women who had a prenatal visit 65.40 24.40 % of women who gave last birth at home 43.00 84.00 % of women aged less than 50 using contraceptives 54.30 34.10 Female net primary enrolment 84.70 29.90 Lteracy rates (for population aged 10 and older) 60.50 31.70 gurce: LSMS, Direction de la Statstque. primary and secondary enrollment; however, these indicators still negatively deviate from the LMI by 25%, 44% and 47% respectively. 1.14. The rest of this section provides an overview of indicators of welfare in urban and rural areas. Much of this analysis will be expanded in subsequent chapters, which will also analyze regional and gender issues. As Table 1.4 shows, the imbalances between urban and rural areas are such that they should be considered as the most important policy issue in a strategy of poverty alleviation. Clearly, the poor in urban areas share most of the characteristics of the poor in rural areas. But in rural areas social services deprivation is felt by everybody, although the poor are more likely to suffer. 1.15. Expenditure levels are much higher in urban areas for the majority of the population. This in spite of the lower activity rates, higher unemployment rates'3 and longer periods of unemployment (see Table 1.5). But the concept of unemployment is ambiguous in rural areas as it rarely takes the form of sustained inactivity while looking for, and wanting to Wj All respondents age seven end above in the 1990/91 aurvey were asked whether they had been engaged In any kind of "profeslonal tivty in the lst 24 hours In return for any form of payment or for a member of the family. A ditincton was made between incom, earnino) town.productionu and wage employment. Activity rates are defined as the percentage of the population age seven and above who were active In income earing ectivt during the kst 24 hous, end those who though temporarily not engaging In the activity (for reaons of illnese, etc.) would do so in the near future. - 1i - =~~~ - -- ii Iii I 'itil Si~ii .~~ ~ ~~~~~~~~ .. ... i0 I . ;l . .- -12 - work at prevailing wages.'4 And much of the employment, as discussed In Chapter IV, takes the form of 'unpaid family work". Urban-rural imbalances are striking when considering the access to public services. For example: the use of well water is widespread and sewerage is virtually non-existent in rural areas while in urban areas 92% of households have potable water and sewerage is a prerogative of all except the very poor. And while practically half of Morocco's population has electricity, the urban-rural breakdown is 90% versus 13%. Literacy and net enrollment rates are markedly higher in urban areas than in rural areas and among men than women. 1.16. Now do the poor fae In urban and rural areas? Table 1.6 summarizes some qualitative information on the performance of the poor relative to the rest of the population In both rural and urban areas. Overall, there seems to be less inequality in the access to services in rural areas. This is simply because services are not available to the majority of the population. In urban areas instead, services are available but at a price that the poor often cannot afford. 1.17. The poor in Morocco tend to have above average household size, a large proportion of children and of active persons per household."6 There is no evidence that female headed households are poorer; indeed, all poverty measures indicate greater levels of poverty among male-headed households. Looking at occupations, the LSMS suggests that in wban areas poor household heads are most likely to be either wage workers, earning about one-third of the average wage and half the legislated minimum wage, or self-employed, mostly in commerce activities; in wit areas poor household heads are more likely to be under-employed as wage eamer, their income depending on the seasonal nature of agricultural work' cr small scale cultivators, working their small plot of land or as sharecroppers. In both urban and rural areas, the unemployment tends to be higher for the poor, and women in the poorest households experience the highest rates of unemployment in urban areas. The poor also tend to stay unemployed longer than the better off. The reasons for not working indicate that seasonality is the main reason in rural areas while for the poor in urban areas enterprise closure and entering the work force were the chief reasons. Compared to the better off the poor in both areas have less access to formal credit and they have to rely more on family, friends, merchants and traders. 1.18. In urban areas the poorest live mostly in shacks, condition which is quite different from the not so poor. They are also more cramped for space than the less poor. But in rural areas most people, and not only the poor, live in shacks. Access to economic services, and to prenatal care, attended deliveries, and health care in general, is common in urban areas I, The questionnaire probe into the nature of respondents' inactivity in a way which is quite untkcey to identify such fomis of 'distsioed unemployment'; for example, a famer who has done no wouk In the lst 24 hours due to a drought (the category used in the questionnaire Is 'unfavorabe climatic conditions') wil not be clsWified as 'unemployed', whereas an urban worker who identfied *bad econonic conditions' as the reason for economic inactivity will be so clmified In the otructure of the questionnaire. IJ This is common finding; as M. Upton and M. Ravailon (1992). "Poverty and PoliW in J. Berhrman and T.N. Sinivasan (edo), Handbook of Development Efongmics Volune 3 Amsterdam North-Holland. -13- except for the poorest; but in rural areas only the richest can afford these services. There are also areas where the urban poor do not fare significantly worse than the average, for example In primary enrollment. In nirr areas, Instead, amongst the poorest 10%, only about one In six girls are enrolled in school. Finally, thanks to the efforts of the Govemment, immunization is available to most children in the country. E. POVETY MQNIlTORING 1.19. This chapter has provided estimates of income poverty and a brief overview of the socio-economic characteristics of the poor in Morocco. The construction of a poverty rine and of a profile of poverty has been made possible by the availability of an LSMS. Looking ahead, a key concem Is maintaining and improving the informational base for monitoring poverty and analyzing welfare changes. 1.20. Morocco now has an adequate dat base for 1991; what should the next data collection steps entail? Our recommendations feed on two observations: fjg consumption at the household level provides the single most Important and feasible indicator for both identifying the poor and for tracking trends in poverty. Social indicators such as health, educaton and nutrional status, which tell us about access to and effectiveness of social services, are Important supplementary Information, as consumption of goods and services Is not all that matters to well-being. Second the usefulness of poverty analysis for policy prescription relies greatly on the quality and the up-to-datedness of the undedying date. *Ouality" Is not just about reducing measurement errors (sampling and non-sampling) but Is also about the type of data collected and the extent to which the survey is iggrated In that it provides a wide range of socio-economic Information for the same households. 1.21. The recommendations for improving poverty monitoring are as follows: I) Annual collecton ef household level ca consumption data. This survey should closely follow the methodology of the 1990-91 LSMS. To ensure feasibility, it will have to reduce that survey's core coverage. It would include basic Information on household consumption, which is the most powerful instrument to identify the poor, but not detailed information on the structure of consumption. Most important, the core would contain information to generate Intermediate indicators of wealth. Typically such indicators would cover education (enrollment and educational attainment by level and gender), literacy, health (morbidity, utiliation of services by type of facility, infnt and child mortality rates, birth attendance, immunization coverage), contraceptive prevalence and fertility rates, access to basic infrastructure (water, electricity, roads), housing condition, and labor (participation and unemployment rates, unskilled labor wages). Ideally, the sample size would have to be Increased, though not at risk of increasing non-smplng errors. A full LSMS type survey- smilar to the 1990-91 survey-could be Implemented every five years or so. {ii) Altemating sector specfflc moduls. Each annual core consumption survey could be supplemented with one or two extra modules to coilect detailed -14- information on specific aspects of well-being. Examples include questionnaires focusing on education, health care, female education, fertility and child birth, subjective views of poverty, water, sanitation and housing and labor market status. Each module would link up to the core survey at the household level and be repeated every 4 or so years. These would serve to provide a large series of welfare Indicators to complement the consumption indicators. (iii) Stremlining data cllectfion efforts and anaiWcal capacity. It would be useful to combine the household level data collection efforts of all ministries. A *user working group' with representatives of all relevant line ministries and non- govemmental users (academics and the donor community) could advise on the choice of modules, and on policy relevant questions to add to th_, 3urvey. (v) The poverty lne. The current upper poverty line is typical of many developing countries at Morocco's income level. However, experience elsewhere indicates that as living standards rise, the perception of what is an acceptable standard will change. Consideration could be given to the phasing in of a higher poverty line In the future, supplementary to (and side-by-side) with the current poverty line. A survey module on subjective perceptions of poverty could form the basis of this new poverty line. Introducing higher poverty lines should be done gradually, with an overlap period in which old and new poverty lines are presented. -15- CHAPTER Il: GROWTH AND POVERTY REDUCTION DURING ADJUSTMENT A. INTBODUCTION 2.01. As discussed in Chapter I, poverty incidence in Morocco declined during the eighties. Yet, in 1991 much of the population had expenditure levels just above the poverty line, and were therefore vulnerable to even small deteriorations in economic conditions. Thus, the challenge for Morocco in the future is to generate a high and sustained growth in per capita income and to ensure that the benefits of growth are distributed across all income groups. This task requires an assessment of the Impact of past economic policies on poverty: such an assessment' would allow a better design of future policies to benefit the poor. The Moroccan stabilization experience is briefly summarized in section B. Sections C, D, and E are devoted to discussing the link between structural adjustment policies and the poor. They analyze In tum the role of fiscal policies, the effect of changes in incentives on employment, wage policies, and the effect of exchange and interest rate policies on workers' remittances. Finally, Section F presents altemative predictions of employment growth and the possible acceleration in poverty reduction following different growth rates in urban and rural areas. S. THE MOROCCAN STABILIZATION EXPERIENCE 2.02. After a decade of growth and high public spending that led to a severe balance of paymernc crisis, in 1983 the Moroccan authorities started an eight-year period of structural readjustment of their economy. Two broad phases can be distinguished. During the first phase, 1983-86, emphbsis was put on stabilizing the economy through contractionary fiscal and monetary measures and a major devaluation of the real effective exchange rates (23% during 1982-86). Although both the fiscal and current account deficits were reduced, domestic absorption remained high, and intemational reserves did not recover as quickly as expected. Thus, starting in 1986, the pace of adjustment was intensified. While further reducing macro imbalances, the Government aimed at strengthening the supply response of the economy and increasing productivity. Key reforms taken during the second phase of adjustment, 1987-1991, included trade liberalization, reduction of domestic price controls, the capital market reform, public enterprise rationalization, and the reform of agricultural incentives. A major fiscal reform included the introduction of the VAT in 1986, the creation of a corporate profits tax in 1987, and the Introduction of a global income tax in 1989. 2.03. Macroeconomic stabilization was not achieved at the cost of economic recession. GOP growth, after reaching a low of -2.7% p.a. in 1981 averaged 6.3% between 1V This chaptw intends to provide some hypotheses. end not a syste analysis, of the likely effect of sdjustnent po¢cbes on poverty. A counterfactual analysis, of what would have happened without adjustment, ;a beyond the scope of this report. -16- 1983 and 1986 and 5.4% from 1987 to 1991. This performance was due not only to the propitious weather that raised agricultural output, and to a favorable evolution in the terms of trade, but also to the effect of changes in incentives on the non-agricultural sectors and, most crucially, on exports. The latter provided a decisive contribution in smoothing the adjustment process. Indeed, it was only in 1983-84 that the Government was forced to rely on a pattem of adjustment which favored imports and demand compression. To a great extent, this corresponded to the first phase of adjustment where contractionary policies had to be taken to stabilize the economy. During this first phase, the living standards of the population may have been negatively affected. In the second half of the 1980s, export and Income expansion becAme the main components of the adjustment process. Thus, after growing 9.5% on average between 1983 and 1986, manufaturing exports increasd In volume at an average annual rate of 11.7% from 1987 to 1991. In turn, export growth alleviated the foreign exchange constraint and allowed a sustained import growth with a favorable impact on both investment and output. However, the current account deficit decreased from 12.3 % of GDP in 1982 to 8.2% in 1985 and to 1.8% of GDP in 1991. !kiLL2.t: SELECTED INDICATORS BEFORE AND DURING REFORM PROGRAM i _______________________________ 1976-1982 1983-1986 1987-1991 GDP Growth 5.6 6.3 5.4 Popuaion Growth 2.4 2.8 2.6 Real Consumption/Capita Growth 2.7 2.2 4.5 Current Account/GDP (BDR) -1 1.9 -6.8 -1.8 Budget DeflcltGDP (Cash Basis, ADR) -12.5 -7.4 4.1 Budget Deficit/GDP (Comm. Basis, BDR) -12.8 -9.5 -4.5 Manufacturing Exports Real Growth 10.3 9.5 11.7 Inflation (% chanae in GDP Deflator) 6.7 9.1 5.6 Real Effective Exchange Rate (1980 DH) 94.2 77.6 66.6 Total Debt/GDP (%) (ADR) 53.6 110.6 93.6 Total Service/Exports (%) (ADR) 25.8 33.5 28.3 All figures ae period averages or annual average growth rates. ADR, BDR - after, before debt relief. Souee World Bank MN1CO Data base. 2.04. Sustained GDP growth after 1983 helped to protect consumption levels for the population at large. Whereas per capita real consumption had declined at an average annual rate of 2% between 1980 and 1983, it registered a growth of 4.5% on average between 1987 and 1991. Remarkably enough, positive growth in per capita consumption was -17- GRAPH 11.1 accompanied during this period by an enhanced investment effort. Real investment increased Total Contmptlion & a efoInietment from 20% to 23% of GDP baI growtsh 1ae( between 1984-87 and 1989-91. This evolution reflected both an increase in private saving propensities and more prudent I A fiscal policies. Some A A A I consumption smoothing through investment decline did take place Al T \ & as shown in Graph 11.1. But overall, both the short-run macroeconomic picture of Morocco's economy, as I l measured by the fiscal and current account imbalances, and -1 its long-run prospects, proxied by the investment effort, showed -n remarkable improvement. lso h. .U . 4 . s . s s. . . s s C. THE ROLE OF FISCAL _ CO. am"- +- 2.0f$. C r i t i c s o f adjustment policies point out that fiscal retrenchment will typically have a negative impact on the poor, because of a decline in social expenditure and the often concomitant cut in food subsidies. It Is argued that the elimination of fiscal imbalances should be achieved more by tax increases rather than expenditure cuts and by a deep inter- and intra-sectoral reallocation of expenditure priorities.2 Morocco's experience is mixed. The deficit, on a cash basis, was drastically reduced from 13.6% of GDP in 1981 to 2.5% of GDP in 1991. During the first phase of adjustment, 1982- 1986, as interest payments on government debt increased rapidly, the brunt of adjustment fell on expenditure, which decreased from 34.4% to 24.2% of GDP; in particular, capital expenditure, which had already declined in t late 70s, was slashed below 4% of GDP by 1986; and government revenues, following the contraction in economic activity, fell from 22% to 18.8% of GDP. 2.06. During the second part of the 1980s, Covemment expenditures and revenues started to tise again, reaching 25.9% and 22.9% of GDP in 1991 respectively. Capital expenditure recovered to about 7% of GDP. The Govemment wage bill, after the tight 11 See for insnce GA. Corn end F. Stewrt. 'The Fisc Systmn, Adjustment and the Poor', FUcerche Economiche, 1980. . 18 - containment in the early 80s, started rising rapidly, following the strong increase in nominal salries and in recruitment. In 1991 it accounted for three quarts non interest current expenditures, compared to two thirds in 1987.3 Finally, the Govemment made a determined effort to protect social expenditures: thus, public spending in education and health fell only from 6.2% and 1.1% of GDP respectively in 1982 to 5.3% and 0.9% of GDP in 1991. 2.07. Effect on the Door. The impact on the poor of changes in public expenditure and tax revenues is complex. First, the Govemment refrained from relying on public employee layoffs as a way to cut spending. By doing so, it did not foster the growth of a "new poor" underclass, which occurs whenever public employees are made redundant and increase the number of unemployed. Fiscal stringency in the first phase of adjustment was achieved insad by holding down nominal wages in the public sector,4 and by cutting capital expenditure. The latter m&iy have had negative effects on the poor because the lack of resources weakened essental economic infrastructure, such as access to water, electricity and roads. Second, it is possible that the poor were hit hard by the cut in consumer subsidies. Yet, the fall in consumer subsidies as a share of GDP (from 2.2% in 1982 to 0.5% of GDP in 1991) largely reflects the drop in the intemational prices of subsidized goods and the elimination of items from the subsidized list of commodities which do not weigh heavily in the consumption basket of the poor (butter and milk, high-quality soft wheat). Before such reforms, it was estimated that only 16% of total subsidies benefitted the poor.5 Finally, in spite of Govemment efforts to contain nominal cuts in social spending, real per capita social expenditure fell. 2.08. A different picture of the evolution in health and education spending emerges, however, by considering physical rather than monetary indicators. For example, enrollment in primary education declined after 1982 and recovered only recently (see Table 2.2). But the number of teachers in primary education grew steadily with presumably beneficial effects on 1 See" Wodd Banc (1991) Th. Kingdom of Morocco - Issues and Prospeet in the Public Sector". June 1992, Report No. 10157-MOR. g According to Morrisson (1991). the average rea wage in the publio sector fell from 100 in 1980 to 83.7 in 1983 and 89.3 in 1986. However, in the second part of the 19808 the real wage rose substantially. (See C. Moriswon (1991), *Adjustment and Equity in Morocco", OECD Development Center, Paris.) IV See Laa. Karim (1989), Food Subsidies, A Cme Sth y of Price Reform In Morocco', Living Standards Measurement Study Woddng Paper No. 50, 1989. /1 Rea per capita socia expendibtue {i.e., spending by the Central Govemnent in educaton, health, lbor and sool affairs, youth and sports, the Reoional Development fund and consumer subsidies), fell from DH 382 in 1982 to DH 209 In 1988 and rose agWain to DH 277 In 1990. -19- the quality of education." The fall In enroliment must then be predicated on the Impact of economic hardship which led many parents to withdraw their children from school. Health spending indicators provide a similar picture. The population per hospital bed increased, reflecting the cuts in the Investment budget. In contrast, the number of inhabitants per doctor dropped markedly, due to a stdy Increase In the number of physicians. Aggregate numbers, however, mask the inequality In the distribution of health spending between urban and rural areas. This aspect will be discussed in Chapter V. lab_e 22: EDUCATION AND HEALTH INDICATORS 1 980 1982 1984 1986 1988 1990 Total Piemy Schoot Enrol. 2172 2450 2279 2228 2111 2484 ('000) Net Pimary School Enrollmet ratio % Total 83 79 74 68 68 Female 63 61 58 54 54 PupUaPfiry Teacher Ratio 38 36 27 27 25 26 Poputbdon per hospil bed 824 818 809 902 919 945 Populaton per physician 10950 7878 7259 5755 4844 4414 ~ggg:Anrvauire Sftatitique du Maroc. 2.09. Trends in fiscal revenues may have hurt the poor as most improvements came from enhanced indirect taxation. For example, fte increase in goverrfnent revenues after 1988 was essentially due to the increase in import duties. To the extent that indirect tax Increases feed into inflation, the poor are likely to be affected negatively, even if the affected goods (such as imported comnmodities) may not loom high in the typical budget of the poor. 0. CHANGES IN INCENTIVES AND EMPLOYMENT GROWTH 2.10. Structural reforms In trade, finance and agriculture played a crucial role in reducing the previous bias In favor of relatvely highly capital-intensive sectors and in 21 Declining publi snding In educetn can be reoniled with o riding number of teohers by recalling that oapitl spnndino took the brunt of the fisa cute and that the was a realocadon within the oducaton budget towwds primay education. Al In 1988, revwesin i peios policy stdc the Goenent itoduced a new aoose-theoamrd import duty. Its rate was set at 12.5%. The new duty replaced th sobd pl npo tt (as well as th couom stamp duty) whose rat had been lowwred from 15% in 1983 to 5% in 1987. -20- promoting growth in labor demanding sectors, especially those oriented to export markets. Due to these 31t Rh YAW MM 1MAU reforms, the relative Incentive to hire so11 M labor increased significantly. The cost of capital, deflatedby the aveage manufacturing wage, rose from 100 in 1980 to 136 in 1983 (following a major reform in the Industrial investment code), and 156 in 1988. The fastest growing sectors in the second part of the / 19809 were the relatively labor intensive, i.e., textiles, leather and / agro-Industries. Structural policies were also effective in inducing a \ marked shift in the structure of relative prices, with a fall in the . relative price of non-traded goods. i d o W -do um Figure 11.1 shows how the relative price of costruction activities I (measured by the implicit value added deflator in the national accounts) after steadily Increasing at the beginning of the 1980. dropped sharply in the following years, increasing again, towards the end of the 1980s. Similarly, the service sector, which includes mostly non-traded goods production, showed a definite downward trend from 1982. Relative terms of trade in agriculture improved in most recent years, after declining during 1983-89.'0 Conversely, the relative price of manufactured goods increased from 100 in 1980 to 107 in 1990, as a reflection of the higher profitability of traded goods production. 2.11. Em*ovmen growth." Following fte pattern of relative prices, the evolution of employment showed substantial differences between rural and urban areas and across sectors. Lack of comparable data restricts ttie analysis of changes in employment in rural areas only from 1986 to 1990-91. During this period, employment grew on average 1.77% / World Sank-UNDP, mMoroco 2000: An Open end Compeiten Gccnomrv. JV Becaue of the highylevntlone pric p.111. in agrture before 10 849. tgweagilual was - do fao - non trdeabte. 1/ Ecornomy-wide emploment daft oreaable only from th Cenoum th t wa In 1082), from two epoymt ervey tken In 1988 (ENPAMR) In nurl w ed In 19U7 In ura area (ENPAUI, n from th LSMSof 199091. Annul da on ployme ae recorded in bn area only. Caculton of growth rate in emploent re therfor ptoutay sensie to the choi of endoints, and may be diatorted by diffeenc in definion. -21 - per year, slightly above the 1.76% average Increase in the labor force. Thus, unemployment In rural areas remained around 5%. The picture in urban areas is more complex. Overall, P-3m 1982 to 1990, average urban employment growth was only 4.17%, relative to a 5.3% growth in the labor force. During this period unemployment fluctuated around 1 5%-20%. Two periods should be distinguished. During 1982-84, employment fell because of the macroeconomic retrenchment. The construction sector was hit particularly hard, following the deep cuts in the public irnestment budget and the consequent fall in construction aCtivity."2 The impact on sectoral employment was dramatic. Employment dropped by almost 25% in only two years. Other sectors, however, shared the negative employment performance of construction. The only exception was the public sector, which kept hiring albeit at a much reduced rate, and the service sector, which acted as a buffer employment opportunity during this period. After 1984, urban emplomrnent started to increase, but with a different structural pattem. In particular, the construction sector was unable to recover its previous share of aggregate urban employment. Conversely, because of a rapid increase in labor-intensive export-oriented activities, manufacturing employment raised its share of urban employment by 2.5 percentage points from 1984 to 1990 after a decline of 1.98 percentage points from 1982 to 1984. The overall urban employment growth was driven by the increase in employment in the manufacturing sectors, about 10% per annum throughout 1986 to 1991. The.evolution of this sector will be discussed in Chapter IlIl. 2.12. Econometric analysis shows that the changes in relative prices played a crucial role in fostering a more-labor intensive pattem of industrial growth. Estmation of a labor demand curve13 for the manufacturing sector indicates the following. First labor demand is an increasing function of the level of export orientation. More precisely, an increase of 10% in the export to output ratio leads in the long run to a 6.3% increase in employment. Previous estimates in tum suggest that the export-output ratio strongly responds to movements of the ,/ After nereasing by 8.2% in 1981, red value added in the conteuction sector dedined at an averame rate of -8.4% In the following three years. ia The foUowing labor denand equatfon was estimated on a time-series croseseection set of observations for the four main industial subsectors (food, beveaoes, tobacco; textile, clothing, leather; wood and paper, other manufacturing) over the period 1978-1989: LnL- 5.18 + .12 In Y + .44 In WV - .54 In (wlp) + .30 In L., (2.4) (4.8) (9.0) (3.3) T staistics in brackes. where L, Y. X and wlp Indicat employment, production, exports and the real product wage respectively. The Indivdual seatorial effects ar notrepored. Standard test wugosted tht It would have ben inadequate to impose a common intercept cres stors. Also, the hypoeis of a unit output elasticity of lbor demnd wa reJected bye ikelihood test 1)e - 10.9 with one degree of feedomn). ft is amed that output is exognous In the short run. This Is beus fims set prices one period In advance. At any point in time output is therefore demand determined. A sbtndard Xauemen test doe" not reject the hypothesis of exogeneity (tWta - .10). -22- real exchange rate," with a long-un elaticity of 1.62. Overall, therefore, a 10% real depreciation can be estimated to lead to a 10.2% Increase In Industrial employment. Seond. labor demand is strongly responsive to relative factor prices. The estimates sugges that a 10% decline in the real wage would in the long-run ba associated with a 7.7% Increase in labor demand. As suggested earlier, these estimates confirm that the adjustment process promoted employment creation through raising capital coss and lowering relative labor costs. 2.13. UnemolovMent and the poor. The typical presumption that the poor cannot afford to be unemployed finds littie empirical support for Morocco.' Figure 11.11 shows unemployment rates by areas of residenca, sex, and expenditure class, as derived from the 1990-91 LSMS. The incidence of unemployment among the poor is large, in both rural and urban areas. It is 30% for the poor in urban areas and almost 7% in rural areas, compared to 20.6% and 5.6% in aggregate in the two areas respectively. Of course, high unemployment rates are found also among the non-poor, in particular among urban females.'0 There is nonetheless a distinct relationship between unemployment on the one hand and expenditure levels on the other. No support was found to the hypothesis that the distribution of unemployment is independent of the expenditure group classification.'" Only for rural females, was the probability of being unemployed not signifiL.intly affected by expenditure levels."' Econometric analysis shows furthermore that, after controlling for both sex and 14 See in partioular World Bank-UNDP (11992). Jj/ However, as already explained in pars. 1.16;, the definition of unemployment is loose - it includes in fact anyone who was not productively engaged in the last 24 hour. Therefore coution should be taken In discussing the relation between poverty and unemployment JI The unemployment rate is calculated as the percentage of the active popuation aged more than 15 yeas. According to gender, unenploynent rats are as follows: neondl 12.07%. 11.61% for males and 13.02% for femaes; ujn 20.82%. 1 8.73% for males and 31.8% for females; mzui6.03%, 7.08% for maes and 3.23% for females. JV The test of independence is given by: Q X2i S where tho paraneters land j refer to the two classifications (in ourcase, employrnent statu and expenditur classes), Nr indicates the number of observations with unemplvyment statue I in expenditure clss j whil E# denotes the theoretical value of people belonging to the cell (lj) ff the two charaterstcs wee distributed independentvy. The tet 0 Is distributed as a )& with (R-1) (C-1) degrees of freedom where R and Care the number of catgories in the two classifications respectively. Ill The X test with degree of freedom took the followino value: (1) urban male: 27.1; (2) urban female: 21.2; (3) rural male: 24.5; (4) rural female: 13.9. -23 - location, the poor have a significant higher probability of being unemployed.'9 mnm aUWm SLUs E. WAGE POLICIES 2.14. Very little evidence Is 04. available on trends in average wages for different categories of wage U. / d earners. Some information exists at the company level, for the \ A manufacturing sector and will be 0V discussed in Chapter lIl. It indicates that during 1982 to 1990, the average real wage in that sector suffered a significant decline, reflecting a change in the 0.5 composition of the industrial work- 1 1 8 | 4 f e force toward low-skilled and low- IM d_ wage categories and an increase in temporary jobs. However, the evolution of the minimum wage, for both the industrial and agriculture sector, indicates the willingness of the Govemment to protect a minimum standard of living for low- income eamers. In 1991, a six-person household with one wage eamer being paid the minimum industrial wage for a full year's work would have barely made it to the expenditure class just above the poverty line. Clearly, any downtwn in economic fortunes would have precipitated the household below the poverty threshold. Il/ Regression eulbt are as follows: U .- MS+ .O4 SEX + .28 URBAN + .051 CLp - .018 tL.7) (1.78) (0.76) (1.88) (0.66) CLn + .003 CLr - .147 URBAN * SEX (0.10) (3.9) SER: .069, R': .82, t.etatistics in brackett. where U is the unenployment rate, SEX end URBAN are two variables which tak a value of I for observation corrsponding to mets end urban residents respectively. Three expenditure ole_s ae distnguished: CLp (with per caphi expenditu betwen OH 0 end O 2500). CLn (with per capita expenditure between DH 2500 and DH 5000) end CLr (with per cpite expnditure aboave OH 000). The ooefficients for CLm and CLr are not sigdnificantly different frm zeo. Al the other coefficients ae wel determined at conventional significance levels, with the exception of the coeffiient for SEX whih l signiicant only at a 10 percent level. The reults sugget that maes, urban dwellers end the poor we mor likely to be unemployed. The negative (and large) ooefficient on the inction term SEX-URBAN indicae however that urban women ae systematicly nm likely to be unemployed. -24- 2.15. Figure 11.11 shows the minimum industrial wage (Salaire Minimum Interprofessionnel Garanti, SMIG), deflated by tho consumer price index. The agricultural minimum wage (Salaire minimum Agriculture Garanti. SMAG) is not represented: since the early 1 970s, changes in the SMAG have exactly mirrored the changes of the SMIG, although the daily rate of the latter is one and half times the former. The graph shows that real minimum wages in Morocco have increased rapidly from 1979 to 1984, and more moderately thereafter. This indicates that employees working full time and actually receiving the minimum wage were somehow protected from poverty. 2.16. Figure 11.111 also shows that the purchasing power of the minimum wage follows a seesaw pattem. As adjustments of the nominal minimum wage are made and at discrete times, its real value is a declining function of inflation. The less frequently the nominal SMIG is adjusted to changes in prices,20 the more important this effect is likely to be. Figure 11.111 suggests that adjustments were Infrequent and did not always compensate minimum wage esamers om purchasing power erosion due to inflation." 2.17. The importance of pursuing reN 5.M uVw.uYz OF 31MIM VAJ policies that generate low inflation rates is buttressed by the consideration of asset ^ holdings. The poor hold little or no assets. According to the LSMS, only 9.9% of l j households hold financial assets, and only 3. 1% of poor households have them. Still, even small asset holdings may provide a l , substantial contribution towards the poor =0 person's livelihood. Furthermore, there are significant differences in the composition of s assets held depending on spending levels and location. Econometric rnalysis indicates 15 that the share of money in total assets is 1 9 . ,,i- higher for the rural rather than urban N n ro * K 95 oj population and for the poor, relative to the e The inflation rate, as measured by the change in the consumer price index, increased 10% per year during 1980483. 7.9% during 1984-87 and 4% during 1988-0. However, it increased to 8.2% In 1991. IV This cairm i supported by th resut of a Granger causality test The test consists in running a least square regression of the CPI on past curent and futuro values of the SMIG; if causality runs from the CPI to the SMIG. future values of the SMIG vaiabie would have ooefficients equal to zero or insignificantly difflernt from zo. In the equation perforned for Morocco, the CPI appoa to have a statisticafly weak causa effect on the SMIG only If an eight-quarter Is Introduced. For shorter lws, no causality relationship from the CPI to the SMIG can be identified. This findino highlig: tw that even a nwrginal decline In the real value of the SMIG, due to Increased inflation, would have irnportant effect on the living standards of the poor. -25- better-off.22 Overall, these results suggest that inflation may have a further negative effect on the poor, particularly if located in rural areas. Being less able to protect their savings against increasing prices, the poor are more exposed to the detrimental effests of inflation on the value of financial savings. Again, this finding highlights the merits of the tough anti-inflationary stance of the Moroccan authorities with respect to Its impact on poverty. 2.18. Overall, the wage policy of the government, particularly with respect to the minimum wage, appears to have been well intentioned with respect to poverty alleviation. On the one hand, the attempt since 1984 to maintain the real value of the SMIG even in the face of mounting economic difficulties had the important effect of helping avert social tensions. On the other hand, it does not appear that the SMIG exerts a strongly nesative role on labor demand. Attempts to introduce the SMIG in the labor demand equation or to replace the average industrial wage with the SMIG failed to find any significant impact of the minimum wage on employrnent. This is possibly due to the fact that the application of the minimum wage is quite flexible (for example, young workers are paid a reduced SMIG), or that the SMIG is not enforced. These issues are discussed in Chapter Ill. F. THE ROLE OF WORKERS' REMITTANCES 2.19. A recurring claim in poverty analysise for Morocco is that a surge in workers' remittances from abroad has provided a significant contribution toward poverty alleviation. Reported workers' remittances, which in 1991 accounted for about 11 % of private consumption and 7.5% of GNP, have indeed grown rapidly since the early 1970s. Much of this growth can be ascribed to the role played by adjustnent policies. Both macroeconomic policies, by bringing a more stable macroeconomic environment, and monetary and exchange rate policies, were instrumental in making Morocco a more attractive destination for migrants' savings. Econometric analysis provides support to the hypothesis that workers' remittances are significantly affected by the interest rate differentials between Morocco and the migrants' 2D This. conclusions are based on the following estmated equaton: MIA - .28 + .38 RURAL - .28 CLp + .29 CLr + .54 RURAL CLp (2.3) (2.23) (1.58) (1.8) (2.00) - .59 RURAL CLr (2.26) R- - .08. SER - .24. t.etastices in brackets. where M and A denote money and tota aets respectively, CU Indicates expenditure class i and r. and p stands for rich (i-8.9.10) and poor (i-1.2,3) respectivly. The posiwve coefficient on the intweaction tenn RURAL CLp indicates that rural poor hold reltively lrge quantities of rnoney. Di See In particular C. Merrisson (1991) op. cit. *Adjustment. Incomes and Poverty in Morocco, World Development, pages 1833-1651, 1991. -26 - resident country as well as by the expectation of a dirham devaluation.24 Accordingly, a one percentage point increase in the deposit Interest rate or the expectation of a one percentage point exchange rate apprec;ation would lead to a 1.56% increase in remittances. Thus, a flexible exchange rate policy, designed to avoid an unrealistic apprecistion of the dirhamn, and the setting of interest rates in line with intemational rates, represent two crucial components of any policy designed to promote the growth of workers' remittances. 2.20. The Impact of workers' remittances on poverty can be tentatively assessed by using the LSMS data. However, caution should be taken in interpreting the results, because of the large difference between the national accounts and the LSMS data. The analysis presented in Box 11.1 shows that workers' remittances benefit relatively non-poor households, rather than the poor. However, they may play a significant role In keeping these well-off households above the poverty line. A conservative estimate (see Box 11.1) indicates that about 180,000 people (or 5% of the estimated poor in 1991) would be added to the number of poor if it were not for transfers from abroad. G. FUTURE PROSPECTS FOR POVERTY REDUCTION 2.21. Emolovment arowth and reduction of poverty. The Government's success in reducing poverty during the 1980s is attributable to its ability to stabilize the economy, undertake a comprehensive program of reforms and promote a high labor-intensive and sustained growth. This is the most effective long-run remedy against pcverty. Thus, efforts to maintain a competitive exchange rate, low and stable inflation, prudent fiscal policies and further progress toward an undistorted system of economic incentives should be continued. Such a development strategy will have a beneficial impact on the poor even in the short and medium run. To further reduce poverty an essential priority of the Government would be the avoidance of an increase in urban unemployment. This is also important to limit political tensions. The urban labor force could be expected to grow over the next years at an annual 2 The following equation was estfmated over tho period 1970-1990: InREW-- 84.1 + 1.56(rw-r-DEV) + 7.1 nY (9.38) (2.05) (5.82) - 1.50 [nYv + 1.71 InSM - .01 InSM80- .18 InRER (1.53) (7.1) I1) 4.39) At - .97, SER - .12, DW - 2.16, tetatiioes in brackets. where REM, Yw end Y denote respectively rea remittnces. per coapit income in Morocco and per capita income in the migrants' counties, while RER, r'. r DEV and SM denote repectively the resl exchange rat, foreign and domesfic interest rates, expected devauation and a measr of the stock of migrants. DEI Is computed on the basis of d simple focasting egression for the exchange rate. SM8O indictes the stock of migonts during the eghties. It was introduced to assess the clirm that the propensity to remit has been declining in t last decade. No evidence was found to support thi cam. Fnally, the hypothesis that rA, - rend DEVI have the ears coefficient was not rejected by standerd test (ts - .14). N S Wi 44, 1 ..f I' " Iii t *RWRW 41 iih itI.vP Ur - c *i[tiiqj N 41h1 V.'.. 1.  ......... - - 'I  Ijg hi tt h w  jJtI I 1  I jilt gfl'. - 28- average rate of 4.5%.25 Thus, labor demand will need to absorb this Increase in labor supply to avoid soaring unemployment.,' For unemployment to be around 10%, half of what it is today, employment in the manufacturing sector will need to grow at an average annual rate of approximately 7.2% up to the year 2000. This compares with a growth in employment of 8.8% from 1985 to 1990 and 5.5% between 1979 and 1983, namely in a period of inward-oriented, capital-intensive growth. Reverting to this latter kind of performance would imply a rising urban unemployment rate. A growth in employment of 4% per year would result in an unemployment rate of 28% by the end of the century. Overall, there are certainly good reasons to be relatively optimistic about the unemployment outlook in urban areas. However, trade and exchange rate policies will have to provide an unflinching contribution to strengthen the export orientation of the modem manufacturing sector. 2.22. Future growth and poverty reduction. The rate at which poverty will be reduced will depend on many factors, including the rate of growth itself, its sectoral distribution, mnd the nature of any associated changes in relative inequalities. This section summarizes the results of a simple projection model, which shows how future growth may change poverty indices In Morocco. 2.23. Recent experience (see Table 1.3 in Chapter 1), suggests that growth in consumption was distributionally neutral in Morocco, with similar growth rates in rural and urban sectors. Assuming this pattem continues into the future, two scenarios for the growth rate of real consumption per person are considered: a lowcase of 1 % per annum (roughly the rate experienced during the 1 980s, though down-weighting the burst of growth in the late 1980s), and a high-cas of 2.5% (roughly equivalent to a 6-7% annual GDP growth rate). Table 2.4 summarizes the main results.27 2/ That is, 2,154,000 units from 1990 to 2000. Betwen 1982 an 1990, the aerage annual growth In the urban lbor for¢e wa 5.3%. It was sightly lee (4.9%) between 1986 end 1990. Th. loe growth rate projected for the 1990-2000 period discounts a main trend, i.e., a reduction in ua-rurl migtions. This reflects the improvement In living conditons in rural ara (and therefore the reduced incentive to migrate) and the smaller share of rural population. 2W I is assened that labor demand in the manufacturing sector will determine through * multiplier effect emploVment in urban areas, the only exception being the construction sector where employment Is made to depend on output growth. Econometric evidence suggesXt that a unit increase In the nunber of Jobs In the manufactino sector leads to the creation of 4.07 new job in other urban sectors. Conduction output is sasmed to grow at en annual average rate of 2.0%. X The implicatione for the evolution of the neationa poverty indices can be readDiy calculated using the following fornnubL Growth rate in nationol poverty index P. - s.q.7v + s'q`g! where 'u denotes the urban sector, *re the rural sector, and (for i-u,r): a- n/P '16, (sector i's share of national poverty) 1- dlo- P,/d!oig (the elastcity of sector i's poverty index to growth In setor i's mean, holding the Loren curve costant withzin that sector) and o - dlowildt (the rate of growth in wector j! mean). Growth elasticIties of the poverty Indices within both rural and urbn sectors are quite high. For the head count Index, th eblsticity Is .2.9 (-2.7 for the urban sector, and .2.9 for the rural sector); for the poverty gap Index, It I -4.0 (4.1. and -4.0 respectively), while for the poverty severity Index (P.) It Is -5.0 (-8.8 and 4.8 respectively). -29- IAbl 2J4 SIMULATED EFFECTS OF ALTERNATIVE ECONOMIC GROWTH SCBEAOS ON POVERTY IN MOROCCO Rate of reducton In natioral povert index Rate of gowth In (% per yau) Growth Scenario conmption per caplita 1% per yead Headr Pove count gap Sweity _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ hndex __dex Low case 1.0 2.90 4.0 5.0 High cdse 2.5 7.1 10.1 12.4 2.24. These result suggest tha the prospects for poverty reduction through economic growth in Morocco are quite promising under current expectations. The *high-case- with mean consumption per capita growing at 2.5% per year would see the head-count index falling at an impressive rate of over 7% per year. At current projections of the rate of population growth (around 2.2% per year), this would imply that the number of poor would fall by around 5% per year. Thus, in 1996 (for example) there would be a poverty incidence of 9.1 %, with the poor numbering about 2,6 million. 2.25. Things look less rosy for the *low-case growth rate. The rate of reduction in the head-count index would then be a little less than 3% per year, implying roughly a constant number of poor during the 1990s (for example, in 1996 poverty incidence would be 11.3% and the poor would still number some 3,3 million). The poverty gap index would still continue to fall, at about 4% per year, implying about a 1-2% per year drop in the poverty gap itself. -30- CHAPTER 111: URBM MVERTY A. INTRODUCTIQN 3.01. Over the lat two decades, the urban populaton in Morocco has risn from 35% to 47% of the country's total poputation. Casacanca now has more than one million inhabitants. The best jobs and the highest earning opportunities are in the cities. which is aIso where the Government Invests most heavily for social and economic infraucture. But despite great improvements In the standard of lving. there are almost one million poor in the urban areas. Section B of this chapter discusses the income characteristics of the urban poor and the determinants of income poverty in urban areas. The factors that have contributed to the reduction in poverty in recent years are discussed in Section C while Section D suggests directions for further reducing poverty. Dats show that the chief factor was the fast expansion of employment in manufacturing enterprises, especially export-oriented ones. However, the addkional jobs were for unskilled temporary workers at declining real wages. The low productivity of these jobs is an issue that should be addressed if improvements in poverty alleviation are to be continued. S. THE URBAN POOR: EMPLOYMENT AND WAGES 3.02. Demggraphic and emsloMMn charaMristics The LSMS shows that in urban areas poor households tend to have a larger family size than that of the average urban family; in addition, the typical employed member of a poor household has to support 20% more people when compared to the average employed household members. These two characteristics are related to the fact that poorer households tend to display a younger average age than the rich ones: half of the members of poor households are less than 15 years old, while this Is so only of one-third of rich ones. 3.03. Most of the urban poor eam their living as wage eamers, followed by those who are engaged In self-employment activities. Together, these two categories comprise 80% of the employed among the poor. The other categories include unpaid family workers, apprentices and domicile workers. When compared to the overall distribution of employment in urban areas, the poor are over-represented In construction, commerce, repair works, and personal and domestic services. In contrast, they tend to be under-represented in sectors such as transport and public administration. The gender breakdown of employment (see Table 21 in Annex I) shows that across ag expenditure classes, and more so for the poor, women are employed mostly In the industrial sector, followed by personal and domestic services and by commerce. Richer women tend to work in the public administration or in the services sector. 3.04. Of those that are self-employed among the poor, most are concentrated In commerce activities, and to a lesser degres, in manufacturing. Most of their activities are carried out as street vendors, and only some work In an establishment or at home. In the LSMS none of the self-employed units among the poor reported having any form of -31 - accounting, or hired wage labor, thus relying basically on family labor. Around 15% of the self-employed units among the poor operated seasonally. 3.05. Waaes. About two thirds of the wage eamers among the poor are employed in firms that hire no more than five workers. Women represent otne-third of wag earnes among the poor compared to 25% for the whole urban population. In terms of the length of paid employment, the poor tend to hold jobs that last less than the average In urban areas. There is no significant difference between the number of hours worked per week by poor wage eamers relative to the average. However, the urban poor are more affected by underemployment, as they work, on average, 8 months per year, compared io the 10 months worked by the average urban wage eamer. Table 3.1 shows hourly wage rates of male and female wage earners in both urban and rural areas. The table indicates that in both areas women earn less than men and wage rates increase with expenditure classes; the variability of wage rates across expenditure classes is less pronounced in rural areas which is probably due to more uniform levels of skillness. Poor males in urban areas eam approximately half the legislated minimum wage and one third the average urban wage. Poor females get 8S little as half the wage rate per hour earned by poor males. Wage differentials among men and women are lower in rural areas. Moreover, as shown in Box 111.1, monthly wages of the poor in rural areas are significantly higher than those of the tirban poor. In contrast, the average monthly urban wage is 1.8 times higher than the averr ge rural wage. Table 3,1: WAGE PER HOUR, DH 1991 Male-Female, Urban-ral wage eaners Expenditure URBAN RURAL G.roup Male Femae male 5 82 3.7 3.3 6 4.7 3.0 4.2 2.2 7 44 2.3 4.1 3.2 8 5.9 3.1 4.8 3.3 9 6.8 5.2 6.1 1.9 10 13.2 10.9 5.7 4.1 Mean 9.2 7.4 4.4 3.3 Note: SMIG per hour = DH 6 - SMAG per hour = DH 3.9 Source: LSMS 1991, Direction de Ia Statistique. I e 1m1 zE I II ! I E~~~~~~~~~~~'g M.M ,' -.4:.~~~~~~~~~~~~~~~~~. .. ....... WQ$ k. g | o -iiwiEi iS Ut Of WI I~jt li'~WI~~~&B~ o4 ~~i m E E g g |Om . i | F=~~~~~~~~~~~~~~~~~~~~~~~~~~: . N L',,, XOB -33- 3.06. UnemolovmnIa.' Unemployment affects almost 30% of the labor force among the poor, compared to an overall rate of around 20%. It affects mainly the young across all expenditure classes but particularly the poor: 47% of the poor in the 15-24 age group, and about 29% of those in the 25-44 age group. Moreover, the more educated show higher rates of unemployment. Among the poor, for example, those with no schooling have the lowest rate of unemployment (12%), but those with primary school report a 43% rate, and those with secondary school reach SI %. Among those with some university studies, who however represent an insignificant proportion of the poor, the unemployment rate jumps to 100%. 3.07. Looking at the reasons given by the poor for being unemployed, the LSMS shows firm closure as the single most Important reason, followed by interruption of studies to enter the labor force. For the average urban unemployed, however, the main reason for not working is having reached the working age and seeking the first job. Industry and construction are the two main sectors where the unemployed poor were previously employed. Over 60% of the unemployed in urban areas remain unemployed for more than one year. On average the poor remain unemployed for 25 months, and the average urban unemployed for 22 months. 3.08. Determinants of urban income noverty. Three major determinants of income poverty In urban areas stand out. Ficst. the fast rate of expansion of the urban labor force has generated a strong pressure to keep labor incomes at low levels, especially for unskilled labor. During 1982 to 1990, the labor force in urban areas grew by 5.3% compared to 1.8% in rural areas. This growth was driven by the rise in population, 3.77% per year, which in tum was mainly due to migration flows from rural areas (Table 3.3). Finally, labor force participation rates have increased, reaching a level similar to that of the natural growth of the population. However, female participation rates remain low, at around 17% in 1991, thus leaving ample room for a possible future expansion in overall participation rates. Second despite the low level of wages, the rate at which new jobs were created in the urban areas is below the rat., at which the labor force expanded. During 1982 to 1990 employment opportunities grew less than the labor force, as shown by the negative contribution to employment growth given by the employment rate. Thus, unemployment increased at a rate of 8.2% per year. Ihkg., even for those who find employment, formal or informal, the risk of poverty exists because many people work in low-productivity, low-wage jobs, are under-employed, and have little access to formal credit, and thus, to capital. I/ The definition of unemployment in the LSL * is the rns as the one used in thb lbor Surveys that provide the official estimates of unemplornent in Morocco. Those interviewed are sked if they have performed mny eoonomic activity in the bat 24 hourm, and those responding negatively re counted as unemployed. This way of measuring unemnployment loeaves open the posibility for many wokaere to self-classify themselvs as unemnployed if they are not performing a job according to their skill, forma training ndlor expecations. -34- Iale 3.3: DECOMPOSITIN OF E1PLOYMENT GROW1H (% pw mumu) Urban Areas. 1982-1990 Population Growth 3.77 Natural Growth 1.72 ural-Urban Migration 2.05 Growth In Participation Rates 1.57 Growth in Employment Rates -1.16 Total Employment Growth 4.17 Source: Annuaire Statistique du Maroc. C. REDUCTION OF POVERTY AND EMPLOYMENT GROaTH 3.09. The growth in urban employment reported in Table 3.3 hides wide disparities among sectors: as discussed in Chapter II, during the eighties the non-tradable sector, particularly construction, decreased its share of employment while the manufacturing sector generated most of the employment opportunities. During 1984 to 1990, the "formal" manufacturing sector was characterized by output and employment growth of 3.7% and 8.4% per year respectively and a fall in real wages: indeed, a 11% annual decrease in real wages saw an increase in employment of over 3%. As discussed below, this high elasticity of employment vis-A-vis wages may have contributed to poverty alleviation, since it resulted in an increased total wage bill, despite a fall in real wages, because more workers were hired at lower average wages and in temporary jobs. 3.10. Exoansion In temoorarv employment. Table 3.4 below shows that during the period 1984to 1990, temgrar employment in the manufacturing sector increased 2.5 times faster than perrnanent employment. Thus, the average firm increased its hiring of temporary 21 Moroccan statistical sources didinguish between two types of enterprise, according to vaious criteria. First, the firms that are included In the &gnute Annueft our lee Industrie do TrInsfonmaton (survey of estblishments for tho manufaoturing setor, available for the period 1984-1990).These a manufacturing firms employing 10 or more workers, and those employing low thn 10 workers, but with annual s"aes exceeding 100,000 dithrn. The firms included In the 1890 survey represented approximately 90% of the W8g employment, and about 76% of total employment in the manufacturing setor. This is the group of firm. for which the tems formal end 'modern' er used. A second wroup of enterpris, the *non- otrutured' sector, is defined as those firms with sale below 100,000 dirhems por year and having no accounting system. This group is laew domined by sma firms, emplovin a large propoton of Independent and unpaid-family wokes. This is the sector we refer to as the 'informal 'sector. -35- Figure 111.1 workers by 70%, while keeping its number of permanent workers a I m 0 s t unchanged.3 The hiring of output h 1-Year lag Empilonmet Grewtb temporary workers allowed firms enormous flexibility in adjusting to changing economic conditions. This can be shown by looking at changes in output, measured by real manufacturing value added, and changes in employment. As illustrated In Figure 111.1, movements in employment are highly correlated, with a 1-year lag, with changes in output. The increase in temporary jobs, most , U - , : . 1,, likely unskilled, was matched by a drastic reduction in the share of . w g ( 14,". unskilled workers from among permanent workers. Available Information on the manufacturing sector indicates that the share of unskilled workers decreased from 75% of total permanent employment in 1984 to 42% in 1990. 3.11. It is possible that the increase In temporary and precarious employment Is a reflection of exasting labor market dilWditie. For example, hring and firing regulations make it extremely difficult for firms to reduce their permanent workers, even as they face a deteriorating business environment. These constraints are likely to retard the process of resource reallocation following the changes in the structure of economic incentives. In fact, whereas it is important to devise a safety net for laid-off workers, hiring and firing constraints have the undesirable effect of reducing labor demand, therefore harming the workers In the long run. In ditinguishing between pemant and tenporay emplmnwt, It shoul be kept in mind that how ltte refers more to the non-tnure charac of employVrnt rthw thn to a specifli amount of tme spent worldng. A tompomry wore might be hrd for just under onea , only to be re-hired ater a brief pous, on a temporary basis again. In this way, the firm rti t" ablty to adjust the ize of It lbor ftoe aocofding to the specifiw economic crumstne prweln at diffeent times. In addition, some owtion should be taken in analyzing dte on tempoary wovke The wsveys of establishments provide the number of permanent worker. and the total numb of hour woked by tempoay wor. The hou an converted into a stock of positions assmnin full epyment owever, the date does not aow th caloulaton of temporary layoffs of permwnt worker 41 See World sanic, Morocco: Preparing for the 21st Cenur - Strgning the Private Sector in Morocco, May 1993, Report No. 11894 - MOR. -36- 3.12. A related issue in discusing the flexibilty of the labor market concerns wages, and in particular whether they have been a binding factor in the genoration of employment. This does not seem to be the case in Morocco. Table 3.4 shows changes in employment and average real wages in the manufacturin sector from 1985 to 1990. Tae.4: a ROVITH IN MANUFACTURN UPOYMIENIrT MD WAGES. 1986-11"0 on - -- _________ _ 1_ 1985 1986 1987 198 1989 1990 1985.90 Total Employment Gmowth 6.1 9.5 8.3 10.4 15.3 1.1 8.4 Permanent Contract 1.6 7.8 7.7 5.4 10.1 7.6 6.7 -Tempoay Contrat" 34.9 17.6 11.0 31.8 32.9 -17.1 16.9 Average Real Wages 5.5 -6.8 -1.3 -0.7 -5.0 6.7 -0.4 Avewe real wage Index 100.0 93.2 92.0 91.3 86.7 92.5 -0.4 Real SMIG index 100.0 96.3 93.7 100.6 103.1 106.0 +2.1 ;g9g,: Staff alclations. Ftom -Enqute Annua* sw les hrdust de Twesfomutia 7 Real wages have been falling by 0.4% a year during the period (and by 2.5% a year if one excludes fte year 1990) contrary to an increase of 2.1% in the SMIG.° Changes in employment appear to be strongly correlated with changes in the real wage indicating a high flexibility in the labor market. Such flexibility, however, arises, as already seen, from the increased availability of temporary Jobs at low wages. In 1986, the only year In which Information on wages by skill exists, (see Figure 111.11) average wages for skidled and unskilled arManent workers were above the minimum wage (SMIG).' Wages for tmorary workers were below the SM!G for the four smalest firm-size groups, and then around the wage of jI Daft on wages Iwnlude soi charges received by workers The sury of esbshmen for the manufrng seor prowide. dtinction btwn net waeo nd social chaoes for the permane worke but not for temporay workers. it TM fil In rel wages may be due to the i_nc hirng of tepory wodes,a mor y to be pad lower waeo and to reduced hours of pmanent mpbled Z/ The bgsAton faiowe fim signica hft In payng wages. Thus, en 18-yew old recsiv the full minimum wage, but youngr workers receive only a fraction: 80% of tho SMIG Is paid to workersged 17 to 18-yee old; 70% to n 10 to 17; 60% for ages 1 to e;G- 60% formm 14 to t6. Anothr proviion In tho lw aiaws for a premium to be paid boad on seniority. Wodkers with over two yea of servc are entitled to a 5% premium; those with ovr fie yer of svie gt a 10% premium; those with over 12 Ver of sevice ge 16%, and those with over 20 yVrs of ewvce gt 20%. -37- unskilled permanent Figure 111.11 workers In the larger firm- size groups." On average, the wages of temporary Average wages by firm size, 1986 workers, were slightly Aea s ,, firm , 16 above the SMIG, but below the average of permanent unskilled workers.' Thus, in recent years the expansion of employment in the manufacturing sector has been dominated by non- tenured contracts, with wages below the SMIG, in .. contrast to the higher wages of both skilled and unskilled workers holding . permanent jobs. It is . 4 s , ; I ; It therefore the expansion of t. a,:. (taetvsae) jobs for temporary, most likely unskilled workers, even though at lower wages, that has helped to alleviate poverty. The availability of more jobs has allowed households to increase their sources of revenue, despite the lower level of wages. The Export Sector ;i 3. Output and employment did not grow uniformally within the manufacturing sector. Instead, they were more pronounced in the export sector,'0 especially in the food and textile Industries. In 1984, only 10% of all manufacturing firms were producing mainly for I/ Flrm kes ar easf ollows ls than 5woar* (1), to 10 wokw (2), 11 to 20 wdo (3), 21 to 60 wofkes (4). 61 to 100 workes (6), 101 to 200 wotks (6). 201 to 300 wores (7). 301 to 500 worers (8). 601 to 1,000 workers (0) and more than 1.000 workers (10). 91 The diffeence can possbly be attibuted to taxes and social charoes. Thus, fims would tend to pay al sool chrges for tenured unskilled wokrs but not for temporay works. JW In order to discuss the perfomance of the domeost and export-orented sectors, firnm hav bn clesifed as domestcoriented or export-orented according to the proportion of exor to tota sales. Thus, they have been included In the former If for evwy single yer the proportion was l or equal to that of the tVpical firm and to the ttew If the proporion was lger than the awrae ratio. -38 - externdal markets, but by 1990 the proportion had Increased to 21 %." Equally impressive was the increase in their employment share, from 26% to 47% of total employment (permanent and temporay) In the manufacturing sector, and of output, from 1 5% In 1984 to 33% of tho total in 1990. 3.14. During 1984 to 1989 employment in the export sector expanded by 25% a year and real wages declined by 2.6%." Conversely, in the domestic-oriented sector, real wages and employment increased by 1.6% and 2% per year respectively.'3 This evolution owes to the substantial creation of temporary jobs in the export sector. Thus, during that period temporry employment expanded at an annual rate of 1 I % in the domestic-oriented sector, compared to a rate of 25% in te export-oriented sector. Similaly, the forme incressed its hiring of permanent workers at an annual rate of 0.8%, as opposed to a rate of 19% for the letter. 3.15. The creation of new jobs in urban areas came mostly from the export-oriented sector. But this sector expanded on the basis of low productivity and low wages which, complemented with a real devaluation of the exchange rate, allowed the sector to compete Intrnaonally. Table 3.5 shows the evolution of wages, unit labor costs and the real exchange rate'4 for the manufcturing sector during the second part of the 1980g. In the export-oriented firms unit labor costs remained flat during the period, as the result of a proportional decline both in labor producXtM and real wages. But the real exchange rate deprecited on average by 3% a year, giving Moroccan exporters a competiive edge on the European market. Competveness in domestic oriented firms may instead have declined during the second part of the 1980s. Unit labor cost increased on average by 1 % a year, as a result of an increase In real wages and a decrease in labor productivity. These factors may exwpin the slower expanion in employment in the domestic oriented firms relative to those export oriented. 31/ In 1000 mwanUftI xpoft rerntd 74% of al meran ports (relative to 52% In 1985) and 25% of GOP. I ConsIdwr th period 1084.1900, enplyn expended by 24.5% in the expo*trented netors end 2.8% In tho domestic r: real wos fel b 0.1% In the expot*-olntd sector and incrased by 2% in Xt domesi sector. ,1 A braskdown of wge by type of wovri-ldied. unsed end temporary-ehows tht wage ae hogh ormle t firm sie n the domestic-oriented sotor, but le so In the eqxort-oetd sector, denot a smllw varaton of wage wros fin se; and tt the level of wa In Otwe xpottoreted sector ar ower thn in th d -oriented sector, both by ddkll by firm sie. ,(1 The ewhange raft b vX-vs th French ranc, more hn 60% of Moroccn exports re to France. -39- TOble 3.: COMPETIYP/DIESS N THE MANUFACTURNG SECTOR Export Oed flms 1986 1987 1988 1989 1990 1986-90 Real Wages 100.00 86.65 89.88 88.14 90.29 -2.52 Labor Productivity' 100.00 106.29 94.67 82.61 89.95 -2.61 Unit Labor Costs 100.00 81.52 94.94 106.69 100.37 0.09 Real Exchange Rate2 100.00 106.41 105.79 102.47 112.74 3.04 Domestic Oriented Rm_ Real Wages 100.00 98.34 102.92 101.69 104.47 1.10 Labor Productivitvy 100.00 103.75 105.60 102.06 99.74 -0.07 Unit Labor Costs 100.00 94.79 97.46 99.64 104.74 1.16 '1 Calculated as real value added per worker. 2/ Dirhams per French franc. eo=: Morocco Annual Industrial Surveys. World Bank Calculton. 3.16. In the long-run, only a rise in labor productivity will permit a sustainable increase in the standard of living of workers. Two factors can explain the observed fall in labor productivity in the export oriented firms. hrs, the average quality of labor has been deteriorating due to a faster expansion of unskilled labor in relation to skilled labor. Second the subsectors with the more pronounced export orientation (clothing, food, leather and shoes, metal products) have also been those with lowest and declining capital intensity. The latter has been caused by the higher rate of entry into the sector of small-scale enterprises. In addition, throughout the economy, wage employment itself has diminished relatively to non- wage employment,'5 which may be an indication of the expansion of the informal sector. 3.17. The existing evidence on the informaslse=to is reviewed in Annex IV. It is indeed possible that the informal sector has provided, and continues to provide, employment opportunities to the poor. Moreover, It plays a crucial role in absorbing the inflow of migrants crom rural areas; because of their low level of education, the migrants have access only to low paid and unskilled jobs, usually temporary."' However, the role of the informal sector in the alloviation of poverty should not be overemphasized. This is because it employs workers In low productivity activities, and it has a limited ability to pay wages above the poverty line. ISI Between 1986 and 1990, wage employment decreased from 68% to 60% of total enployment in urban areas. See *Annuaire Statistique du Maroc. D.~/ Yet, immigrants show a higher rate of success In obtaining jobs than nonmmrnigrants. Oats from a recent enployment survey (Enquute nationale our Ia population active urbeine, 1989) show that partilpation rates anong male immigrants are 10% higher tan that rnong non4immnigrant and that the unemployment rates for the fomner are half that for the lattr. - 40 - Evidence from the informal manufacturing sector (see Annex IV) shows that wages in this sector are much below those in formal activities and below the SMIG. In addition, a recent survey of the small traders in the commerce sector" reveals the existence of approximately 600,000 units, employing on average 1.5 individuals each. The survey has estimated that the value added generated by the typical small trader is roughly equivalent to the level of tha urban minimum wage. D. CQNCLUSIONS 3.18. This chapter has presented evidence indicafing that a most important determinant of income poverty in urban areas is the strong growth of the urban labor force, relative to the growth in employment opportunities. In turn, the growth of the labor force is driven by rural migration, and to a lesser extent by the natural growth of the population and rising labor force participation rates.' Emigrants are pushed out of the rural areas by lack of eaming opportunities and are attracted to the cities by the expectations of employment and by the reality of better economic and social services. Recent demographic information indicates that two thirds of male rural migrants move to urban areas because of lack of jobs where they live." The Government can help to slow down the emigration process by promoting the creation of jobs and by increasing the availability of basic infrastructure and social services in rural areas. 3.19. Urban-rural wage differentials. Evidence from the LSMS indicates that hourly wage rates for the poor are lower in urban than in rural areas. Yet, because of more job opportunities and less underemployment (as the poor work, on average eight months per year in urban areas compared to six months in rural areas), the poor are attracted into the urban labor market. In spite of the reality of lower wages, an element of attraction is the existing wage differential between the SMIG and the SMAG (with the former being more than 1.5 higher than the latter). The traditional justification for this large difference in nominal terms was based on two arguments. First, food prices were thought to be much higher in the urban sector. However, as shown in Annex 11, the Moroccan market for food products seems to be well integrated, with no systematic bias in the price distribution over the territory. Second, it was thought that "monetary needso were much higher in the urban areas than in the countryside. But again, the differences are in fact much smaller than previously thought. Hence, although a complete removal of this gap may be unwarranted because of possible 1V Enqufte des commerqants d6taiilants, 1990. Ministare du Comnuerce et de l'lndustl. JJ About 200,000 people migrate ech year fron rura to urban areas. Ther. are no signs of a reversal in this trend. jj/ See Popultion et Emploi, Direction do la Statistiqu, CERED, 1992'; interestingly 60% of women (who represnt about 30% of total migrants) migrate for family reasons, I.e., to gt married or join a relative. -41- productivity differentiabs between the rural and the urban sectors, a gap of this magnitude now seems untenable. 3.20. CbM=s in th regulatory framewgEk. The increase in the hiring of temporary workers in recent years, most of them at wages below the legislated minimum wage, has partly been the response of firms to a labor code that is perceived to constrain the freedom of enterprises to both hire and fire workers as business conditions deteriorate;9 and, once the firm succeeds in dismissing workers for economic reasons, to establish a costly compenation for them.2' These aspects of the labor law, and the well-known reluctance of the courts to rule against workers, are clear constraints to the functioning of the labor market; but they are understandable because of the high level of unemployment and the absence of unemployment insurance. Thus, they could be eliminated; but at the same time the Govemment should consider the provision of protection to the unemployed, (see below) and help with training and finding another job. 3.21. To improve the flexibility of the labor market It would also be advisable to eliminate the State monopoly on job placements and to legalize private agencies for advertising, recruiting and placing both permanent and temporary workers. Minimum wages as discussed in this report, have not been a constraint in the generation of employment, in part because workers accept jobs paying less than the minimum. And the increases in the minimum wages that occurred during the eighties have helped protect the households headed by workers that received the minimum wage from falling below the poverty line. Provided that minimum wage policies are administered flexibly to avoid reducing the demand for workers or forcing both employers and employees into uncertain arrangements, a minimum wage set near the poverty line can continue to play a role In protecting some of the poor by helping sustin the purchasing power of families where wage eamers receive the minimun and are fully employed. Moreover, as industry and agriculture become more competitive productivity and wages would increase, rendering unnecessary the use of minimum wages. 3.22. Incrases in roductivity. Poverty reduction in urban areas has been driven, in the 1980s, by the fast expansion of employment in manufacturing enterprises, especially export-oriented ones and in the informal sector. However, the additional jobs were for unskilled temporary workers at declining real wages. The low productivity of these jobs is an issue that should be addressed if improvements in poverty alleviation are to be continued. In fact, only a rise in labor productivity will permit in the long run a sustainable increase in the standard of living of the population. In turn, this would require firms adopting higher level of WQI Having worked at least one er, a person can be fired only for cause, which usually require supporting evidence to be chalenged in court: and the courts usually ule in favor of worker collectiv, layoff. for economic reasons must be authorized by provinial governors. (See'Dveoping prvet industty in Morocco', Worid Buak, July 1993. 21 A worker Is entiled to such a benefit after a year of continuous service In the firm end If holding a pemunent contact of Indefinite duration. The levl of compnsation will vey with th length of ovic of the dismissed worker. -42 - capitalization, and improving, among other things, the quality of business management, the choice of products and the training of workers. A complete analysis of the constraints faced by Moroccan businesses is provided in a recent report on the private sector.22 Access to credit" is a key element to provide small- and medium-sized firms with new methods of production that will allow them to reduce unit labor costs via increases in productivity, as opposed to decreases in real wages. But for many firms, especially those in the informal sector, the lack of colateral can be a serious obscle in obtaining access to formal credit. Creative forms of financing, such as the joint lIability lending to small groups, can be designed, whereby collateral is not required up front, but the whole group is responsible for repayment. Equally important constraints are small firms' access to financial sector outletsm infrastructure and services, such as electricity, water, transportation; know-how In commercialization, business management and accounting; lack of commercial space; and the burden of a panoply of administrative and commercial regulations. 3.23. education and trainina. A skilled labor force would increase labor productivity. But the poor have almost no access to education, except for primary education, and even here, the need to enter the labor force drives many of them to leave school. The promotion of basic education, and the creation of mechafisms to ensure its culmination, can thus play an important role in expanding the opportunities for the poor. This aspect will be discussed In detail in Chapter V. For older, illiterate workers vocational training programs possibly combined with literacy courses may help obtaining semi-skilled and skilled qualifications. Some of this training could be done at the work place, to avoid the existing mismatch between the skills provided by the courses and those demanded by firms. The increasing hiring of unskilled workers on temporary contracts however, raises the issue of how willing firms will be to invest in the training of temporary workers. 3.24. Reaching the unemoloved. To reach the poorest among the unemployed, and those that are affected by transitional shocks, such as the drought, it would be advisable to expand existing public work schemes, for example the *Promotion Nationale" currently operating mostly in rural areas. Intemational experience shows that public work schemes, employing unskilled labor at wages below the minimum wage in projects creating or maintaining basic Infrastructure are an effective way to alleviate transient poverty. 3.25. For the unemployed with previous working experience, the Government may also consider the introduction of a scheme of unemployment insurance, as it exists in most developed countries, for the unemployed with previous working experience. Assuming that a benefit equivalent to the value of the urban poverty line (DH 2725) is given to all unkemployed with previous job experience (possibly over a 2-3 months period), such a scheme would entail a cost of about 970 million DH (or 2% of current govemment expenditure in 1991). The poor represent about one third of this category of unemployed. However, if 23! 6. World Bank,-Strengthenina the Privat Sector, op. cit. 2V The lak of acooss to credit Is quoted as one of the most important constraint to growth by firms in the 'non strutured' sector. See 'Enqufte national. sur lee entreprises non structures. localisdes, 198. a -43. workers from small firms or the self-employed afe excluded. as In the case of most countries, then the total cost would be only marginally lower (1.5% of current expendiure In 1991) but the percentage of poor included would drop from 34% to 13%. -44- CHAPTER IV; RURAL POVERT A. IMIRODUCTION 4.01. As the percentage of the rural poor has increased from 70% in 1984-85 to 72% In 1990-91, poverty in Morocco remains essentially a rural phenomenon: about 2.5 million rural people are poor, of which 1.5 million extremely poor, living mostly in the center north, Oriental and center south regions. And while progress in fighting poverty cannot be denied, it Is a fragile improvement: almost 20%A of the population is in poverty, an additional 12% of the population has an expenditure level which is just 25% above the poverty line. And, as already discussed, Income poverty is compounded by the acute deprivation that arises from the lack of economic and social infrastructure in rural areas, relative to both the urban areas and comparator countries. This aspect will be discussed in detail in Chapter V. 4.02. This chapter focusses on the profile of the rural poor and analyzes some of the determinants of their incomes. Section B discusses rural and agricultural development in recent years, highlighting relevant factors in the reduction of poverty. The remaining sections examine the characteristics of the rural poor and identify issues in designing anti-poverty programs. The date show that rural households typically eam their livelihood from various sources: working off-farm for a wage, raising livestock, selling agricultural products from their own farms. Most poor people do not own enough land for productively employing all their endowment of labor. Thus, many of them seek off-farm employment through the labor market. Indeed, fte dats suggest that the main cause for the reduction in poverty during the second half of the 19808 was the fast and sustained increase In wage incomes. The second most Important source of rural income, on farm work, depends on the efficiency with which the land is used, that is on the access to irrigation, credit, and other productive inputs. These factors, examined below, may in tum be part of a strategy of poverty alleviation. S. AGRICULTURE DEVELOPMENT 4.03. Agricutual arowth. As the lives of most rural poor depend on agriculture, the development of this sector Is crucial for further reducing poverty. Agriculture plays a major role in the Moroccan economy. In 1991 it accounted for about 19% of GDP, provided 40% of employment and about 30% of export eamings. After slow growth in the 1970s (2.4% per annum), agriculture's real growth during the 1980s, about 8% per annum, was twice the average per annum GDP growth. Thus, agriculture made a major contribution to the Increase in rural incomes. This performance owes principally to two factors, i.e., favorable weather conditions, and the impact of policy reforms included in the Medium-term Agricultural Sector Adjustment Program (MTASAP) adopted In 1984. 4.04. Poliey reforms. After decades of Interventionist trade and pricing policies that protected import substituting production and precipited a budget crisis, the MTASAP represented a true departure from the pest. The key objectives of the MTASAP were: (a) to reallocate public Investments from irigated to roinfed areas and to high return investments: (b) to rationalize agricu'tural support activities and Improve cost recovery; (c) to reduce price -45 - controls and subsidies and redirect incentives towards activies for which Morocco had a comparative advantage; and (d) to stengthen the institutional capacity for agricultural policy planning and analysis. Most of the objectives of the reform program were achieved. Between 1985 and 1990, qantitative restrictions on imports were eliminated and replaced with tariffs on all products with the exception of soft wheat, sugar and oilseeds; for these commodities a system of reference prices based on a movin average of world prices was established.' Inputs subsidies were reduced and irrigation water charges increased; livestock services were progressively transferred to the private and cooperative sectors. 4.05. The arowth of aariculturl invesM ent. The recovery in investments that foHowed the reform program has been a most relevant development in recent year In fact, during 1985 to 1990 total public and private investment In agiculture grew on average by 0.5% per annum in real terms compared to a decline of 1.5% per anrum for total gross fixed investrnents in the economy ( representing about 12% of total gross capital formation during the same period). But most importantly it was private investments which picked up,2 while public investments, following the stabilization effort, declined markedly. It is estimated that the share of private3 in total agricuture investment increased from 44% on average over 1981 to 1984 to 61% in 1985 to 1990 and to 70% in 1991. In nominal terms, private investment iri agriculture Increased at about 31% per annum during 1985 to 1991. The recovery in investment had a positive impact on the productivity of labor, which is probably the reason why the overall unemployment rate remained as low as 5% during 1986 to 1991 in spite of the strong rise in product wages. 4.06. 1rr_sedand raiafizua. It is likely that much of the recent upsurge in private investment occurred in the irrigated sector of intensive agriculture. The irrigated land produces more than 60% of agricultural exports, almost al citrus fruits and vegetables, 80% of sugar, and 50% of milk production. The ranfed sector produces the bulk of cereals and pulses of the country and its performance Is heavily influenced by climatic conditions and the use of traditional poor technologies. In the last two decades, more than half of public Investments In agriculture benefitted the irrigated areas although 75% of the rural population lived in rainfed areas. But, even if it was mostly in irrigated areas, the recent recovery of investment might have had beneficial effects on the poor by increasing the demand for labor. In fact, many of the people in the poorest expenditure classes rely on wsge incomes (see below) for their livelihood, and often migrate from the rainfed to the irgiated areas looking for seasonal occupations. Crop and vgetable production in irdgsted areas is labor intensive and many jobs 3/ The systm ws ioduce In 1987 fw what for sugr en oiseds It wv become opatonu In 1994. ,2,ft Is outs t op of ths chaptr to expan why invewostmereaed. PossIbe epnatio we th exonerato of agriultur frm anl txation up to the yew 2000 In 14 (Inow extndno to 2020) combbI with the stron Inflow of emiac frm aroad. Prvat Invostuent ae estimat on the baW of the CNCA cedit allocon and FDA Fonda de Divloppement AWicole) inent Asbidie. -46- offer more than 200 days of work per year, compared to an average as low as 60 days in some rainfed areas. C. THE CROPS AND THEIR PRICES 4.07. An important objective of te price intervention policy followed by the Moroccan Government In the cereals market before the liberalization reforms of 1988-1989 was the protection of the incomes of the poor farmer. In fact, while less-poor farmers grow diversiffed crops. including, for example, fruit and vegetables, most poor peasants grow cereals and raise livestock. Moreover, even among the various cereals, the poor tend to grow barley more than any other crop. This Is shown in Table 4.1, which describes the share of barley, hard wheat and soft wheat in the total value of the crop production, per expenditure group. These are the most common crops in Morocco, and they covered, on average, 62% of the cultivated land during 1984 to 1989. Table 4.t: SHARES IN THE VALUE OF CULTIVATION (%l Expenditure Barley Hard Wheat Soft Wheat Group ~~ 3 . 4 24.3 17.6 27.7 5 13.1 10.0 11.6 6 16.1 18.0 12.6 7 18.2 19.5 23.7 8 8.5 35.9 27.1 9 25.7 22.1 11.8 10 11.5 22.5 15.1 Mean 15.8 22.0 18.8 flmg:: LSMS, Direction de Ia Statistique. The share of barley in the total value of the cultivations tends to decrease as expenditures increase. In contrast, the shares of wheat, and especially that of hard wheat, tend to increase with the expenditure class. This Is also a reflection of the geographical pattem of cultures. Baley, which is drought resstant, covered about 29% of the cultivated area In 1985-1989. It is the dominant culture in some of the poorest regions, like the south. Soft wheat covered about 17% of the cultivated area in 1985-89, mainly in irrigated areas and In areas with higher rainfalls, as It Is more sensitie to drought than barley. 4.08. Until the reforms of 1988-89, the producer and consumer prices of all cereals (and since then of only soft wheat) were fixed each year by an Interministerial Pricing -47 - Committee. The National Cereals asnd Pulse Office (Office National Interprofessionnel des Cereales et L6gumineuses (ONICL)), the govemment office responsible for the procurement of crops, was required to buy any quantity of cereals offered to it at the guaranteed floor price. ONICL also distributed all imported grains to licensed traders who sold them to the mills at the subsidized price, plus maintenance costs and a fixed profit margin.4 Millers then sold the flour to wholesalers at a fixed subsidized transfer price and they received a fixed margin from ONICL. The flour was sold at a fixed price to retait shops and, finally, the bread or final products were bought at a fixed consumer price by consumers. 4.09. Did this system of price SuoQort favor the Door? First, it led to anomalies and to the creation of a parallel market. As many farmers, especially the poorest, could not transport their grains to government collection points, they would sell C}IAt N REAL PICS OF TE VWt CEREULS them directly to the(ts-u) traders, often at a price much below the fixed one. 0o Second, ONICL was frequently not able to / t WhAa support the fixed prices, because of its small I budgets.5 Chart IV.1 O.6 /J describes the behavior of I" 'i / ./ s the real prices of barley, I J hard wheat, and soft I wheat. They are the I \ / \ actual prices received by OA producers, which often differed from Govemment supported prices, deflated 0., by the CPI. These three / prices roughly increased 02. from 1969 to 1981, a 7 72 74 7. .8 X 88 o0 year marked by a severe EraMel . drought. The price of barley grew at an average annual rate of about 7% between 1969 to 1981. Then, the trend reversed, and it decreased I When worid prices were lower then the support prioe, taders reimbursed ONICL the difference between the two price., minus transportion and maintenance costs. On the other hand, when the price of Imported gran was higher then the state trading price of grain. ONICL used it reseves or sourht help from the Stabilition Fund (Ciswe de Compenotion). If For example, the support price (DH per ton) of barley wva 1,500 in 1986 and 1,650 in 1987; the coresponding producer prices were 1,290 and 1,280. -48 - at an average rate of 3.9% per year from 1982 to 1988, recovering again in 1989-90. Hence, the price policy pursued for cereals from 1982 to 1988 was not very favorable to the poor peasant. In contrast, the price liberalization of 1988-89 resulted in a marked increase in producer prices and may have contributed to raising their Incomes. 0. EM!LQYMENT AND WAGES IN TtlE RURAL SECTOB 4.10. Activity rates and emlovment. In rural areas activity rates are as high as 55.3% for males and 32.9% for females, compared to 50.5% and 17.1% in urban areas respectively. These rates, resulting from the LSMS, are in line with those recorded in the 1986 Rural Employment Survey (50.6% for males and 33.3% for females). Agriculture is the largest employer, with 73.2% of employed men and 92.5% of employed women. The breakdown of professional categories shows a clear gender difference: the majority of employed women (79.4%) are classified as unpaid family workers, 13.4% as self-employed and only 5.2%A as wage eamers. On the other hand, 37% of men work as independent, most as small-scale farmers but also in commerce, and 25.4% are wage eamers. Many (37%) are also classified as family workers. Amongst the poor there is a negligible participation by women in consuction, commerce, or other activities outside of agriculture. In agriculture (see Chas IV.11 and IV.ll and Table 22 in Annex 1), the vast majority of women (84% in the aggregate and about the same for the poor) are family workers. Most of the rest are classified as "self employed" although the difference may not be so much what work is done but how much contrd the worker has. In fact. while women raely obtain a job of their own for a wage, they often share in their husband's work outside the household farm." And having command over family labor, women and often children, gives a laborer a competitive edge in the labor market. Al See Pascon P. and Ennaj M. (1 98B), 'Les psysans sans tero au Mueo', Editions Toubkdl. Cesbbnoe. - 49 - Male Employment in Agriculture By expenditure group 60 . 40 , ..... ......... 30 20- 10 . i 2 3 4 5 6 7 8 9 10 i= Wage Earner GO Sell-Employed Employer E9 Fam. WorkerslOthers Female Employment in Agriculture By Expenditure Group 100 ' 40 .... ..... ..... ..... 2°; - - ... ... .... ... ... ..... .. 0 2 g0i I 2 3 4 5 6 7 8 9 10 M= Wage Earner GO Sell-employed GM Employer F Pam. WorkerslOthers I - 50- 4.11. WMage income and rural oovertv. Table 4.2 shows the .mportance if wage Income for the poor. The second column represents the ratio of wage income to the value of cultivated land across expenditure classes.' This ratio may be interpreted as a rough indicator of the share of wage income in total income, which cannot be computed with the available data. The data indicate that the poor rely more on wage income than on landownership. The same pattem is revealed in the third column, which shows that among agricultural households, the highest proportion of people belonging to those headed by a wage eamer are in the lowest expenditure classes; in contrast, richer households are headed by land owners or large-scale farmers. Finally, the last column of the table shows the contribution of each expenditure class to the category "wage earner"; about 25% of the wage earners belong to poor households.' Table 4.2: WAGE INCOME AND WAGE EARNERS l__________________ Wage Eamers in Agriculture' Expenditure Index of the As % of Professional As % of Total Group Ratio of Wage Income/ Categories Wage Eamers Value of Cultivations 4 90.6 11.9 13.8 5 66.0 10.6 14.3 6 135.5 9.3 8.5 7 137.4 11.7 14.7 a 62.8 8.7 10.2 9 93.7 6.1 4.7 10 99.7 14.6 8.5 1V See also Table 20 In Annex 1 | Source LSMS, Direction de Is Statistique. Za This rtio must be interprt with on, a the wage nome of all ruri houeholde Is included in the numerator while only agrioultul households are Involved In the denominator. Thus, the figures have been e pressed s percent of the mean value of the ratio. 3/ Also, It can be shown that the cumulative distribution of the members of households headed by a wage earner over expenditure classes Is entirely located above that of households headed by other categories of workers, in particular Independents and family workers. Thus, the finding that housholds headed by a wage esamer are the poorest Is robust to even large changes of the poverty line. - 51 4.12. Most rural wage eamers are employed in agriculture. But wage eriployment is also offered by the industrial sector, represented mostly by agro-industries (grain, flour and sugar processing and fruit, vegetables and meat). Moreover, about one quarter of the rural population also engage In non-farm self employment activities, In commerce and manufacturing. 4,13. UndaL-ernolyomentasnduemolovment. Under-employment isthe most serious cause of poverty In rural Morocco. The highest proportion of wage earners who work less than two months, or between two and five months, is in the lowest expenditure classes, while the top classes show a much higher proportion of wage eamers employed for more than five mont:w. Over 26% of the wage earners working less than five months belong to the bottom three expenditure classes, while only 16.4% of those who work more than that belong to these classes. Under-employment in agriculture has a seasonal character. It is significant during the months of January to April; however, during the crop season, June to August, shortages of labor are often experienced, especially in the cereal regions, which then attract migrant workers from su-rounding areas. Although unemglWn=nt is low in rural areas (about 5%), It is strongly correlated with poverty and 47% of all the unemployed are poor (see Table 19 in Annex 1). About half of the rural unemployed had a previous job in agriculture, and seasonal stoppage is the dominant cause of unemployment. Interestingly, about 12.4% of the rural unemployed were previously employed as construction workers, who represent only about 6% of the rural active work force. 4.14. Public Works. The Government has attempted to alleviate under-employment and unemployment through public work schemes, which, for lack of resources have reached a small number of people. The most important public work program is the Promotion Nationale, established in 1961.9 The public works concem projects located mostly In rural areas, such as reforestation, well-water caption, dam and road construction, paved roads, schools, rural health centers. Since its creation, the Promotion Nationale has employed on average some 50,000 persons annually, of which the large majority are rural under-employed or unemployed. It normally involves local populations in the design and execution of national and local development programs. Salaries are paid at the minimum rural wage and, in certain cases, partly in food. Although there are no established targeting mechanisms (in fact, jobs are distrbuted discretionally by local authorities) this public work scheme appears to reach the poor.'° This is becaus3 it Is primarily directed at remote rural areas, where the greatest concentration of the poor can be found. 4.15. Waagopolicies. The relative weight of wage earners among the poor points to the importance of wage policies in fighting poverty. A guaranteed agricultural minimum wage (SMAG) has been applied in the agriculural labor market in Morocco sinco 1958. It is controversial whether It Is applied or not. In Chapter III we showed that the wages per hour V Othr prorm wr -t CM ServiUe. tIe Opeaton Piot de Placemet de Laua and the Aecy for hntntin Cooperaton. The pora re more foowuee on the you, eduead unmplod. IV see Euwd or lee souroe de vuwRllt6 at lWe fte de oui pour Ie popubat d4fsvof : La Promotion Notionale. Morocoo. Minestr deu Affair Economiqu at Sociele, 1993. pelimnary result. -52- received by the poor were close to the SMAG. cf I3T U h 1 -M Moreover, anecdotal evidence c WI: Ow CA SWal (ON_99k 00) sugests that the SMAG is applied, alhough there is also Q11 evidence" that deviations of actual wages from it are *AG observed. Chart IV.IVdepicts Q the time series of the SMAG per day, as a ratio of Q agricultural output deflator, from 1970 to 1990. Two 0.12/ periods can be clearly \ / distinguished. First, there is a decline until 1978, at an lo\A. average rate of about 6% per annum. Then, there is a Om recovery, until 1983, at an average annual rate of about Om . , . 7.1%. Lasty, after a period 70 78 74 r 7 io in s so so of near stagnation, the real oh de k 116.3ftu SMAG increases again In 1987 to 1990, at an average rate of about 7% per annum.2 Thus, it is most likely that the Increase in the SMAG protected rural wage eamers who received it from devastating poverty during the 1980s. The incresse In the real SMAG may also have had a positive influence on agricultural output and employment (see Box IV. 1). 1./ See Pason P. nd Email M. 19808), op cit .12 The grth of th rea SMAO oocurred afte a lon period of decin, that In 1087 t had reed the 1070 lovaL Moreover, bv regressing ts og on a *m ftrn on finds l oveage rowth rate per am of 1.6%. It ttle growth rate Is etinated Iwted by the verag difrnce In loge over the period, one g * figr of 0.7%. Both tee figureeo ae to be below tho aveoa rate of tschiald progre. For eample, grIcultrGOP grw on aveap by 3.2% perl becau of tecal progre. Hence, I seem ta th real SMAG was s fairly low In 1900. despite lb brisk rcver In recent years fom kt 1078 trough. - 53- Box IV.1 of e compedtive .qctor~ with iany small boWors~ and a mono i w leve et*te~ t a so mnestha th mag~n1 roduct oftbetI h ag oenli* hgf aninti~ma1iem t Onos. This PrOd ti a r I~~~~~~~~~~~~~ su In 900 kyEviu~#the doiiVnant employors~ some of the N~ti Erodu Eivlty SErmers .do. =- not t. w#sg| s for awactinmore T ea ue . o u d =fset th f otpt oreon bynofL ce~e, an borease In the $MA(3 In terms of agrIcultural output laducessom. ~......... -54 - E. AMES$ TO LAND 4.16. The LSMS shows that belonging to a household headed by a wage earner Is a more reliable indicator of poverty than the low level of owned land. Of course, the survey shows that richer households own more land than poorer ones. But a clqser examinadion of the data suggests that it is not landownership per so which matters, but access to land. 4.17. LndmW12Mbi. Chart IV.V depicts the mean cultivated and owned area per CHART IV.V: mEAN cTwATo m owN LAN ms Bo person and per expenditure (Iut) class in rural areas. The 125 amount of cultivated land is larger in all classes than the amount of owned land, la.0 because some of the land is I owned by absentee landlords /0 living in urban centers. This 0 picture suggests that the ratio of owned to cultivated land is 0.00 roughly constant across /J land expenditure classes, with the exception of the highest 025 class, where people clearly have more access to 0!00 cultvated land. This ratio has I 8 3 S 7 8 9 10 been constructed taking into 8 Db d X A account all people living in rural areas, thus excluding absentee landlords living In the cities. This may also explain why there is a fairly low variance across expenditure classes. The data also show that the share of non-owned land, which may be either rented or taken on a sharecropping contract, is fairly low, on average about 15% over all expenditure classes. This suggests that a crucial issue in the Moroccan agricultural sector is the insufficient development of a market for renting land. 4.18. Further indications on the relationship between landownership end poverty come from the analysis of Table 35 In Annex 1. The table shows the number of rural people, including members of non agricultural households, per classes of acreage owned and expenditure clsses, both for irrigated and non-irrigated areas. About 40% of people do not own any non-irrigated land; and 78% of people do not own irrigated land. Comparing these figures with those of the 1973-74 Agriultural Census (see Box IV.2) seems to Indicate an increase in the number of the landless. However, this does not mean tat there has also been an increase In poverty. Table 4.3 shows the incidence of poverty among groups with different ownership of land. There is dearly higher poverty incidence amongst those with relatively less land. Thus, about one fifth of those who are landless are also poor. But -55 - poverty incidence is highest among those who own a little land, below 1 acre. Moreover, poverty is also associated to some 10% of people owning more than 5 ha of land. Thus, lack of land may not be the best indicator for targeting the poor in rural areas. TIb 4.3: INCIDENCE OF POVERTY AMONG LANDOVMERS Ownership of Ownership of Irrigated Land Non-Irrigated Land L'ndless 20.6 24.1 Under 1 acre 26.0 25.5 1 - 5 9.2 16.1 S and over 7.e 5-10 15.0 10 and over _ 10.0 Source LSMS, Diretion de la Statistique, Staff estimates. 4.19. Land tenure. In the Moroccan land tenure system, the only noteworthy CHART IVY! 8HRB OF BKAUCaPPED AND RBT IC poverty indicator is the in lT.VI: LaU (OX' method by which cultivators get access to the land they O2- do not own. Chart IV.VI shows that the poor are ' Sh e more frequently O.wo . imped sharecroppers, whereas n richer cultivators tend to be 0.15, renting tenants. In Morocco. sharecropping may take various forms, depending on 0.10' the regions and the ethnic groups. Under the most X L common system, the 05 / et EuUo LaU \ sharecropper receives about ------ one-fifth of the crop In return _ _ __._, for his labor, while the 1 2 s 4 7 8 9 * landowner, who supplies the .ua X Is aawQw land and the inputs and works within the farm himself, receives the remainder. A second system is where the farm Is owned by an absentee landlord; then several sharecroppers work the land and share the crop in fixed proportions. Under a third system, a sharecropper, who may or may not work on the farm, orgarizes and provides regular labor to the landlord, in return for a share of the crop, usually a quarter. - 56 - 4.20. Lad goliiegs and the poor. A full discussion of land policies is beyond the scope of this report. However, the issues analyzed below, i.e., the fragmentation of the land, land rights and rental agreements are crucial for the lives of the poor farmers in rainfed areas. These issues are being addressed by the Govemment of Morocco (see Box IV.2) through an extension of the legal framework already adopted in the irrigated lands to rainfed areas. The fragmentioljn of landholdings'3 is believed to be a constraint to the development of modem agriculture: this is because it reduces the scope for investments in irrigation and soil conservation, it lowers labor productivity, and it increases the costs of transport for inputs and outputs. The explanations for the fragmentation of land in Morocco are historical and cultural; they mainly relate to inheritance and customary laws and to population pressure resulting in scarcity of land. However, the design of a policy to reduce farm fragmentation should take into account that in poor areas, where traditional methods of cultivation prevail, the scattering of land is a major device for managing the risk associated with climatic events and natural differences in soil, and It allows an efficient diversification of crops. Much of these risks can be avoided in modem agriculture through insurance, storage, credit, and use of irrigation and fertilizers for increasing the output independently of the location and characteristics of the soil. However, where these tools do not exist, the fragmentation of the land, through diversification of crops, represents a device by which poor households manage risks, employ seasonal labor and enhance food security. 4.21. A second issue is the coexistence of different land rights: tribal, customary and registered. Since independence, the Govemment has been encouraging the registration of private land and today most landowners with large farms have their land titles registered. However, many poor farmers do not hold the title of their land. This is because registering land is expensive: the land must be measured, surveyed, and claims may arise from other potential possessors. In tum, the absence of precise property rights limits access to credit when collateral is required, and impedes the development of sale and rental markets for land. Pursuing land registration and titling together with the privatization of collective land may be an important way of promoting modem agriculture. But it should be recognized that some vulnerable groups may be adversely touched by tenure reforms through land registration. For example, grazing rights for herdsmen on land that is cropped by others, or the right of access to communal land may disappear once the land is registered or privatized. The loss of these rights could result In a further impoverishment of vulnerable groups. JW BV *fwn frogmmntation we define a situdion in which a household woike more than one parcel of land, situatd in different are". vS~~~~~~~~~~~~~~" , W W ZA . . ....... X . MW ~Wj snoq~ , w.te.*Oi Aou~t twe~.poe, mi 44OO ..J. B em 8utP4op~ ew 4t.:4P'w::ii4^::=wJj ".Btm' ¶0w *4,o 8p, ,,, ,, .. . ... . ~5 etu~MOjd O _sq.pp ~A ~MW ..4 pv .# q0 #84#A~~~t0 0~t 4t~~~~~~~ ~ L9 A olqu "I#q*:.g 9LtG 88" vJw04 IJW Y IH W-NMBQ,1LO Ls.~~~~~~~~~~~~'s %. $4 4 4 $1  t ,dt I (I) i1IJIjIk1 I f iji ' L hut rq I III q Pkix; ;*t&I I r  si[  lili Iii' I III 'I ihr I4"" I I"' 'ii I Ihi  lit liii Iii 1 4 Bf[ j'iii I - 59. 4.22. A third issue is the development of a legal framework regarding rural rentina contracts. A govemment project has been under study since 1984. It is an important project, that would provide a balanced set of guarantees to the tenant and the owner. Only written contracts would be acceptable, with a precise description of the land being rented. The length of the contract would be determined by reference to the crop rotation.'4 4.23. Poor farmers would benefit from rental contracts: they would have the guarantee of appropriating the fruits of their investments into the land, at least for the time of the tenancy. The development of a rental market would Improve land utilization, and Increase productivity. It would also represent a way of circumscribing the problem of land fragmentation by enabling farmers to cultivate larger plots than the land they owr. F. ACCESS TO CREDIT 4.24. Access to credit is an important instrument for increasing the incomes of farmers through adoption of new inputs, improved technology and new crops. Table 36'1 in Annex I provides information on credit obtained for agriuultural use. The table shows that agricultural credit is fairly available. However, credit per person tends to rise faster than the level of expenditure, Indicating that the poor borrow relatively less than the others. Table 4.5 Indicates the sources of credit for agricultural and non agricultural purposes.' Most agricultural credit is borrowed from the CNCA, with the poor borrowing a lower share than the rich. The table also shows that the fraction of credit borrowed from informal sources outide the family decreases with the level of expenditure. Hence, it seems that the poor have less access to the formal credit market, especially for non agricultural borrowing, and have to resort to informal sources, such as friends and traders. 4.26. Table 38 in Annex I shows that credit received for non agricultural use represents on average only 1.8% of per capita expenditure (and just above 1 for the poor) j4 See Gasadi J. in Word Bank (1000), 'Morocco: Agricultur Expendure Review - Worlking Papers. Vol. 1. . What such a schene offers to both paris as an Incentive to enter into such an arrangement is pre.oommirnnent. In a world of insecure tenurid agreements, the tenant has no Incentive to invest if he does, the landlord may even be tempted to expel him from the land in order to obtain the fruits of these investments. On the other nand, the landlord may fear that if the tenant invests. he may claim some rights on the lend, which could result in the owner lsing some of hio property rights. Under preocommitment, these two kinds of moral hazard problems can be overcome. The credibility of contract enforcement then beomes the central issue for the developnent of such a scheme. J,/ Figures on avere amount borrowed per person refer to the ourrent stock of debt of the household in the last12 months and not teflow of crdit. Orly the membr of ual thushold hdd by a person whose principal occupation Is agriculture are taken into account here, both in the numerator and the denominator of this ratio. JM Credit for non-agricultural purposes Include loans for housing, equipmnt, ertisanal activities, current ¢onsumption, eo. - 60 - relative to 7.8% on average in urban areas. Credit from formal sources is scarce for most rural people. Table 4.5 shows that rural households borrow mostly from family and friends, shopkeepers and traders. However, the poor rely more on the shopkeepers and the traders, while the non-poor are supported by family and friends. But the data do not show whether the poor do not obtain credit because they do not demand it, or because they are rationed, as might happen when an interest rate ceiling is in force, implicitly or explicitly."" al9gA,4: BORROWING FOR AGRICULTURAL AND NON AGRICULTURAL PURPOSES A-dricultie CW& Non aoricuttural cdit in rural areas % Share of Most Important Sources % Share of Most Important Sources CNCA Family Shopkeepers & Employer Fanily & Shopkeepers Traders Friends & Traders :574 ~~~Q.0 ~~32.5 ~ A ~ L 4 86.6 3.1 10.2 0.0 91.5 0Q2 5 80.8 0.4 18.8 0.0 66.4 19.6 6 75.5 11.6 12.9 0.0 68.8 19.5 7 78.0 5.6 16.4 17.9 66.8 3.1 8 82.7 3.3 14.0 1.2 66.2 0.8 9 89.7 9.7 0.6 0.0 78.8 6.6 10 95.2 0.8 2.0 1.1 53.6 26.5 Mean 85.3 3.6 10.5 2.6 56.3 7.0 Zig.ce LSMS. Direction de Is Statistique. G. FINANCIAL AND PHYSICAL ASSETS 4.26. On average, less than 6.8% of rural households and 3% of the poor declare any financial savings. Table 4.6 provides some information about the portfolio behavior of households who have admitted holding financial savings in the LSMS. It shows the fraction of their financial assets held as cash, valuable goods, sight deposits, and various savings deposits. However, in view of the few households concemed, the resuAts may be strongly influenced by sampling problems. This table suggests that poor households hold financial savings, If any, as cash. 12/ Th. average interest rates on the loans, for both saricultural purpos nd domestc purpose re shown In Table 39 of Annex I. The interest rate on productive loans Is fairly uniforrn cross expenditure classes and the poor do not seem to be discriminated against. This might be a reflection of the muslinm lw which forbids usury. II 4A. COMPOSITON OF FINANCIAL PORTFOIJO (V) Cbasses of Cash Sight Savis Valuable Expenditues Deposits Depoits Goods 4 34.23 62.15 0.0 3.62 5 82.51 3.42 0.0 14.07 6 60.33 29.37 0.0 10.30 7 86.89 8.35 0.82 3.93 8 13.23 68.77 4.65 13.36 9 66.54 25.97 0.57 8.93 10 27.93 11.'5 46.64 13.67 Mean _ 48.01 29.68 12.85 9.68 E~jg~g LSMS. Drecton do la Sta__ stique. 4.27. Holdings of physical assets are perhaps more important for rural people than financial assets. Table 4.7 shows the value of grain, lhestock, equipment (ranging from tractor to simple tools), and plantations; the main physical assets held by rural households. The table indicates that for most rural people, the main store of value Is Ovestock. The value of plantations is really a good indicator of wealth, as this series rises steeply for the top three expenditure clsses. The, ilue of equipment rises noticeably from class six up, while it is fairly low for the classes below. In all these series, the bottom two class look poorly endowed. 4.28. Thus, it appears that land, grain, and livestock are common in a representative portfolio of low-income househiolds, while financial assets, equipment and plantatons, figure significantly in the portfolio of fairly wealthy rural households. Moreover, the bottom two expenditure classes, I.e., the very poor, are characterized by very low ownership of any asset. -62- I.Tabl4.: PHYSICAL ASSETS Value _DH/pers.) Classes of Grain Uvestock Equipment PlantWion . E pend itures _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 4 104.2 1072.9 70.2 283.2 5 70.1 882.8 92.5 188.2 * 90.6 1335.7 246.0 103.1 7 100.2 1234.8 153.5 199.4 8 136.2 2221.0 488.6 649.4 9 213.0 3239.8 303.0 1222.4 10 260.6 2264.5 647.4 3958.6 r-- Source.: LSMS, Direction delb Statistique. .......... ~ ~ ~ ~ ~ . - . H. CONCWSIONS 4.29. Several factors contributed to the increase in the living standards of the rural popubtion during the 1980s. Fist. the increase in agricultural output, caused by both good rainfall and thie impact of the price liberalization policies and the new incentive system. Second., the strong expansion in investment, especially in the richer, irrigated areas, has increased productivity and expanded the demand for labor. Ihird1 the rise of the agricultural minimum wage played a major role in protecting the incomes of the wage earners. 4.30. The analyis of income poverty in rural areas shows that poverty incidence is higher among wageearners, folowed bysmall-scalecultivators, who owna litte land. About .alf of all the unemployed in rural areas art poor; the pOOr are also most affected by seasonal employment and underemployment. 4.31. Because most of the poor in Morocco live in rural areas, ar.d their living condifions are much worse th ththose of the poor in urban areas, as they lack essential secrices such ss potable water, elctricity, and access to basic social infrastructure, the alleviation of povertyr Ts a complex development task that will require not just ad hoc interventions but a nsh to a poarn ral bias that would albviate past discrimination of the rural sector in the allocation of government resources (see Chapter V s. 4.32. GrowTh in the rural sector should come from choreases in the productivity of both agriculture and other economic astivities (on fhrm a wll as off-farm). To increase productivity and employment opportunities in the agricultural sector, policy interventions should encourage farmers to grow whatever crop best adapts to the particular land they are working on. In this context, the abandonment by the Government of the notion of self- - 63 - sufficiency' in food production is a most important step. In addition, policy interventions may aim at: (a) improving the flexibility and the competitiveness of the sector through the continuation of liberalization policies of the extemal trade regime, the intemal prices and marketing regulations; (b) targeting publc invements to areas where most poor live (e.g., rainfed areas) in intervention that have a public good aspect, such as land consolidation works, destoning, construction of access roads etc.; and in rehabilitating existing irrigation projects and possibly extending irrigation to new land, but only after assessing that the benefits outweigh the costs;'" (c) improving land tenure policies. Given the complexity of a reform of the land tenure system, a short term objective would be to improve legislation regarding rural contracts and, in particular, the share-cropping system which mostly affect the poor. The development of a rental market for land would also allow some small scale farmers to work elsewhere and eam wage income. While the better endowed and better skilled farmers may work more efficiently on larger plots of land; and (d) targeting agricultural support services (such as extension), and agricultural Infrastructure (rural road, irrigation canals, etc.) to areas where most poor live. By reducing the formidable supply side constraints that poor farmers face, these interventions would enable them to increase productivity and output in response to the new system of incentives. 4.33. A more market-based and productive agricultural sector would generate a higher demand for labor. Moreover, a larger agricultural surplus would most likely drive the creation of employment and income opportunities in off-farm rural activities. For example, a recent study on the agro-industrial9 sector has shown that this sector has the potential to generate large increases in employment. And tourism and other services sectors may develop fast if economic and social infrastructure improves. 4.34. Expansion of eaming opportunities in the rural sector will be enhanced by the development of both economic infrastructure and social services. To help the unemployed and the underemployed, as discussed in Chapter Ill, the already existing public work schemes 13 Irrigation atill remains the most powerful means for enhancing the level and regularity of incomes and ernployrnent but the costs should not overcome the benefts. For example, studies on earlier irrigation projects in the Doukkal orea Indicate that irrigation tripled the incomes of farmers regardless of the size of the farm. But the total subsidy was also extremely high, es it represented nearly 50% of the average income per farm after terminaion of the project. 13/ World Bank, *Moroe¢o - Agro-industrial developnent - Constraints and Opportunities, March 1993, Report No. 11727-MOR. -64- could be enlarged to reach a larger number of people. The poorest and the vulnerable may also need to be helped through direct and indirect income transfers (see Chapter V). 4.35. Finally, Govemment intervention may continue to be required to smooth out the effects of natural disasters and calamities on the poor. For example, the Government has recently approved a program to promote rural employment, In order to counteract the devastting effects of a three years drought. And it also intends to create an Agriculue Insurance Fund to Insure farmers against natural disasters. -65- CHAPTE V: SOCIAL POUICY ANR THE POOR A. INTROpUCTON 5.01. The preceding chapters have highlighted the reduction in overall income poverty in recent veara. Improvements in welfare, however, are reflected not just In economic or Income Indicators but also in social Indicators, such as those measuring the health, duaimon and nutrition status of the population. Evidence from around the world sugests that improvements in the social indicators of a country, lead to a general increase In the productivity of Its citizens and threby in their capacity to contribute to economic growth. Social indicators, then, can be seen as a measure not only of the population's well-being but of the effectiveness of the government's past poverty alleviation strategies. 5.02. The overll trends of social indicators in Morocco point to an amelioration in living conditions over the last 20 years. There is, for example, evidence that children's well- being has improved significantly since 1972: overall infant mortality has declined by 30% and the mortaliy of children under five has fallen by 54%. Enrollments in primary schools have increased by about six percentage points. 5.03. However, as seen in Chapter I, Morocco's achievements in social outcomes pale in comparison with those of other developing countries. In addition, although many of the social indicators do not appear deficient at the national level, they are characterized by important imbalances along gender, urban-rural and regional lines and between the poor and other segments of the population. For example, education indicators reveal wider gaps between boys and girls in primary and secondary enrollment than in all the other comparator countries; these gaps are also larger in rural areas and for the poor: the probability of a poor child aged between 7 and 12 going to school is close to half that of a rich child. 5.04. The causes of this situation lie on the one hand in the poor social conditions and large internal disparities inherited from the past and, on the other hand, in the lack of attention given in the 1960s and 1970s to both public social spending and to issues of equality in access to social services. The combination of these factors would explain why Morocco has not been able, in spite of significant improvements, to catch up with comparator countries in all indicators. 5.05. In recent years, Morocco paid greater attention to the worsening social conditions of the population. Unfortunately, this coincided with a period, the 1980s, of economic crisis and structural adjustment; in spite of efforts to protect social spending, as discussed in Chapter 11, the country could not engage in the large social investments and increase in recurrent social expenditures required to significantly improve the living conditions of the poor. 5.06. What is required to improve the social conditions of the poor is not just increased spending in the social sectors but a greater focus and the establishment of policies specifically targeted to the satisfaction of their needs; spending more pubric funds for social -66- services will not yield significant results in this respect unless the composition of that spending reflects this priority, in both quality anJ quantity. International experince has demonstrated Ot the most important social policies to alleviate poverty are the ones that expand and improve basic health care and primary education. 5.07. The remainder of this chapter is divided in three parts. Part B examines available information on social indicators and discusses access to health, education and basic econormic ifnfra5fltrt Lire- Acces is Si mpy de'ivncd as t'i percentage of the population in each expenditure class using a service, and Is mainly Inferred frr n the LSMS. Particular attention is given to examining gaps between the poor and the better off in access to basic social services. Changes in social indicators over time will also be provided, whenever statistical and comparable information is available. Part C analyzes Morocco's social policies and spending during the 1 980s and their effects on the living standards of the poor. Part D discusses who benefits from social programs. Finally, Part E draws conclusions. S. SOCIAL PROGRESS AND POVERTY Indicators of Health and Nutritional Status 5.08. Infant motalitv is one of the best indicators of social development for a country because of its correlation with maternal and child health care, nutrition, education and fertility. In Morocco, th, infant mortality rate' has been reduced from 145 in 19E2 to 73 in 1989 and 57 in 1992. However, there are large differences within regions, with the mountain provinces of the Northwest and the Tensift showing the highest mortality rates. Infant mortality still accounts for 21.5% of all the deaths in the country, and child mortality (for children aged less than five years) accounts for 25% of them. Data on causes of death indicate that child mortality is caused by easily preventable diseases such as diarrhea (the leading cause of infant death in Morocco, with 39% of the cases), infectious diseases (22%), and acute respiratory infections (14%);2 child morbidity and mortality are directly associated with malnutrition in 22% of the cases. 1/ Th inft mortalif rate is expressed as the number of infant death. (under 1 year of age) per one thousand ie births. In 1087, Morocco sepped up its efforts against diarh9sreLOd dises with the genera) goal of reducing mortlity and morbidity duw, to diarrhea in the country, and the more specific goal of reducing diahea rated child (under 2) mortality by 37% by 1992. The Government's fourronged sategy Inluded: a rahyation proramn, promotion of brest feeding, Improvement of supply, trnpor and storage of potable wor and prmnotion of good hygiene practice. Although dIah till remtain the major oause of child death, the progress between the two ENPS (1987 and 1992) Is inportent Nationally, the percent4ge of chden under fiv having had diarhea during the last 24 hours decreased from 17.6% to 6%; this percntoge dewrsed from 18.8% to 8.6% in rural reas an& from 15.7% to 4.5% in urban reas. -67- 5.09. Child malnigrition.3 Survey data indicate that the nutritional status of Moroccan children has improved considerably in the last two decades. In 1971, 35% of urban children and 50% of rural children, four yeas old or younger, were malnourished; in 1987 these percentages were 8% and 20% respectively. Recent data however appear to conflict with this trend. For example, a comparison between the 1987 and 1992 surveys from the Ministry of Health, Indicates an increase in stunting (height for age), a measure of chronic malnutrition, from 25.5% in 1987 to 27% in 1992. Comparable figures from the LSMS show that z2% ot children; under five years are chronically malnourished. The LSMS also indicates that for the country as a whole the Incidence of wasting, reflecting a current (or acute) malnutrition, Is 8.1% and the incidence of general malnutrition is 15%. Pooret children, especially those in rural areas have the aghest Incidence of malnutrition.$ 5.10. Caution should be taken In analyzing malnutrition data. Comparison of nutritional status is difficult because of the high sensitivity of anthropometric measures to the mode of measurement. Thus, further investigations should be conducted. A possible explanation for this apparent deterioration in the nutritional status of children is the phasing out of food programs in recent years, following the disengagement of prominent donors in these programs. I children's nutritional statue is determined by taldng ahropwmetrlc meurent of a* child and compaing the child's growth to that of a reference populton of wail-nourished children. The most comnwn anthropometric indicators used are: weight for age, which Is n indicator of overall nutritional status, weioht for height, an indicator of wsting or acute malnutrition; end, heioht for aeo, an Indicator of sunot or chronic malnutrition. The Minis"t of Heaft surveys for 1987 end 1992 (taidng into account ohildren under three and children uncier fiv, respectively) show that in 1887, 17.2% of hildren in urban areas end 30.2% in rur areas ware chronicaly malnourshed; the values for 1992 ae 17.6% end 32.0% In the two ara respectiely. Comprnable figures for 1991 LSMS under lwes er 18.7% ufban) end 34.4% (rural). 1V Table 63 in Annex I show the LSMS data on stunting, wsin and goeneral manutrition by exp tu clas. Tables 64, 065 end 66 show the regional disparities. While the incidence of general malnutrition is lower than 10% in the North-West rgion, it Is greter than 22% in the Center-South and almost 20% in the Tensift regions. Dipaities among regions with respet to wasting, an indicator of mugneat andeusa melnutrMitin are even more striking: it i 2.1% In the Norh-West and 17.19% (about eight ies) In tho Oriental region and 10.9% (about five times) in the Tensift region. Al For example, in 1 985 American food aid (PL 480 titre III intermpted for the program 'Other Childrn Fesding', eving 8,677 children In orphage and In k bndegrtwn and the 'Food for Work progras oovering about 15,000 beneficiaries. In 1988 also the food aid to th 'Socio-Weduotional centrr. serving 150,000 mothers and about 300,000 chdren was stopped. See Etude amr la sourc de vundresbt et to flet de docurite pour la popuation dfwoisdes' Entride Nationals, Ministere des Affhe Econonm at Sociales, March 1903, paog 42, PrlIminary result. - 68 - lMltization of SeNice 5.1 1. Acess to matemal and child hgalth care. Access to matemal and child health cae7 Is important In lowering Infant and maternal mortality end may hava long-term impacts on the hesith status tf the popuLation and Its future contribution to productive activities. Survey data from the Ministry of Health indicates that In 1992 39.6% of women in urban aroas and 82.5% in rural areas had never had a e-natal viit; an hOat most wowmen in rurai areas (86%) had no asistance during child birth from doctors or midwives, compared to 36.4% in urban areas (see Table 4 in Annex VI). Moreover, there are large regional disparites, with the Tensift, the Center-North and the Oriental being the regions most deprived of medical facilities; as in other countries, the mother's education plays an important role,and access to maternal care increases sharply with the educational level. Data from the LSMS (Tables 51, 52 and 53 in Annex I) suggest consistent conclusions. They indicate that the likelihood of having a pro-natal visit, and giving birth in a pubic or private hospital, or bein assisted by a doctor, is lowest among the poor. 5.12. The LSMS also shows that 54% of all children under two received some kind of medical treatment (Table 55 in Annex 1). The figure Is higher for urban than rural areas though it is similar for girls and boys and does not suggest a gender bias in post natal care. However, children in pcor households-prticularly in rural areas-are less likely to obtain post- natal care than the non-poor. Nearly three quarters of children under five years were also found to have been vaccinated for measles (Table 56 in Annex 1). In this case, there is no correlation with expenditure level; children in poor famiries are Just as likely to be vaccinated. And there Is no evidence of any systematic gender bias. 5.13. Access to contiram yues. Data from the Ministry of Health indicate a clear pattern of incessing use of contraceptives, from 19.4% In 1979 to 41.5% In 1992, with pills being the most common. LSMS data indicate that 43.5% of married women aged under 50 s contmraeptve methods. Despite this progress, contraception prevalence in Morocco is stil lower than in the selected comparator countries, most of which already have more than 50% of women using contraceptives.' Z1 According to the Minity of Heath guideines, a minimum of te vst are required for evry normal pregnancy to monitor th devwlopment of the fet, detect any potent difitie In the prenancy andor deiver, and provide the appropriatec, advice or educaon. 1 ODt ftrom the Minity of Helth 1992 survey (see Table 4 In Anne VII diffes from LSMS (see Tabl 53 in Annex 1. Cution hould be tdn In anlyzn the r because the unextrapoleted sample date. The quesdtin askd In the two survey were aso different Thus, while In the Minty of Health survey it appe that 80% of birt In rual aa ware not assisted, th LSMS data Indict that 73.3% of brth wer assisted by a Kla (todit midwife). I/ Emphasis on family pannin ha been uneven in the pet Wher the earl Develpment Plans contand explicit gods to attain a titable of execution, more recent economic plans failed to inlude explicit popultin objectives and polcies In particular, the ast Pln (10S8421 contain no projection of needs a_ocistd with the _exeed popultion rowth. Thb lack of emphasis ha bee exacebated by an -69- 5.14. Data from the LSMS indicate that U lzslon ot Hel FeollIs the use of contraceptives Uze nofH at ali s (Table 54 in Annex 1) is by T'pe and Expnditure Goups greater among urban than rural women, is positively corrsa-ed -to educatioii levels but does not differ N0. In any systematic way across expenditure 60 ... . classes. There are, however, great variations SO. among regions, with the Oriental region having the 40 .... ..... .... .. highest rate (48.3%) and the South having by far SO ... ... ... the lowest ratio (28.7%). The small variance In use Of contraceptives across expenditure levels and the 1 large urban-rural and regicAal variations point to 0 a uniform behavior of the Iu l md Ird 4t 61 Oth 7tb Oh 0t 10th population regardless of j _ are"5 its staneard of living. coupled with different * p y * Heal CoMs levels of availability of IinpIWI Ivs Dute services. otomm. 1 hal w 5.15. Access t |_ health services. The level of utilization of public health services is low, for both preventive and curative services.'° The LSMS indicate that only 2.6% of respondents recalled having consulted any medical personnel for a preventive allocation of Insufficlent funding, as, throughout 1 goo to 18?7, total Ministy of Helth expendit rarely exceeded 1% of GDP. Moreovr, little Is being done to remove a key consraint to the succful implementaon of family pling, that is the shortae of nures In rural are, whre fertity rate ae abnost twice as high for urbtmn aes (5.9% vs. 3.2%. respectively). JM The reported Incidence of sidcke In the LSMS tends to Increase with ependiture and there b a tendeny for the urban poor to report sickness more often. It leof course, difficult to know how much of thes differences re due to differenoes In tho propensity for sickness vwes difference In recognition en reporting. The averao number of days of slcknm t see Table 87 In Annex 1) show no systemaic patten with expenditures or between rural nd urn areas. Howeve, there I a tendency for the nunber of days of Inactivity due to ilness to be higher emong the poor, posibly refleoting differencea In health status. -70- vit with the poor being four times less likely to do so than the rich. As to curative services, ess than 37% of the sick or Injured utilize a public facility, and there is little difference between urban and rural areas. Nationally, as much as 30% of the poor consult in non-public facilies (this percentage Is about 73% for the highest expenditure groups) (See Graph V.1). Fnally, the average hospital occupancy rate, a typical indicator of quality, dropped by 7% between 1983 and 1990. 5.16. The inefficiencies and the low quality of the public health system are clearly perceived by households. The LSMS reveals that less than 60% of the users were satisfied with the services they had received; those disstisfied invoked the lack of medicines (37%). wait time (26%), and the lack of courtesy on the part of medical personnel (25%) as the main causes for their dissatisfaction. Insufficient and inadequate in-service training and supervision may account for the lack of sensitivity of some health personnel. and the signs of shortages (as reflected in long waiting time); other operational difficulties (such as lack of medicnes), however, do not stem from staff training and supervision but from overall management deficiencies. 5.17. PrimaEerverollme nt" LSMS data show an overall net urimaE nenrfMent rate for children 7-12 years old of 66% In 1991, far below the official objective of universal prinary education targeted for 1995, and the rates achieved by comparable countries. They also show three important dimensions of imbalance: gender, location, and standard of living. Nationally, the primary net enrollment rate is 69.9% for boys and 52.8% for girs. This gender gap Is much lower in urban than in rural areas;t' it is also much wider among the poor. 5.18. A gender gap exists in most developing countries, not only because of the greatr prevalence of culural barriers to girls' education among the poor, but also because of economic factors such as transport, books, clothing costs, or simply the high opportunity costs of children's time. For example, International research has shown that, while distance to school Is an important handicap for al students, it Is a greater obstacle to the enrollment of girls. In addition, extensive research on the determinants of girls' education indicate that the gender of the teachers is one of the most important factors influencing female enrollment; JDV Se Tab 67 in Annex L Dat refer to children aOe 7-12. Thus, Xty differ lihtly from those pW8 nted in *Dlotion deja Sta8tou (10921, Niveau doe Vie d Mdnee 190-01', page 57 which refer to children aned 7-13. iJI Overall, 80.6% of whoolage bys and 84.7% of schoo-age gt are enroed in uban are, while only 56.4% and 29.9%, respeadvely, in rural aease (e Table 07 In Annex 1). ~lp V.2 Impact of Poverty on Schoolig by Sex and Expendtuie Grcup (Percen) P~arnt o aflbdruen nt rlled 60 ..................................... 40' 30' i1 SOURCE Lamm i9 Rb to the p-sm of ahldim 7-14 gt mla Ina mioe Ir ha gh of macme suzp V. Impact of Cultural Factors on Schooling b Sex and Expedtue Gop8 (Pet) Pauwd of dldm o rolled 16 / . . . . . ... . . . . . . 14 , 12 1 10' 4' 2' BV04ftwew 1 1 klpsW Ol 3dm atoe -twmof inild1-14 DM etuOlk In mBcoI few ghural EMa - 72 - in Morocco, only 35% of the teaching staff is p V female, and in rural L ll_y Ratl by UrbmnRural areas where the Sir md Epqdl_to Grops resistance to girls' education is the 75 _ _lots strongest, this . o . percentage is 18%, thus suggesting an ............... ..... .. obvious ares for improvement. 5.19. T he L SM S d at a 0 distinguishes three broad types of 2 Impediments to enrollment: poverty, general attitude towards school, and I# lp ip up V t physical access to schools (Graphs V.2 o _EUPIU G.ow and V.3).13 Poverty * a O E d is the single most important such *U,. iO rd Ftllud obstacle as it justifies uruw the non-enrollment of 12.3% of school-age children, and its impact is stronger for girls (15.8%) than for boys (8.9%). This factor, as expected, is highly correlated with the standard of livng: 30% of poor school-age children advocate poverty as the reason for their non-enrollment. Attitudes, or socio-cultural factors, justify the non-enrollment of 4.5% of the school-age children, mostly female. Finally, limited physical access to schools, the third most important factor, justifies the non-enrollment in schools of 7.3% of all school-age children (8.4% of girls and 6.3% of boys). The mean distance to the primary school attended shows that children in the poorest households have relatively longer distances to travel (probably out of necessity) while the rich also travel longer distances (probably out of choice, and less often on foot). In rural areas however, there is less sign of a systematic variation in travel distance to primary schools, though the distances are higher than in urban areas. J./ Thme we oomposite indicators constuce from rsponse as follows: physa accss (distnce to school. lak of plab, end no school in ar of reidence), povet (nc means with which to pay for school costs, must help paret in eooanomic effties, and must wo*), and attudns (attitudes of prnts tOwUf C school). -73. 5.20. Literay. Although the population censuses have recorded a progressive improvement since 1960, literacy levels are very low, with over half of the total population (55%) still Illiterate (see Table 73 in Annex 1). Illiteracy is much greater among rural populations (72% vs. 36.8% in urban areas), women (68% vs. 40% for men), and the poor. In both urban and rural areas, literacy is also inversely related with living ptandards (Graph V.4). Economic Infrastructure 5.21. Access to water. sanitation and garbase disposal. Access to safe water exists for 91% of households in urban areas and only 14% in rural areas. In rural communities, water is fetched usually by women and children, who travel on average two to four hours a day to gather about 80 liters of safe water. In urban areas, large disparities remain within the centers, as connections in the medinas and peripheral quarters are generally lacking or are old and in poor condition. Imbalances also exist among centers: while the connection rate exceed 70% in large cities, it can be lower than 60% in smaller cities. The average distance to extemal sources of water (well or public fountain) is 181 meters in urban areas and 560 meters in rural areas (see Table 46 in Annex 1).14 As to used water, 34% of the population (i.e., 64.3% in rural and 5.8% in urban areas) does not have a modem system (sewerage, pit latrine, or septic tank) for disposing of It. 5.22. In urban areas, aarbage collection is centrally organized by local communities. Some 85% of the population has its garbage collected, and the rate increases with the standard of living (70% among the poorest and 92% among the better off. Twenty-five percent of the poor in urban areas still dump their garbage, compared to 7% of the better off. In rural areas, where there is no centralized sanitation system, dumping Is the most common way of disposing of garbage: 92% of the population does so and there is no systematic pattem according to the standard of living (see Table 47 in Annex 1). 5.23. Eleciti is available to most in urban areas (90.4%), but this is not so in rural areas (only 12.7% of the population has electriciy); these percentages vary with expenditure level, 7.2% for the poorest and 82.9% for the better off. 5.24. H gousin. The LSMS shows a large discrepancy between urban and rural areas for the type of housing; on average, 84% of urban population lives In permanent structures (relative to 74% in 1971). Although permanent structures represent the main type of housing 3J Data fom the LSMS confirm information fhom a 1088 survey of 6800 douars (about 22% of the mral populaion) tacen by the Minietry of Equipment and Voconal Trang. The survey found that only 43% of th rural population had acosos to water on ite (excluding cisterns); that 21 % used surface wate 31% had to travel (an avewage of 2.6 kilometes) to obtain water; and 5% obtIn wter xclusivly frm prings Furdhnrom tha survey revealed that Iso than 16% of the rural popuation benefits from adequate publc water ditibution facilities, while 1 8.7% us inadequate publc faciite (non-mechanaed. or poorly maintined). -74- for the poor, many of them live either in temporary structures"' or in shacks. In rural areas, 72.1% live in temporary structures, while only 26.4% live in permanent structures. 5.25. In urban areas, the growth of *clandestine" housing, or bidonvilles, (10% between 1971 and 1982, 2.5 times the urban population growth rate) has been the result of high population growth, driven by rural miaration. Miaration has also worsened the concentration ratio of the population. It is estimated that 13% of the urban population live in the medinas with a population density of 1000 per ha. (for example, the F6s medina Is said to have exceeded its capacity by 40%), and 12% of the urban population live in cdandestine housing.' C. PUBLIC SPENDING AND THE POQR 5.26. Public spending represents a powerful instrument to improve the living standards of the population. Basic social services, in health and education, hasa direct and itidirect effects on the human capital and labor producfivity of the poor; spending on economic Infrastructure, such as in electricity, water, roads, may have a strong effect not only on the welfare of the poor but may also increase their income opportunities. Finally, spending in direct income transfers is a way to increase the consumption level of the most vulnerable, those who may benefit less from productivity enhancing programs (the elderly, the sick, etc.). But to reach the poor, public expenditure must be allocated to regions and areas where the poor live and to services that are most likely to be used by them. An unequal distribution of the benefits from public expenditure across expenditure classes would indicate the scope for restructuring and reallocation, leaving the total budget cost unaltered. 5.27. The Govemment of Morocco is currently undertaking a comprehensive study of the structure and incidence of social public expenditure on low income households. Some preliminary results are reported in Box V.1. Thus, this section provides only a broad overview of selected policies and Central Government expenditures in health, education, literacy and direct income transfers. Public spending in infrastructure is not analyzed, as it would require sn in-depth analysis of the cont-;bution of public enterprises and local communities which goes beyond the scope of this tapert. I Clay or dry stone houes. jW Three other factors, besides urban population growth, have contributed to the development of clandestine housing: I) the high cost of urban lands: as an example, pieces of lend oe sold OH 1,000 to DH 1.600 per squa meter, that is 1 to 1.5 times the SMIG; {ii) the relatively high constrcfton cost for example, the avege ratio of housing coats over mean incorne Is 80% to 90% higher in Morocco than In the US and In Thaind; and (ir) the lack of policy integrating the demand for housino of the poorest segments of society. -75- Govemment Policies and Social Expenditures 5.28. ieafth Extending basic health care to the entire population has been a major objective of the Govemment since independence. However, policies in the past favored the developrnent of curative vs preventive services and hospital conftuction iq the major urban areas absorbed most of the Ministry of HeatJ-h budgets. It was on,y In.-or recent yeahs nht". priority was given to primary health services and rural areas by: (a) expanding primary healh care facilites and setting up itinerant teams in rural areas and improving staff quality; and (b) stepping up maternal and child health care programs aimed at reducing the incidence of diarrhea and malnutrtion and at enhancing immunization coverage and the monitoring of pregnancies and deliveries. 5.29. Health infrastructure.17 More than 80% of the population depend on the health services provided by the public sector. With only 98 hosintals '8 Morocco has on average one bed per 1,000 people, the lowest such ratio among comparator countries. The regional distribution of these hospitals indicates the importance of the urban-rural tmbaances. The two regions benefiting from the highest available number of beds (See Table 5.2). th South-Center and the Nort--West include Rabat and Meknes, two of the most important urban centers in the country. 5.30. The geographic distribution of orevention and out-patient centers is also unequal. The first divide Is urban-rural; the LSMS shows that only 6.5% of the rural population has a health facility available in its Douar of residence; travel time to the health center is greater than 60 minutes for close to half of the popuation, but for only 10% of the urban population. The secn divide Is regional; while at the national level there ame 10.5 public doctors per 1000 habitants, on average, there are only about 6 per 1000 habitas In the Oriental and Tensift regions. Table 5.2 also shows that public health expenditures are higher in the regions where poverty is lower, the Center and the North-West IZV Hlth srvices a wely providd In 1Pg pa by the t of Pubic Heath, which ensr moat hospitl ce, prevention nd promotion acves, and alo by the private sector, which nludes both gen and specialied practices. In 1990 prvate helth cae mployed mor than half th total numnr of medial doctom, mainly oentrted In lre urbn cent ,/ Thes S hoits ncude two uiveriy hospitals (Cusabanc and Robat 23% of the t manmber of hospil beds In the country In two goener and ten speciled hospIta). 18 eona hospitals, 45 provcl hospitals, and the rest a locl hospitals Uftax dewe). 176 ! S.2: POPIJA11010, HEH WE N01fU M H TEALTH FACUT Y IW W 1990.1 Populatn P t Health Hospital pub" Puite Oupatent (%W Inidence Ependiture I Beds ootor Dctors Centers (%) per tOOO hb pp 1000 hb po lOOOhb per 1000 hb Per OH/per. % 100.000 South 11.7 16.92 44.1 8.8 0.93 7.6 3.6 10.6 Tendst 13.4 16.95 42.7 9.6 0.99 0.0 5.0 8.3 Center 27.7 6.78 57.1 27.0 1.00 9.8 14.0 S.0 North-West 21.7 9.36 92.5 34.1 1.30 19.0 11.0 4.9 Center North 11.3 20.98 40.7 7.8 0.8 7.S 6.8 8.0 Oriental 7.2 19.0S 42.3 5.2 0.76 I.7 7.5 5.6 Cen. South 7.0 19.27 64.0 7.5 1.36 10.0 6.0 10.8 National 100.0 13.10 58.9 100.0 1.00 10.5 8.8 6. Srnsu Staff estimat.. Directn de I Stotique end UNICEF, Rebt. *Anatpo to As et de bEnnta et de Fnw eau Mra. May 1992. (1) Inobdesu wban heh ce, uban dispenades, ural hospitals, ra"l heth oenters, norl d b_pen en rurld primmy dispewanse. 5.31. Exoenditure and finance. By international standards, Morocco's Rublic he1ith expenditure has been historically very low (0.9% of GDP on average during the 1980s). Throughout 1 S80 to 1990, total public health expenditure grow at a real average annual rate of 4.3%, although in more recent times (1987-90) this rate i,?creased to 8.6% a year. Most resources are spent in curative, urban located health care, as opposed to preventive and out- patient care. Most spending on curative care also goes to support public hospitals. During 1987 to 1990, hospital care represented 73% of total public health expenditure, and out- patient care the remaining 27%. Rural out-patient care centers received only 12% of total health expenditre. 5.32. The Ministry of Health spend 86% of its budget on health care; 12% on adm,nistrative costs (compared to intemational standards of 5% to 8% average), and only 2% on training.19 The regional breakdown of public expenditue, when compared to the regional The MinWsty of Head finances 986% of health care cosb, 93% of administrtv costs, and 70% of training cost. bIntaona aid finan the balnce In each atego, with the excption of heath ce cosXt, which ae alo financed (2%) by the Minstry of Eduecaton In the context of assistance pmoidd In the unesity hospitls ICHUs). And toe two CHU account for 44% of tota hospia expenditure - pety du to the fat that these hospital employ 48% of medical doors of Ut country. -77- distribution of population, is biased toward the North-West region (which receives 34% of expenditure for only 22% of the population). Interregional allocation of expenditure on out- patient care between rural and urban areas also displays a bias in favor of the latter in six out of seven regions in particular in Tensift, South Central, and North West regions. 5.33. falth exoendiure and .the po. Although Government policies in the healt sector have yielded positive results-reducing for example overall child (under five) mortality by half over the last 20 years-four major issues impede the progress of the health system and its Impacts on the health status of the poor. 5.34. Ei despite recent Improvements in resource reallocation giving greater importance to out-patient care centers and less to hospitals, the structure and orientation of public healt services is geared towards curative rather than preventive health care. Second an inefficient allocation of medical personnel, with most of the doctors working in hospitals, and wide variations in the paramedical staff per doctor ratio (2 par doctor in the university hospitals, 8 to 10 in other hospitals, IO in urban outpatient centers and 13 in outptient rural centers). Ihg an urban biased allocation of centers: the majority of both curative and preventive centers are located in urban areas, bonefitting only a few privileged, while most of the poor live in rural areas. In spite of reallocation efforts, health care in rural areas has not significantly improved, neither in amount nor in quality and medical personnel are Insufficient: there are 38,600 Inhabitants per doctor in rural areas, vs. 1,750 (ncluding private doctors) in urban areas; lastl. there ae vast regional imbalances in health expenditure, with the poorer regions usually receiving less than the richer. 5.35. Lower Income households cannot afford expensive curative services, and use dispensaries and health centers extensively. The expenditure for health clearly varies across expenditure classes. According to the LSMS, over 70% of hospital visits and 80% of paramedical treatment were ftee of charge for the poor; these percentages fell to 50% and 38% for the highest expenditure groups. Also, expenditures on medicines by the better off were roughly triple those of the poor. 5.36. Facing a lack of access to quality public facilities, the poor are also lmited by the lack of health insurance coverage, which prevents them from using private facilities for which they would have to pay. Only 17.7% of the population is covered by a health insurance scheme (32.4% in urban areas and 4.8% In the rural areas) and only 2% of the rural poor and 3% of the urban poor ae covered. The poorest, however, are given the so-called 0 cartes dindigence*, Isued by the local authorities. Although, in principle, these certificates are aimed at giving free access to basic services to the poor, too often they fil to meet their objectives.'0 2gI They are ddlnwr by the autodtl bodaes," wit Uttb or no contol of sodconab bae4round. -78 - Education and Literacy 5.37. Edugmign. In Morocco, about 95% of all enrolled students are in public schools, which are under the responsibility of the Ministry of Education. The curriculum for pre-university education includes a nine-year basic education cycle (a six-year primary and three-year intermediary levels), and three years of secondary education. Due to substantial investments in the education sector, the number of schools In Morocco has multiplied by three, and the teaching staff by four, since 1961. Currently 51.6% of schools are in rural areas, yet, large urban-rural disparities are observed. According to the LSMS, only 52.5% of people in rural areas declared having a primary school in their Douar. 5.38. Publig exenditure. The Ministry of Education budget represented 5% of GDP In 1991, a percentage which remained roughly constant during 1986 to 1991. In 1991, 36% of the Ministry recurrent budget was for the first cycle of basic schooling, 47% for the second cycle of basic and secondary schooling, and 17% for higher education. These shares have remained roughly unchanged during the last 10 years, except perhaps for a slight decrease in spending on higher education. However, compared to other countries with similar GNPIcaplta, Morocco spends a lower share on primary education and a much higher share on secondary schooling. But, as in most European countries the large majority of total expenditure on education is incurred by the State (86% in Morocco). Expenditure by households increases with the level of expenditure. This progressivity Is clearly correlated With the rising educational attainment in the richest groups. 5.39. Literacy. The Government has been active in literacy campaigns since Independence. In 1978, the responsibility for all literacy campaigns had been placed in the Ministry of Crafts and Social Affairs (MCSA), where it has since remained. The Ministry of Youth and Sports (MYS) conducts its own literacy campaigns, in coordination with the MCSA, mostdy geared to poor women.21 5.40. The number of beneficiaries has increased from 10,000 in 1982 to 255,000 in 1990 decreasing to 200,000 in 1991 and 1992. Current literacy campaigns give priority to al women, and to follow-up training. The regional distribution of beneficiaries displays disparties with the highest number for the center region (23.5% of the total) where poverty incidence is lowest, the South (19%) and the North-West (18.8%); the lowest share can be found in the very poor South-Central (7.3%) and Oriental (7.8%) regions. The evidence on the cost of literacy campaigns is fragmentary and appears to be extremely low (about OH 26 per beneficiary in 1992). Moreover, there is no evidence on the effectiveness of these programs. 2D1 LItecy program of the MYS are conduct In 243 Youth Cwen haf of them In rural arem, and 355 sWomen's Cnt.r (182 of whih e in rural aess). -79 Social Transfers and the Pooc 5.41. The Moroccan welfare system includes a formal social security system and a variety of social assistance programs. The major programs are reviewed in Annex V. The formal social security system covers salaried workers of the private sector; civil servants of the State, local governments, public enterprises and military personnel. Different schemes exist for private or public employees, offering family allowances, health, and maternity benefits, as well as retirement, invalid and survivor benefits. An estimated one million workers in the private sector and most of the public sector employees ( 800,000 in 1990) are covered. 5.42. The LSMS shows that formal social security coverage is non-existent among the poor and rare among the middle expenditure classes. Indeed, appreciable coverage is only found among the urban upper income groups. Informal social security arrangements exist but are difficult to assess.22 For example, only 13% of surveyed rural household declared participating in a free exchange of labor in agriculture. This accounted for an average of 13 days per participating households, dropping to nil for the eichest.A Other forms of Informal social -security arrangements, such as ad hoc contingent transfers, may, however, be more common. Gros; transfers received (i.e., inter-household transfers as well as transfers received from the State such as pensions and family allowances) represented 8% of per capita expenditures in 1991. This percentage varied little across expenditure groups. Transfers received net of transfers given averaged 6% of mean expenditure per capita, ranging from 11 % for the poorest groups to 5% for the richest. Social Assisance Prggrams 5.43. Many social assistance programs have been created to support to the poorest. They can broadly be distinguished into three categories: (a) the activities of the tEntraide Nationale%; (b) food support and nutrition programs; and (c) employment and training programs. 5.44. The Entraide Nationale is a public establishment under the tutelage of the MCSA. Its mission is to promote social and family welfare. It also supervises privtte charities. It targets needy populations through nutrition assistance, preschool education, vocational training and aid. These activities are provided by some 1,300 organizations 22 The community schedule sked some basic questions about the exisnc of infonnal soci ecurity arrangements The rural community questionneare asked: * Is there a traditional system of help among th cultivators for crop cultivation?', and a similar question for animal husbandry. Of the 316 Dousm surveyed, 05 (30%) awered *Ves- to the first quesdon and 15 (4.8%) answered 'yes to th seoond. Table 34 In Annex I links the infonnmtion for crop cultivation from the Douar schedule wih the living stndards household level data. 331 Whfle the fre exchange of labor may not be alwas primanly motivated by the dsire to help the needy, it Is likely that they do bnefit from It *80. throughout the country, covering the needs of 600,000 beneficiaries. The total budget of the *Entraide Nationale" was DH 302 miNlion in 1990, or 0.7% of total Central Govemment budget expenditure. Revenues come from taxes on hore-betting, festivals and plays, a surtax on animal slaughtering, private donations and a State contribution. 5.45. Food suvpgrt and nutrtion ororams. Food support has been an essentia. component of the social assistance strategy of the Government. Spending on food subsidies, now represents only 0.5% of GOP ( down from 4.5% of GDP In the early 1980.) and is restricted to only three commodities (see Annex V). In the past these subsidies wore nr targeted to the poorest segments of the population and, as seen in Chapter I, it has been estimated that only 16% of the value of the subsidies was actualy captured by the 30% of the population in the lowest income groups. Following the phasirg out of the food price subsidies program, Compensatory Feeding Programs24 were expected to be increased. But this has not happened because they were based mostly on food donations ( from the World Food program and from USAID), which have been reduced. An estimated 2,5 million Moroccans, are currently reached through various forms of compensatory programs. Special feeding formulae are distributed to lactating mothers in the Socio-educational centers mar.dged by the Entraide Nationale under the MCSA. The centers reach about 150,000 mothers and twice as many children. Similarly, distribution of nutritious weaning food to children under five (identified through a public scheme of growth monitoringow as undemourished), is implemented by the Maternal and Child Health program of the Ministry of Public Healt. Health, nutrition and family planning education are also included in this program. 5.46. Food is distributed every school day to about 875,000 children In 5,000 school canteens, managed by the Ministry of Education. The food is contributed by the World Food Program while the Ministry of Education pays personnel, transportation and equipment costs. The majority of the canteens (80% in 1989) are in rural areas. Yet because school enrollment rates in rural areas are so much lower than in urban ones, and because children of poor families are both more likely to reside in rural areas and not to sttend schools, poor children are much less likely to benefit from school canteens th;,n those of the middie class. Thus current school feeding programs may have a limited impact on poverty. 2N Compenatory Food Programr re maned by the Goverment of Morocco through eting istance stuctures (IEntraide Nationale, the Ministr of Health, Social Affairos, Inteor, Agficultr, et.) and supported by USAID and other donors. The trgeting of vulneae groups Is based on a 1986 Woud 8ark Study. Target groups inelude: households hesded by women not employed In the frmnal sector, children ooed 10430 months, pregnant women, low inoome atsn, seaonal wodke. 2W This program, also managed by the Ministry of Health took atopeh meemnts of 320.000 ohidren under 5, that bs about 8% of t targe population, and pcvided log-act VItnmin D Iection to X44,000 newbomr. - 81 - D. WHO 8ENEFITS FROM SOCIAL PROGRAMS? 5.47. This section analyses the incidence of social expenditures among the population, focussing on the benefits that accrue to those in poverty. Except for very specific social assistance programs, public spending in Morocco does not target directly the poor. Targeting for distributional goals is at best indirect: for example, the unemployed or the illiterate are targeted, and many of them are poor. The simplest way to evaluate the benefits from social expenditure is to see whether the poor receive a larger share of the benefits than their share of national per capita expenditure. Thus, if the ratio between the percentage of the per capita benefits received by those below the poverty line and their share of total expenditure exceeds 100, then the benefits accrue more proportionately to the poor than to the better off. Conversely, if the ratio is less than 100, those in poverty receive less than their share in total expenditure. In the former case public spending improves the redistribution of income, while inequality is worsened in the iatter. We call this ratio, the "inequality ratio" for each type of activity. 5.48. The information that summarizes the distribution of benefits deriving from public spending can be summarized by a concentration curve." From this curve, a coefficient of inequality can be calculated. The coefficient varies between - 1 and + 1: negative values indicate that the benefits of tha spending in a particular program are skewed towards the poor; similarly, pesitive values indicate that the better off receive a larger than proportional share of the benefits from public expenditure.27 These coefficients allow a comparison of the distributional impact of different public expenditures.28 5.49. Table 5.3 summarizes the information on the distribution of benefits from public expenditure across expenditure classes. It shows the inequality coefficient, the inequality ratio, as defined above, and the percentage of the poor that receive the benefits deriving from 2; The concentration curve is defined as follows. Suppose that those citizens with access to a public service receive the searn benefit (equal to 1) from such access. First, the population is ranked in increasing order by expenditure class i. Each expenditure class contains e percentage Pi of the total population. The percentage of the population in that expenditure class receiving the benefit is denoted ei. The share of the total population in class i receiving the benefit from access to a public service is then B1 - el P. Summing B1 across expenditure classes yields a total benefit B. This is used to provide a normalized measure of benefits b - (B, * 100) B where bi = percentage of total benefit accruing to the population in class i. 2Z The inequality coefficient is similar to the Gini coefficient However, it can take negative values, when the concentration curve lies above the 45 degree diagonal line, indicating equal shares of the tote! benefits. A negative coefficient indicates that the program is strongly pro poor. Conversely, a positive coefficient indicates that the program favors the better off. 2l The rationale for this comparison is most direct if the social expenditures are fundse' by an egolitarian tax. Then the programs with poverty ratios greater than 100 provide more services to the lowest expenditure groups then they could have achieved had the tax not been collected and spent on these programs. If the method for financing the programs is progressive, this provides a still further bias in favor of those in poverty. -82- BOX V.1 W~~~~~~~~~~~~~~~~~~~~~~ .... 7- selected categories of publie spending, on education, literacy, prertal ecars, electricy, piped water and garbage collection. Table 5.3 shows three main eharacteeisties of public spendin in Moroco: fr, all the inequality coeffieients are positive, indiwating that the better off receive proportionately more of public expenditure. However, the degree of the bias differs across programs, with spending in peimary edueation and literacy being the less unequally distributed and spending in higher education having a strong bias towards the rich; 12o%nd, the inequality ratios indicate that those below the poverty line do not benefit equally from public expenditure. Primary education, literacy and pre-natal care beneft the poor proportionately more, relative to their share of expenditures, while the opposite is true for the rest of public spending: t2iEd in all ctses the majority of those below the poverty line have not yet benefftted from public services. - 83- 'Table 5-: DISTRIBUTION OF BENEFITS Program Inequality Inequality Ratio % of poor receiving Coefficient service Primary .12 161.6 46 Secondary 1 .26 88.3 20 Secondary 2 .33 63.9 8 Superior .61 18.6 1 Uteracy .17 146.5 30 Male .13 165.1 42 Female .23 124.4 16 Prenatal Health Care .26 110.5 18 Electricity .29 87.2 16 Piped Water .49 16.2 10 Garbage Collection .30 88.3 17 ,Source: Staff estimates. 5.50. Incidence of benefits in orimary education. A more detailed analysis of who benefits from public spending in primary education is shown in Table 5.4. The information to construct a measure of the subsidies has been taken from a recent study on the educational system in Morocco.29 We follow common methodology3° in assuming that government expenditure is a proxy for aggregate benefits received. The second column of Table 5.4 shows the govemment subsidy per pupil enrolled in primary schools across expenditure classes. It indicates that there is no systematic variation of subsidies across expenditure classes, so that the benefits accruing to poor students are roughly equivalent to 21 Jean-Pierre Jarousee and Alain Mingst 'Evaluation Globale de Ia Politique Educative Maroceine', mimeo 1992. The study shows that there are inportant differences in the cost per student at vaious educational levels. Thus, at the first cycble o"basic schooling, the DH 1490 annual coat per student represents 0.17% of GNP per capita. The average unit cost at the secondary level is three times larger; In contrast, higher educaton unit costs are only 22% higher than those at the secondary level. This reflects both the high unit costs at the secondary lovel and the rapid expansion of university enrollnents under budgetary constraints. The curnulative public spending for each level of education is as follows: 00.3% of students (those that have attained only the first cycle of basic schooling) receive only 9% of public educational funds whereas the top 9% of students (those with higher education) will have, at the end of their studies, siphoned off 36% of public educational spending. If Dorminique Van De Wall. 'The distribution of the benefits from social ervices in Indonesia, 1978a87', World Bank mirneo, 1992. - 84 - those of the rich. However, as shown in the third column, in spite of the fact that poor households have a larger number of children than the better-off, the total subsidy to primary education is fouir times larger for the former than the latter. Table 4: SUBSIDIES IN PRIMARY EDUCATION (DHIyear) Expenditure Class Subsidy per pupil Total Subsidy' 1 144.8 27816 2 112.7 23135 3 180.5 63646 4 148.8 44064 5 157.6 47527 6 147.8 54516 7 160.7 62603 8 162.0 88764 9 144.9 102175 10 142.3 104058 Total Subsidy = enrollment rate & subsidy per pupil. Sourc: Staff esfimate. E. CONCLUSIO 5.51. This chaptet has shown that in spite of the improvements dohieved In recent years, access to essential social and economic services is severely restricted in rural areas and among the poorest groups. The analysis of public spending indicates many disparities in the allocation of resources in favor of the urban areas and the better off. And that most of the benefits from public expenditure acrrue to the better-off. Thus, there is a strong case for spending more on programs that benefit the poor, improving the targeting efficiency of existing programs that are already directed at the vulnerable and moving towards a policy of price discrimination between different users. Health. Population and N:uarition Policies 5.52. The analysis of the previous sections suggests that nutrition and health related indicators are poor, especially for the less well-off; health services are inequitably distributed; and the rural population (particularly in the North-Central, Oriental, and Tensift regions) and the urban poor are deprived from adequate provision of health services. The low level of utilization of services, (together with the declining hospital occupancy rate) indicate the need to increase both the availability and the quality of services; it also suggests the need to re- establish the credibility of the health system in the public's perception. The priorities of the Govemment need to be directed to four areas: - 85 - (a) Decreasing infant and maternal mgrtality. This would require the strengthening of the Maternal and Child Health programs of the Ministries of Health and Social Affairs, especially in rural areas. (b) Redirecting health care services to primary health care and emphasizing preventive and simple curative interventions such as immunization, oral re- hydration therapy, and basic health education. The strategic objective would be to improve availability and access to health services so that all the population in urban as well as rural areas lives within an hour of travel time from a health facility. This would imply, in the medium-term, doubling and better distributing health facilities in rural areas, and increasing them by as much as 10% in urban areas. In the short term priority should be given to the reinforcement of the health outreach strategy for the rural areas with well- trained, equipped, and supplied multi-purpose teams visiting these areas regularly. The objective would be not only to provide the much needed array of services, but also the advice, education, and sensitization needed for oetter hygiene and nutritional habits. Besides reducing the physical distance between populations and health facilities, such a policy would also reduce the social distance by involving the local population in the delivery of these services. (c) Improving the diffusion of family planning methods. With a carefully designed and implemented strategy, the proportion of women using contraceptives could increase to 50% (from a current level of 43.5%) within the next five years. The out-,ach initiative suggested above could help promote greater use of reversible contraceptive methods among the key target groups of women under 30. In addition, improvements in female literacy and education will also be important in increasing the acceptance of family planning activities. (d) Reducing the prevalence of child malnutrition. The deterioraticn In the nutritional status of children that results from comparing both the 1987 and 1992 Ministry of Health surveys and the 1984-85 and 1990-91 consumption surveys is worrying. It may be linked to a decline in breast feeding; it may also be linked to the recent reduction in food donations and external aid, while compensatory food programs have neither increased nor have been targeted to those that may have lost essential nutritional suppo:t. Thus, it would be advisable to strengthen the existing nutrition programs and to develop a strategy to provide required food supplements to the children at risk and better nutrition education. 5.53. The need to increase and improve health services calls for an Increase in total public health spending, recognizing that the share of the Ministry of health in total Government expenditure has historically been lower than in comparator countries; a reallocation of Govemment expenditure from curative, hospital care to preventive and base care, and from urban to rural areas; this reallocation of resources need to be accompanied by efforts to use available resources more efficiently, through improvement of management procedures, especially in the large, urban located hospitals; and by a revision of the legal and regulatory framework that define the activities of the private sector. The strategic objective -86 - would be to provide public health services to the disadvantaged while the better-off may turn to privately provided services; and a gost recove strategy; this implies that only the poor woud have access to free services; while the rest of the population may be required to contribute to the health expenditure. To this aim the Government has already developed a scheme of compulsory health insurance, which should become operational in 1994. Education and Literacy 5.54. The major education challenge facing Morocco is the achievement of universal primary education. A medium-term objective would be to attain a 75% net enrollment rate by the end of the decade: this would entail a 50% increase in primary school children and recurrent budget expenditures. In pursuing this objective, attention should be given to reducing the observed large urban-rural and gender disparities, as universalization of education requires the enro3lment and retention of previously under-represented groups. This would require that additional resources be channeled through the primary education system; this implies an increase over time In the budget share at ptimary education, relative to secondary and higher education, and that alternative sources of financing be found for the latter. 5.55. Indeed, reaching under-represented groups may be relatively costly. First, efforts to enroll the remote rural population and girls would include building school facilities in remote areas. Second, given existing cultural obstacles, attracting girls would require the careful design of school facilities (such as fencing walls, toilets), the hiring of (preferably local) women teachers, the organization of appropriate school schedule, or again the provision of extra services such as child care or school meals. To further increase the social demand for schooling among these target groups, particularly girls, additional incentive schemes may need to be considered. 5.56. A rough estimate of the cost of putting into primary school the 1,5 million aligible children would be 2,2 billion DH (4.8% of total Govemment expenditure in 1991). A more limited program, possibly targeted to the rural areas, would require 750 million DH (although additional resources would also be necessary for constructing new schools in these areas). To help alleviate the financial burden on the govemment budget, a greater involvement of the private sector should be envisaged so that scarce public resources can be allocated to the promotion of enrollment of the disadvantaged. In addition, public resources need to be reallocated from secondary and higher education to primary education; additional resources for secondary and higher education should be tapped from charging user fees. The fact that public education at the higher level is provided at no direct charge to the recipient, leads to excess demand for educational services and a rationing that tends to exclude the poor. This rationing has a magnified effect on the poor because only those who receive one level of education are eligible for participation in the nest level. The poor tend not to exercise this option, and thus benefit less from public expenditure on education. - 87 - 5.57. After universal primary enrollment, the second objective of the Government should be the expansion of literacy. A recent study3l showed a positive correlation of maternal literacy with the capacity to acknowledge illness and seeking medical consultations; it also showed that significant private economic gains accrue to those that become literate. These findings confirm already available intemational evidence on the benefits of literacy and provide further support for increasing literacy programs. Thus, the current functional literacy and training programs undertaken by the MCSA and MYS could be strengthened, and, after careful review oW their effectiveness, adequately funded. Basic infrastructure 5.58. Basic services such as water supply, electricity and waste disposal have direct and indirect effects not only on the well being of the population, but also on its productivity. Targeting infrastructure services to the poor is not feasible. However, extending them to regions in which poverty is prevalent, provides a reasonably efficient method for reaching the poor. Unfortunately these are the regions where population density is less, implying a higher cost per head for the provision of services. For example, approximately 12 million people do not have electricity in rural areas. Current estimates of electricity usage and prices would indicate a hypothetical cost of extending electricity in a village of 1000 households (excluding the Initial cost of putting in place capital equipment) of 3.1 million DH per year. 5.59. Lack oG access to water is even more dramatic. Only 14% of the rural population does have access to piped water, of which only 6% having a connection to the house and the remainit.j using public fountains. This situation is the result of public investment policies that, even in very recent years, have neglected rural areas.' Because of its direct effects on the health status of the population, especially of children, and of its indirect effects on schooling, especially of girls, the increase in access to potable water must be a most important priority in -he next decade. The Govemment has indeed prepared a Plan to increase the percentage of the rural population with potable water from the current 14% to 56% by the year 2000 and 80% by 2010. The estimated cost would be DH 13.5 billion, or OH 675 million per year. The execution of this Plan should be the first priority in any future strategy of social development. 5.60. Because of the high costs involved In extending basic infrastructure services, effective cost recovery schemes need to be applied to provide increased services for the poor. However, as many poor may be able to pay only very low charges, user fees should be highly IV Levy V., Spratt J. and Leboucher N., 'Incidence, pattems of change and correlates of illiteracy in Morocco 1991, World Bank, 1993, mimeo. I For example, investments made by the relevant public agencies (ONEP and Rdgi.e) and by local governments to increase access to potsble water in urban areas were about twice thos in rural areas during 1978S80. However, they were 40 times larger during the period 1 985-1 990 (OH 16936 millions in urban areas versus OH 400 million in rural areas). See 'Etudes de l'impact des ddpenses publiques sociales sur las mdnages i revenu modesto: 'Eau Potable', Minist6re des finances, Morouco; March 1993, Preliminary results. - 88 - progressive, especially for services (like electricity and water) in which it is easy to identify the people who benefit from them.33 ,Soel, Tranfers 5.61. Although there is a lack of formal social security arrangements for the poor, the Govemment of Morocco operates a well-established and extensive set of programs that aim at reaching the needy (for example through the activities of the "Entraide Nationale'). These programs are also supported by international aid and private charity. The reliaw.ce on spurious sources of funds implies a risk of under-funding in times of economic hardship, when the needy are most vulnerable. Thus, it would be advisable to earmark budget resources for reachinr a well targeted population, which is both poor and vulnerable (the elderly, the handicapped, the orphans, etc.). The presence of strong complementarities in the needs of the poor points to a centralization of many existing programs, so that a basic package can be offered-comprising health monitoring, food assistance, nutrition, education, etc. The centralization of social programs would also decrease the administrative oost of delivering services. / In Morocco, water tariffs for household consumers are progressive in terms of water usage and differ for equal usage across municipalities. Industrial consumption of water however, is charged below the average tauff for domestic consumption and below the long run marginal cost of producing and distributing water. Eletricity tariffs are only mildly progressive in terms of usage and they are roughly in line with the economic cost of generation, transmission and distribution of electricity.