Morocco’s Success in the Aerospace Industry

 The Wall Street Journal ran a very interesting piece today on  Morocco’s success in developing its aerospace industry.

The story should inspire and give hope to many developing countries. It proves that advanced manufacturing is not totally out of the realm of possibilities for these countries. Manufacturing is generally not a big part of the economies of many developing countries – that tend to rely on agriculture, extraction of mineral resources, or light and basic manufacturing. Morocco is not the first developing country to foray into a sophisticated industry such as commercial aeronautics. The WSJ mentions, as prior examples, Brazil, Indonesia, Mexico and South Africa. Brazil is probably the most successful example, with its aircraft maker Embraer.

This story, as the story of Intel’s investment in Costa Rica in 1998, also shows what a powerful ‘game-changer’ foreign direct investment (FDI) can be. In the case of Morocco, there was clearly a strong resolve and policy drive by the Government, but it is FDI that helped achieve what probably appeared to many observers as a very ambitious, not to say utopic, objective a decade ago, bringing capital, technology, skills-building and market access. Over the past 10 years the country has managed to attract significant investments from aerospace leaders such as Boeing, Safran, United Technologies and Bombardier.

What is also interesting in the case of Morocco is that the success story started with a relatively modest operation. Around 1999-2001, Royal Air Maroc, the national carrier, managed to convince Boeing (a long-time supplier of RAM) to partner with it and a French electrical wiring company to start a small project preparing cables for Boeing 737 airplanes. The level of quality achieved by workers surprised everyone and…the rest is history.

The sector now employs almost 10,000 workers who earn about 15% more than the average monthly wage (which remains relatively low for Western standards at US$320/month). As the WSJ correctly points out, creating jobs is a strategic imperative for the stability of the country, in the aftermath of the Arab Spring. Morocco remains deeply affected by high unemployment, particularly in the young segments of the population.

In my line of work, I am well aware that there is much more to say in order to explain why Morocco succeded and why replicating this success story will be very difficult for many other developing economies, but as a development professional working on private sector development, I found the piece very interesting and encouraging and wanted to share it with you.

Source: Morocco’s Aviation Industry Takes Off, by Daniel Michaels, The Wall Street Journal, published in the U.S edition on 21 March 2012. Link to the WSJ article:

Xavier Forneris.

The Base of the Pyramid: An Overview of the Concept

By Xavier Forneris.

Yesterday, I wrote on a competition co-sponsored by IFC and the G20 on doing business at the “Base of the Pyramid”, or BoP. Some of you may wonder what is the base of the pyramid and if my eclecticism has now led me into Egyptian archeology.

The Base of the Pyramid –some call it the “Bottom of the Pyramid” but I prefer the term ‘base’-, or BoP, is simply used to describe the very large segment of the population who lives (or survives) on a low income. If we organize the world’s population according to income levels, it takes a pyramid shape, with few people at the top of the pyramid (mostly living in developed economies) and a majority of people at its base (mostly living in developing economies), as represented here:

There is no consensus on how many people live at the BoP because economists, governments and development institutions define poverty in different ways. Depending on whether one places (rather arbitrarily) the poverty line below $1 a day, $2 a day, or $10 a day, the BoP will include more or fewer people.

A 2005 World Resources Institute (WRI)/International Finance Corporation (IFC) study estimated the BoP population at about 4 billion people by defining the BOP population segment as those with annual incomes up to $3000 per capita per year (2002 PPP).

But whether it’s 3, 4 or 5 billion people, everyone agrees that the BoP hosts a very large population, mostly residing in Africa, Asia, Eastern Europe and Latin America.

The term is not new. According to wikipedia the term was used by President Franklin Roosevelt in a 1932 radio address during which he stated:

These unhappy times call for the building of plans that rest upon the forgotten, the unorganized but the indispensable units of economic power…that build from the bottom up and not from the top down, that put their faith once more in the forgotten man at the bottom of the economic pyramid.

The term resurfaced at the end of the 1990s when two professors of management and corporate strategy, the late C.K. Prahalad (Michigan’s Ross School of Business) and Stuart Hart (then with the University of North Carolina’s Kenan-Flagler Business School) published what is viewed as the first paper on the BoP: ”Strategies for the Bottom of the Pyramid: Creating Sustainable Development” (1999). Prahalad (who is known for his HBR paper on “The Core Competence of the Corporation” co-authored with Gary Hamel) and Hart are often considered the “fathers” of the BoP theory and essentially wrote about the BoP as a new strategy for multinational companies.

Before them, many development economists focused on the same socio-economic segment, without using the term BoP. For instance, when Hernando de Soto, the famous Peruvian economist (not to be confused with the Spanish conquistador!), wrote about “dead capital”, i.e., the $10 trillion in informal assets that are in the hands of the world’s poor (e.g., land without legal property titles) but cannot be mobilized to borrow money from financial institutions, he was concerned with the lowest echelon of the global socio-economic pyramid. And when Muhammad Yunus pioneered micro-credit with Grameen Bank in Bangladesh around 1983, what was he trying to do if not expand access to credit for people at the base of the pyramid?

As a concept, the BoP has gained traction with both the business and development communities over the past decade.

Multinational corporations which for a long time have been focusing on the middle and the top of the pyramid, i.e., people who could afford buying their products and services, are seeking new markets in a context of global economic crisis and this quest led them to pay attention to the BoP. What is interesting is that they are not only looking at the BoP as a source of new customers but also as a source of supply, partnership, and innovation. This is part of the notion of “inclusive business” (IB) which I will address in a forthcoming post.

And development economists and institutions whose primary concern is poverty alleviation are also very interested in the BoP approach for they have been looking for ways to offer targeted support to those at the base of the pyramid, the ‘poorest of the poor’.

The BoP as a framework thus offers a unique opportunity for these two worlds (the private sector, on the one hand, and development institutions, on the other) to collaborate and search for solutions to their respective challenges.

When I was introduced to the BoP concept in 2009 during a seminar given to our MBA class at UNC by prof. Ted London (University of Michigan’s Ross Business School), I was struck by how he summarized the key challenge for he private sector and development instiutions in one sentence:

How can business motivations for growth and profits be aligned with the development’s community’s effort to alleviate poverty?

I let you reflect on this question. In addition to further explaining the concept of Inclusive Business, I’ll prepare a list of ‘must-reads’ for those of you who are interested in further exploring the concept of BoP.


Chindia : The Dragon vs. the Tiger, or the rise of two giants

By Xavier Forneris.

Among the “BRICS” – a group of leading emerging economies comprised of Brazil, Russia, India, China, and South Africa – two countries stand out for their large population (of well over 1 billion each), rising economic clout and rapid growth: India and China, or Chindia, as the pair is now known. An Indian politician, Jairam Ramesh, Minister of State for Commerce, Government of India, claims to have coined the term Chindia in 2005 to evoke the simultaneous rise of China and India and their fierce competition for global economic dominance. Yet, the countries could not be more different. Even their focus seems to be placed on different objectives. While India’s energy appears concentrated on outpacing China’s rate of growth, China seems intent on capturing the title of “top global economic power” from the U.S.

At this stage, I have to put a few numbers on the table, just give a sense of the relative size of Chindia’s economies to the rest of the world. Please don’t sue me over these numbers. Depending on the source and method used to compute GDP, the numbers and relative positions in the ranking can vary. This particular dataset is from the World Factbook.

We’re a culture fascinated with ranking and benchmarking, so let me indulge by giving you the “Top 10”, ie., the 10 largest economies in 2011 (by Purchasing Power Parity – or PPP- GDP): 

Rank Country Population GDP/PPP
1 United States  312 million $14.66 trillion
2 China   1.34 billion $10.09 trillion
3 Japan  128 million $  4.31 trillion
4 India    1.21 billion $  4.06 trillion
5 Germany    82 million $  2.94 trillion
6 Russia  143 million $  2.22 trillion
7 U.K.    62 million $  2.173 trillion
8 Brazil  192 million $  2.172 trillion
9 France    66 million $  2.145 trillion
10 Italy    61 million

$  1.774 trillion

We can see that China’s economy is not very far behind the US, and that India’s economy is already larger than Germany’s or Russia’s, but still less than half the size of China’s.

Several economic projections I saw suggest that India and China are likely to become the two largest economies by 2050 and that China should seize the top spot (overpassing the US) around 2017-2020.

I thought it would be interesting to compare the two giant countries, India and China, in an effort to determine whether one is best positioned than the other for future global leadership. But I will not compare their growth rates. Like Amartya Sen, the Indian Nobel Prize in Economics, I find the debate on which of the two countries has the higher growth rate a little silly. Both countries still face many challenges incluing access to education and health, infrastructure, and inequality.


The size of the domestic market and the relatively low-cost labor  are well known commonalities. A more strategic one is their thirst for resources. Both India and China will require enormous resources to fuel their growth and feed their enormous population. The demand for natural resources (such as as oil, gas, coal, copper, bauxite, aluminum, iron and steel) but also for industrial equipment and food products will be here for a long time; and they also create opportunities for developing countries that produce these resources. Africa, for instance, has become a more important source of natural resources for China. As the global resource pool is finite, this thirst from resources will inevitably create tensions with Europe and the U.S. A second less discussed commonality is the emergence of Chinese and Indian MNC’s as global players and even global leaders. From FDI-importing countries (China more than India), the two nations have become sources of FDI.


India is a democracy, perhaps not a Jeffersonian one, but a democracy nevertheless. China is generally considered as less advanced and open politically than India. There are, however, clear advantages to the discipline that China can impose to its population and bureaucracy. Implementing deep policy reforms or massive infrastructure projects is easier in an autocratic regime than in a Western-style democracy where all sorts of resistance may impede the process. But it would be a mistake to think that everything gets decided in Beijing by a handful of leaders.There is in China an increasing involvement and participation of local levels of government in decision-making, which explain why the Chinese political system is often described as one of “pluralism within a single party system”.

The economic models are also very different. India’s model relies on the private enterprise whereas China practices a form of “State Capitalism”, with strong government backing of large state-owned enterprises (SOEs). At some point in their development, companies such as Haier, Lenovo, China Development Bank, China Mobil, Petro China, among others have all benefited from this strong government backing. Even a fully private company such as the telecom infrastructure giant Huawei – which I had the opportunity to visit in Shenzhen – seems to have benefited greatly from its close ties to the Chinese government. And its ownership structure remains quite opaque.

China has significantly better Infrastructure and logistics than India and has made a very smart use of the “Special Economic Zones” (SEZ) to develop certain provinces or districts and test economic reforms before extending them to the entire nation. Shenzen is one example of such utilization of SEZ status.

China’s economic growth is largely driven by FDI, exports, and manufacturing; whereas India’s growth seems driven by domestic consumption, capital markets, and IT/Services. I often hear that “if China is the world’s workshop; India is its back-office”. As convenient as this statement is, it is a bit of an over-simplification. The services sector is rapidly developing in China and, conversely, India’s economy can not be reduced to outsourcing.

Demography, on the other hand, is an area where India seems to have a significant advantage over China. China’s population is rapidly aging. This could cause its impressive rate of economic growth to reach a plateau, as has happened in Japan and several European nations. Although China’s fertility rate has been below replacement level for almost 20 years the “One Child policy” is still in place. But this might be changing; I was told that the Shanghai province would have renounced this policy and would already be encouraging couples to have more than one child. Yet, some demographic studies suggest that China’s work force will peak in absolute terms in only 4 years before dropping. In contrast India is a much younger nation. According to demographic studies cited in a JP Morgan Chase study (2007), 58% of the Indian population will be under 29 years old by 2015 vs. only 33-35% in China. This is a significant difference and, again, this one seems to favour India.

Finally, the integration of local firms into the “global business world” should also occur very differently. It is reasonable to assume that India’s businesses will be more easily integrated in the global economy, through large acquisitions of eminent “Western” companies with the technology, the manufacturing capability, and the other assets that Indian companies need. Suffice to cite the acquisition of Arcelor by Mittal Steel or of Corus Steel by the Tata group, among many other large-scale acquisitions of Western firms by Indian companies. In contrast, Chinese companies are facing more obstacles in in their attemps to acquire foreign companies, particularly in the U.S and when technology or intellectual property rights are involved. Several attempted Chinese acquisitions failed because of strong political resistance. Two examples are Haier’s attempt over Maytag and CNOOC’s plan to acquire Unocal. This last argument is not without flaws: a case in point being Lenovo’s success in acquiring IBM’s PC division. But a commonly held view among many observers of Asian business is that growth for Chinese companies will be more organic and will come less from international acquisitions than would be the case for Indian companies.


Given the two countries’ impressive growth and enormous markets, there is little doubt in my view that Chindia will play a central, expanding and perhaps or probably dominating role in the global economy. But I will not go as far as some who declare that “The West is finished”, a form of “neo-Spenglerism” thinking. And I also think that the focus on growth rates in the two countries is excessive and probably misplaced. Economic history shows that growth can not last for ever and, as the adage goes: “The bigger the booms; the more spectacular the bubbles and devastating the busts”. Also, both countries would be wise to pay more attention to the quality of the growth, how to reduce the inequality gap, and how to improve access to education and health, transparency, and the environment. All these things are needed for sustainable growth. 

Read More:

Amartya Sen’s sentiment about the excessive focus on growth rate was well summarized in a recent FT article: Is India growing faster than China? Financial Times, April 18, 2011. See:

Jairam Ramesh, “Making Sense of Chindia: Reflections on China and India” (India Research Press, New Delhi; May 2005)

On Spengler:

Insider Trading: A Legal, Ethical, or Economic Issue?

Insider trading, to simplify, is the illegal use of undisclosed material information by insiders for profit (s0me insider transactions are perfectly legal). Over the past year, several high profile cases of insider trading have come to light in the U.S., to the point that I felt I was tele-transported back to the 1980s and the era of Michael Milken, Dennis Levine, Martin Siegel and Ivan Boesky (the “Rat Pack”). Since last summer, for instance, I have been following with fascination the case of Raj Rajaratnam of the Galleon hedge fund.

When a story of insider trading like this emerges, the media largely focus on the legal and moral issues entailed. It’s illegal, it’s unethical. This focus is understandable but insider trading is at least as much, and perhaps even more, an economic issue as a legal and moral one.

How can this be an economic issue? I apologize in advance for this is going to seem a little dry and theoretical. I promise not to have too many posts in that style. Insider trading has to do with the branch of economics called microeconomics. Let me explain. The market is supposed to be a place where firms and consumers meet to trade goods and services with no governmental intervention or interference. This is an ideal. In practice, however, markets do not always lead to socially efficient outcomes and governments have to intervene to correct certain “market failures”, a term that will inflict great pain to true-blood free-marketers for whom “Markets can not fail. There are only Government failures”. But markets do fail. Often. And to correct these market failures, Governments usually intervene through an instrument called “policy” and these policies will often impact managerial and/or consumer decisions, the type of decisions that is the domain of microeconomics.

As well explained by Michael Baye in his excellent book on Managerial Economics there are 4 reasons why free markets fail to provide the socially efficient quantities of goods:

  • Market Power
  • Externalities
  • Public Goods
  • Incomplete Information

Insider trading corresponds to the fourth type of market failure: incomplete information. A key ingredient of market efficiency is the need for participants in the market place to have reliable information about price, quantity, quality, risks, etc. No one should expect to have perfect information, but information should be “reasonably reliable”. When participants have incomplete information about factors critical to any decision making, things can go wrong. Baye provides several examples where the Government has to step in to provide information to consumers (e.g., about the ingredients in some foods, the dangers of tobacco smoking or of certain drugs). Governments have to do this because suppliers “left to their own devices”  may not spontaneously provide information to consumers, particularly when such information could curtail demand for their products, and therefore hurt sales.

Insider trading is not so much a question of incomplete information as it is one of asymmetric information. For Baye, asymmetric information is “one of the more severe causes of market failure” (p. 527) and there is asymmetric information when some market participants have better information than others. Legislation against insider trading in the stock market is one of the best and classic illustrations of government intervention aimed at alleviating the market failure caused by asymmetric information. For economists the problem with insider trading is not primarily a legal or moral one. When one person (the insider) has “privileged” information about a company’s stock, its performance, its products or services, or a forthcoming innovation that will increase the enterprise value or stock value, it can “destroy the market by inducing others to stay out of it” (p. 527). The very existence of the market is at risk.

Why? The reasoning is that “outsiders” will refuse to participate in a market that is dominated by “insiders” who will only sell when they know that prices are about to fall and will only buy when they know prices are about to rise. This concern is clearly an economic one, not a legal or ethical one. Economics is concerned with the efficient functioning of markets and this is why it is concerned with insider trading. If insider trading has the potential to make the financial market less efficient or even to destroy it, economists must have reached the conclusion that this risk is sufficient ground to justify an exception to the free market principle, a deviation from this ideal but elusive objective, and to allow – indeed urge- that Governments intervene, through the adoption of a special legislation and its severe enforcement (as legislation that is not enforced is useless).

This brings us back to the Law. The risks posed to financial markets by the practice of insider trading explain why many countries, especially those with large financial markets, have enacted increasingly comprehensive and severe legislation to prohibit insider trading and why they usually enforce that legislation quite strictly.

In the U.S., the rules against insider trading are quite old: they were first introduced by the Securities and Exchange Act of 1933, a federal piece of legislation enacted as a result of the famous crash of 1929, amended in 1934, then again in 1990 and, more recently, by the Sarbanes-Oxley Act of 2007. This is the legislative “arsenal” that Mr Rajaratnam has been facing in Manhattan courts, like so many before him. Similar rules exist in most OECD countries and emerging economies with more recently established stock markets are also following the same path. For example, Brazil enacted its Law on insider trading in 2001, but the first convictions only occured in February 2011, a full 10 years later:

The big challenge in insider trading cases, in any country, is enforcement, gathering evidence and securing convictions.


Michael R. Baye (2010). Managerial Economics and Business Strategy. 7th edition. Boston: Mc Graw Hill Irwin. Chapter 14 (A Manager’s Guide to Government in the Marketplace), p. 507-537