Consumer electronics sees strong growth in 2011
In 2011, consumer electronics saw strong retail value sales growth. Computers and peripherals, which remained the largest category in consumer electronics in 2011, recorded strong double-digit retail value sales growth. However, consumer electronics saw a significant slowdown in retail volume sales growth compared to 2010. The increasing purchasing power of consumers was the main driver of the growth seen by consumer electronics, with demand for higher quality products increasing. However, rising penetration resulted in a slowdown in retail volume sales growth. Computers and peripherals saw the most dynamic retail volume sales growth of any category in consumer electronics in Morocco in 2011.
The election of a new government holds promise
The election of a new social government is expected to be a source of profound change in Morocco. Previous governments focused on giving financial advantages to both domestic and foreign companies, in an attempt to boost the country’s economy and increase foreign direct investment. The new government that was elected in 2011 has a strong Islamic affiliation and has promised to tackle corruption and to introduce many social programmes. By the end of 2011, it had already proposed many bills to boost the income of the country’s lower class, thereby increasing growth expectations for the long term.
Computers sees strong growth driven by government support
Computers saw strong performance in Morocco in 2011, with the continuation of grants by the government and banks to help students gain access to personal computers at a low price. Moreover, many Moroccan companies switched to the use of laptops from desktops, in order to provide greater flexibility to their employees, who started to travel more.
More local players enter consumer electronics
As many new companies and retailers entered consumer electronics in Morocco in 2011, most of the international companies present saw a small loss of retail value sales share, while local manufacturers, which remained focused on low cost products, stood strong against these new entrants. One of the most anticipated events of 2011, namely the introduction of the first 100% Moroccan smartphone Saphir, was delayed until the end of 2012. Sales of consumer electronics through informal channels saw a decline in 2011, as consumers turned to formal retailers for greater security and the guarantee of a durable product.
Consumer electronics expected to see weak performance during forecast period
Consumer electronics in Morocco is expected to witness weak growth over the forecast period, with retail volume sales stagnating and retail value sales declining. Nevertheless, tablets is expected to see the most dynamic retail volume and value sales growth of any subcategory in consumer electronics over the forecast period.
Election of a social government
The recent election of the Islamic party PJD came as a surprise to many and fears existed that this development would negatively impact Morocco’s social, economic and judiciary development. There were many rumours about the decisions that the new government would take, notably that the government was going to forbid alcohol in Morocco.
However, these rumours quickly dissipated, as the new government took concrete action regarding the measures it would implement. The first change introduced was a 25% increase in the monthly minimum salary to reach Dh3,000 over the next two years, even though the minimum salary had already been increased by 10% by the previous government just six months previously.
The PJD is also education-oriented and is expected to offer grants to schools, in an attempt to reduce the illiteracy rate in Morocco and boost the expected average income of the Moroccan population over the long term.
This government will be the main driver of social changes in the country over the coming five years and it is now expected that its main focus will be on raising the purchasing power of the country’s lower-income earners and increasing their quality of life, which is likely to make basic consumer electronics products accessible to this demographic.
As the government was only elected in November 2011, it did not achieve any tangible impact by the end of the review period. However, the PJD’s election to power is proof that the lowest fringes of the population are looking for a return to traditional values in Morocco, including the importance of family.
A recent bill proposed by the newly elected government will result in a 25% increase in minimum salary in the country and this is likely to have a strong direct effect on the performance of consumer electronics in Morocco over the forecast period.
With the election of the new government, the main hope of the low and middle social classes in Morocco is to eradicate corruption in the higher layers of government. Some of them also wish for a return to a less individualistic society, where the disparity in earnings is reduced.
It is difficult to determine whether such ideas will prevail over the longer term. There was an increase in Islamic political popularity in Morocco, a movement of which the elected party was a part. However, they proposed a strongly socialist programme during the election. It is more likely that the actual government has been elected for the quality of its political programmes rather than for its religious tendencies.
However, it appears that the trend toward socialist governments is strong in Morocco and, as such, it is anticipated that a socialist government will be elected in 2015.
The changes implemented by the government are likely to have both a short and long term impact. Firstly, by increasing the minimum salary and helping the country’s lower classes, it is expected that the Moroccan economy will see strong growth over the short term. Meanwhile, other measures taken, such as grants for schools and other social actions, are likely to have a positive impact on the Moroccan economy over the longer term.
The Moroccan black market
The black and grey markets, which have always been very strong in Morocco, attract many consumers, due to offering products at extremely low prices. In the 2000s, the average household income meant that many consumers in the country were unable to afford mid-to-high-end products. Due to these factors, the informal market saw strong development, resulting in the black and grey markets becoming omnipresent in Moroccan cities.
The modus operandi of those engaged in the Moroccan black market is relatively simple, in that they import products from China, bribe custom officers, in order to avoid paying taxes and import duties, and then sell these goods in their local stores. Black markets are not hidden and can be easily found by simply asking the local population.
However, the review period saw a strong decline in the usage of the black market for many reasons. First of all, increasing income levels allowed Moroccan consumers to switch their consumption to formal channels. Furthermore, products sold through informal channels are often of very poor quality and offer no warranty. These factors make it likely that an ongoing migration to formal products will be seen in Morocco in the future.
According to a Moroccan saying, if a product is not available in the black market, it is not available in Morocco. While all consumer electronic products can be found in major Moroccan black markets, some specific categories are worse affected by informal trade than others, particularly peripherals, portable media players, monitors, in-car entertainment products, imaging devices and mobiles phone. Computers are seldom sold through informal channels, as consumers are aware of the high risk linked to these products in the case of malfunctioning.
With the Moroccan black market losing appeal to consumers over the review period, formal retailers attracted an increasing number of customers, which served to push up retail volume and value sales. Over the review period, consumers increasingly sought more durable products with a warranty, even at a higher cost, something which only formal retailers could offer.
The main beneficiaries of this trend were formal retailers, which saw an increasing number of people coming to their stores, which boosted their sales and profits. However, another interesting movement started to appear over the review period. Many manufacturers established a presence in the larger Moroccan black markets, selling branded products with warranties. In Morocco, retailing space in the black market remained significantly more expensive than formal retailing space in urban centres in Morocco over the review period.
The consumer migration away from the black market towards formal retail channels is likely to continue apace over the forecast period, as the minimum salary in the country is expected to increase strongly, driven by government policy.
This trend had not gained significant momentum by the end of the review period, as it only started in earnest in 2011. However, it is expected that this trend will continue over the forecast period, before petering out, once a new equilibrium has been reached between formal and informal sales.
Nonetheless, the development of this trend over the forecast period is far from certain, given its dependency on the programmes, policies and reforms put in place by Morocco’s newly elected government. It is possible that the government will be prevented from effectively implementing its action plan. Such a development is likely to prevent the trend of consumers migrating away from informal channels from developing further.
Consumer electronics is expected to see minimal retail volume sales growth of 1% over the forecast period, significantly slower than that seen over the review period. However, it is expected that consumer finance products, such as store cards, will see an increase in demand, which will keep growth steady.
Expansion of Morocco’s middle class
The Arab Spring pushed the previous government and the monarchy to increase the salary of the country’s lower classes, in an attempt to reduce social tension in the country. While, in many North African countries, the middle class saw a boost in income level or reduced expenses, the Moroccan middle class had to satisfy itself with a new constitution.
The income gap in Morocco has always been extreme and the middle class is unusually small for a developing country. However, over the review period, an expansion of the country’s middle class was seen. The middle class is an important demographic for consumer electronics, as it is a segment that requires special attention, in terms of product offering.
The middle class has been defined by the HCP, the national source for statistics, as individuals with income between Dh2,800 and Dh6,763 per month. From the most recently available data, some 28% of the Moroccan population had income above the median level of Dh3,500 per month in 2009, 42% of the population had income in the median, while 30% of the population had income below the median level. According to the same study, which has been criticised for the manner in which it was conducted, despite strict adherence to international standards, the middle class represented some 53% of the Moroccan population in 2009, an increase of 23 percentage points from 2002.
Morocco’s middle class is very technology oriented and its expansion resulted in increased demand for consumer electronics over the review period. Some categories were more impacted by this development than others. For example, mid-end personal computers saw a strong increase in demand over the review period, driven by the expansion of the country’s middle class. Despite this, consumer electronics overall is expected to see minimal retail volume sales growth of 1% over the forecast period, while retail value sales are expected to see a decline of 7%.
However, the country’s middle class is highly dependent on access to consumer finance, as their income level is not sufficient to afford high-end products. As such, it will be in the interest of manufacturers to offer special financing options for middle class consumers, particularly in light of the fact that the odds of such consumers defaulting is relatively low compared to lower class consumers.
It is expected that Morocco’s middle class will see further expansion, driven by increases to the minimum wage in the country. The expansion of the country’s middle class had not reached full momentum by the end of the review period. Over the forecast period, a further strong expansion is anticipated, with the middle class expected to account for 60% of the country’s population in 2016.
Over the short term, the growth of consumer electronics in Morocco will be strongly correlated with the expansion of the country’s middle class. Computers and peripherals, and in-home consumer electronics are the categories that are expected to be most positively affected by the ongoing expansion of the country’s middle class over the forecast period. Despite this, consumer electronics is expected to see a significant decline in both retail volume and value sales over the forecast period.
Growing interest in photography
Interest in photography and modelling appeared in Morocco in 2010 and, by the end of the review period, was an established trend in the country. Many younger consumers looked to pursue careers as professional photographers, while many others developed an interest in photography as a hobby.
This trend is very important, as it offer retailers the opportunity to target a very precise segment of the population with high end products that were not previously known to the Moroccan population. Photographers used to import their equipment from Spain and France through the black market, as Moroccan retail outlets focused on low-to-mid-end products.
This trend mainly impacted cameras in 2011 and permitted it to achieve strong performance, despite growing competition from smartphones. Smartphones, despite having relatively short battery life and offering lower resolution lenses, offered a cheap alternative to cameras for teenagers, who were previously heavy users of cameras in Morocco.
The emergence of this trend was very positive, as it served to significantly boost demand for digital cameras. Moreover, while a few retailers, such as la Fnac, introduced high quality cameras to Morocco over the review period, such outlets remained in the minority and, as such, cameras retained significant potential for further development in the country at the end of the review period.
This trend will be profitable for retailers, as high-end cameras have a very high margin in Morocco.
Most consumers were very pleased with the new availability of these products and, despite being more expensive, many chose to purchase such products in Morocco rather than import them, due to the benefits of having a warranty.
Manufacturers are likely to offer specific products that are designed for professional photographers and advertise them as such. Retailers, on the other hand, are likely to show an interest in opening dedicated stores that focus exclusively on selling high quality cameras, originally designated for professional photographers. Such outlets will satisfy the needs of amateur photographers, whose number is expected to increase further over the coming years. However, in order to take advantage of this trend, retailers will need to act quickly, before other retailers enter.
Over the long term, it is expected that this trend will see a slowdown. While few outlets specialise in professional photography products, the number should be sufficient to satisfy the needs of amateur photographers, as the consumer base is expected to remain small.
This trend is likely to positively impact retailers, as it will enable them to focus on high value and high margin products. However, if competition in high-end cameras intensifies, retailers will have to use discounts and reduce their margins, as they attempt to attract consumers.
Consumer loans fuel demand for computers and in-car entertainment
Consumer finance saw further development in Morocco in 2011, due to growing confidence in the Moroccan economy. However, towards the end of 2011, the possibility of a debt default by Greece increased and such a development is likely to significantly impact Moroccan banks. Nonetheless, an increase was seen in the number of loans issued in 2011, as many institutions worked to make government-backed micro-loans accessible to the lower strata of the population.
This trend is very important in Morocco, given the very low minimum and median salary levels in the country. Greater access to consumer finance is likely to have a significant impact on demand for electronics manufacturers.
Computers and in-car entertainment were the categories most positively affected by the development of consumer loans in Morocco over the review period. The development of loans for used cars in Morocco led many consumers to purchase in-car entertainment products, while computers, due to the cost and importance of such products, saw high demand, driven by the generous financing options offered by retailers.
This positive development was one of the primary reasons behind the very strong increase in demand seen for computers. In 2011, retailers offered 0% financing, at a time when the Central Bank’s key interest rate stood at 3.25%.
In addition to making financing options more appealing, through simplifying application procedures and offering lower interest rates, retailers also offered a wider range of high-end products.
Consumers made strong use of these new options to finance their purchases, a trend that was supported by increasing consumer confidence in 2011.
This trend saw a loss of momentum towards the end of 2011, amid growing concerns of Greece defaulting. At the end of the review period, Moroccan banks continued to hold Greek sovereign bonds, although they were slowly beginning to divest of these at a minimum loss. However, if Greece defaults prior to Moroccan banks divesting of their bonds, it is expected that access to consumer loans will be reduced and a return to more risk adverse selection procedures will be seen.
Despite this, consumer finance in Morocco is likely to see positive development over the forecast period, given recent indications that Germany is willing to help Greece, which served to reassure financial markets.
If Greece defaults, it is likely that Moroccan consumers will have reduced access to credit. Furthermore, given that the Moroccan currency is pegged at 80% to the Euro and 20% to the US dollar, a default by Greece can be expected to result in a depreciation of the Moroccan dirham.
It is expected that the increasing popularity of consumer loans will lead to a reduced incidence of Moroccan consumers purchasing consumer electronics through informal channels, as financing options will enable them to purchase such products at an affordable price through legitimate channels. Home audio and cinema is expected to see relatively weak retail volume sales growth of 2% over the forecast period, while retail value sales are expected to see a decline of 17%.
The adoption of the Basel II guidelines by Morocco and the move to higher capital adequacy ratios for Moroccan banks will decrease the amount available to lend. Moreover, the development of bank stress tests in Morocco might reveal weaknesses in the current banking system, a development that will further reduce the lending capacity of the country’s banks. The ability to have access to credit could only help the consumer electronics industry, particularly with high price-tagged products.
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